Chartbrook Ltd v Persimmon Homes Ltd and Others: HL 1 Jul 2009

Mutual Knowledge admissible to construe contract

The parties had entered into a development contract in respect of a site in Wandsworth, under which balancing compensation was to be paid. They disagreed as to its calculation. Persimmon sought rectification to reflect the negotiations.
Held: The appeal succeeded. There were difficulties in construing the contract. The contract came to be read after a period of sharp falls in value which were not reflected comfortably in the words used, and the phrase ‘additional residential payment’ made no particular commercial sense. It was necessary for it to be clear first that the language had gone awry, and second what a reasonable bystander would have understood the parties to have meant. Those conditions being satisfied, the appeal was allowed.
Evidence of negotiations can be given to establish that ‘a fact which may be relevant as background was known to the parties’. It was also argued that the course pre-contractual negotiations should be allowed and taken into account in construing the contract. There was however no clear case shown for departing from this exclusionary rule or changing what is now settled practice.
The court should consider ‘what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean.’
Lord Hoffmann noted that prior negotiations might be relevant for purposes other than the drawing of inferences about what the contract means.
As to the cases of East and KPMG, he said: ‘What is clear from these cases is that there is not, so to speak, a limit to the amount of red ink or verbal rearrangement or correction which the court is allowed. All that is required is that it should be clear that something has gone wrong with the language and that it should be clear what a reasonable person would have understood the parties to have meant. In my opinion, both of these requirements are satisfied.’
Lord Hoffmann said: ‘words used as labels are seldom arbitrary’
Lord Hoffmann (obiter) where the document of which rectification is sought is a written contract, the relevant test of intention is purely ‘objective’ – meaning by this what a reasonable observer with knowledge of the background facts and prior communications between the parties would have thought their common intention at the time of contracting to be.


Lord Hope of Craighead, Lord Hoffmann, Lord Rodger of Earlsferry, Lord Walker of Gestingthorpe and Baroness Hale of Richmond


[2009] UKHL 38, Times 02-Jul-2009, [2009] 27 EG 91, [2009] BLR 551, 125 Con LR 1, [2009] 3 WLR 267, [2010] 1 P and CR 9, [2009] Bus LR 1200, [2009] NPC 86, [2009] CILL 2729, [2009] 4 All ER 677, [2009] 1 AC 1101, [2009] WLR (D) 223


Bailii, WLRD, HL


England and Wales


At first instanceChartbrook Ltd v Persimmon Homes Ltd and Another ChD 2-Mar-2007
The claimants had entered into an agreement with the defendant house-builder for the development of a site which the claimants had recently acquired. The structure of the agreement was that the developer would obtain planning permission and, under . .
Appeal fromChartbrook Ltd v Persimmon Homes Ltd CA 12-Mar-2008
Owners of land (Chartbrook) made a contract with a developer (Persimmon) granting Persimmon a licence to develop the land for commercial and residential use. Planning permission was granted and the development was built. The sums payable to . .
CitedA and J Inglis v Buttery and Co CA 1877
Surrounding circumstances are not admissible for any purpose of finding out which words the parties intended to use rather than did use in their contract. Lord Justice Clerk Moncreiff said that in all mercantile contracts ‘whether they be clear and . .
CitedRiver Wear Commissioners v Adamson HL 1877
It was not necessary for there to be an ambiguity in a statutory provision for a court to be allowed to look at the surrounding circumstances.
As to the Golden Rule of interpretation: ‘It is to be borne in mind that the office of the judge is . .
CitedPrenn v Simmonds HL 1971
Backgroun Used to Construe Commercial Contract
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The tenant was the son of the former tenant. The tenancy had originally been in the ownership of his father and his mother. The father died in 1969, when the tenancy not yet a secure tenancy. On the mother’s death, the council argued that the first . .
CitedA and J Inglis v Buttery and Co HL 1878
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CitedPartenreedesei Karen Oltmann v Scarsdale Shipping Co Ltd (The Karen Oltmann) 1976
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CitedAntaios Compania Naviera SA v Salen Rederierna AB (‘the Antaios’) HL 1984
A ship charterer discovered that the bills of lading were incorrect, but delayed withdrawal from the charter for 13 days. They now sought leave to appeal the arbitration award against them.
Held: Though he deprecated extending the use of the . .
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Commercial Sense Used to Interpret Contract
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CitedPink Floyd Music Ltd and Another v EMI Records Ltd CA 14-Dec-2010
The defendant appealed against an order made on the claimant’s assertion that there were due to it substantial underpayments of royalties over many years. The issues were as to the construction of licensing agreements particularly in the context of . .
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Wills for two people hade been drafted with survivorship clauses which provided for others according to the order in which they died, but in the event, having died together it had been impossible to say which died first. The parties disputed the . .
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The court reconsidered the law relating to penalty clauses in contracts. The first appeal, Cavendish Square Holding BV v Talal El Makdessi, raised the issue in relation to two clauses in a substantial commercial contract. The second appeal, . .
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IVA is a special form of contract
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CitedBNY Mellon Corporate Trustee Services Ltd v LBG Capital No 1 Plc and Another SC 16-Jun-2016
The Court was asked whether Lloyds Banking Group was entitled to redeem 3.3 billion pounds of loan notes which would otherwise carry a relatively high rate of interest, namely over 10% per annum. The loan notes are contingent convertible securities . .
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Rectification – Chartbrook not followed
Opportunity for an appellate court to clarify the correct test to apply in deciding whether the written terms of a contract may be rectified because of a common mistake.
Held: The appeal failed. The judge was right to conclude that an . .
CitedLehman Brothers International (Europe) v Exotix Partners Llp ChD 9-Sep-2019
The parties had contracted to trade global depository notes issued by the Peruvian government. Each made mistakes as to their true value, thinking them scraps worth a few thousand dollars, whereas their true value was over $8m. On the defendant . .
CitedBarnardo’s v Buckinghamshire and Others SC 7-Nov-2018
The Court considered the interpretation of a clause in a pension scheme trust deed which defines the phrase ‘Retail Prices Index’ and which allows the trustees of the pension scheme to adopt a ‘replacement’ of the officially published Retail Prices . .
CitedThe Financial Conduct Authority and Others v Arch Insurance (UK) Ltd and Others SC 15-Jan-2021
Many businesses, having been ordered to suspend business during the Covid-19 epidemic, sought to claim under business interruption insurance. The claims were rejected by the insurers and the insurers now appealed from a finding that they had been . .
CitedR and S Pilling (T/A Phoenix Engineering) v UK Insurance Ltd SC 27-Mar-2019
The driver’s car failed its MOT., He took it to private premises to repair. In those repairs, inflammable materials ignited and the fire spread those premises and adjoining third party premises. The premise’ insurers paid the owners of both and . .
CitedLondon Borough of Lambeth v Secretary of State for Housing, Communities and Local Government and Others SC 3-Jul-2019
The second respondent sought a certificate from the Council determining that the lawful use of its store extended to sales of unlimited categories of goods including food. A certificate to that effect was refused by the Council, but granted by a . .
CitedLondon Borough of Lambeth v Secretary of State for Communities and Local Government and Others CA 20-Apr-2018
The parties disputed the validity of the time-limit condition (condition 1), which required the ‘development to which this permission relates’ to be begun within three years.
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CitedLondon Borough of Lambeth v Secretary of State for Housing, Communities and Local Government and Others SC 3-Jul-2019
The second respondent sought a certificate from the Council determining that the lawful use of its store extended to sales of unlimited categories of goods including food. A certificate to that effect was refused by the Council, but granted by a . .
Lists of cited by and citing cases may be incomplete.

Land, Contract, Evidence, Equity

Leading Case

Updated: 16 April 2022; Ref: scu.368925