Chartbrook Ltd v Persimmon Homes Ltd

Chartbrook Limited, a landowner, entered into an agreement with Persimmon Homes Limited, a housebuilder, for the development of a residential and commercial property in Wandsworth, London. The agreement included a formula for calculating the price to be paid by Persimmon for the land, which comprised a total land value and an additional residential payment (ARP). The dispute centered on the interpretation of the definition of ARP in the agreement. Chartbrook argued that the ARP was to be calculated as 23.4% of the price achieved for each residential unit in excess of the minimum guaranteed residential unit value, less certain costs and incentives. Persimmon argued that the ARP should only be paid if the price achieved for a residential unit exceeded the minimum guaranteed residential unit value, in which case the ARP would be the difference between 23.4% of the achieved price and the minimum guaranteed residential unit value. The House of Lords considered whether the pre-contractual negotiations could be taken into account in interpreting the contract and whether rectification was available if the written agreement did not reflect the parties' prior consensus. The House of Lords held that the pre-contractual negotiations were inadmissible in interpreting the contract, as the rule excluding such evidence was well established and served the interests of economy and predictability in contractual disputes. The House of Lords also held that rectification was available if the written agreement did not reflect the parties' prior consensus, which was to be determined objectively. However, the House of Lords allowed Persimmon's appeal on the ground of the correct construction of the contract, as the agreement did not mean what Chartbrook contended it meant. The House of Lords concluded that the ARP was to be calculated as the difference between 23.4% of the achieved price and the minimum guaranteed residential unit value, if the achieved price exceeded the latter. The House of Lords allowed Persimmon's appeal and dismissed Chartbrook's claim.