The House of Lords yesterday handed down judgment in Chartbrook Limited (Respondents) v Persimmon Homes Limited and others (Appellants) and another (Respondent), in what was described as “Hoffman’s parting shot to the judiciary” as he retired from the House.

Lord Hoffman, chairing the panel of Lord Hope, Lord Rodger, Lord Walker and Baroness Hale, delivered the lead judgment, in which he granted Persimmon’s appeal whilst also taking the opportunity eruditely to set out the his thoughts on the case law behind both the admissibility of pre-contractual negotiations and rectification of contracts.

Whilst many, on a superficial reading of the judgment, thought this a watershed for commercial lawyers in the House allowing pre-contractual negotiations to be admissible in matters of construction, a closer analysis shows that Lord Hoffman did no such thing.

When invited to overturn the long established authorities on the admissibility of pre-contractual negotiations on matters of interpretation, so as to allow the House to consider documents clearly supportive of Persimmon, he followed the reasoning of the Court of Appeal and declined to do so:

“Your Lordships are being asked to depart from a rule which has been in existence for many years and several times affirmed by the House. There is power to do so….to be applied only in a small number of cases in which previous decisions of the House were thought to be impeding the proper development of the law or to have led to results which were unjust or contrary to public policy.” I do not think that anyone can be confident that this is true of the exclusionary rule.”

The rule in Prenn v Simmonds – that it is the final document only which records the parties’ consensus – remains.

However, this did not prevent the House from allowing the appeal. In finding for Persimmon on the determinative issue as to how to interpret the contractual clause in question, Lord Hoffman preferred to look at the commercial reality behind the clause in the overall context of the document, as to do otherwise and concentrate on issues of pure syntax would “make no commercial sense”.

Hoffman concluded that it was clear that something had gone wrong in the drafting of the clause by Persimmon’s lawyers, which was not picked up by either side prior to execution. He declared himself satisfied that it was “clear what a reasonable person would have understood the parties to have meant.”

By way of obiter, Hoffman also said that he would in any event have found for Persimmon on the separate issue of rectification, as it was clear to him with sufficient certainty that the parties had, via their outward acts in preliminary negotiations, objectively evidenced a continuing common intention (“were in complete agreement“) which had not been recorded in the agreement signed by the parties. This affirms the approach of Denning LJ in Frederick E Rose (London) Ltd v William H Pim Jnr & Co Ld [1953].

Contract lawyers (and Hammond’s insurers) may breathe a sigh of relief at the decision. However, whilst pre-contractual negotiations are not admissible on issues of interpretation, it remains that they may be used as evidence to show a continuing common intention in support of the rectification of erroneous drafting. 

On appeal from: [2008] EWCA Civ 183

For judgment please download: [2009] UKHL 38

Case comment by: Chris Yates, Olswang

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