Chartbrook Ltd v Persimmon Homes Ltd [2009]

Court: House of Lords

Facts: Chartbrook Ltd engaged Persimmon Homes Ltd to build and sell properties on Chartbrook's land. A payment formula led to a dispute over the amount due, with Persimmon arguing for rectification based on pre-contractual negotiations. The issue centered on the interpretation of the payment formula and whether pre-contractual discussions could influence the contract's meaning.

Issue: Can contractual language be rearranged to achieve a commercially sensible meaning, and are pre-contractual negotiations admissible for interpreting the contract?

Held: The House of Lords upheld Persimmon's interpretation, allowing for rectification under the red ink rule. The court reaffirmed the principle that pre-contractual negotiations are generally inadmissible in contract interpretation but acknowledged that they might be relevant in exceptional circumstances.

Key Judicial Statement: Lord Hoffmann stated, "The red ink rule permits courts to correct contractual language to reflect the parties' intended meaning, while pre-contractual negotiations are generally excluded unless exceptional cases demonstrate their relevance."

💡Leveluplaw: Courts can adjust contractual language to align with a commercially sensible interpretation using the red ink rule. Pre-contractual negotiations are generally inadmissible for interpreting contracts but may be considered in exceptional cases where background context is crucial.