Costly Contracts And Problematic Punctuation

When you are trying hard to look after the pennies there can be

few things worse than realising that your contract doesn't mean

quite what you thought it did...and that you might lose out as a

result. A missing definition, a comma in the wrong place or an

extra zero on an already high figure can lead to a costly and

time-consuming dispute. Whilst there is, of course, no substitute

for getting it right in the first place, the recent case in the

House of Lords (Chartbrook Limited (Respondents) v Persimmon

Homes Limited and others (Appellants) and another (Respondent)

[2009] UKHL 38) is a good reminder of the arguments that might be

encountered when things go wrong. As a House of Lords decision, the

judgment is the latest and definitive word on contractual


The dispute arose over the construction of a term in a contract

entered into between the parties. The House of Lords held that

Chartbrook's construction of the contract, which was probably

the most literal interpretation of the words used, made

"no commercial sense" and allowed

Persimmon's appeal. Their Lordships also confirmed that

pre-contractual negotiations are inadmissible as to the

construction of a contractual term (the "exclusionary


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Chartbrook Limited acquired a piece of land in Wandsworth and

entered into an agreement with Persimmon Homes Limited, whereby

Persimmon obtained planning permission for the land, constructed a

mixed residential and commercial development on the land and sold

the properties on long leases. Persimmon received the proceeds from

such sales and paid Chartbrook an agreed price for the land. In

addition to the agreed payments relating to the land value, a

balancing payment, defined in the agreement as the Additional

Residential Payment ("ARP"), would also be payable by

Persimmon and would be calculated in accordance with a specified

formula. The formula contained a "grammatical

ambiguity", with the result that each party put forward a

different interpretation of the calculation with wildly different

results: Persimmon claimed the amount payable by it was

£897,051 whereas Chartbrook claimed it was


The Court therefore had to consider what a reasonable person

would have understood the contract to mean.

In its claim, Persimmon sought to introduce evidence of the

parties' pre-contractual negotiations, in order to support its

arguments as to the way it considered the formula was intended to

work. It argued that, despite established case...

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