Entire Agreement? Admissibility Of Pre-Contract Negotiations

The recent case of Chartbrook and Another v Persimmon Homes

Ltd and Others [2009] saw the House of Lords reaffirming the

long-established position that under English law, anything said or

done in the course of negotiating a contract is inadmissible as

evidence of what the contract was intended to mean.

This is reflected in the boilerplate "entire

agreement" clause present in most commercial contracts, an

example of which is below.

"This Agreement represents the entire agreement between

the parties and supersedes all prior agreements or representations

relating to the subject matter of this Agreement.

The parties acknowledge that in entering into this

agreement, they do not rely on any statement or representation made

by the other which is not expressly set out in this

Agreement."

The law developed in this way in order to promote certainty and

reduce disputes over interpretation, particularly as the assignment

of contracts became more common. The remedies of rectification and

estoppel may be invoked where necessary, since in such actions

pre-contract negotiations are admissible on an equitable basis. The

Chartbrook decision is therefore surprising because although it on

the one hand it affirms the exclusionary rule established in

Prenn v Simmonds [1971], the Lords stepped in and

effectively rewrote a "commercially absurd" contract

– a remedy generally only available in rectification.

The brief facts of the case were that Persimmon, a developer,

and Chartbrook, a landowner, signed a Development Agreement in

October 2001. Once the development was complete, a dispute arose

between them as to the calculation of an "additional

residential payment" ("ARP") payable by Persimmon to

Chartbrook. The ARP and how to calculate it was defined in the

Development Agreement but Persimmon argued it owed Chartbrook

£897,051 while Chartbrook made it £4,484,862 and issued

proceedings. The disparity between these two figures arose from the

ARP being at best not clearly defined, although the fact it was

defined at all proved critical. The defined phrases begin with

capitals -

Additional Residential Payment means 23.4% of the

price achieved for each Residential Unit in excess of the Minimum

Guaranteed Residential Unit Value less the Costs and

Incentives

Chartbrook argued that it was entitled to 23.4% of the price

achieved for each Residential Unit in excess of an unspecified but

by their calculations minimum guaranteed amount – the

£4 million figure they claimed. Persimmon's

interpretation was that the ARP...