In Chartbrook Ltd v Persimmon Homes Ltd  UKHL 38, Persimmon appealed three issues relating to the construction of a payment clause in a contract for the redevelopment of Chartbrook's land by Persimmon. Persimmon contended that (1) its construction of the clause was correct (2) the rule on excluding pre-contractual negotiations as an aid to construction of a contract should be reversed (3) rectification of a contract should be based on an objective, rather than subjective, assessment of the parties' common intention. The House of Lords found unanimously as follows:
- Construction - The House of Lords reiterated that the question was what a reasonable person having all the background knowledge available to the parties would have understood the language used in the contract to mean. In this instance, Chartbrook's construction of the clause made no commercial sense, was arbitrary and irrational, and was clearly not what the parties had intended it to mean. Their Lordships found in favour of Persimmon's construction of the clause.
- Pre-contractual negotiations - There was a long line of authority which had excluded pre-contractual negotiations as an aid to construction of a contract which should not be departed from. Any change or reversal of the rule was a matter for the Law Commission not the House of Lords. The exception to the rule was the "private dictionary" principle where both parties used particular words in an unconventional sense (not applicable in this case).
- Rectification required a mistake about whether the contract correctly reflected the prior consensus, not whether it accorded with what the party in question believed that consensus to have been. It was therefore an objective standard. Should Persimmon not have succeeded on point 1. above, it would have succeeded on its rectification case.
This case is a clear example that contract clauses will be construed in their commercial context (a theme increasingly common in court decisions) to mean what the parties intended them to mean. It remains to be seen whether the Law Commission will review the law on the use of pre-contractual negotiations as an aid to construction of contracts.