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The art of saying what you mean


Lawyers have long been criticised for not getting to the point and for overcomplicating matters by using archaic language and legal jargon. When I was studying for the GDipL I was struck by the use of antiquated phrases that graced the textbooks. In particular, having an English Literature background, it was drummed into me that written work should be unambiguous, terse and cogent. So the case of Chartbrook Limited v Persimmon Homes Limited [2009] UKHL was of particular interest as the dispute arose over the construction of a term in a contract and what the true intentions of the parties were.

The dispute arose over a term which provided for an "additional residential payment" ("ARP"), which was defined as follows: "23.4% of the price achieved for each Residential Unit in excess of the Minimum Guaranteed Residential Unit Value less the Costs and Incentives". The dispute, unsurprisingly, related to the calculation of the amount payable under that term. Persimmon calculated the sum due as £897,051.00 whereas Chartbrook claimed to be entitled to £4,484,862.00.

At first glance the definition would appear to be fairly uncomplicated but the uncertainty arose from how to actually calculate the ARP. Chartbrook said that the meaning of the definition was perfectly simple: You take the price achieved for the sale of each property, deduct the Minimum Guaranteed Residential Unit Value and the Costs and Incentives and calculate 23.4% of the result. That gives you a figure for an individual flat which makes up the ARP. However, Persimmon used the following method: the Costs and Incentives would be deducted from the realised price that the property was sold for to arrive at the net price. You would then calculate 23.4% of the net price, and the ARP would be the excess of that figure over the Minimum Guaranteed Residential Unit Value.

Persimmon also raised another point. They argued that the long-established "exclusionary principle" arising from the case of Prenn v Simmonds [1971] that pre-contractual negotiations were inadmissible in construing a contract did not hold up and in fact prevented a court from putting itself in the position of the parties and ascertaining their true intent. The Court responded by saying that the whole point of the written contract was to formalise the final and agreed version of the pre-contractual negotiations: "The very purpose of a formal contract is to put an end to the disputes which would inevitably arise if the matter were left upon verbal negotiations." There was scope to depart from the rule but this should only be done in circumstances where it can be justified on pragmatic grounds. The Lords ruled that the case of Prenn v Simmonds should not be departed from, but Baroness Hale noted that she would have found it difficult to reach her conclusion had she not been made aware of the agreement which the parties had reached during the negotiations which led up to the formal contract.

Anyway I am sure you are eager to find out whose construction of the definition was deemed the "right" one....well it was Persimmon. The Lords stated that despite Chartbrook's interpretation being the most literal, it made no commercial sense and therefore allowed Persimmon's appeal. The moral of the story is that it is absolutely crucial that when drafting any letter or document (especially when it forms part of a legal transaction) that the utmost care is given to the choice of words employed and the construction of the syntax. Any legal draftsman knows that clarity of expression is fundamental to a legal document (albeit that it is usually only lawyers that can understand them) and that any ambiguity is likely to give rise to problems in the future.

It is interesting that questions of such practical and theoretical importance in the law of contract should still be open to debate and development, but lawyers should take note, get to the point and say what they mean.

For advice in relation to any contentious legal issues, please do not hesitate to contact a member of the Dispute Resolution Team on 0113 222 3239 who will be more than happy to assist.

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