The issue concerns (i) construction, (ii) non-admissibility of prior

negotiations and (iii) rectication.

On (i) although the HL overturn the majority decision of the CA, they

introduce no new principles but just reaffirn Investors Compensation

Scheme.

What is said on (ii) the non-admissibility of pre-contractual negotiations

as an aid to construction will, no doubt, disappoint some but seems to me

to be inevitable. The rule is well established and is not obviously wrong

and that is that.

I am, however, after reading it through a couple of times, rather more

disturbed by Lord Hoffmann's approach to (iii) rectification which, at

first blush, seems to abrogate the parol evidence rule.

We are told ([59]) that for rectification the "terms of the contract to

which the subsequent instrument must conform must be objectively

determined in the same way as any other contract."

Completely unobjectionable and correct.

What Lord Hoffmann then does [66] is ascertain that the prior consensus

was based upon a letter in May (part of the prior negotiations). "It is

agreed that the terms of the letter were accepted ... and no one gave any

evidence of any subsequent discussions which might have suggested an

intention to depart from them. It follows that (on the assumption that the

[construction the HL rejected was right]) both parties were mistken in

thinking that it reflected their prior consensus and [one party] was

entitled to rectification."

If correct, that is not how I have previously understood rectification to

work.

Once it has been shown that the parties have agreed to be bound to the

terms of a contract wholly embodied in a written instrument, each is bound

by its terms although one or other may not know what they are, and even

though the content of prior negotiation may be inconsistent with the terms

contained in the document. The refusal to admit such extrinsic evidence as

relevant, arises from the fact that it is wholly pointless to admit it as

it is irrelevant once the court has concluded that the document was

intended by the parties to contain all the terms of the contract. The rule

that such extrinsic evidence is irrelevant follows as a matter of logic

from what the parties have agreed to be bound by. Such an agreement is

determined by the ordinary rules of objective interpretation. If, as a

matter of fact, the parties had at an earlier point in their negotiations

reached an agreement on different terms from that embodied in the

subsequent written contract, this earlier agreement is replaced,

consideration provided by each side’s promise to be bound solely by the

terms in the written agreement. Giving effect to different terms from

those contained in the written agreement would be contrary to the

agreement the parties have reached.

Rectificatio allows one party to escape the fact that he has agreed that

the document is to represent the parties' entire agreement by

demonstrating, for example, that both parties made a common mistake as to

the terms recorded (cf Bell v Lever Bros) or that he made a mistake about

the terms recorded and the other party knew or ought to have known he was

making such a mistake (cf Smith v Hughes). The former was unarguable as it

had been found as fact that the counterparty believed the document to

represent what had been agreed [55] and [56].)

Lord Hoffmann doesn't do that, he just looks to see what had previously

been agreed, and if the document which embodies their agreement doesn't

accord with that, orders rectification. This seems to me to be wrong. He

isn't looking for a mistake sufficient to set aside the agreement that the

document, and nothing else, is to represent the parties' entire bargain.

The 'common mistake' seems to be assumed from the fact that the agreement

embodied in the document is not the same as that which had previously been

agreed. But if you can do that there is no parol evidence rule as you can

always get the document amended to represent what had previously been

agreed.

I would be very intersted to learn what others think. My first impression,

however, is that this obiter dictum is wrong.

RS

> I'm sure that most list members will already have seen Chartbrook

> Limited v. Persimmon Homes [2009] UKHL 38, but in case not:

>

> http://www.publications.parliament.uk/pa/ld200809/ldjudgmt/jd090701/char

> t.pdf

>

>

>

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--

Robert Stevens

Professor of Commercial Law

University College London