For what it is worth, I think that their Lordships' conclusion on ii (the non-admissibility of prior negotiations) is wrong. I agree with Corbin and Cardozo (Utica City National Bank v. Gunn) that this evidence should be admissible where it is tendered to answer the question of whether:  (1) The parties made a contract and on what terms? (2) The contract is void or voidable because of illegality, fraud, mistake or any other reason? (3) The parties assented to this particular writing as the complete and accurate “integration” of their whole bargain.  

 Congrats go out to ODG list member David McLauchlan who had not one but two of his articles cited by the court: (“Contract Interpretation: What is it About?” (2009) 31 Sydney Law Review 5; “The ‘Drastic’ Remedy of Rectification for Unilateral Mistake” (2008) 124 LQR 608).

 

Jason Neyers
Associate Professor of Law & 
Cassels Brock LLP Faculty Fellow in Contract Law
Faculty of Law
University of Western Ontario
N6A 3K7
(519) 661-2111 x. 88435 

Robert Stevens wrote:

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



[CC]Personal[/CC]

This message and any attachment are confidential and may be privileged or
otherwise protected from disclosure.
If you are not the intended recipient, please telephone or email the
sender and delete this message and any
attachment from your system.  If you are not the intended recipient you
must not copy this message or attachment
or disclose the contents to any other person.

Clifford Chance LLP is a limited liability partnership registered in
England & Wales under number OC323571.
The firm's registered office and principal place of business is at 10
Upper Bank Street, London, E14 5JJ.
For further details, including a list of members and their professional
qualifications, see our website
at www.cliffordchance.com. The firm uses the word 'partner' to refer to a
member of Clifford Chance LLP or
an employee or consultant with equivalent standing and qualifications. The
firm is regulated by the Solicitors Regulation Authority. The Authority's
rules can be accessed by clicking on the following link:
http://www.sra.org.uk/code-of-conduct.page

Clifford Chance as a global firm regularly shares client and/or
matter-related data among its different
offices and support entities in strict compliance with internal control
policies and statutory requirements.
Incoming and outgoing email communications may be monitored by Clifford
Chance, as permitted by applicable law and regulations.

For further information about Clifford Chance please see our website at
http://www.cliffordchance.com or refer
to any Clifford Chance office.