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• Pre-contractual negotiations rejected as evidence in cases where there is a difficulty of construction of a contract. Prenn v. Simmonds confirmed.
• Karen Oltmann held to be an illegitimate extension of the "private dictionary" doctrine.
• Where the mere construction of the contract will cause injustice without further evidence being taken into account there are two legitimate 'safety nets': estoppel by convention and rectification

Problematic was an area of law referred to as the "private dictionary" principle. This area of law allows courts to have regard to evidence of a 'private dictionary', which can often exist between tradespeople or members of a religious sect. The court held that a previous decision, in seeking to extend that principle, would have in effect unravelled the position of Common Law on pre-contractual negotiations in construction of contracts.

Due to an ambiguity in the contract it was unclear when the amount based on the actual sale price should be granted to Chartbrook. The amount of the actual sale price to be given to Chartbrook was 23.4%. Chartbrook argued this meant that of any amount paid over the agreed minimum value 23.4% would go to Chartbrook. Persimmon argued that only when 23.4% of the sale price was more than the minimum value, would that percentage be granted to Chartbrook. At issue was also when "costs and incentives" were to be deducted from the equation.

The court confirmed Prenn v Simmonds (see footnote 1), that itself reaffirmed a well-established rule in Common Law that pre-contractual negotiations are inadmissable as evidence in cases where the construction of a contract is at issue. The court also had to consider the law of 'private dictionary'. This area of law allows courts to have regard to evidence of a 'private dictionary', which can often exist between tradesmen or members of a religious sect. In Karen Oltmann (see footnote 2) this principle had been used to justify the Judges coming to the conclusion that the word "after" in a contract held one of two possible (conventional) meanings.

In effect the court had taken the pre-contractual history between two parties into account to come to their conclusion that it held one of those meanings. The House of Lords held this extension of the private dictionary principle to be illegitimate because it, "taken to its logical conclusion, would destroy the exclusionary rule."

The court confirmed the precedent in Swainland Builders Ltd v Freehold Properties Ltd (see footnote 3), that a claimant may seek and be granted rectification in a case where he proves:

1. that the parties had a common continuing intention whether or not it amounted to an agreement, in respect of the contract to be rectified.
2. that there was a outward expression of accord
3. that the intention continued at the time the contract needing rectification was executed
4. by mistake the institution did not reflect that common intention.

The approach in Amalgamated Investment (see footnote 4) was also confirmed in regard to estoppel by convention. Lord Hoffman stated: "If the parties have negotiated an agreement upon some common assumption, which may include an assumption that certain words will bear a certain meaning, they may be estopped from contending that the words should be given a different meaning."

Rectification and estoppel by convention must however be in a case where it is rectification or estoppel by convention that is pleaded, and where it is accepted that there is a mistake in the contract and that the contract itself does not represent the wishes of the parties.

The Judges held in favour of the appeal by Persimmon firstly on a simple construction of the contract and secondly that Persimmon would be entitled to rectification of the contract on the grounds that there was an objectively determinable prior consensus contained in a document dated 1st May and that it was by way of mistake that the contract document did not confirm this consensus.

The transcript of this case can be found (usually) at the Bailli or Employment Appeals websites  here