House builder Persimmon has won a House of Lords appeal against a court order which demanded it pay £4.1 million to former development partner Chartbrook.
The pair has been tied up in a profit-share dispute over a mixed commercial and residential development in Wandsworth, south London, for which a contract was entered into in October 2001.
The High Court instructed Persimmon pay Chartbrook more than £4 million which the developer claimed it was owed, and later also rejected an appeal by the house builder against the order.
But Persimmon today won its argument against the decision in the House of Lords.
Chartbrook’s case was that it was entitled to a 23.4 per cent share of the net proceeds of sale of each residential unit in excess of a minimum guaranteed amount.
However Persimmon claimed the developer was to receive either a fixed percentage of 23.4 per cent of the sales revenue or the minimum guaranteed amount, whichever was greater.
Under Persimmon’s calculations, Chartbrook was only owed around £5 million for the development scheme – while it had claimed to be owed more than £9 million.
Michael Frisby, a partner in the dispute resolution team at law firm Stevens & Bolton, said: “The House of Lords has unanimously said that as a matter of principle, antecedent negotiations to a contract may be admissible in evidence where the court is being asked to interpret the meaning of a contract term.
“However, it seems clear that the occasions on which a court will admit such evidence are going to be very few and far between. In this particular case, the House of Lords was able to interpret the contract without regard to antecedent negotiations. This provides some welcome clarification of the law.
“It seems clear however that a party wishing to rely on antecedent negotiations as an aid to construction of a contract term will face an uphill struggle in persuading a court to admit such evidence in future.”