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Admissibility of pre-contractual negotiations in actions for rectification

December 18, 2020
Parties should be alive to the complications that an action for rectification may cause, if brought alongside or in the alternative to an action raising a point of construction.
The general rule is that any pre-contractual discussions, made during the negotiation of the contract, are inadmissible as evidence to assist in determining the construction of a contract (Prenn v Simmonds [1971] 1 WLR 1381).
One exception to this rule is where the question of construction arises in a claim for rectification: the correction of a document where the parties were in complete agreement on the terms, but wrote them down wrongly. In a claim for rectification, “the intention [of the parties] must have been objectively manifested. It is the words and acts of the parties demonstrating their intention, not the inward thoughts of the parties which matter” (The Olympic Pride [1980] 2 Lloyds Rep 67, 72, Mustill J).
The court will “look at their outward acts, that is, at what they said or wrote to one another in coming to their agreement, and then compare it with the document which they have signed. If you can predicate with certainty what their contract was, and that it is, by a common mistake, wrongly expressed in the document, then you can rectify the document; but nothing less will suffice” (Fredrick E Rose v William H Pimm Jnr [1953] 2 QB 450, 461, Denning LJ).
This exception may mean that where a claim involves two or more actions – one for rectification, and second action, such as damages, which involves a question of construction – the court may be required to consider the pre-contractual negotiations in respect of the first action, but not the second.
The difficulties of this approach were highlighted by Baroness Hale, in Chartbrook v Persimmon [2009] 1 AC, a case which involved both a question of construction and an alternative action for rectification. After concluding the question of construction, she stated: “… I have to confess that I would not have found it quite so easy to reach this conclusion had we not be made aware of the agreement which the parties had reached on this aspect of their bargain during the negotiations which led up to the formal contract”.