Neutral Citation Number: [2007] EWHC 409 (Ch)
Case No: HC05C02402
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

2nd March 2007

Before :

MR JUSTICE BRIGGS
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Between :

	CHARTBROOK LIMITED	Claimant/1st Part 20 Defendant	
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	(1) PERSIMMON HOMES LIMITED
            (2) PERSIMMON PLC	Defendants/ Part 20 Claimants	
	-and-

STEPHEN VANTREEN	2nd Part 20 Defendant	

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Robert Miles QC and Timothy Morshead (instructed by Herbert Smith LLP) for the Claimant and 2nd part 20 Defendant
Christopher Nugee QC and Julian Greenhill (instructed by Mayer, Brown, Rowe & Maw LLP) for the Defendants

Hearing dates: 6, 7, 8, 9, 13, 14, 15 and 19 February 2007
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Judgment
Mr Justice Briggs: 
1.	This is a claim for money alleged to be due under a development agreement relating to land in Hardwick’s Way, Wandsworth (“the Agreement”) between the Claimant Chartbrook Limited (“Chartbrook”) as Owner, the First Defendant Persimmon Homes Limited (“Persimmon”) as Developer, the Second Part 20 Defendant Stephen Vantreen (“Mr Vantreen”) as Adjoining Owner and the Second Defendant Persimmon PLC (“PLC”) as Guarantor. 
2.	The dispute as to the alleged debt arises from a disagreement as to the true construction of Schedule 6 to the Agreement which contains provisions as to the Price (as defined) to be paid by Persimmon to Chartbrook, and in particular as to the element of the price labelled as the “Additional Residential Payment”. I shall refer to it as the “ARP”. In outline, although this is complicated by a concession made by Persimmon at the start of the trial relating to Costs and Incentives (another defined term) and by a subsidiary dispute as to the proper treatment of car parking spaces in the calculation of the Price, Persimmon says that, properly construed, the ARP was slightly less than £900,000 and has been (largely) paid or accounted for, whereas Chartbrook says that the ARP was just over £4.6 million, of which £3.9 million odd remains unpaid.
3.	Persimmon does not rest its case purely on construction. Against the possibility that Chartbrook may be correct on the construction issue, Persimmon says that Schedule 6 if so construed should be rectified, either on the basis of common mistake, or unilateral mistake of which Chartbrook is alleged to have been aware before contract, but which it failed to bring to Persimmon’s attention. This is not a case where the party claiming rectification says that it thought that the contract contained different words than those which it did in fact contain. Subject to the Costs and Incentives complication, Persimmon says “we thought that the definition of ARP meant X, but if it means Y then it should be rectified so as to mean X”. It is not in issue that such a claim may properly be the subject of rectification: see Re Butlin’s Settlement Trusts [1976] Ch 251. 
4.	As Guarantor, PLC was a necessary or at least proper party to the money claim, but there is no issue as to whether Persimmon will as principal obligee pay whatever is due. As a party to the Agreement Mr Vantreen is a necessary or at least proper party to the rectification cross claim, but his interests as Adjoining Owner are not engaged in any real sense by any of the issues. The real dispute lies entirely between Chartbrook (of which Mr Vantreen is a 50% shareholder and a director) and Persimmon. I shall therefore make no further reference to PLC, and my references to Mr Vantreen will be to him in his capacity as a stakeholder in and witness for Chartbrook. It may be that Chartbrook held its interest in the land the subject matter of the Agreement as resulting trustee for Mr Vantreen and his fellow shareholder and director Mr Reeve, but that makes no difference to the determination of the issues.
5.	The conventional view is that combined construction/rectification disputes of this type give rise to the difficulty that whereas the parties’ negotiations are inadmissible on the construction issue, they lie at the very centre of the court’s focus on the rectification issue. When dealing with the logically prior issue of construction the court must put out of its mind its detailed appreciation of the negotiations, an appreciation gained only because the rectification issue is being tried at the same time. Mindful of this difficulty I invited counsel to make their submissions on construction during their opening, while my immersion in the evidence of the negotiations remained limited to agreed pre-reading.
6.	Mr Christopher Nugee QC, who appeared for Persimmon and PLC, dissuaded me from attempting any early conclusion as to construction, not because he desired to have the illicit benefit of inadmissible material, but because he challenged the conventional wisdom in limine. He submitted that the true rule is that evidence about the parties’ negotiations is only inadmissible where and to the extent that they are not ad idem about the matter under discussion. Where during negotiations they are in agreement about a relevant matter, that he submits is as admissible as the rest of the relevant factual background, because such evidence is helpful as part of the material that sheds light on what the parties may reasonably have had in contemplation as the meaning of the words used.
7.	At the start of the trial Persimmon’s pleaded case relied on no facts about the parties’ negotiations in support of its case on construction. In face of the objection by Mr Robert Miles QC who appeared for Chartbrook that he and his client remained in the dark as to the extent and nature of the facts about the negotiations which Mr Nugee wished to have admitted on the construction issue, Persimmon attempted on Day 2 of the trial to rely on all those facts pleaded in support of its rectification case. I rejected that as going well beyond the ambit of Mr Nugee’s submission on admissibility, and on Day 3 Persimmon formulated a narrower matrix of fact about the negotiations, namely two occasions upon which it was alleged in the rectification claim that the parties had reached agreement as to the nature and extent of the ARP. I permitted a re-amendment of Persimmon’s Defence and Counterclaim to that effect.  
8.	Separate and distinct from the issues as to the construction or rectification of the definition of the ARP, there is an issue as to the proper application of Schedule 6 to the manner in which Persimmon dealt with the sale of car parking spaces within the developed site.  I shall refer to it as “Car Parking Issue”, and deal with it at the end of this judgment.  
Construction
9.	Before addressing Mr Nugee’s submission as to the admissibility of the parties’ negotiations, I shall first describe the ARP definition, and set it in its context within Schedule 6, and within the Agreement as a whole.  The subject matter of the Agreement was a freehold property know as 1, 3, 5, 7 and 9  Hardwick’s Way, London SW18, registered under three separate titles.  After definitions in clause 1, clause 2 required the Developer (Persimmon) to use its reasonable endeavours to obtain Planning Permission (as defined) as soon as practicable and in any event before the Longstop Date (defined as  15 months from the date of registration of the Planning Application, subject to extension under clause 2.5).  The remaining provisions of the Agreement were to be conditional on “Condition Fulfilment” before the Longstop Date.  Broadly speaking, Condition Fulfilment required there to be a planning permission with certain defined characteristics which was no longer vulnerable to being set aside by judicial review or other proceedings.
10.	By clause 3 the Owner (Chartbrook) granted a licence to the Developer to enter upon the property 10 working days after Condition Fulfilment, for the purpose of carrying out the development authorised by the Planning Permission.  Clause 5 provided for the Developer to negotiate and contract for the sale of 125 year leases of the residential units, of the car parking spaces and of the freehold of the Property, in each case on behalf of the Owner, and for the Owner to complete such sales by the execution of the appropriate leases or transfers.  
11.	The Property was throughout its development charged by way of first legal charge by the Owner to the Developer as security for the performance by the Owner of its obligations under the Agreement.  Clause 11 provided that the Price should be calculated and paid in according with Schedule 6.  By clause 19 the Owner appointed the Developer its attorney for the purpose of the negotiation, agreement for and completion of the sale for various parts of the developed property.  Clause 26 provided for the grant of a 125 year lease at a peppercorn rent of the commercial premises to be constructed on the Property pursuant to the Planning Permission to a subsidiary of the Owner, at a premium equal to the Commercial Net Internal Area (as defined) multiplied by £110 per square foot plus VAT.
12.	Turning to Schedule 6, headed “THE PRICE”, paragraph 2 provided for the Developer to be entitled to the whole of the proceeds of sale of the Residential Premises, the Commercial Premises and the Residential Car Parking Spaces, save for the Price to be paid to the Owner, as defined by Schedule 6, and save for a proportion of ground rents and other income receipts which are of no relevance for present purposes.
13.	The quantification of the Price is derived from a series of interlocking definitions in paragraph 1 of Schedule 6.  They are set out there in alphabetical order, but for clarity I will recite or summarise them in an order which (I hope) clarifies the construction issues.   They are as follows:
“Price” means the aggregate of the Total Land Value and the Balancing Payment
“Total Land Value” means the aggregate of the Total Residential Land Value the Total Commercial Land Value and the Total Residential Car Parking Land Value.
“Total Residential Land Value” shall be £76.34 per square foot multiplied by the Residential Net Internal Area (less the Section 106 Money and less the Rights of Light Money and less the Sub-Structure Assumptions Additional Cost)
“Total Commercial Land Value” shall be £38.80 per square foot multiplied by the Commercial Net Internal Area plus VAT.
“Total Residential Car Parking Land Value” shall be £3,024 multiplied by the Residential Car Parking Spaces
Residential Net Internal Area, Commercial Net Internal Area and Residential Car Parking Spaces are all defined terms but the details of the definitions do not matter.
“Balancing Payment” means the Additional Residential Payment.
“Additional Residential Payment” means 23.4% of the price achieved for each Residential Unit in excess of the Minimum Guaranteed Residential Unit Value less the Costs and Incentives.
“Residential Unit” means each of the flats forming private residential accommodation for which Planning Permission is granted
“Minimum Guaranteed Residential Unit Value” means for each Residential Unit the Total Residential Land Value divided by the number of Residential Units for which Planning Permission is granted.
“Costs and Incentives” means the aggregate of all costs and incentives provided by the Developer for the purchasers of the Residential Premises and the Residential Car Parking Spaces including the cost or allowance given to purchasers for enhancements or variations to the specification for such premises.  
14.	Paragraph 3 of Schedule 6 made separate and distinct provision for the payment of each of the two elements of the Price by the Developer to the Owner.  As to the Total Land Value, payments on account were to be made from time to time on the earlier of the date of the sale of each of the Commercial Units, Residential Units and Car Parking Spaces, or by the last day of each of a series of months after the Implementation Date (defined as 5 months after Condition Fulfilment).  Those dates began on the 25th month after the Implementation Date and ended on the 52nd month.  As to the Balancing Payment, it was to be made on the earlier of the date of the later of the sale of the last Residential Unit and the last Residential Car Parking Space, or 6 months following completion of the Development.  Since the Balancing Payment was defined by reference to the aggregate sale prices of the Residential Units, in the event that they were not all sold within 6 months of the completion of the Development, the Balancing Payment was to be determined by agreement or by a fair open market valuation pursuant to a dispute resolution procedure set out in clause 6 of the Agreement.  In the event, that procedure was not triggered.
15.	By the last part of paragraph 3.1 of Schedule 6, the Developer was to be entitled to set off against the Price the amount payable by the Owner as the premium for the Commercial Lease.  The Total Commercial Land Value was to be paid on the date of completion of the Lease.  Paragraph 3.2 provided that, subject to paragraph 3.1 (a) (which contained the monthly payment table) the Owner was entitled to receive on the sale of each of the Residential Units and the Residential Car Parking Spaces respectively the Minimum Guaranteed Residential Unit Value and £3024 for each Residential Car Parking Space after certain irrelevant deductions.  Finally, paragraph 3.3 provided as follows:
“As to the Total Ground Rent Value this shall be paid by the Owner to the Developer on the earlier on the date of sale realising the Ground Rent Revalue or the date of payment if any of the Balancing Payment”
Paragraph 5 contained a procedure for the resolution of disputes arising under Schedule 6, which has not in the event been utilised.  
16.	For present purposes, the general effect of the Agreement may be summarised as follows (this is not in dispute):
i)	It was a conditional contract for the development and on-sale of the Property once developed, the condition being the obtaining of satisfactory planning permission within a defined time. 
ii)	The Owner’s payment was to consist of two distinct parts, each calculable by reference to a formula.  The first part, being the Total Land Value, was to be a defined price per square foot for the residential and commercial parts of the development (the defined price being different in each case) and a defined price per parking space.  The amount of the Total Land Value was therefore variable by reference to the area for which planning permission was obtained for each of the residential and commercial parts of the development, and by reference to the number of car parking spaces for which planning permission was given.  It was not in any way affected by the ultimate sale prices achieved.  
iii)	By contrast, the Balancing Payment was variable by reference to the sale prices ultimately achieved for the Residential Units, and was therefore designed to give the Owner a stake in the commercial fortunes of the residential part of the development, after the grant of planning permission. 
iv)	The definition of “Costs and Incentives” meant that there was likely to be a linear relationship between the amount thereof, and the sale price achieved, in relation to any given Residential Unit.  The higher the incentives, the higher the sale price.
v)	Although the Balancing Payment is defined as being the ARP, since the ARP is a unitised amount (i.e. an amount per Residential Unit) and the Balancing Payment is a single amount payable after the sale of all of them or 6 months from the end of the development, the expression Balancing Payment must mean the aggregate of the ARPs. Since there was no obligation to pay parts of the Balancing Payment on account when each flat was sold, it is not obvious from the Agreement itself why the ARP formula was unitised in that way.

17.	I turn to focus on the parties’ contentions as to the true construction of the definition of Additional Residential Payment, or ARP.  For brevity, I shall refer to the Minimum Guaranteed Residential Unit Value as “the MGRUV”, to the price achieved for each Residential Unit as “the Unit Price” and to the Costs and Incentives as “the C&I”.
18.	For Chartbrook it was submitted that the definition of ARP simply required the application of the stated percentage to an amount arrived at by deducting both the MGRUV and the C&I from the Unit Price.  Expressed in algebraic terms the Chartbrook submission  is as follows:
ARP = 23.4% x (Unit Price - MGRUV- C&I)
19.	By contrast, Persimmon’s case was that the ARP was the amount by which 23.4% of the Unit Price exceeded the MGRUV, less the C&I.  Again, in algebraic terms, Persimmon’s submission may be expressed as follows:
ARP = (23.4% x Unit Price) - MGRUV - C&I
20.	Leaving aside for the moment the point at which the C&I are deducted, the broad commercial effect of each of the parties’ rival submissions may be summarised as follows.  Chartbrook’s case was that it was entitled to a 23.4% share of the net proceeds of sale of each Residential Unit in excess of a minimum guaranteed amount (being the unitised Total Residential Land Value of £76.34 per square foot of Residential Net Internal Area). Put another way, its stake in the residential part of the development was to be the whole of the first £76.34 per square foot of net sales value, and 23.4% of the surplus.
21.	By contrast, Persimmon’s case was that Chartbrook was to receive an additional payment only if 23.4% of the net sales price amounted to more than the Minimum Guaranteed Residential Unit Value.  Put more broadly, Chartbook’s stake in the residential part of the development was whichever was the greater of: 
i)	 23.4% of the net residential sales price; and,
ii)	 the guaranteed minimum of £76.34 per square foot of Residential Net Internal Area.
22.	That being the issue, I turn to the question whether any part of the parties’ negotiations are admissible for the purposes of its resolution, as a matter of construction.  The starting point is to be found in the first three parts of Lord Hoffman’s well known summary of the relevant principles in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1WLR 896 at 912 H:
“(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

(2)	The background was famously referred to by Lord Wilberforce as the “matrix of fact”, but this phrase is, if anything, an understated description of what the background may include.  Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.
	
(3)	The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent.  They are admissible only in an action for rectification.  The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life.  The boundaries of this exception are in some respects unclear.  But this is not the occasion on which to explore them.”
This, says Mr Nugee, is the occasion on which to explore those boundaries.

23.	It is clear from an earlier passage in Lord Hoffman’s speech that he had in the forefront of his mind as the exemplar of the modern approach to construction Lord Wilberforce’s speech in Prenn v Simmmonds [1971] 1WLR 1381.  The whole of his speech from page 1383 to the foot of page 1385 is compulsory reading, but I will content myself with the following three extracts:
i)	At page 1384 G: “ The reason for not admitting evidence of these exchanges is not a technical one or even mainly one of convenience, (though the attempt to admit it did greatly prolong the case and add to its expense).  It is simply that such evidence is unhelpful.  By the nature of things, where negotiations are difficult, the parties’ positions, with each passing letter, are changing and until the final agreement, though converging, still divergent.  It is only the final document which records a consensus.  If the previous documents use different expressions, how does the construction of those expressions, itself a doubtful process, help on the construction of the contractual words?  If the same expressions are used, nothing is gained by looking back; indeed, something maybe lost since the relevant surrounding circumstances may be different.  And at this stage there is no consensus of the parties to appeal to. It may be said that previous documents may be looked at to explain the aims of the parties.  In a limited sense it is true: the commercial, or business object, of the transaction, objectively ascertained, may be a surrounding fact.
ii)	At page 1385 C: “Far more, and indeed totally, dangerous is to admit evidence of one party’s objective - even if this is known to the other party.  However strongly pursued this may be, the other party may only be willing to give it partial recognition, and in a world of give and take, men often have to be satisfied with less than they want.  So, again, it would be a matter of speculation how far the common intention was that the particular objective should be realised.
iii)	At page 1385 H: “In my opinion, then, evidence of negotiations, or of the parties’ intentions, and a fortiori Dr Simmonds’ intentions, ought not to be received, and evidence should be restricted to evidence of the factual background known to the parties at or before the date of the contract, including evidence of the “genesis” and objectively the “aim” of the transaction.”
24.	Two points from those passages in Lord Hoffmann’s and Lord Wilberforce’s speeches deserve emphasis.  The first is that the exclusion of the parties’ negotiations from the corpus of admissible background fact is partly based on policy considerations, and operates as an inroad upon the principle underlying the admissibility of background fact.  The second is that, although plainly linked, the exclusion of evidence about negotiations and the exclusion of evidence of subjective intent are distinct and cumulative.  While the parties may express their subjective intent during negotiations,  that is not the only ground upon which the negotiations are inadmissible.  Neither Lord Hoffman nor Lord Wilberforce express the exclusion of evidence of negotiations in terms which limit the inadmissible material to those parts of the negotiations in which subjective intent is expressed, or in terms which confine the exclusion to the use of negotiations for the purpose of ascertaining subjective intent.  
25.	I was taken to three authorities which at first sight appear to show that a limited inroad had been made upon the negotiations exclusion, where evidence of the parties’ negotiations show that they have agreed that a particular meaning should be given to a word or phrase, and then subsequently used that word or phrase in their contract without defining it.  The court may then construe the contract by attributing to that word or phrase the meaning which the parties have chosen, using, as it were, their own private dictionary.  They are the Karen Oltmann [1976] 2 Lloyds Rep 708; Proforce Recruit Ltd v The Rugby Group Ltd [2006] EWCA Civ 69 (unrep) 17th February 2006 and Jones v Bright Capital Ltd and others [2006] EWHC 3151(Ch) decided on 7th December 2006 by the Chancellor.
26.	In the Karen Oltmann, the relevant word was “after” in a break-clause in a charter party which provided that “Charterers to have the option to redeliver the vessel after 12 months’ trading subject giving 3 months’ notice”.  By their negotiations the parties had shown a clear intention to treat the word “after” in the sense of “on the expiry of” and not “at any time after the expiry of”.  Counsel for the owners had sought general liberty to refer to the parties’ negotiations by reason of the ambiguity of the contract, but Kerr J rejected this by reference to Prenn v Simmonds.  The owners then sought to make the same point by way of estoppel by representation.  This also failed, because Kerr J was unable to discern any distinct representation to that effect.  But he continued:
“However, on the basis that the word “after” in cl.26 is capable of bearing two meanings as a matter of construction, I do not think that there is any authority precluding the Court from examining the pre- charter-party exchanges in order to see whether the owners can make good their contention that the parties were in agreement in using this word in only one of its two senses, and having in effect both given it  the same dictionary meaning to the exclusion of the other meaning. Having then considered the pre-charter-party exchanges on this basis I fined that this contention is established.  In these circumstances it seems to me that the charterers cannot now depart from this common meaning by asserting that this word has the opposite meaning in the charter-party.”
27.	In Proforce Recruit Ltd v The Rugby Group Ltd, the relevant phrase was “preferred supplier status” in a service cleaning agreement.  The question for the Court of Appeal was whether an otherwise unarguable case on construction could be saved from being struck out by reference to the meaning that it was alleged that the parties had in their negotiations placed on that phrase.  In concluding that it might, and therefore in allowing the appeal against the striking out the action by Field J, Mummery LJ said this, after quoting from the Karen Oltmann, at paragraph 31:
“Also, as stated in Chitty on Contracts para 12.119, evidence of facts about which the parties were negotiating is admissible to explain what meaning was intended and evidence of what the parties said in negotiations is admissible to show that the parties negotiated on an agreed basis that the words used bore a particular meaning.”
28.	Mummery LJ then quoted from a speech made by Lord Nicholls to the Chancery Bar Association published in (2005) 121 LQR 577 in which, (without suggesting that this was already the law), he advocated the use of the parties’ pre contract negotiations wherever “they would have influenced the notional reasonable person in his understanding of the meaning the parties intended to convey by the words used.”  Besides referring to that speech as “a valuable contribution to the continuing debate on the question what surrounding circumstances are relevant to the construction of written contracts” neither Mummery LJ nor the other members of the Court of Appeal stated in terms whether they agreed with it.
29.	Concurring in the result, Arden LJ said this, at paragraph 55:
“In this case, the parties have used a very unusual combination of words (“preferred supplier status”). These words are undefined and they are not introduced or accompanied by any words of explanation.  In those circumstances it is in my judgment reasonably arguable that on their true interpretation those words bear the meaning that the parties in common gave them in their communications leading up to the signing of the agreement.  In admitting evidence as to those communications, the court would be hearing that evidence not with a view to taking the parties’ subjective intent into account for the purposes of interpretation  (a purpose precluded by the principles laid down by Lord Hoffman in the ICS  case) but for the purpose of identifying the meaning that the parties in effect incorporated into their agreement in circumstances where the court was satisfied that on their true interpretation the terms of the agreement were to have this effect.”
30.	In a short concurring judgment Richards LJ said that it was not appropriate at the strike out stage to express any concluded view on the extent to which pre-contract negotiations can be taken properly into account in that case for the purpose of ascertaining the meaning of the contract.
31.	In Jones v Bright Capital Ltd, the issue was as to the meaning of paragraph 38 (3) (b) of a defence in a complicated claim about pension rights, which had been incorporated as a term of the settlement of those proceedings.  After citing the Karen Oltmann, the Chancellor referred to Proforce v Rugby as exemplifying but not adding to the principles laid down by Lord Hoffman in the ICS case.  He then continued, at paragraph 24:
“In my view each of the letters in question is admissible on the issue of construction.  They show the genesis and subject matter of paragraph 38 (3) of the defence which became a term of the Compromise.  They show the connection between the actuary’s calculations and that paragraph and explain the figures and other terms which appear in it.  None of them is relied on as indications of subjective intention and on the face of them they are not objectionable on that account.  The mere fact that they were written in the course of inter-solicitor correspondence seeking to agree a redundancy package is not, in my judgment, a sufficient objection. ”
32.	Mr Nugee’s submission, consistent with Lord Nicholls’ hope for reform in his speech to the Chancery Bar Association, was that there is in truth no prohibition upon recourse to the parties’ negotiations.  They are inadmissible only if (using Lord Wilberforce’s word) unhelpful.  Evidence of negotiations will be unhelpful if it merely illustrates the separate subjective intentions and aspirations of the negotiating parties.  By contrast, if during the negotiations the evidence shows that the parties were ad idem as to the meaning of a word, a phrase, a clause or a term, or as to any part of the contract, then evidence to that effect will be helpful, and may permit the court to adopt a construction different from the natural meaning of the words, phrase or clause.   Such an approach, he submitted, is precisely what a reasonable person would adopt in seeking to ascertain what the parties may reasonably have been understood to mean by the words which they have chosen.  As Lord Nicholls put it:
“They (that is the parties’ negotiations) differ from other background material in that, unlike other background material, they may afford direct evidence of the parties’ actual intentions.  That is not a reason for banning their use.  That would be perverse.  That would mean that in deciding the meaning intended to be conveyed by the language chosen by the parties the notional reasonable person would always be barred from having regard to what may be the best evidence of all.  He must always conjecture, he must never know.”
In this case, Mr Nugee submitted reference to the parties’ negotiations will show that on two distinct occasions they reached a detailed agreement as to the formula which would give effect to Persimmon’s obligation to pay the Balancing Payment.  Construction of the definition of ARP (which is the unitised version of the Balancing Payment) in the manner for which Persimmon contended would give effect to that agreement.  
33.	This is a powerful submission, with much to commend it in terms of simplicity, intellectual coherence and common sense.  But in my judgment it is wrong, principally because it wholly ignores the policy reasons for the exclusion of the parties’ negotiations from the admissible background, and if logically applied, would subvert the negotiations exclusion more or less completely.
34.	Lord Hoffman did not in the ICS case spell out the policy reasons for the exclusion of negotiations from the admissible background.  The researches of counsel in the present case have not identified any authoritative identification of them. In his Chancery Bar Association speech, Lord Nicholls summarised them (before rejecting them) as follows:
1)	Increased uncertainty and unpredictability in dispute resolution;
2)	Adverse effect on third party rights;
3)	The use of the evidence would be “unhelpful”;
4)	Subversion of the objective approach.
35.	In my judgment the second of those reasons is compelling.  Most modern commercial contracts are to a greater or lesser extent assignable, such that the benefit or burden of the obligations therein contained can be, and often is, transmitted to third parities who took no part in the negotiation of the contract, and who may therefore be assumed to be wholly ignorant of what took place.  Some types of commercial contracts, such as long leases of land, commonly give rise to transmission or rights and obligations long after the contract negotiators have died.  Others, such as the agreement in this case, are of a more limited duration, but it is common ground that the Agreement was understood and intended to be capable of assignment by way of security to a bank, and indeed was so assigned.  Furthermore, even in the absence of assignment, the rights and obligations created by a commercial contract may form an important part of the assets and liabilities of one or more of its parties, such that the reporting and auditing of its financial health may be dependent upon a proper understanding of its terms, again by persons with no participation in, or knowledge of, its negotiation.  
36.	If the parties’ negotiations were, to the extent “helpful”, to be routinely admissible as an aid to contractual construction, then no such third parties reading, dealing with or having transferred to them rights or obligations under the contract could make any safe assumptions about its meaning without themselves carrying out an inquiry as to those negotiations, so as to put themselves in the same state of knowledge as the parties to the contract.  Furthermore, since ambiguity is no longer (after ICS) a prerequisite for recourse to  the admissible background, a third party’s appreciation of the apparently unambiguous meaning of a word, phrase or term could be subverted by reference to the original parties’ negotiations, without which no secondary meaning was even capable of being guessed at.
37.	A conclusion that the damaging uncertainties introduced into commercial life by the susceptibility of every contract to reinterpretation by reference to the parties’ negotiations needs to be prevented by a policy prohibition works no injustice on the parties themselves.  The essence of the equitable remedy of rectification is that it enables effect to be given to a continuing common intention between the parties as to the meaning of a word, phrase or term provided (a) that it persisted until the making of the contract and (b) that as an equity, it does not invade the legal rights of bona fide purchasers without notice.  The first of those conditions would have to be part and parcel of any rule of construction which permitted reference to be made to occasions when, during negotiations, the parties reached agreement about a particular word, phrase or term.  But it is hard to see how the second condition has any part in a rule of construction, which concerns itself with the meaning to be attributed to the contract, both as between its parties and, to the extent relevant, for all other purposes.  Furthermore, if a limitation upon the admissibility of negotiations designed to protect third party rights were introduced into a rule about construction, then the process of construction would become virtually indistinguishable from the remedy of rectification.  
38.	For those reasons, and with profound respect for what appears to be the contrary view of Lord Nicholls, it seems to me that there is a powerful need to preserve on policy grounds a rule which excludes the parties’ negotiations from the admissible background when construing, rather than rectifying, a commercial contract.  
39.	The question remains however, where is the dividing line to be found, now that an inroad appears to have been made into that exclusion in the form of the private dictionary principle first identified in the Karen Oltmann. The very privacy of the parties’ dictionary implies its invisibility to third parities, and exposes persons dealing in good faith on the basis of the apparent meaning of the contract to the very prejudice which the policy is designed to avoid, and which is avoided by equitable means under the parallel doctrine of rectification.  In the Karen Oltmann, Kerr J thought that rectification was unavailable because “after” was the very word which the parties had agreed to use. He said:
“Such (private dictionary) cases would not support a claim for rectification of the contract, because the choice of words in the contract would not result from any mistake. The words used in the contract would ex hypothesi reflect the meaning which both parties intended”
40.	  Lord Nicholls dismissed rectification as an adequate remedy for the same reason, in his speech to the Chancery Bar Association. He said:
“Rectification has been kept within strict limits. Mistake in expression is an essential ingredient. If the parties intended that the words in their contract should bear a particular meaning, mistake in expression would be absent. ”
41.	As I have noted at the beginning of this judgment however, cases such as Re Butlin’s Settlement Trust show that rectification is, with respect, not so constrained. That was a decision of Brightman J. He said:
“Furthermore, rectification is available not only in a case where particular words have been added, omitted or wrongly written as the result of careless copying or the like. It is also available where the words of the document were purposely used but it was mistakenly considered that they bore a different meaning from their correct meaning as a matter of true construction”
He relied for Court of Appeal authority (inter alia) on Joscelyne v Nissen [1970]    2QB 86, in which the judgment of the Court contained approval of the following passage from the judgment of Megaw J in London Weekend Television Ltd v Paris and Griffith (1969) Sol. J. 222:
“Where two persons agreed expressly with one another what was the meaning of a particular phrase but did not record their definition in the contract itself, if one of the parties sought to enforce the agreement on the basis of some other meaning, he could be prevented by an action for rectification.”
It is hard to imagine a more precise definition of the private dictionary principle, but     expressed in terms of rectification rather than construction.

42.	If free to do so, I would re-analyse the Karen Oltmann “private dictionary” line of cases as concerned with rectification, rather than construction. Joscelyne v Nissen was not cited to Kerr J, and it is not possible to tell whether the supposed non-availability of rectification in a private dictionary situation was the subject of argument in Proforce v Rugby. The result would be to restore a clear boundary between the parties’ negotiations and other relevant background facts, which the private dictionary exception appears to have eroded. But the confirmation apparently given by the Court of Appeal in Proforce v Rugby that the private dictionary principle is an aspect of construction may be binding on me, even though the ratio of the decision is only that a case based on recourse to private negotiations was arguable. 
43.	On the basis that I may be bound to treat the private dictionary principle as a rule of construction, I must grapple with the logically unfathomable question as to the boundary between it and the policy exclusion of the parties’ negotiations as admissible background.  It will be apparent that I do not consider that the dividing line can lie between, on the one hand, the use of the private dictionary to define a word or phrase, and on the other hand its use to throw light on the meaning of a term or clause.  To do so would be inconsistent with the Chancellor’s analysis in Jones v Bright Capital Ltd , and would also be conceptually illogical and unworkable.  It is of the essence of a policy driven rule that its boundaries may be difficult to define.  But any rule of construction needs to be clear if it is to be of value.  It certainly cannot be in any sense discretionary.
44.	In my judgment, it is at least reasonably clear that the private dictionary inroad into the exclusion of the parties’ negotiations from the admissible background ought not to extend to any case in which the word, phrase, clause or term is itself subject of an express definition in the contract itself.  In none of the private dictionary cases was the word, phrase or term so defined.  In Proforce v Rugby the phrase “preferred supplier status” cried out for definition, but there was none. 
45.	In my judgment there are sound reasons of policy, logic and common sense for drawing a line in such a way as to exclude the private dictionary principle from being used for the construction of defined words, phrases or terms.  First, the parties themselves may, by using an express definition, reasonably be taken to have agreed that the definition should prevail over any competing definition arrived at during the course of their negotiations, but then not adopted in the contract.  Secondly, the existence of a definition is a clear signal to any  third parties seeking to construe the contract that the meaning of the word, phrase or term in question is to be found within, rather than without, the four corners of the contract itself.  Finally, the very existence of detailed definition in a commercial contract is a pointer towards the understanding of the parties to it that others who, unlike them, need education as to its finer meaning, will be expected to use those definitions, rather than to investigate the parties’ negotiations.  
46.	In the present case, the issue of construction is as to the meaning of the term “Additional Residential Payment”.  That is plainly a defined term, and Mr Nugee did not (after an early but abortive attempt to do otherwise) submit that the negotiating consensus to which he wished to have recourse shed any light on any particular word or phrase within that definition.  He did submit that if it were correct to exclude the parties’ private dictionary in relation to the construction of defined terms,  that still left it available to ascertain the meaning of the definition, or of part of it. If the question is as to the meaning of the whole of the definition, that approach would completely undermine the proposition. As to the possibility that the parties may have used a private dictionary for part of the definition of a term, in this case the definition of ARP contains no less that three other defined terms, all of which are the subject of detailed definitions elsewhere in Schedule 6, about which there is no issue as to construction.  As will appear when I describe the parties’ negotiations in my analysis of the rectification claim, they used quite different language when addressing that part of the price which in the contract itself has been defined as the Balancing Payment and the Additional Residential Payment. In my judgment the use which Mr Nugee wishes to make of the parties’ negotiations is as a guide to the whole of the definition of ARP.
47.	Mr Nugee did also seek to rely on the same negotiations as disclosing the “aim, genesis or object” of the ARP formula, relying again on Jones v Bright Capital Ltd as an illustration of that principle on similar facts. I reject that submission. The aim or object of the ARP formula is clear. It is to provide to Chartbrook a share in the residential sales revenue, by way of addition to the guaranteed mininum payments. The issue of construction is, in short, how much, and by reference to what formula. To use the “aim, genesis or object” principle to unlock the parties’ negotiations in seeking the answer to that issue is in my judgment plainly wrong.
48.	It follows that I reject Mr Nugee’s submission that I should have regard to the parties’ negotiations in resolving the issue of construction as to the defined meaning of the ARP, and I shall therefore proceed to determine its true construction by reference only to the language used, read in the context of the contract as a whole, and to any admissible non-negotiation background facts known or reasonably available to the parties at the time.  
49.	Some attempt was made by Mr Nugee to persuade me that Chartbrook’s construction of the ARP made no commercial sense, because it suggested that the parties had used a form of sales overage radically different from that which was well known or standard in the market place at the time. By contrast, he submitted that Persimmon’s construction reflects how one would expect an overage clause of this type to operate.  In my judgment there is no basis for that submission.  No expert evidence was called as to what was or was not a typical form of sales overage clause in contracts of this or any other type.  Furthermore, the evidence shows that, by contrast with Persimmon, which made regular use of building licences, Chartbrook and its directors Messrs Vantreen and Reeve had never negotiated a building licence before, although they had some experience of overage clauses in other types of agreement for the sale of development land.  There was in any event no consensus between the parties as to the “normal” sales overage clause and I am satisfied that no such assumption could properly be treated as part of the background known or reasonably available to these contracting parties at the time.  
50.	Separately, Mr Nugee sought to persuade me that I could properly have regard to the parties’ expectations at the time of making the Agreement as to the likely development value per square foot of the residential units, namely something at or above £300 per square foot.  On that basis, he submitted, it would be perverse to construe the MGRUV of £76.34 per square foot as the trigger for the payment of any kind of overage.  Overage was, he submitted, a means of rewarding the owner if during the course of a development, market forces lead to a better than expected outcome.  
51.	Again, I reject that submission.  While I accept that regard may properly be had to evidence that the parties had a broad understanding of the then market value of the proposed development, and to the amount or band of value per square foot reflecting that understanding, that part of Mr Nugee’s submissions required me, again, to make an assumption that the parties had a common view as to the invariable purpose of an overage clause, namely that it had no intended effect where the outcome of a development reflected rather than exceeded the parties’ expectations.  To my mind, there is nothing inherent in the negotiation of a building licence as the means for the realisation by an owner of development land of its best value, that they should not incorporate as part of the mechanism for payment a formula which provided a guaranteed minimum equivalent to (say) a quarter of its development value, with a percentage share in whatever price was achieved above that. 
52.	It follows in my judgment that there is little in the background to this Agreement to distract the court from ascertaining the meaning of ARP by reference to the ordinary meaning of the language used in its definition, and to that analysis I now turn.
53.	On its face, the ordinary meaning of the definition of ARP seems to me clearly to point towards Chartbook’s rather than Persimmon’s construction.  Taking it stage by stage, ARP means 23.4% of something.  To the question “23.4% of what?” the clear answer is the excess of the price achieved for each Residential Unit over the MGRUV, less the Costs and Incentives.  
54.	By contrast, Persimmon’s construction requires the words “the amount by which” to be added after the word “means”, and the word “is” added before the phrase “in excess of”.  That is indeed precisely how Persimmon sought to have the definition rectified: see paragraph 1 of the prayer to the Amended Defence and Counterclaim. It is simply not what the definition provides.
55.	An equally serious problem with Persimmon’s construction is what to do with the subtraction of the C&I.  It is common ground that the Costs and Incentives have a linear relationship with the amount of the price achieved for each Residential Unit.  For example, Persimmon may agree the sale of a flat for £250,000 after incurring Costs and Incentives of say £50,000 or, with the same commercial consequence, sell the same flat for £200,000 but incur no Costs and Incentives.  Typical Incentives would include payment of the purchaser’s legal fees or stamp duty, or the installation of special features such as wooden floors, over and above the standard fit-out specification.  
56.	One would expect Chartbrook’s profit share to be unaffected, one way or the other, by the decision of Persimmon to sell a particular flat by one or other of those methods (high price plus Incentives or low price without Incentives).  Chartbrook’s construction, under which the Costs and Incentives are deducted from the price achieved for each Residential Units before the application of the 23.4% share, fulfils precisely that expectation.  
57.	By contrast, Persimmon’s construction deducts the C&I from the 23.4% of the price achieved for the Residential Unit before the net amount is compared with the MGRUV, to ascertain whether there is any excess.  By comparison with Chartbrook’s construction, that calculation magnifies the negative effect of C&I by a factor of more than 3 in comparison with the positive effect of the increase in the Residential Unit Price attributable to the C&I.
58.	Recognising that such an outcome was most unlikely to represent the rational commercial common intention of the parties, Persimmon made a consensual amendment to its Defence and Counterclaim on the first day of the trial in which the prayer for rectification removes the phrase “less the Costs and Incentives” from the end of the definition and re-inserts it after the phrase “each Residential Unit”.  The result of rectifying the definition in that way would require the Costs and Incentives to be deducted from the Unit  Price achieved before its comparison with the MGRUV.  But Persimmon made no similar amendment to its case on construction, perhaps because it was concluded that the complete rearrangement of the definition would be more than the court was minded to swallow by way of interpretation.  In my judgment Persimmon’s inability to offer an interpretative route which does not produce a commercial absurdity in the deduction of the C&I is a telling indication that its construction is wrong.  
59.	Mr Nugee sought to rescue Persimmon’s construction from these difficulties by pointing to what he submitted were persuasive contra-indications in the language of Schedule 6 as a whole.  First he pointed out that paragraph 3.3 expressly contemplates that there may be no Balancing Payment at all.  Since that outcome would, on Chartbrook’s construction require a market collapse in excess of 66% below the level which the parties perceived it to be at the time of the Agreement, before the Residential Unit price fell below the MGRUV (even ignoring Costs and Incentives), that was such an unlikely outcome that the words “if any” would make no sense on Chartbrook’s construction.  By contrast, as he rightly submitted, it was perfectly possible that 23.4% of the Residential Unit price would be less than the MGRUV, so that the phrase “if any” was in harmony with Persimmon’s construction.  Despite Mr Miles’ attempt to characterise the inclusion of the phrase “if any” in paragraph 3.3 as no more than a “draftsman’s twitch” I do regard that as a significant pointer in favour of Persimmon’s construction.
60.	Mr Nugee’s other point was that the combination of the phrases “Balancing Payment”, “Additional Residential Payment” and “Minimum” in the phrase MGRUV in contrast to the word “Total” in “Total Residential Land Value” and “Total Land Value” all lay more comfortably with the concept of the ARP being a possible bonus payable if the development went better than expected, than with its forming a significant part of the Price in all but the most extremely adverse of market circumstances. 
61.	In my judgment that submission might have been of some force if any of those words or phrases had been used for their independent ordinary meaning, rather than as, or as part of, a label with its own definition.  The whole purpose of the attribution of a detailed definition to a word or phrase is to replace what readers might otherwise have  thought to be the natural meaning of that word or phrase with its contractually defined meaning.  The word or phrase is stripped of its natural meaning, and the same result could have been achieved if an algebraic letter or expression were used as the label with the same detailed definition.  In the result therefore, this submission of Mr Nugee carried little weight with me.
62.	In my judgment therefore the definition of ARP is that contended for by Chartbrook.  The contest is between all the natural consequences of the way in which the constituent parts of the formula are constructed in the definition on the one hand, and on the other hand the use of the expression “if any” when referring to the Balancing Payment in a quite different context,  in paragraph 3.3 of Schedule 6.  To that contest there can in my judgment be only one outcome.  The ARP did (as the definition clearly states) mean 23.4% of an amount calculated by deducting both the MGRUV and the Costs and Incentives from the price achieved for each Residential Unit.
Rectification
63.	The determination of the rectification claim requires me to make detailed findings of fact about the conduct of the parties’ negotiation of the Agreement over more than a year, and about their internal thought processes, or rather, since both are limited companies, the thought processes of those of their staff who are properly to be characterised as the governing mind and will of each.  There is a wealth of evidence available for that purpose.  Substantially the whole of the parties’ negotiating correspondence has survived, and Chartbrook has chosen to waive legal professional privilege in relation to its dealings with its solicitors, including advice received in relation to the transaction, until (but not beyond) execution of the Agreement on 17th October 2001, both for the purpose of disclosure of documents and for the purpose of the evidence and cross examination of Mr Skelly, the solicitor handling the matter for Chartbrook.  In the result, it is possible to trace the course of the negotiations with some precision, not least because Mr Nicholas Pendlebury, who conducted almost all of it on behalf of Persimmon, had the habit of setting out in some detail proposals either made or promised to be made at meetings, even though none of those were themselves minuted.  
64.	Before describing the detailed course of the negotiations, it is necessary first to say something about the quality of the oral evidence.  Chartbook called both Mr Vantreen and Mr Reeve, who together constituted its governing mind and will, being both its shareholders and directors.  Chartbrook also called its solicitor Mr Sean Skelly, a partner in Skelly & Corsellis at the time of the transaction.
65.	Mr Reeve, who gave evidence first, was an experienced property dealer, albeit not previously on a scale comparable with the transaction in issue.  He was a man of relatively few words, and, as he was willing to acknowledge, of only moderate memory.  He professed no detailed recollection of the negotiation of the transaction, and made no attempt to reconstruct that which he could not recall, nor did I detect any evasiveness or desire to hide behind a lack of recollection.  He gave his evidence in what appeared to be a relaxed rather than defensive way, and I found his approach to a cross examination which included some very difficult questions to be at all times realistic.  If anything, he seemed to me a little over-ready simply to say yes to cross examining counsel’s questions.  He struck me as intelligent and he demonstrated an impressive talent at mental arithmetic, no doubt a very useful skill in his successful career.  All in all, I found him to be a quietly impressive witness, and would be firmly disposed to accept his evidence as honest unless the documents or the probabilities compelled me to do otherwise.
66.	Mr Vantreen struck me as a highly intelligent and articulate witness.  For the most part he answered questions more fully than did Mr Reeve, and was generally happier to engage with counsel in providing detailed responses to questions, to the extent that his memory permitted.  He is also an experienced and sophisticated property dealer with a ready appreciation of the commercial realities of that activity, which he addressed with persuasive realism. His memory appeared to be neither better nor worse than Mr Reeve’s, and it is perfectly understandable that he retained no detailed recollection of the negotiating meetings, nor any inclination to guess at what he could not recall.  He began his evidence with as relaxed a demeanour as had Mr Reeve, but that did not always persist throughout his evidence, perhaps because he was faced by Mr Nugee with harder questions than had been presented to Mr Reeve.  Again, his evidence was on its face realistic and credible, and I found myself inclined to accept him as an honest witness, unless compelled by documents or probabilities to do otherwise.
67.	Mr Skelly was a very experienced conveyancing solicitor who had retired by the time of the trial. He was an assiduous maker of attendance notes, and a careful, realistic witness who had taken considerable trouble to prepare for giving evidence by re-reading his file and attempting to refresh his memory about what he understood to be the main factual issues. He took great trouble to distinguish between actual recollection and re-construction from documents. Since neither his competence nor his integrity were impugned, he neither had reason for, nor displayed, any bias toward his former client’s case or other personal agenda. I found his evidence to be honest, reliable and helpful. In one instance I have had to give careful consideration to a suggested difference between his evidence about, and his contemporaneous attendance note of, an important meeting with Mr Vantreen and Mr Reeve. On analysis, as will appear, that comparison did not detract from the reliability of Mr Skelly’s evidence.
68.	Persimmon called David Bryant, at the time its Southern Regional Chairman, Brendon O’Neill, who was promoted to managing Director of Persimmon Homes (South East) Ltd in early 2001, Nicholas Pendlebury, then an employee of Persimmon Homes (South East) Ltd and promoted Land Director in July 2001, and finally Robert Assael, the partner in Hammonds Suddards Edge who acted as solicitor for Persimmon on the transaction.
69.	Mr Bryant and Mr O’Neill were honest and reliable witnesses, but the combination of their slight engagement with the negotiations and their understandable lack of detailed recollection of a routine transaction meant that their evidence was neither very contentious nor of central relevance to the disputed factual issues.
70.	Mr Pendlebury was no longer employed by Persimmon by the time of the trial, but personally carried out the day to day negotiation of the transaction with Chartbrook from start to finish, under the supervision of Mr O’Neill. He was plainly skilled and experienced at his job, a writer of clear and detailed negotiating letters, and he impressed both Mr Reeve and Mr Vantreen as an honest, open and easy person with whom to do business. I formed the same impression of him as a witness. His words in the witness box were as clear and carefully chosen as those in his correspondence. He had a lot to say, and I am sure that all of it was honest, and intended to assist the court. 
71.	I have however two reservations about placing complete reliance on his evidence. The first is that I think he believed that his recollection of detail was better than in fact it was. This manifested itself in (but was not limited to) confusion about the dates and precise order of events, and in an apparently much more detailed oral recollection of an important meeting than was to be found in his witness statement. My second reservation is that he retained a bit of an agenda or bias towards Persimmon’s case, as the understandable consequence of having been responsible for a negotiation which (on his evidence) ended with an agreement which he read and approved containing a key term alleged to provide a much higher price to be paid by his employer than he intended. This became visible when Mr Miles had to drag out of him an admission that he had used, both in correspondence and in meetings, the phrase “sales overage” to describe the Balancing Payment, a phrase that he evidently felt with the benefit of hindsight weakened Persimmon’s case.
72.	I regret that I did not find Mr Assael to be a satisfactory or reliable witness. He was of course in a very unenviable position, as the draftsman of the Agreement which was alleged to contain a vital term differing fundamentally from his own account of his client’s instructions. His predicament was skilfully made worse by Mr Miles at the outset of his cross examination by a painful exploration of how he came to act for Persimmon at all, in circumstances where he had previously been acting for a different client in relation to the purchase of the same site, with wholly opposed interests. But making all allowances, I found Mr Assael’s evidence to be neither frank nor accurate. He frequently had to withdraw factual assertions in the face of documents proving the opposite, where those assertions had in my judgment been designed to minimise or to conceal his difficulties. The result was that although his evidence about an important meeting would, if credible, have been of real relevance to the factual issues, I found myself unable to attribute any weight to it.  
The Facts
73.	Negotiations for the grant of a development licence by Chartbrook to Persimmon began at the beginning of February 2001.  Prior to that date however, both parties had been interested respectively in the sale and purchase of the site for development since, in Chartbrook’s case, January 2000 and in Persimmon’s case, August 2000.  For reasons which will appear, it is necessary to describe that earlier period of sale and purchase negotiations in a little detail.  
74.	The story begins with Chartbrook’s acquisition of Units 7 and 9 Hardwick’s Way from Medriff Holdings Ltd, on 20th January 2000, for £850,000.  Units 7 and 9 consisted of tenanted warehouse premises.  Mr Reeve and Mr Vantreen each contributed £30,000 from their own resources to the purchase by Chartbrook, and the remainder was borrowed, partly from HSBC and partly from a business colleague.  Mr Vantreen and Mr Reeve were both experienced in the south west London property market. They regarded the purchase price as a good one, and hoped to be able to take advantage of what appeared to them to be an emerging change of policy on the part of the local planning authority in favour of permitting mixed residential and commercial development on former commercial sites.  Their intention was not to develop the site themselves, but either to make a profit by re-sale to a developer, or to hold it as an investment with a view to a profitable sale at a later date.
75.	A first indication of the potential profitability of their acquisition was demonstrated by an offer on 7th July 2000 from Cathedral Group Plc by way of proposed Heads of Terms for Units 7 and 9, subject to satisfactory detailed planning consent, for £4.1 million, and with overage at £50.00 per square foot of net internal development area in the event that the residential element for which planning permission was granted exceeded 50,000 square feet.  This form of overage is generally referred to as “planning overage” since the additional payment to the vendor is referable purely to the type of planning permission obtained, rather than to the sale price ultimately achieved after development, by the purchaser.
76.	The evidence shows that Cathedral hoped from an early stage to “turn” the property to another developer, and specifically to Persimmon.  Persimmon’s disclosure included a development appraisal dated 31st August 2000 which, on an assumed planning permission for 124 residential units, attributed a net land value to the site, with planning permission, of just over £6,000,000 based on a gross development value (“GDV”) of £20,350,000, total building costs of £9,210,000 and a gross margin of 23% on the GDV.  By this time, Chartbrook was negotiating to add Unit 5 to its existing holding at Hardwick’s Way, and Persimmon’s appraisal assumed that Unit 5 would be included in the site purchased.  Persimmon replaced Persimmon Homes (South East) Limited as the intended purchaser in January 2001, as the result of a corporate restructuring.  For brevity I shall refer to the successive interests of  Persimmon (South East) Ltd and Persimmon in the negotiations as Persimmon’s interest.
77.	It was at all times well understood both by Chartbrook and Persimmon that the real development value of the site lay in its potential for private residential planning permission, although it was recognised that the planning authority would be likely to impose a requirement for an element of commercial development, and that it might also require an element of affordable housing.  As a prominent house builder, Persimmon was a natural candidate as purchaser of the site, in terms of maximising its development value.  Persimmon had no interest of its own in commercial development, and the expectation of the parties was that Chartbrook would take back any commercial unit or units required by the terms of any planning permission for exploitation by resale or otherwise on its own account.
78.	Persimmon’s first offer to Chartbrook for the site took the form of Heads of Terms for the purchase of units 5,7 and 9 Hardwick Way, sent following a meeting between Mr Pendlebury and Mr Reeve under cover of  a letter from Mr Pendlebury dated 29th September 2000.  The offer was expressed as being conditional upon satisfactory detailed planning permission, and upon Chartbrook’s exercise of an option to acquire Unit 5.  The price offered was £4.1 million for Units 7 and 9 and £80.00 per square foot of net residential floor area for which planning permission was obtained, in relation to Unit 5.  The Heads of Terms expressly assumed the obtaining of planning permission at Units 7 and 9 for 50,000 square feet of residential floor area and 8,500 square feet at Unit 5.  Applying the £80.00 per square foot formula in relation to Unit 5, planning permission for residential development of those assumed areas would yield a total purchase price of £4.78 million.  The grant of planning permission of less than an aggregate of 45,000 square feet was to constitute good ground for either party to withdraw from the contract.  The purchase price was to be payable as to 5% on exchange and 95% on completion.  
79.	The Heads of Terms proposed a planning overage/underage clause, whereby the purchase price was to be adjusted, upwards or downwards, at the rate of £80.00 per square foot if planning permission for residential development exceeded or fell short of the anticipated 58,500 square feet.  Thus, at the minimum satisfactory level of 45,000 square feet of residential floor area, the price payable would have been £3.7 million.  
80.	Although the Head of Terms contemplated in substance a straightforward outright purchase subject to satisfactory planning permission, it was to be structured in the form of mutual put and call options.  The purpose of this was merely to enable the parties to postpone the taxable event to a date later than the date of the exchange of contracts.  
81.	Persimmon carried out a further development appraisal based upon much more cautious planning assumptions on 20th October 2000.  Assuming the grant of planning permission only for 72 residential units, it generated a net land value of £3.19 million on a GDV of £12.865 million, costs of £6.476 million, and a gross margin of £2.908 million at 22.61% of the GDV.  
82.	Following a further meeting with Mr Reeve on 7th November, Mr Pendlebury wrote to him on the same day with a revised offer of an unconditional purchase of Units 5, 7 and 9 for £4.3 million payable by way of a 5% deposit on exchange, with a balance payable on completion in July 2001 or (if later) the date of the obtaining of vacant possession.  That offer was accompanied by a planning overage, triggered by the grant of planning permission for more than 53,750 square feet of net internal residential floor area at £80.00 per square foot, subject to a maximum overage of £1,000,000.  
83.	This bettered the previous offer in a number of respects.  Firstly, it was not conditional upon the obtaining of satisfactory planning permission.  Secondly the minimum payable was £4.3 million rather than £3.7 million. Thirdly, the overage trigger was set at 53,750 square feet rather than 58,000 square feet and fourthly there was no provision for underage.  Mr Reeve confirmed that it was acceptable to Chartbrook by a letter to Pendlebury the following day, recording that the parties’ respective solicitors (Mr Skelly and Mr Assael) were already in contact with a view to preparing contracts for exchange by the end of November.  Matters did not proceed that fast however, although Mr Assael had by 12th December prepared a draft put and call option agreement to give effect to that proposal.
84.	Persimmon was in the meantime conducting further research into the project, which generated yet further development appraisals which were discussed internally between (inter alia) Mr Pendlebury and Mr O’Neill.  The outcome was that Mr Pendlebury proposed that he and Mr O’Neill meet Mr Vantreen and Mr Reeve at Pesimmon’s offices in Weybridge on 16th January 2001, having already warned them in a letter of  12th January that an increase in Persimmon’s estimated build costs of approximately £750,000 necessitated a revised (and by implication lower) offer.  
85.	Save that Mr O’Neill came to the meeting to demonstrate Persimmon’s continuing serious intent with regard to the Hardwick’s Way project, none of those attending the  16th January meeting had any precise recollection of what occurred, beyond what is reflected in Mr Pendlebury’s letter to Mr Reeve of 17th January.  This contained a revised offer for the unconditional purchase of Units 5, 7 and 9, in which Persimmon sought to compensate Chartbrook for a reduced up-front payment by an improved planning overage, and by the introduction at Chartbrook’s request of a sales overage.  The upfront payment was to be reduced from £4.3 million to £3.8 million.  The planning overage was to be improved by the removal of the £1 million cap and the increase of the overage payment rate from £80.00 to £82.00 per square foot.  The sales overage was proposed in the following terms:
“ In addition, you asked us to consider some form of sales related overage, that would enable you to share in any sales uplift that is experienced during the course of the development of the project.  We have given careful considerable (sic) to what we anticipate both build costs and sales inflation to be over the course of the project, and can confirm that we are prepared to offer you 30% of all net sales revenue achieved above a defined trigger level.  
In terms of the calculation of this trigger, I suggest it is done by way of a multiplication of the total net internal area of the private sale residential element, (I suggest the same definition is used as that to define the planning related overage) and £345.00 per square foot.  As with the calculation for the planning overage, we will be able to define what exactly what the trigger is at the point when we obtain our Detailed Planning Permission. …I would, however, state that the above mentioned trigger is exclusive of any revenue we achieve for the disposal of the car parking places.  At the present time we have  costed these at a value of  £10,000 per space and do not envisage experiencing any growth on this value”
86.	It is apparent from reading the most recent development appraisals prepared by Persimmon prior to 17th January that Mr Pendlebury pitched the trigger level for the sales overage a little beyond the highest average level which he anticipated obtaining on the sale of the residential units.  The sales value in the most optimistic appraisal ranged on £291.00 per square foot to £345.00 per square foot, but that higher figure related only to a penthouse flat.  Mr Vantreen’s and Mr Reeve’s evidence suggested that their perceptions of the sale value per square foot of residential units for which planning permission was likely to be granted on the site as at January 2001 lay within a broadly similar, but slightly higher, range.  Neither Persimmon nor Chartbrook built into their expectations any assumption that the residential property market would either rise or fall during the marketing and construction of the development.  
87.	I consider it probable that the bones of the offer in the 17th January letter from Persimmon had been explained orally at the meeting on the previous day, and that Mr Vantreen and/or Mr Reeve explained it to Mr Skelly before they received Mr Pendlebury’s letter.  This is because on 18th January Mr Skelly wrote to Mr Assael in the following terms:
“Our clients apparently agreed last minute amendments to the transaction and I have set out below my understanding of these:- 
1.	The initial purchase price to be reduced - £500,000.00. 
2.	The primary overidge (sic) is to be without any capping.  Therefore the provision of £1,000,000.00 will be removed.
3.	There will be a secondary overidge which will not take into account any sums paid under the primary overidge.  The secondary overidge from my understanding is to be 1/3 (one third) of the sale price of each residential unit in excess of £345.00 per square foot for which the formula would appear to be:-
Residential unit and sale price
square footage of unit                              -345 :- 1/3(one third)
My clients do want confirmation in writing that the    
      above does reflect both parties agreement and intention.”
88.	Mr Assael’s response on behalf of Persimmon was to send Mr Skelly a revised form of put and call option agreement including a new clause 20 providing for the payment of a net sales overage in accordance with a new Schedule 6.  As will appear, the formula to be found in this Schedule 6 was the ancestor of the ARP definition in the Agreement.  It was to be calculated following the sale of the last private residential unit forming part of the Development, by reference to a formula found in a series of definitions in paragraph 1.  The relevant provisions for present purposes are as follows:
1.1	“Aggregate Total Net Proceeds” means the aggregate sum of money (after the deduction of Costs and Incentives) received by the Buyer from purchasers of the Net Internal Area which exceeds £345.00 per square foot of the Net Internal Area and excluding any sum of  money received by the Buyer for any car parking spaces constructed on the Development.
1.2	“Costs and Incentives” means the aggregate of all costs and incentives provided by the Buyer for the purchasers of the private residential units forming part of the Development and which costs and incentives will be reasonable and usual for similar developments in the locality of the Development.
1.3	…..
1.4	“Gross Sale Proceeds” the gross sum payable for each private residential unit forming part of the Development including the price achieved for any car parking space sold with such flat and the Costs and Incentives paid or allowed in respect of such flat.
1.5	…..
1.6	“Net Sale Overage” means 30% of the Aggregate Total Net Proceeds.
1.7	“Net Sales Proceeds” means the sum of money received by the Buyer for each private residential unit forming part of the Development excluding any money received for any car parking spaces sold with such flat and excluding the Cost and Incentives paid or allowed in respect of such flat.
The Net Sales Overage was payable seven days following the agreement or determination of its amount.
89.	Following receipt of that revised draft by email on 18th January, Mr Skelly sent it to Mr Vantreen, advising that he did not think that the amendments were satisfactory, inviting urgent discussion, and suggesting that Mr Vantreen send Mr Reeve a copy, with a view to a meeting the following day at Mr Skelly’s office.  That meeting was duly convened and Mr Skelly made a detailed attendance note of it.  Subject to two irrelevant points, Mr Vantreen and Mr Reeve were content with Schedule 6, and understood that it provided for a sales overage payable at the rate of 30% of net residential sales revenue less Costs and Incentives, in excess of £345.00 per square foot.  Having regard to their then perception that the market value of residential units for which planning permission was likely to be granted lay in a range which did not significantly exceed that level, I am satisfied that they appreciated that the sales overage then on offer was one which would depend upon a significant improvement in the residential market, if it was to give rise to an additional payment to Chartbrook over and above the aggregate of the basic sum of £3.8 million and the planning overage.  In a letter to Mr Assael of the same date, Mr Skelly confirmed that such was his clients’ understanding of Schedule 6, in the following passage:
“I assume the trigger figure is that produced by multiplying the total net internal area by £345.00.  Once that figure has been reached, my client is entitled to 30% of the aggregate net proceeds thereafter.”
90.	By this time, Chartbrook was just about to enter into an option agreement for the purchase of Unit 5, pursuant to which the price was to be £450,000, plus another form of planning overage defined as the freehold owner’s share of “Enhanced Value”.  The Enhanced Value was to be calculated by a formula which was designed to give the vendor 30% of that part of the increase (attributable to planning permission) in the value of the site constituted by Units 5,7 and 9 properly attributable to Unit 5 on an apportionment based upon agreed square footages.  
91.	Much of the discussion between Messrs Vantreen, Reeve and Skelly on 19th January as recorded in Mr Skelly’s attendance note, concerned the interrelationship between the then draft put and call option for Units 5, 7 and 9 between Chartbrook and Persimmon, and the draft option for Chartbook’s purchase of Unit 5.  The details of the interrelationship do not matter, save for the fact that Mr Vantreen and Mr Reeve stated to Mr Skelly their assumption that the enhancement payable to the vendor of Unit 5 under the formula which I have described could be as much as  £200,000.  
92.	In cross- examination by reference to a specially prepared page of calculations, Mr Nugee had no difficulty in obtaining both from Mr Vantreen and from Mr Reeve confirmation that Enhanced Value of £200,000 reflected an assumed land value for Units 5, 7 and 9 together after the grant of planning permission in the region of £5 million.  I accept therefore, that in informing Mr Skelly of their expectation that the Enhanced Value payable to the vendor of Unit 5 could be as high as £200,000, Mr Vanteen and Mr Reeve both had it in mind that the value of Units 5, 7 and 9 with the benefit of planning permission could be as high as £5 million, but was unlikely to be higher, in the absence of any rise in the market.  
93.	Chartbrook made its option agreement with the vendor of Unit 5 on 22nd January 2001, but in the meantime Persimmon had gone quiet on the main transaction, apparently due to take over talks which lead to Persimmon’s acquisition of Beazer Homes Limited.  On 24th January Mr Reeve wrote to Mr Pendlebury stating (probably with tongue in cheek) that he assumed that Persimmon had withdrawn from the transaction.  On the following day Mr Assael informed Mr Skelly that it was the Beazer Homes takeover which was causing the hiatus.  He said that Persimmon needed to be sure that, following the takeover, it would have the necessary funds to acquire the Hardwick’s Way site from Chartbrook.
94.	Following the Beazer Homes takeover, Mr Pendlebury met Mr Reeve and Mr Vantreen on 29th January.  Although none of those attending it had any detailed recollection of the meeting, I infer that Mr Pendlebury had by then ascertained that Persimmon did not, following the takeover, have the funds sufficient to warrant an outright purchase of the Hardwick’s Way site, either unconditionally or even subject to satisfactory planning permission, such that payment of the bulk of the price would be significantly delayed. Rather, he wished to introduce to Chartbrook two quite different alternative concepts, namely a building licence or a joint venture proposal, in substitution for an immediate purchase. Either of those methods would (if all went well) enable Persimmon to fund its payment to Chartbrook from sales revenue and, as Mr Pendlebury explained in evidence, keep the site off its balance sheet.
95.	On the following day, he sent Mr Reeve a fax enclosing Persimmon’s latest development appraisal for the site on the basis of what he described as a “safe uplift scheme i.e not including the tower.”  The appraisal, dated 11th January, assumed planning permission for 81 residential units, a GDV £17,943,000, costs of £9,352,411, a gross margin of £5,096,350 based on 28.4% of the GDV, and a net land value of £3,205,724.  In the margin Mr Pendlebury had written in an alternative calculation based upon a 24% gross margin, producing a net land value of £3,930,522.  In his fax, Mr Pendlebury explained the calculations in the margins on the basis that if he was buying on the open market, he would look for a gross margin 23-24%, increasing the residential land value to £3,930,522, and generating a gross land value including the commercial element £4,745,632.  He concluded by saying that he hoped shortly to be able to make both a building licence and a joint venture proposal.
96.	Mr Pendlebury set out both those alternative proposals in a letter to Mr Reeve dated 1st February 2001.  The joint venture proposal was of no interest to Chartbrook and can be ignored.  By contrast, the building licence proposal formed the basis of all the subsequent negotiations leading to the making of the Agreement.  The letter began with a restatement, adjusted slightly downwards, of what Mr Pendlebury regarded as the open market value of the site (that is Units 5, 7 and 9) if he were acquiring it with the benefit of planning permission for 80 residential units and 10,000 square feet of commercial space.  The 80 residential units assumption was described in the development appraisal sent to Chartbrook as comprising of 56,442 square feet of floor area.  Mr Pendlebury’s revised land value figure was £4,663,000 for residential and commercial combined, but he noted that if planning for 68,000 square feet could be obtained (by which I assume he meant of residential floor area) the land value would be significantly higher.  
97.	The letter continued as follows:
            “Building Licence Arrangement”
This is a relatively simple arrangement, whereby Chartbrook retain the freehold ownership of the site and grant a licence to Persimmon Homes to enter the property in order to undertake the development works.  At the point, when units are completed and ready to be sold, the lease is granted directly by Chartbrook to the purchaser thus avoiding the need for any form of transfer between Chartbrook and Persimmon Homes that would involve the payment of stamp duty.
On the basis that such an arrangement is of interest to yourself and Stephen, we would be prepared to pay you 29.8% of the net sales proceeds generated from the private sale residential element of the scheme and a further 45% of the net sales revenue generated from the disposal of the commercial element of the site.  We would pay you this proportion of the income regardless of the development costs incurred by my Company and the quantum of accommodation that we ultimately obtain planning permission for.
In order to enable you to make a comparison, based on the uplift scheme for 80 units, the land value generated through a building license is approximately £5,760,000 (five million, seven hundred and sixty thousand pounds).  In addition, on the basis that you would retain the freehold, you would also be able to benefit from any income generated by the ground rents which when disposed of, could yield further income of approximately £200,000.  By tying your land value to a percentage of income, you will also automatically share in any sales uplift that we experience.”
98.	After a description of the alternative Joint Venture Arrangement, Mr Pendlebury included a table by which he sought to compare the land value generated by four different approaches.  The first was the unconditional acquisition (the subject matter of the, by then, fully negotiated draft put and call option).  The second was a subject to planning open market acquisition; the third was the building licence structure and fourth was the joint venture structure.  The land values shown in the table were:  
1.	£4,020,744 
2.	 £4,663,216; 
3.	£5,760,000
4.	£5,883,188.
99.	Having noted that the figures would all increase significantly if planning permission were obtained for a development which incorporated a tower (and therefore a large increase in the number of residential units), the letter continued as follows:
“In both respects, it appears that the land value that could be obtained by Chartbrook would be significantly higher than if the site was sold on the open market and would warrant the additional holding costs that you would incur during the development period…. ”
The letter concluded with a proposal for a further meeting at which Persimmon’s new proposals could be explained in more detail.  
100.	That meeting duly took place 6th February 2001. The only witness who claimed to have any detailed recollection of it was Mr Pendlebury. In his witness statement he referred to it only by reference to his letter written to Mr Reeve later that day (to which I refer in detail below). He did however purport to recall taking Messrs Vantreen and Reeve through an appraisal at a meeting which he dated 31st January. In fact there was no meeting between them between 29th January and 6th February. 
101.	In cross examination however he gave a detailed account of his taking Messrs Vantreen and Reeve through a different type of development appraisal tailored to a building licence, at the 6th February meeting, and letting them take it away with them, a step for which he said he could have been disciplined, and which therefore stuck in his memory. The point of this evidence was that Mr Pendlebury said that he had used that different type of appraisal to explain how giving Chartbrook a percentage share of sales revenues fitted in with Persimmon’s financial planning. Mr Pendlebury could not point to the document itself anywhere in the parties’ disclosure, but he described it by reference to a similar but later appraisal in the trial bundles.
102.	The late emergence of this potentially important evidence meant that no such account of the 6th February meeting was put either to Mr Vantreen or to Mr Reeve in cross examination. If it had been, I think it probable having regard to the general level of their recollection of events at that time that they would not have been able to recall, one way or the other, whether Mr Pendlebury’s account was accurate, but their evidence, which I accept, was that they were not particularly interested in the residual appraisal process by which Persimmon claimed to have calculated any particular offer. While I attribute no intention on Mr Pendlebury’s part to mislead, I am unable to attribute much weight to his late account of the 6th February meeting. His evidence about this important period was muddled as to order of events, and even if he did take Messrs Vantreen and Reeve through an appraisal on 6th February, I am unable to reach any conclusion as to what it showed them about Persimmon’s financial assessment of the price it might be worth paying Chartbrook for the site, on terms which deferred payment for several years beyond anything proposed prior to the end of January.
103.	The meeting was as usual followed up by a further letter from Mr Pendlebury to Mr Reeve setting out “as promised” more detailed terms of a proposed building licence.  Again, the letter was based on an assumption that planning permission would be obtain for  80 residential units, but with  9,020 square feet of commercial floor space, although it was noted that the payments would adjust depending on the eventual scheme that obtained detailed planning permission. 
104.	The main terms of the proposed building license were set out in a series of bullet points, the last of which reads as follows:
“Upon receipt of the purchase monies, the revenue will be apportioned to Chartbrook, on the basis of 29.8% of the net revenue achieved from the disposal of the private sale residential units and 45% of the net revenue from the disposal of the commercial units.  In addition, we are prepared to provide you with guaranteed backstop dates and minimum payments that will be made regardless of the actual performance of the project both in terms of timescales and cost.”
There was appended to the letter a schedule of guaranteed payments in 8 stages amounting in aggregate to £5,760,000, each payable either on the sale of 10 plots or upon specific dates starting 25 months and finishing 46 months after the implementation of the Planning Consent.  
105.	The letter itself continued as follows:
“Based on the current scheme for 80 units, and 9,020 sq ft of commercial floor space, the minimum land value we are prepared to pay to Chartbrook on the disposal of each residential unit is £67,000, together with a further minimum payment £400,000 on the disposal of the commercial unit.  If as a result of improvement in the market, Chartbrook are entitled to more than the minimum payments I suggest that an equalisation calculation takes place following the disposal of the last unit.
As mentioned above, the figures contained herein are based upon our uplift scheme and we would obviously need to adjust the land value and guarantees depending upon what the actual outcome of planning is.  Within the contract, I therefore suggest that a formula is included whereby the land value is calculated using the following inputs:
Private Sale Residential Accommodation (NIA) - £94.96/ sq ft
Affordable Housing Accommodation (NIA) -  £0/sq ft
Commercial Floor Space (NIA) - £44.34/per sq ft
Once the total land value has been calculated, a simple formula can then be applied to divide the land values by the number of units, in order for us to calculate the guaranteed payments that you will receive on the sale of each plot.  I suggest that the guaranteed backstop dates for the receipt of these payments, together with the percentage of open market value that you are entitled to, remains the same regardless of the outcome of the Planning Application. ”
106.	Following a further meeting between the parties on the 9th February, Mr Pendlebury wrote a further letter to Mr Reeve of 12th February, the purpose of which was, without altering the overall financial effect of the proposed building license, to split the component parts of the residential elements of the pricing structure between the units and their associated car parking spaces.  This appears to have been motivated by the perception that the number of car parking spaces in any planning permission was likely to be approximately half the number of residential units.
107.	The letter contained the first of two tables seeking to analyse in numerical terms the various components of value to be afforded to Chartbrook under the building license.  I reproduce it below.
	Percentage of Sales Revenue	Minimum Value per Plot	Number of Plots	Total	
Residential Apartments	29.87%	£65,576	80	£5,246,068	
Residential Car Parking Spaces	29.87%	£2,987	38	£113,506	
Commercial	42.02%	£400,000	1	£400,000	
108.	The letter continues as follows:
“You will see that, while I have broken the elements down further, the total land value payable to yourselves, still remains unchanged at £5,760,000.  We are obviously also prepared to continue with the minimum guaranteed payment dates and I enclose a revised schedule with this letter.  As a result of the re-apportionment of the revenues, the multiplier to calculate the land value for the Private Sale Residential element is changed to £92.92 per sq ft NIA.  All the other multipliers remain unchanged. ”
109.	It is evident from the study of the table, the text of the letter and the accompanying schedule of guaranteed payments (if necessary with the assistance of a pocket calculator) that the “total land value” referred to in the paragraph quoted above means the total guaranteed minimum land value, rather than any higher value that might be derived from the application of the percentages in the left column of the table to the sales revenue ultimately achieved.  
110.	It was common ground between all the relevant witnesses (Messrs Vantreen, Reeve, Skelly, Pendlebury, and Assael), that some time shortly after Mr Pendlebury’s letter of 12 February, Chartbrook’s agreement in principle with the building licence proposal was communicated to Persimmon.  It was on the basis that there was such an agreement in principle that Mr Assael prepared the first draft of what became the Agreement, which he e-mailed to Mr Skelly in two parts, respectively on 28th February and 1st March 2001.  The first e-mail included everything other than Schedule 10, which followed in the second e-mail.  Schedule 10 was the predecessor of Schedule 6 to the Agreement.  Subject to the exception referred to below, all the definitions in what became Schedule 6 which are relevant to the meaning of the ARP and the Balancing Payment appear word for word in the same terms in this first draft of Schedule 10.  The only differences are: first, that all the numerical amounts including the percentages changed; and secondly, that the Balancing Payment originally meant the aggregate of the ARP, the Additional Commercial Payment and the Additional Car Park Payment.  The second and third of those three items were at successive stages in the drafting removed from the definition of Balancing Payment, which is why in the Agreement as executed, the Balancing Payment is defined as meaning the ARP, on its face an apparently redundant piece of duplicative definition, explicable only by reference to the process of drafting.
111.	It follows that if the parties had contracted in the terms of the first draft of the Agreement, the question of construction of the definition of the ARP would have been resolved in exactly the same way as I have resolved it by reference to Schedule 6 of the Agreement as executed.  It further follows that if the definition of the ARP, construed as I have decided that it should be, failed to reflect a common intention as to its meaning about which the parties had reached agreement in principle in mid February 2001, it did so as the result of a drafting mistake by Mr Assael, or a failure by Mr Pendlebury to communicate that common intention to him in February, which went undiscovered by Persimmon during the whole of the eight months which elapsed before the  Agreement was executed.
112.	I have so far studiously avoided making any findings about the subjective intention of the parties during the detailed negotiating process which I have described, and have confined myself to findings about what they said and wrote, to each other and, to a limited extent, internally.  Their respective cases were that they had each reached a settled intention by mid February 2001 that the additional payment should be as they have respectively contended that the ARP and Balancing Payment should be construed, save only that Persimmon has belatedly acknowledged that the Costs and Incentives should be deducted from the price achieved for each Residential Unit before the application of what became (after adjustment) the 23.4%. Each maintained that, at the time, they assumed both that their intention was shared by the other side, and that the first and all subsequent drafts of the ARP definition reflected that intention.
113.	I shall conclude my findings as to how the parties behaved towards each other down to and slightly beyond the execution of the Agreement, before returning to express my conclusions as to their respective subjective intentions, both in mid February 2001 and thereafter.
114.	No significant negotiations took place between the parties before Mr Assael prepared the second draft of the Agreement and circulated it both to his clients and to Mr Skelly on 13th March.  Manuscript notes on Persimmon’s copy of the second draft show that what had by then become Schedule 7 (relating to the Price) was carefully checked, probably by Mr Pendlebury.  Mr Skelly took Mr Vantreen and Mr Reeve through the second draft in detail at the meeting on 20th March.  His attendance note contains the following paragraphs:
“We then dealt with the Agreement by going through it line by line, flagging up those matters which would need discussion tomorrow with Persimmon.
The last point left was the Seventh Schedule relating to calculation in price, as I have stated they have negotiated this with Persimmon and had Persimmon’s letters relating its calculation and they agreed they would themselves go through that Clause to confirm that the construction of the price and payment was agreed.”
115.	Mr Vantreen, Mr Reeve and Mr Skelly all said that they recalled that meeting. Mr Reeve did not recall it in sufficient detail to be able to say whether Schedule 7 had been considered line by line. In his witness statement Mr Vantreen said that this did happen, but in cross examination he was not sure whether Mr Skelly took him through the Price schedule earlier than in October, shortly before execution. Mr Skelly was in no doubt that he did take both of them line by line through Schedule 7 on 20th March, explaining its meaning in the terms which I have held to be its true construction. He said that during the meeting Messrs Vantreen and Reeve did confirm by way of instructions to him that the Price was agreed to be as he had explained by reference to the Schedule. Mr Skelly said this both in his witness statement and in cross examination. 
116.	Mr Skelly explained the paragraph in his attendance note which described Schedule 7 as being left for his clients to go through, not as suggesting that he did not explain its meaning, but as recording that, because of its importance to Chartbrook, his clients should check carefully before the meeting next day with Persimmon, against the letters from Mr Pendlebury (which had by then been copied to Mr Skelly), whether the meaning which he had explained was what had been agreed. Mr Nugee invited me to reject that evidence, as being irreconcilable with the contemporaneous attendance note.  I have not been persuaded on that ground to reject the clear evidence of a careful and impressive witness. Although the attendance note is contemporaneous, it was (as Mr Skelly said) designed as an aide memoire, ahead of a meeting with Persimmon and its lawyers the next day, rather than as a precisely formulated statement of evidence. Having heard Mr Skelly, I consider that the import of the relevant paragraph in the note was to remind Mr Skelly of a piece of unfinished business to be carried out by his clients, namely to check, with the assistance of the correspondence, whether they were able to confirm that the important terms of Schedule 7 were in all respects as agreed. The unfinished business did not include his clients going through the Schedule on their own for the first time, to work out what it meant.
117.	As planned, a meeting did take place on the following day at Hammond Suddards Edge’s offices between Messrs Pendlebury, Assael, Reeve, Vantreen and Skelly, to discuss the terms of the second draft in detail.  Mr Skelly’s attendance note of that meeting shows that there was discussion about Schedule 7, but apparently in relation only to the timing of the payment of the Balancing Payment, rather than to the formula for calculating its amount. Mr Assael stated in his witness statement that at that or some other meeting which he attended, Mr Pendlebury took Messrs Vantreen and Reeve through the overage provisions in the Agreement and explained how they would work. For the reasons given above, I can place no reliance on this evidence from Mr Assael.  Beyond his description of the 6th February meeting, which I have not in any event accepted and which Mr Assael did not attend, Mr Pendlebury did not describe any other occasion on which he attempted orally to explain the overage provisions in the Agreement to Mr Vantreen or to Mr Reeve, otherwise than as appears from his letters. He readily accepted that he never provided or went through a worked example.
118.	One concern which was discussed at the meeting on 21st March was that there was nothing in the Agreement as drafted to prevent Persimmon from selling off blocks of residential units at a discount to their individual market value. Mr Skelly’s attendance note recorded that, after some discussion, “BR and SV finally accepted the principle that any overpayment or balancing payment at the end was a bonus which they might not receive but they could draw some assurance from the fact that they were receiving a balancing payment from Persimmon.” Mr Skelly confirmed in evidence that this was what had been accepted.
119.	On 28th March Mr Pendlebury sent a copy of Schedule 7 to Mr O’Neill, with the following commentary:
“  … please find attached Schedule 7 from our proposed Purchase Agreement that sets out exactly how the land value is to be calculated.  
In summary each of the individual elements of the scheme, i.e sale residential, private sale residential car parking spaces, commercial and affordable housing, is each calculated by taking the total NIA of that particular element that obtains Planning Permission and is multiplied by an agreed land value per square foot or per space.  This formula will calculate the minimum guaranteed land value, although we have agreed to make a balancing payment, which is calculated upon a percentage of the net sales revenue.”
120.	Matters were then delayed by Chartbrook’s obtaining the opportunity to acquire Units 1and 3 Hardwick’s Way, and its desire to include them within the subject matter of the building licence.  Persimmon was in principle prepared to accommodate Units 1 and 3 within the scheme, but needed to carry out a due diligence (without alerting the then owners of those units to the possibility that they might be developed alongside Units 5 to 9). Persimmon also needed to reconsider the planning potential of the larger site, and to recalculate its residual appraisal.  
121.	This led to a further offer being made by letter from Mr Pendlebury to Mr Reeve dated 24th May, following a further meeting between the parties of which, again, none of the witnesses had any distinct and reliable recollection.  It is apparent from the letter that Chartbrook had at the meeting asked for alternative payment options, the second of which was to contain an initial premium payable on the grant of detailed planning permission, by way of departure from the existing draft of the Agreement, under which the guaranteed payments were to be made in stages starting more than 2 years and ending more than 4 years thereafter.  By his letter of 24th May Mr Pendlebury did offer two alternatives payment options, the second of which did provide for such a premium.  Since it was not in the event adopted, I shall say no more about it,  save to note it included guaranteed minimum payments for the balance of the price in excess of the premium together with “a profit share arrangement should the project exceed our expectations with regard to anticipated resale value”.
122.	The terms offered under option one consisted of a structure identical to that offered by Persimmon’s letter of 12th February, but with substantially revised financial amounts and percentages, necessitated by the addition of Units 1 and 3 to the development site, and (according to Persimmon) by a further and more pessimistic review of anticipated build costs.  It is necessary to set out the whole of the Option 1 offer verbatim:
“Option 1
This Option is consistent with our previous agreement, whereby Chartbrook will not receive any form of premium on either exchange of the Building Licence Agreement or alternatively on the receipt of the Detailed Planning Permission, but rather take all of the Purchase Price as deferred payments dependant upon the performance of the project , albeit with guaranteed backstop dates and minimum sums.
Based upon this proposal, Persimmon Homes (South–East) Limited are prepared to offer a total land value of £7,191,947 (seven million one hundred and ninety one thousand, nine hundred and forty seven pounds) on the basis that our respective Companies enter into a Building License Agreement and that the necessary level of security is afforded to Persimmon Homes through a First Charge as well as a Power of Attorney to grant leases directly from Chartbrook to our purchasers.
The table below sets out the minimum guaranteed land values that you will receive for the respective elements of the scheme, together with the percentage of sales revenue that you will also be entitled to if the project performs better than is currently anticipated.

	Percentage of Sales Revenue	Minimum Value per Plot	Number
of Plots	Total	
Residential Apartments	23.4%	£53,333	105	£5,60,000	
Residential Car Parking Spaces	30.24%	£3024	80	£241,947	
Commercial	45.02%	£1,350,000	1	£1,350,000	
TOTAL				£7,191,947	

In addition to the above guaranteed payments, we are also prepared as with our previous proposal, to provide you with guaranteed backstop dates when these payments will be made regardless of the performance of the actual project.  The attached schedule sets out our proposals in respect of this matter.

Given that the contract will be conditional upon planning, it is obviously not possible at this stage to finalise the exact land value for each of the individual element of the scheme and hence calculate the minimum guaranteed payments.  I therefore suggest that the contact includes a ratchet mechanism incorporating a formula that multiplies that net internal floor area for each of the respective elements by an agreed land value in order to calculate the total land value for the whole scheme.  The table below sets out the proposed land value for each of the elements.

	Land  Value per Sq ft NIA	
Private Sale Residential Accommodation	£76.34 per sq ft	
Residential Car Parking Spaces	£3,024 per space	
Commercial Accommodation	£38.80 per sq ft	
Affordable Housing Accommodation	£0 per sq ft	

  You will see from the above table that if it is necessary to provide affordable housing on the scheme it is placed into the equation at nil value.  This is consistent with our pervious agreement.”
123.	The letter also contained the following paragraph under the heading Contractual Provision:
“You also expressed your concern about the possibility of Persimmon Homes undertaking a block disposal, to an investment Company at less than open market value and effectively removing any possibility of Chartbrook obtaining any sales overage.  To this extent, I have no objection, should Persimmon decide to pursue such a route, to a provision within the contract that effectively provides for an independent valuation to take place on completion of the building and any sales overage that would be due over and above the minimum guaranteed land value is then paid to Chartbrook.
I do not believe any of the above reflects terms significantly different from that contained in the current contract… ”
124.	Mr Vantreen was sent a copy of that letter (probably by Mr Reeve), and at the top of its second page, which contained the two tables which I have set out above, he wrote in manuscript “£325.p.f.s” and, a little to the right, “£228,000”.  In cross examination, he readily acknowledged, although he could not recall doing so, that he probably derived each of those figures from, respectively, the Private Sale Residential Accommodation Land Value per square foot of £76.34 and the Minimum Value per plot of the Residential Apartments of £53,333.  In each case he arrived at his manuscript figures by grossing up the two stated amounts in the tables from 23.4% to 100%.  It was put to him in cross examination that he did so in order to calculate the sale price which the residential units as a whole would have to exceed in terms of pounds per square foot and the sale price which each flat would, on average, have to achieve, before any Balancing Payment would become available to Chartbrook above the minimum guaranteed amounts.  While he did not accept this, Mr Vantreen could not think either in cross examination or re examination of any other reason for his having made that calculation.  It was of course a very relevant calculation if Persimmon’s construction of ARP represented the parties’ common intention, but of no obvious relevance on the construction advanced by Chartbrook.
125.	It is common ground that, shortly after 24th May, either Mr Reeve or Mr Vantreen communicated Chartbrook’s oral acceptance in principle of the revised offer for the enlarged site as specified in Option 1, notwithstanding the substantial reduction in the percentage of Chartbrook’s share of the sale value of the Residential Units from 29.87% to 23.4%, which Persimmon had sought to attribute to an anticipated increase in build costs.  In due course, the revised financial amounts and percentages proposed in the 24th May letter found their way by amendment into what became Schedule 6 to the Agreement. 
126.	There were further negotiations about the basis upon which Chartbrook would take back the commercial element of the development on a long lease to a subsidiary, but the details do not significantly affect the rectification issue.  Originally, Chartbrook was to have an option to take the commercial unit. Then in August Chartbrook agreed to pay a substantial penalty if it did not exercise it. In early October, the penalty was raised from £1/2 to 1 million. At the last minute, Chartbrook undertook an unqualified obligation to take the commercial unit at £110 per square foot, a financial obligation of just under £4 million in respect of a commercial part for which Persimmon was paying £1.383 million. 
127.	On 10th July 2001 Chartbrook made a put and call option agreement with the owners of Units 1 and 3 at a purchase price of £800,000.  Thereafter, Mr Vantreen and Mr Reeve turned their minds to the question how to finance the project during the lengthy period which would precede any payment to Chartbrook by Persimmon under the building licence.  Chartbrook had already charged part of the site in connection with funding the purchases of Units 5 to 9, and needed to redeem that charge so as to be able to give a first  charge of the site to Persimmon as security for its obligations under the building licence, as contemplated by the Agreement then in draft.  Accordingly, Chartbrook sought to re-finance on the security of the Agreement itself, backed by Persimmon’s covenant, a company which had after its takeover of Beazer become the largest house builder in the United Kingdom.  Approaches were made to HSBC, to the Clydesdale Bank and to the Royal Bank of Scotland. They focused on the minimum guaranteed payment under the Agreement, variously described as £7.1 million, £7.3 million and “around” £7.4 million as security for finance in a range between £2.5 and £3.6 million.  No mention was made in the written approaches to the three banks of any specific monetary figure expected to be obtained by way of Balancing Payment.
128.	Meanwhile, on 30th August, Mr Pendlebury reported by e-mail to Mr O’Neill. The e-mail included the following paragraph:
“…. The Vendors are seeking to ensure that they are able to obtain the maximum return from the Building Licence, and specifically from the potential sales overage that is incorporated within the Agreement.  As with all licences, the payment Chartbrook receive is either a minimum guaranteed sum or 23.4% of the net sales revenue, whichever is the grater (sic.)”
129.	The above detailed description of the parties’ negotiations has involved few significant issues of fact.  The contentious issues all relate to the parties’ respective subjective intentions during those negotiations.  Persimmon’s case as to its own intention is most concisely summarised by the short paragraph in Mr Pendlebury’s e-mail to Mr O’Neill which I have just recited.  The essential structure of the price formula was intended, throughout the negotiation of the building licence, from the beginning of February 2001 until the execution of the Agreement in October, to be such that Chartbrook should receive either a fixed percentage of the net sales revenue, or a minimum guaranteed amount, whichever proved to be the greater. In fact the first expression of the price payable was as two simple percentages of the sales revenue, one for residential and one for commercial, in the letter of 1st February. The concept of the guaranteed minimum followed shortly afterwards, on 6th February. Persimmon’s case was that since this had been unambiguously spelt out in each of Mr Pendlebury’s letters of 6th and 12th February and 24th May 2001 and accepted in principle by Chartbrook, this was also what Chartbrook intended.  
130.	Chartbrook’s case was that Mr Reeve and Mr Vantreen understood that what was on offer by way of payment for the building licence was, throughout the negotiations, a guaranteed minimum amount together with an additional amount based upon a percentage of the amount by which the net residential sales revenue exceeded the guaranteed minimum amount.  It is important to note that Mr Vantreen and Mr Reeve both said in evidence that they had formed this understanding of what was being offered by the time of the agreement in principle in mid to late February 2001, before lawyers were instructed, such that their reading of what became Schedule 6 during their appraisal of the drafting process was no more nor less than what they expected to find, as a faithful reflection by the lawyers of the commercial bargain already made subject to contract by their principals.

131.	I have no hesitation in accepting Persimmon’s case as to its own subjective intention. It is supported by the evidence of all the witnesses called on its behalf, and by a fair reading of the contemporaneous documents generated by Mr Pendlebury, in particular his letters to Mr Reeve which I have described in detail, and his reports to his superiors.  In reaching that conclusion, I take full account of the unconditional offer to purchase by Persimmon contained in Mr Pendlebury’s letter to Mr Reeve of 17th January 2001, and the agreed drafting of the then current put and call option between the parties.  These earlier documents contained a form of sales overage consisting of a percentage of the excess of the residential sales proceeds above the amount payable by way of land value and planning overage.  I accept that Persimmon did not itself intend that a sales overage of that type should be included within the structure of its proposed building licence. The building licence was to Persimmon a very familiar form of development agreement, with its own very different pricing structure.
132.	In reaching that conclusion I have also taken full account of the fact that Mr Pendlebury continued after January 2001 to describe what became the Balancing Payment as a form of sales overage, and that he personally reviewed the Agreement while in draft, including a clause by clause check on what became Schedule 6. My conclusion necessarily involves a finding that, despite their reluctance to admit it, both Mr Pendlebury and Mr Assael made an extraordinary mistake in failing to appreciate that the definition of ARP in all the drafts of what became Schedule 6 provided clearly for something very different from that which they intended. But I do make that finding. The evidence on that issue is clear and compelling, and permits no other conclusion.
133.	The first limb of Pesimmon’s rectification claim, namely that at all times until the execution of the Agreement it had a specific intention as to the meaning of the ARP and Balancing Payment different from that which, upon its true construction, the Agreement provided, is therefore established.
134.	I have found it much more difficult to reach a conclusion as to Chartbrook’s intention in that regard.  I remind myself that although the traditionally phrased rule that a case for rectification be proved by “strong irrefragable evidence” has been updated, the requirement remains that there should be “convincing proof”. This does not replace the ordinary civil burden of the balance of probabilities. The need for convincing proof is because the inherent probability that the parties intended to express their bargain in their contract is not lightly to be overcome: see Thomas Bates Ltd v Wyndham’s (Lingerie) Ltd [1981] 1WLR 505, at 521.
135.	This requirement for convincing proof applies to all aspects of a rectification claim, whether based on common or unilateral mistake: see again the Thomas Bates case, per Brightman LJ at p.521. In a unilateral mistake case the claimant will have failed (or not attempted) to establish that his counterparty shared his intention. In the absence of some other kind of inequitable conduct, the claimant will normally have to show that his counterparty knew of his mistake, and remained silent nonetheless, in circumstances where good conscience required him to speak out. There may be cases where the counterparty’s conduct is so inequitable that suspicion rather than knowledge of the claimant’s mistake is the appropriate mental element, but it is not suggested that the present case is one of them. The requisite knowledge is actual, including for that purpose ‘blind eye’, knowledge: see Commissioner for the New Towns v Cooper (Great Britain) Ltd [1995] Ch 259, and George Wimpey UK Ltd v VIC Construction Ltd [2005] BLR 135, per Blackburne J at 150.
136.	In unilateral mistake cases the reason why convincing proof is needed of the counterparty’s knowledge of the claimant’s mistake is because of the inherent improbability that the counterparty would behave so inequitably as to keep silent, once he knows about it. As Blackburne J put it in the George Wimpey case:
“…it is difficult to regard as altogether honest the conduct of a person who allows another to enter into a contract with him, knowing that the other is labouring under a mistake as to the contract’s terms (the mistake being one which is calculated to benefit the former) but saying nothing to alert that other to his mistake. In short, by its nature, a successful rectification claim based upon unilateral mistake will usually, if not always, call into question the probity of the defendant.”
137.	The effect of a successful rectification claim based on unilateral mistake is always that it imposes a contract upon the defendant which he did not intend to make. It is the unconscionable conduct involved in staying silent when aware of the claimant’s mistake that makes it just to impose a different contract upon him from that by which he intended to be bound. For that reason as well, convincing proof is needed that the defendant’s conduct, taken as a whole, fell short of the requirements of good conscience.
138.	The difficulty with the evidence of Mr Reeve and Mr Vantreen that they both believed, before the end of February 2001, that Persimmon was offering Chartbrook a percentage of the sales price in excess of the guaranteed minimum payment (described in cross examination by Mr Nugee, purely as a short label, as “super-overage”) is to identify where they got that idea from. Neither of them could actually recall the thought processes which led them to that belief. Since they were from 20th March negotiating in the context of a draft definition of ARP in what became Schedule 6 which clearly did justify that belief, this absence of recollection in relation to February is hardly surprising. But they were both adamant in their evidence, in witness statements and in cross examination, that their belief had been formed before seeing the first draft of that definition, on 20th March.
139.	As they both accepted in cross examination, it is difficult to see how such a belief could have been derived from any of Mr Pendlebury’s three February 2001 letters, or from their effect in aggregate. The first spoke only of fixed percentages of the net sales revenue, the second promised minimum guaranteed payments, together with an additional payment if improvements in the market entitled Chartbrook to more than the guaranteed minimum, while the third merely split the residential element between flats and car parking spaces, with no change in the amount on offer. 
140.	A careful reading of all three letters clearly suggested that the guaranteed minimum payments would amount in aggregate to the £5.76 million originally offered on 1st February, on the assumption that planning permission was granted for the 80 unit scheme, and that the 29.8% and 45% shares of residential and commercial sales revenue would only produce a larger figure if either planning permission for a larger scheme were obtained, or the market rose. The former (better planning permission) would produce a proportionate increase in the minimum guaranteed payments, so that the prospect of bettering the minimum guaranteed payments depended entirely on a market improvement.
141.	In sharp contrast, Mr Reeve and Mr Vantreen said that they believed in February that the super overage (even if available only in relation to the net sales revenue from the residential element) would produce a further £3 million or more in excess of the guaranteed minimum even if the market remained flat throughout the development period. Mr Reeve’s and Mr Vantreen’s own expectations of residential unit sales revenue were in the region £ 200,000 per unit. 29.8% of the excess of 80 units selling at £200,000 over the guaranteed residential payment of £5.36 million would be £3.17 million. Their belief was that the building licence proposal offered Chartbrook on the then current planning assumptions and in a flat market a deferred aggregate payment in the region of £8.76 million, against Persimmon’s stated opinion of current market value with planning permission of £4.663 million, and their own expectation of £5 million. 
142.	Furthermore, and in contrast with Persimmon’s stated assumption that a payment in excess of the guaranteed minimum would require a market rise, Mr Reeve and Mr Vantreen’s super overage analysis would still produce substantial additional payments even in the event of a catastrophic market fall. Only if the market fell by 66% (thereby reducing unit values to something in the region of the stated £65,576) would there be no additional payment. Their evidence was that they fully appreciated the implications of their belief as to what Persimmon was offering. As might be expected of experienced property dealers negotiating the sale of property, they said that their focus was throughout on the bottom line; i.e. the amount of money payable under each successive offer by Persimmon.
143.	Mr Reeve frankly acknowledged in cross examination, after being taken slowly through Persimmon’s February letters, that if he had a belief in February 2001 that Persimmon were offering a super overage, it must have been derived from a mistake made by him at that time. He did not identify (because he could not recall) anything different said by Mr Pendlebury at their 29th January or 6th February meetings as the basis for his belief. The only explanation he could give as to the source of his belief was that he had somehow carried over the sales overage structure proposed by Persimmon on 17th January (and reflected in Schedule 6 of the then draft put and call option which he had by then seen), into his calculation of how the percentage of net sales revenue would increase the payment to Chartbrook above the minimum guaranteed amounts. It will be recalled that the sales overage formula in the put and call option did indeed promise a similar percentage of the sales revenue in excess of the aggregate of the land value and the planning overage.
144.	Mr Vantreen offered much the same explanation, but his main point was that he could not possibly have believed that (assuming a flat market) Persimmon were offering only £1.1 million over their stated opinion of current market value as the quid pro quo for Chartbrook having to wait four or more years for its money, and that he would not in any event have agreed even in principle a building licence structure in which the long delayed pay-out was only three quarters of a million pounds above his then current expectation as to the value of the site with planning permission. If that had been understood by him as the offer, he said, the proposal would never have reached solicitors for drafting, because Chartbrook would simply have rejected it. This second point was not proffered as an explanation of the source of Mr Vantreen’s belief, but rather as his explanation for being so sure in his recollection as to what he then believed.
145.	The link with the sales overage structure in the 17th January offer has an element of logic in it, all the more so in the light of Mr Pendlebury’s reluctant admission that he went on referring to the additional payment, both in meetings and in writing, as a sales overage, and in the light of his obvious view that it was an inappropriate label to use. But it is not without its difficulties. The main one is that the trigger level for the 17th January sales overage was set at or slightly above the parties’ expectations of market value, at £345 per square foot. It was an overage which required a market rise if it was to bear fruit. By contrast they understood that the trigger for the super overage was £92.92 per square foot or £65,576 per unit- (see the 12th February letter)-i.e. at about one third of market value. Furthermore Mr Nugee pointed out that the additional payment structure actually intended by Persimmon and reflected in the February letters did work like a sales overage designed to provide a share of market uplift, provided that the level at which the guaranteed payment was set was grossed up from (in February) 29.8% to 100%, to reveal the true, but implied, trigger level. Grossing up in that way produces implied trigger levels in February of £312 per square foot, and £220 per unit.
146.	Mr Reeve’s and Mr Vantreen’s evidence was that they realised at the time than the trigger for the building licence overage was being proposed at a much lower level than it had been for the put and call option, and assumed that this was the proffered quid pro quo for the very long deferral of the payment. Mr Nugee sought to ridicule this explanation on the basis that the uplift of £1.1 million being offered by Persimmon above its opinion of the then market value of the site with planning permission was a more than sufficient compensation for Chartbrook’s holding costs during the period of deferral, and that if Persimmon had been offering any more by way of uplift, it would have been advertised in no uncertain terms in the February letters.
147.	I found Mr Vantreen’s answer to the first of those points to be persuasive. He said that for a property dealer, the cost of deferral was not merely the holding cost (i.e. interest payable to bankers) but the loss of the use of otherwise realisable capital for other property deals. At his valuation of £5 million with planning permission (realisable on a conventional conditional contract in about one year), Chartbrook could not seriously be asked to take a mere £¾ million for a deferment of a further three years or more. He produced material on which he was not cross examined supporting his assertion that he would look to make a return on capital in the region of 20% per annum. To the second point there is no obvious answer. If Persimmon were really offering not £5.7 million, but £8.7 million (on a flat market assumption) as the quid pro quo for a long deferment of the payment, why leave that to be deduced from the use of a calculator, or by mental arithmetic?
148.	Mr Nugee pressed me to address the question: “What was Chartbrook’s belief as to what Persimmon was offering by the end of February?” as a discrete and decisive issue, from the resolution of which all else followed. If Messrs Vantreen and Reeve did not believe by then that the super overage was on offer, then, either (i) they never did until after contract, so that there was a common mistake, or (ii) if they only realised after February but before contract, as the result of reading the draft definition of ARP, they must have realised that Persimmon had made a drafting mistake, but kept silent.
149.	In one sense Mr Nugee’s approach is correct. In my judgment Messrs Vantreen and Reeve either thought in February that the super overage was on offer, or they understood the offer as I have found that Persimmon intended. Despite Mr Miles’ argument to the contrary, there is no credible middle ground. Their evidence was that they would not have agreed to let the building licence proposal go to solicitors for drafting without first forming a reasonably clear view about the bottom line (i.e. the amount on offer) and deciding that it was acceptable in principle. It is not credible that they simply went ahead to the instruction of solicitors with no clear view about what was on offer. It follows that if I were to reject their case that they thought the super overage was on offer, the inference is that, in February, Chartbrook shared Persimmon’s intention. 
150.	But otherwise Mr Nugee’s snapshot approach is wrong.  The evidence and in particular the credibility of Mr Reeve and Mr Vantreen needs to be assessed as a whole, and the probability or otherwise of Persimmon’s alternative factual rectification cases weighed against all the evidence, not merely as to events and beliefs in February, but through to October and beyond. The probabilities of the parties’ respective cases are not to be assessed in isolation. The question is which of two or more potential factual conclusions is the most probable, or, as sometimes occurs, the least improbable. Ultimately, the question remains whether the claimant (here Persimmon by its rectification counterclaim) has proved its case, rather than whether Chartbrook has proved the contrary.
151.	The first question, if Messrs Vantreen and Reeve did not believe that a super overage was on offer in February, is when they did first so believe? All that is clear is that by December 2001, when Chartbrook made a revised financing proposal to the Royal Bank of Scotland, via a broker named Carl Wright, Chartbrook understood that the ARP meant that which I have held it to mean, on its true construction.  In Mr Reeve’s undated letter to Mr Wright written shortly after 10th December 2001, he said this :
“It is apparent that the guarantee from Persimmon after the deduction of the commercial payment will be more than sufficient to repay the borrowings and of course this takes no account of the balancing payment on completion of the development. This amounts to 23.45% of the price achieved for each residential unit in excess of the minimum guaranteed unit value.  This figure cannot be quantified until we have planning permission but if the submitted application is successful it would mean a guaranteed residential unit value of approximately £65,500 and if we assume average sales at £200,000 per unit the balancing payment will be in excess of £3,000,000.”
So it would, on the true construction of the agreement, but Persimmon’s intention was that, on residential sales of an average of £200,000 per unit there would be no Balancing Payment at all.  
152.	It is to be noted that having been appointed by the Royal Bank of Scotland to advise, Eversheds independently reached the same conclusion about the meaning of Schedule 6, although they attributed no particular financial amount to it, in their report to the bank. They copied the report to Mr Skelly on 7th December 2001. It was not however suggested to any of Chartbrook’s witness that they derived their understanding of the true construction of the ARP definition from reading, or being told about, Eversheds’ report. I therefore put that possible explanation aside.
153.	I find it difficult to imagine how Messrs Reeve and Vantreen could for the first time have stumbled upon the true meaning of ARP between exchange of contracts on 16th October and mid December 2001. This was a complicated contract negotiated over eight months, and which once exchanged was likely to have been put to bed by Chartbrook, pending a long deferred series of payment dates. Further funding discussions with RBS seem an unlikely occasion for a fundamental re-appraisal of the meaning of Schedule 6.
154.	The borrowing discussions with banks prior to exchange did not involve Chartbrook saying anything about its expectation as to the amount of the Balancing Payment. Mr Vantreen explained that it had been unnecessary to do so, because of the smaller amounts then being sought by way of loan, compared with the amount sought in December. The purpose of the guaranteed minimum payments was to make the Agreement bankable by way of security on Persimmon’s covenant, and even in December when the expected amount of the Balancing Payment was disclosed to Mr Wright (presumably for onward disclosure to RBS), it does not appear that the bank placed significant reliance upon it. I do not regard Chartbrook’s silence in August about the expected amount of the balancing payment, when seeking less than 50% of the guranteed minimum sums from banks, as a significant pointer to Chartbrook then being unaware of the true meaning of the ARP.
155.	Of more significance are Mr Vantreen’s manuscript notes on Mr Pendlebury’s letter of 24th May 2001. I have already described how they suggest an approach to the figures in that letter more in tune with Persimmon’s intention than with the true meaning of ARP. It is no surprise that Mr Vantreen could not remember why he wrote down those two amounts on a negotiating document over five years previously. The more serious question is whether, objectively, his having done so is consistent with Chartbrook’s case; i.e. whether there can be any explanation of them which does not point to the writer looking for the implied trigger level for the additional payment in exactly the way in which Persimmon intended. Mr Miles tried valiantly to find one, both in re-examination and in closing submissions. I was not convinced, and those notes constitute a persuasive piece of evidence towards a conclusion that Chartbrook had not by may 2001 focused upon the true meaning of the ARP. Nonetheless two manuscript figures, for which it would be unlikely for anyone now to recall the purpose, afford a slender basis for firm conclusions as to Chartbrook’s then intentions, in the absence of corroboration, and in the face of persuasive evidence to the contrary.
156.	More generally the text of the letter itself, repeating as it does the structure of the February letters but with different amounts and percentages, affords some support to an inference of a perception on Chartbrook’s part that Persimmon’s approach had not changed from February, notwithstanding the terms of the draft definition of ARP. But the effect of the letter is blunted by the sentence at the top of the last page, under the heading “Contractual Provisions”:
“I do not believe any of the above reflects terms significantly different from that contained in the current contract”

157.	Mr Vantreen pointed out that if he had shared Persimmon’s intention as to the formula for the Balancing Payment in May, then his and Mr Reeve’s acceptance of the reduction in the percentage from 29.8% to 23.4% would be even more extraordinary than their acceptance of the February offer as intended by Persimmon. Again, there is force in this. Although the amount offered by way of minimum guaranteed payment had risen, this was attributable to the addition of Units 1 and 3, which Chartbook had to buy in. The value of the price per square foot was being substantially reduced.

158.	In my judgment, and despite the indication to the contrary constituted by the 24th May letter and Mr Vantreen’s notes on it, the most probable date upon which, if later than in February, Chartbrook first became aware that an additional payment of the type reflected in the true construction of the Agreement was on offer, was 20th March 2001, when the first draft of what became Schedule 6 was explained to Messrs Vantreen and Reeve by Mr Skelly. In short, I have not been persuaded by the indications to the contrary which I have described to disbelieve Mr Skelly’s firm, careful and consistent evidence that he did so.
159.	If that was indeed the date when Messrs Vantreen and Reeve first became so aware, then three consequences seem to me to follow. The first is that they must have realised that Persimmon, or at least its solicitor Mr Assael had made a serious mistake, contrary to Persimmon’s interest. On 21st March they must have realised that Mr Pendlebury had not spotted it. It must have been inconceivable to Messrs Reeve and Vantreen that Mr Pendlebury would first offer £5.76 million (on a flat market assumption) in correspondence, obtain agreement in principle from Chartbrook, and then instruct his solicitor to draft the contract in a way which (on the same assumption) yielded a further £3 million for Chartbrook. The same goes for the 24th May letter, the general tenor of which reflected an intention different from the draft contract. This is because on this hypothesis Messrs Vantreen and Reeve must have originally read the similarly worded February letters in the same way as Persimmon intended them.
160.	The second consequence is that thereafter Messrs Reeve and Vantreen must have concealed their realisation of Persimmon’s mistake not only from Persimmon, but also from their own solicitor Mr Skelly (if I believe his evidence),  from their finance broker and from RBS when referring to their expectation of the amount of the balancing payment in December 2001. Their conduct would thereby be revealed not merely as contrary to conscience vis a vis Persimmon, but also as unnecessarily secretive and potentially foolhardy.
161.	The third consequence is that the whole of their evidence would be revealed as not merely the consequence of imperfect recollection, but as a tissue of lies. Businessmen do not forget profiting to the tune of £3 million from their counterparty’s drafting mistake, still less in the largest and most profitable transaction of their careers. It follows that, looking at this difficult case as a whole, I am in reality faced with only two alternatives. The first is that two apparently upright and experienced businessmen made an extraordinary mistake when reading Persimmon’s letters of offer in February (and again in May), for reasons which they cannot now remember, despite their best honest endeavours. The second is that they are cool risk takers, secretive from their own lawyers, dishonourable to their business counterparties for their own financial gain, and skilled and sophisticated liars on oath. In short, thoroughgoing rogues.
162.	Neither of those alternatives is, viewed separately, probable, but there is no convenient middle ground, and none was offered. For example, even if I had regarded it as plausible that Chartbrook first appreciated the true meaning of ARP between 16th October and mid December 2001, the pursuit of this claim would after advice on rectification have been a cynical try-on, and the evidence of its directors plainly dishonest rather than honest but unreliable. Forced to choose between two improbable alternatives, it seems to me that the requirement in rectification cases for convincing proof is of particular importance. 
163.	I have after considerable difficulty come to the conclusion that Persimmon has not proved either of its alternative rectification cases with sufficient clarity. I have real difficulty in understanding how Messrs Reeve and Vantreen made the mistake of thinking that Persimmon were offering in February what the first draft definition of the ARP clearly offered in March, but I have had to overcome similar difficulty in understanding how both Mr Assael and Mr Pendlebury failed to understand what that definition meant when they respectively framed and checked it. 
164.	But those difficulties are of lesser force than the difficulty of persuading myself that Mr Reeve and Mr Vantreen are the rogues which they would have to be if the necessary factual basis for Persimmon’s rectification case were to be accepted. I had the advantage of seeing both of them cross examined at considerable length and with great skill. I have not been persuaded that their evidence should be rejected as incredible, where to do so would involve a conclusion as to their honesty and probity wholly at variance with the impression which they made on me. In this Mr Skelly was an equally powerful support, and each of them gave evidence in the absence of hearing the evidence (or reading the transcript of the evidence) of those who preceded them. It follows that I dismiss the counterclaim.
The Car Parking Issue
165.	The ARP is to be calculated by reference to “the price achieved for each Residential Unit”. “Residential Unit” means a flat and is clearly distinguished from the “Residential Car Parking Spaces” by the use of separate definitions for each. Prima facie therefore the “price achieved” for a particular Residential Unit by its sale should not include any part attributable to the simultaneous sale of a Residential Car Parking Space to the same buyer.
166.	For understandable commercial reasons Persimmon marketed and sold flats together with specific car parking spaces as a single package, for a single price. There were roughly half as many flats as car parking spaces, and it is a fair inference that a flat sold together with the right to use a specific car parking space would sell for a higher price than an identical flat without one.
167.	In accounting to Chartbrook for its share of the sales proceeds from the development Persimmon credited Chartbrook with the specified Total Residential Car Parking Land Value of £3,024 multiplied by the number of Residential Car Parking Spaces, but deducted £10,000 from the sale price of each flat sold together with a car parking space, for the purpose of attributing a “price achieved for each Residential Unit” under the ARP definition. Persimmon chose £10,000 because the contractually defined Total Residential Car Parking Land Value had been arrived at by the application of 30.24% to a notional £10,000 sales value of each parking space: see Persimmon’s letters of 12th February and 24th May 2001. Since the apportionment of a single purchase price between a flat and the car parking space sold with it would be an uncertain matter upon which reasonable valuers might disagree, Persimmon simply used the figure of £10,000 upon which negotiations had proceeded as a rough and ready guide to the value of the space, giving Chartbrook the benefit of the doubt as to whether in fact parking space values had increased in the meantime.
168.	The question for me is however whether as a matter of construction the ascertainment of the “price achieved for each Residential Unit” as an element in the calculation of the ARP requires an apportionment in relation to flats sold together with the right to use a specified parking space, for a single price. For this purpose the parties’ negotiations are inadmissible. 
169.	In my judgment the true construction of the ARP definition clearly requires such an apportionment. Read in the context of Schedule 6 as a whole, the ARP was plainly designed to give Chartbrook a share in the sales price of flats above a guaranteed minimum, but not any similar excess in the sales proceeds of car parking spaces or commercial space. For that reason the “Land Value” of the car parking space is not deducted as part of the MGRUV, nor as an Incentive.
170.	Schedule 6 does not expressly prescribe how that apportionment is to be calculated, still less require that the apportionment should be determined by reference to the negotiating figure of £10,000 per space. In the absence of express provision, the implication is that the apportionment should be a fair and reasonable one, determined in the absence of agreement by the expert under paragraph 5. But for the much larger disputes in this litigation, that is how it would or should have been determined. Since all matters in dispute have by the parties’ consent been referred to me, I must decide that question as well, even though the parties directed no expert valuation evidence to its resolution. In my judgment Persimmon’s rough and ready apportionment by reference to £10,000 per space was eminently fair and reasonable, at least to Chartbrook, for the reasons already given. Accordingly Persimmon succeeds on this issue.
171.	I understand that the precise financial consequences of the conclusions to which I have come in this judgment are agreed, or are readily capable of agreement. I will hear submissions on the appropriate form of order.