England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		15/04/2011

Mr Justice Henderson:

Introduction

1. This is a rectification claim, but with an unusual twist to it which only became fully apparent in the course of the trial which took place over four days between 26 and 31 January 2011.
2. The rectification claim concerns an option agreement ("the Agreement") for the sale of a development site in Doncaster made on 27 February 2006 between the claimant, Woodford Land Limited ("Woodford"), as vendor and the defendant, Persimmon Homes Limited ("Persimmon") as purchaser. Woodford says that both parties entered into the Agreement in the belief and with the common intention that the cost of the provision of affordable housing on the site (which was required by the local authority, Doncaster Metropolitan Borough Council ("the Council"), as a condition of planning permission) would fall on and be borne by Persimmon; that the Agreement, on its true construction, provided for the costs in question to be deductible as development costs from the purchase price payable by Persimmon; and that the Agreement should therefore be rectified so as to give effect to the common intention of the parties by excluding the costs of affordable housing from the relevant part of the definition of development costs. An alternative claim for rectification on the grounds of unilateral mistake was also pleaded, but was abandoned by Woodford upon completion of the oral evidence.
3. Persimmon admits and avers that on the true construction of the Agreement the costs of providing affordable housing are deductible from the purchase price payable by it to Woodford. Persimmon denies, however, that there was any common intention to the contrary at the date of the Agreement, although it accepts that in the initial stages of the negotiations both parties intended that the cost of providing affordable housing would fall on Persimmon. The position changed, according to Persimmon, when its in-house solicitor with conduct of the matter, Mr Baird, amended the travelling draft of the Agreement to include a definition of development costs in terms wide enough to cover the costs of affordable housing, and the amendment was accepted without demur by Woodford. Persimmon says that, viewed objectively, this changed understanding remained essentially the same until the date of the Agreement, with the consequence that the rectification claim must fail.
4. That, in outline, is the nature of the dispute between the parties on the issue of rectification; but there remains a question which puzzled me when I first read the papers and the skeleton arguments of counsel on the day before the trial. Why was Woodford not arguing that, as a matter of construction, the Agreement meant what Woodford says it was always intended to mean? It seemed to me far from obvious that such an argument was untenable, and in cases of the present type it is almost traditional for the claimant to mount a prior argument based on construction, with the claim for rectification advanced in the alternative. Not only are there commonly perceived tactical advantages in proceeding in this way (it enables evidence of the negotiations, inadmissible on the question of construction, to be placed before the court), but, more importantly, the question of rectification only arises if the contract does not have the meaning contended for by the claimant. If, on its true construction, the contract means what the claimant says it ought to mean, then there is nothing for the court to rectify. Moreover, the true construction of a document is a question of law. It is not something that the parties can agree between themselves, in a manner binding on the court.
5. When I raised some of these points with counsel for Woodford, Mr John McGhee QC, near the start of his opening submissions, his initial reaction was to say that Woodford would welcome a favourable decision from me on the question of construction, so long as I also acceded to an application for permission to amend the particulars of claim to plead the case on that basis. He said that there had been an expert determination, in which he thought the question of construction had been conceded, but it had not been determined so as to bind the parties. It later transpired, however, that this understanding was mistaken. By the end of the trial it was common ground that the question of construction had indeed been formally determined by an appointed expert, Mr John Male QC, albeit on the basis of a concession by Woodford. The dispute resolution clause in the Agreement, pursuant to which the reference to Mr Male had taken place, provided that he should act "as an expert and not as an arbitrator", and that his decision would be "final and binding save for any manifest error". There was no question of manifest error in his determination, so the question of construction had been decided in a way that was final and binding as a matter of contract between the parties. However, it was also common ground, as I had suggested to Mr McGhee at the start of the trial, that such a contractual resolution of the question could not bind the court, because it was not a judicial decision and the doctrine of res judicata therefore could not apply. Counsel for Persimmon (Mr Christopher Pymont QC, leading Mr Andrew Ayres) accordingly submitted, and Mr McGhee expressly accepted, that if I were to disagree with Woodford on the question of construction, and hold that the Agreement cast the burden of the cost of affordable housing on Persimmon, the rectification claim would have to fail, because there would then be nothing to rectify. Woodford would thus be left without a remedy, having (on this hypothesis) unwisely conceded the construction issue on the reference to Mr Male.
6. Thus it comes about that the first question which I have to decide is the question of construction, because it is an essential preliminary to the pleaded rectification claim. For differing reasons, however, neither side was at all keen to advance submissions to me on the question: Woodford, because a decision apparently in its favour would in fact leave it without a remedy; and Persimmon, because the question had already been decided in its favour by Mr Male. I have therefore not had the benefit of any argument (written or oral) in support of the construction that would place the burden of the affordable housing costs on Persimmon; and I have had only some fairly short oral and written closing submissions from Mr McGhee in support of Woodford's pleaded case on the question. Nevertheless, there was no disagreement between counsel about the principles that the court should apply in construing a written contract of the present type, so although I would have welcomed fuller assistance on the question, I do not feel unduly handicapped in addressing it.

The question of construction:

(1) Background facts

7. The relevant background facts are few, and may be shortly stated.
8. Woodford is a development company within the Woodford group, the holding company of which is now in insolvent administration. The particular role of Woodford within the group was to acquire brownfield sites, to carry out remediation works on them, to obtain planning permission and to sell the sites on to residential developers such as Persimmon. Woodford had an acknowledged reputation for its ability to carry out remediation work. A brief description of Woodford's activities to the above effect was given by Mr Jason Parkinson, who has been Woodford's managing director since 2003, in his oral evidence on the first day of the trial. I have no hesitation in accepting him as a truthful and reliable witness in relation to background matters of this sort, which I am satisfied would have been well known to Persimmon and other residential developers with whom Woodford had regular dealings.
9. Persimmon is a member of the large and well-known Persimmon group of companies, which is engaged primarily in residential development. Mr Keith Saunders was managing director of Persimmon Homes (South Yorkshire) Limited from 1 January 2000 until 31 December 2005, when he became Regional Chairman for the Yorkshire Region. Mr Gerard (Ged) Collingwood was from 2001 to 2009 a land director for Persimmon Homes (South Yorkshire) Limited. I heard evidence from both Mr Saunders and Mr Collingwood, but it is important to note that Mr Saunders is no longer employed by the Persimmon group and he voluntarily gave evidence for Woodford. Mr Collingwood too is no longer employed by the group, and he was initially unwilling to give evidence for either side. Persimmon also refused to release him from his continuing contractual obligations of confidence. In those circumstances, Woodford took out a witness summons requiring his attendance, but at the last moment he agreed to give evidence for Persimmon and signed a witness statement dated 24 January 2011. He was therefore called as a witness by Persimmon, and was cross-examined by Mr McGhee.
10. The site in question ("the Site") extends to about 43 acres and was formerly used as the Bombardier Railway Works, otherwise known as the Doncaster Rail Maintenance Depot, Kirk Street, Hexthorpe, Doncaster. The Site is bounded to the north by the river Don, and to the south by an area of terraced housing. The western part of the Site, comprising approximately a third of the total area, was already used as a sports ground at the time when the Site was acquired by Woodford in 2005. Mr Parkinson agreed in cross-examination that the Site (by which I think he must primarily have meant the remainder of the Site, apart from the sports ground) was "quintessentially a brownfield site", which needed clearance and remediation. This was the kind of work that Woodford was particularly well qualified to do.
11. The local planning authority was the Council. As part of the procedure for granting planning permission for development of a site of this nature, the Council would normally expect to negotiate an agreement under section 106 of the Town and Country Planning Act 1990 ("a section 106 agreement"). Mr Parkinson agreed in cross-examination that the purpose of such an agreement is to enable the local authority to achieve advantages from the intended development for the community as a whole. The matters that a section 106 agreement can cover are unlimited, but typical examples are improvements in educational facilities, the provision of public open spaces, the laying out of highways, and the provision of affordable housing. Once a section 106 agreement has been entered into, the obligations contained in it are binding on the land and have to be observed by successors in title as well as by the original covenantor.
12. Both Mr Parkinson and Mr Saunders agreed that in 2006 it was the Council's normal planning policy to require 15% in value of a development site to be allocated to affordable housing. Mr Saunders described this in re-examination as "a well-known fact" and "the norm in Doncaster" at the relevant time, although he added that the price allocated to the individual units of affordable housing would depend on whether the purchaser was a registered social landlord or a housing association. The cost of providing the affordable units could in principle be borne by either the vendor or the purchaser, and was therefore a matter for agreement between them. In certain circumstances, the Council would be entitled to require payment of an affordable housing subsidy instead of provision of the affordable housing itself, but again it would be open to the vendor and purchaser to agree how the burden of this obligation should be borne as between them.
13. A convenient example of the kind of provision for affordable housing that might have been required by the Council is provided by the section 106 agreement that was in fact subsequently made in relation to the Site on 17 April 2008 between the Council (1), Woodford as the freehold owner of the Site (2) and HSBC Bank Plc as mortgagee (3). The actual terms of this agreement could not of course have been known to the parties at the date of the Agreement in 2006, more than two years earlier; but there is no suggestion that the terms were in any way untypical, and they have the great advantage of relating to the actual site with which the present case is concerned.
14. The section 106 agreement defined "Affordable Units" as meaning 77 Units made up of Social Rented Housing and Shared Ownership Housing (each of those terms being further defined), and "Affordable Housing Subsidy" as the sum of £4,587,000, subject to increase by reference to the Retail Price Index until the date it was applied or paid. Clause 2.5 recited that the Council had resolved to grant planning permission for the Site, subject to completion of the section 106 agreement. The application for planning permission had been for mixed use redevelopment of the Site incorporating 700 residential dwellings, a retail store, two office buildings and a replacement of the sports club building at the sports ground. By clause 4 Woodford, with the consent of the Bank, covenanted with the Council, so as to bind its interest in the Site, to perform the obligations specified in schedules 1 to 7.
15. Schedule 1 was headed "Affordable Housing". It obliged Woodford to ensure that provision was made for the Affordable Units in the construction of the development; to develop and build the Affordable Units in accordance with the planning permission; and to carry out the development of the Affordable Units in accordance with an approved affordable housing scheme. There was a timetable which (broadly) required Woodford to have constructed and made available for transfer to an approved registered social landlord one half of the Affordable Units before the occupation of the 300^th unit sold for full value on the open market, and to have constructed and made available for transfer the other half of the Affordable Units before the occupation of the 600^th full value unit. Paragraph 1.4.2 provided, for the avoidance of doubt, that the Affordable Housing Units should be transferred to a registered social landlord "at their market value less the Affordable Housing Subsidy". In the event that the registered social landlord declined or was unable to accept a transfer of some or all of the Affordable Units, there was then provision for the Council to nominate a second registered social landlord to accept the units on the same terms. If the second registered social landlord was in turn unwilling or unable to do so, paragraph 1.4.4 then obliged Woodford to pay the Affordable Housing Subsidy (or the unused part thereof) to the Council, whereupon the Council would release Woodford from any remaining obligations in respect of the Affordable Units.
16. It can thus be seen that the cost to Woodford, as the owner of the Site, of providing the affordable housing units was in effect the index-linked sum of £4.587 million, which had either to be deducted from the price of the units transferred to a registered social landlord or (in certain events) paid to the Council by way of subsidy.
17. The first expression of interest in the Site seems to have come from the Persimmon group, which was introduced to the opportunity by a land agent, Mr Tony Phillips, who acted for Persimmon. Mr Phillips was a well-known figure in the Doncaster area, who had previously worked with the finance director of the Woodford group, Mr Rainford. In mid-2005 Mr Saunders instructed Mr Phillips to approach Woodford with a view to acquiring the Site, and on 9 June 2005 Mr Collingwood wrote to Mr Phillips saying that Persimmon would be able to offer about £850,000 per developable acre, subject to various conditions. This offer was presumably transmitted to Woodford by Mr Phillips, but there is no evidence that it was taken any further at that stage.
18. On 1 August 2005 Mr Phillips made a further offer to purchase the Site, at a price of £875,000 per net developable acre. It appears from the offer letter that it was made after conversations had taken place between Mr Phillips and Mr Rainford. One would naturally assume, since Mr Phillips was Persimmon's agent, that the offer was made on Persimmon's behalf; but it is far from clear that this was in fact the case. The offer was made on the headed paper of Energytotal Limited, a company of which Mr Phillips was a director, and it contained no reference to Persimmon. According to Mr Parkinson, Woodford then carried out a company search from which it discovered that Energytotal Limited was balance-sheet insolvent and "financially valueless". Unsurprisingly, Woodford took the matter no further.
19. At a management meeting of Persimmon Homes (South Yorkshire) Ltd held on 19 August 2005 it was recorded, under the heading "Forthcoming Opportunities", that an offer had been submitted for the Site and a response was awaited. It is unclear whether the offer referred to was the original offer of 9 June, or the Energytotal offer of 1 August. The point does not matter, however, because nothing further seems to have happened until late November, when Mr Phillips spoke to Mr Rainford and they agreed that Mr Phillips should visit Mr Parkinson on 5 or 6 December, with a view to seeing if mutually acceptable terms and conditions could be agreed. Mr Phillips wrote to Mr Parkinson on 28 November (on Energytotal's notepaper) to arrange a meeting, but it seems that the meeting did not in fact take place until 20 December. Mr Parkinson said that he had no recollection of a meeting on 5 or 6 December, whereas the meeting on 20 December is recorded in the notebook in which he was in the habit of making notes of meetings when he attended them.
20. Mr Parkinson's note records that various matters were discussed, including a price of £930,000 per acre, and that the "offer could be made from Persimmon". It appears from this that Mr Phillips may have had a rather flexible notion of what was required by the fiduciary duties which he presumably owed to Persimmon as their agent, but again nothing turns on this because Mr Phillips reported back to Mr Saunders on his discussions with Mr Parkinson, and on the following day (21 December) Mr Saunders wrote to Mr Parkinson to set out his understanding of the general heads of terms which had been agreed. The letter was headed "Subject to Contract", and read as follows:

"Re: Land at Former Bombardier Works, Hexthorpe, Doncaster

Following your meeting yesterday with Mr Phillips, we believe the following to be the general heads of terms in respect of our offer.

Price £930,000 per acre

1. Subject to contract.

2. Subject to outline planning.

3. £500,000 deposit.

4. Any increase over £180 per square foot, they get 25% calculated on Day 1 and at 15,000 sq.ft. per acre.

5. All services and main drainage provided to site boundary.

6. The land will be leasehold.

Contracts to be exchanged by February 17 2006 as requested.

Any costs associated with the issuing of planning permission, i.e. Section 106 Agreements have not been included in the offer."

21. On receipt of Mr Saunders' letter, Mr Parkinson telephoned him to ask him to make clear, as part of Persimmon's offer, a further issue that had been agreed with Mr Phillips, namely that Persimmon would not seek to make any deduction for affordable housing in calculating the purchase price under the proposed agreement. Mr Saunders agreed and sent a further short letter to Mr Parkinson on 22 December, giving the confirmation sought. The letter was again headed "Subject to Contract", and read as follows:

"Further to my letter of 21 December 2005, I would further confirm that our offer includes for my company to make no deductions for any social housing which may be required."

22. Following this clarification of the offer, the process of detailed negotiation then began which concluded with the signing of the Agreement on 27 February 2006.

(2) The Agreement

23. Under the Agreement the disposal of the Site was effected by the grant of put and call options, exercisable within an extendible option period of 18 months. Upon exercise of either option, and payment of a 10% deposit by Persimmon, there would come into existence an agreement for the sale and purchase of a long lease of the Property. "The Property" was defined as the part of the Site for which planning permission had been granted, but excluding certain specified areas, including "the Seller's Retained Residential Property". The purpose of this particular exclusion was to enable Woodford, if it so wished, to retain up to one third of the part of the Site for which planning permission for residential development might be granted. In the event, however, Woodford chose not to exercise this right, so the whole of the Net Developable Area (another defined term, meaning the area upon which residential development could take place and specified as such in the planning permission) was included in the Property.
24. As one would expect, a large number of matters had to be dealt with before completion of the contract (after exercise of an option) could take place. In particular, the Agreement contained detailed provisions relating to the obtaining of planning permission and the carrying out of remediation works. Nothing turns for present purposes on the definition of the Completion Date or on the remediation works, although it should be noted that completion of the Agreement has still not occurred. "Planning Permission" was defined as the grant of an outline planning permission for residential use in respect of any part of the Site which did not contain "Onerous Conditions". The definition of "Onerous Conditions" was subject to an express proviso whereby the parties agreed that:

"… any obligation contained in the Planning Permission or required to be contained in any Planning Agreement requiring the provision of Affordable Housing at the Site or a financial contribution in lieu of such provision shall NOT be an Onerous Condition for the purposes of construction of this Agreement."

25. Schedule 2 contained detailed provisions relating to the obtaining of outline planning permission. Woodford was obliged to make an application at its own expense and to use all reasonable endeavours to obtain planning permission for the remediation and development of at least 30 acres of the Net Developable Area. Paragraph 1.7 of the schedule required Woodford to enter into any section 106 agreement or similar agreement (defined as a "Planning Agreement") with the Council, if it were necessary to do, in such form as might be reasonable in the circumstances, and subject to certain conditions. The conditions included a requirement, in sub-paragraph (c), for Persimmon to indemnify Woodford "against all liability arising under or in respect of the Planning Agreement which relates to the Property only".
26. It is convenient at this point to refer to some further key definitions in clause 1.1 of the Agreement, all of which were expressed to apply "except where the context otherwise requires":

a) "Affordable Housing" meant "low cost market or subsidised housing that will be available to people who cannot afford to obtain adequate housing generally available on the open market in Doncaster and its surrounding area";

b) "Purchase Price" meant "the sum resulting from multiplying [£925,000] by the number of the Net Developable Area within the Property less the Development Costs …"; and

c) "Development Costs" meant "the Development Costs set out in Schedule 7 to this Agreement".

27. I can now turn to the provisions which are directly relevant to the construction issue. Clause 21 was headed "Planning Agreement Obligations (Including Affordable Housing)". So far as material, it provided as follows:

"21. The parties will bear all costs liabilities and expenses associated with the grant of the Planning Permission as follows:-

21.1 The Seller shall be responsible for payment of the following costs identified in a [Section] 106 Agreement:-

(a) financial contributions save in respect of affordable housing

(b) financial contributions for off-site highways works as a pre-condition for development of the Site

…

21.2 The Buyer will comply with its obligations relating to the provision and adoption of any Public Open Space within the Property as is required under the provisions of any Section 106 Agreement and will be responsible for the payment of any commuted sums associated therewith and the Seller will join in any documentation required to achieve this as freeholder

21.3 The parties will bear any provision for affordable or social housing on the Site in the Agreed Shares"

28. It is common ground that the effect of the definition of "Agreed Shares", in circumstances where Woodford had not exercised its right to retain any of the residential land, was that the whole of the provision for affordable housing referred to in clause 21.3 fell to be borne by Persimmon. Had Woodford retained any of the residential land, the definition would have split the burden pro rata by reference to the number of acres of Net Developable Area respectively sold to Persimmon and retained by Woodford.
29. Schedule 7 was headed "Development Costs" and set them out in eleven numbered paragraphs, of which two are relevant:

"5. The laying out equipping and maintaining of all or part of the Property which shall be designated by any Planning Permission or Section 106 Agreement tree belts and other areas and buildings for public or community use together with all payments which may be necessary to enable such areas to be adopted or maintained at the public expense to a management company or otherwise. For the purposes of clarification the costs associated with the laying out of areas of public open space within the Property and their dedication for public use shall not be deemed to be a Development Cost

…

11. Any sums paid or costs of carrying out works or otherwise of providing any consideration due under and complying with a Section 106 Agreement and development brief or otherwise affecting the Property/Site or any other costs in respect of a planning gain."

(3) The issue

30. The question that arises is whether, on the true construction of the Agreement, the cost of providing affordable housing pursuant to a section 106 agreement has to be borne by Persimmon, under clause 21.3; or whether it is deductible from the purchase price as a Development Cost, under paragraph 11 of Schedule 7. The effect of the latter construction is, of course, that the burden of the cost of affordable housing falls ultimately on Woodford, because the balance of the purchase price payable to Woodford on the completion date would be correspondingly reduced.

(4) Principles of construction

31. It is common ground that the question has to be answered by reference to the principles stated by the House of Lords in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912-913. The principles are as follows:

"(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.

(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749.

(5) The "rule" that words should be given their "natural and ordinary meaning" reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania Naviera S.A v Salen Rederierna A.B. [1985] AC 191, 201:

"If detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense." "

32. The exclusionary rule, which excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent, was reaffirmed by the House of Lords in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101: see in particular the speech of Lord Hoffmann at [28] to [41].
33. Earlier in his speech in Chartbrook, Lord Hoffmann made some valuable observations on the correction of mistakes in formal documents:

"21. … When the language used in an instrument gives rise to difficulties of construction, the process of interpretation does not require one to formulate some alternative form of words which approximates as closely as possible to that of the parties. It is to decide what a reasonable person would have understood the parties to have meant by using the language which they did. The fact that the court might have to express that meaning in language quite different from that used by the parties … is no reason for not giving effect to what they appear to have meant.

22. In East v Pantiles (Plant Hire) Ltd (1981) 263 EG 61 Brightman LJ stated the conditions for what he called "correction of mistakes by construction":

"Two conditions must be satisfied: first, there must be a clear mistake on the face of the instrument; secondly, it must be clear what correction ought to be made in order to cure the mistake. If those conditions are satisfied, then the correction is made as a matter of construction."

23. Subject to two qualifications, both of which are explained by Carnwath LJ in his admirable judgment in KPMG LLP v Network Rail Infrastructure Ltd [2007] Bus LR 1336, I would accept this statement, which is in my opinion no more than an expression of the common sense view that we do not readily accept that people have made mistakes in formal documents. The first qualification is that "correction of mistakes by construction" is not a separate branch of the law, a summary version of an action for rectification. As Carnwath LJ said, at p1351, para 50:

"Both in the judgment, and in the arguments before us, there was a tendency to deal separately with correction of mistakes and construing the paragraph "as it stands", as though they were distinct exercises. In my view, they are simply aspects of the single task of interpreting the agreement in its context, in order to get as close as possible to the meaning which the parties intended."

24. The second qualification concerns the words "on the face of the instrument". I agree with Carnwath LJ, paras 44-50, that in deciding whether there is a clear mistake, the court is not confined to reading the document without regard to its background or context. As the exercise is part of the single task of interpretation, the background and context must always be taken into consideration.

25. What is clear from these cases is that there is not, so to speak, a limit to the amount of red ink or verbal rearrangement or correction which the court is allowed. All that is required is that it should be clear that something has gone wrong with the language and that it should be clear what a reasonable person would have understood the parties to have meant. In my opinion, both of these requirements are satisfied."

(5) Conclusions

34. I begin my analysis with clause 21, because that is the clause in the agreement which deals expressly with the costs of affordable housing in a section 106 agreement. The relevant background facts known to both parties included:

(a) that planning permission for residential development of the Property had yet to be obtained;

(b) that it would be the responsibility of Woodford, as the seller, to apply for planning permission;

(c) that the Council would almost certainly require a section 106 agreement as a condition of the grant of planning permission;

(d) that the section 106 agreement could be expected to include a requirement for the provision of affordable housing, at a cost (whether by way of an irrecoverable contribution to the building costs of the affordable units, or by way of subsidy to the Council) likely to be in the region of 15% of the value of the Property with the benefit of planning permission;

(e) that the burden of this requirement would run with and bind the land, and would in principle be enforceable against any or all of Woodford as the freeholder and prospective lessor of the Property, Persimmon as the prospective lessee, and their respective successors in title, as well as against Woodford as the direct covenantor with the Council; and

(f) that it was in principle open to Woodford and Persimmon to agree, as between themselves, how the burden of this obligation should be borne.

35. I next observe that the introductory words of clause 21 say that the parties will bear the costs liabilities and expenses associated with the grant of planning permission as thereinafter set out, and clause 21.3 says that the parties will bear any provision for affordable housing on the Site in the Agreed Shares (which means, as I have explained, that it will be borne 100% by Persimmon). The verb "bear" is the appropriate word to denote where the ultimate burden or incidence of an obligation will fall. It would not be the appropriate word to use, at any rate without qualification, if the purpose of clause 21.3 was simply to say who should pay the costs of providing affordable housing as and when they arose, without prejudice to where the liability should ultimately fall.
36. Consistently with this approach, in my view, clause 21.1 expressly provides that Woodford is not to be responsible for the payment of any "financial contributions" in respect of affordable housing identified in a section 106 agreement. That is the force of the exclusionary words "save in respect of affordable housing" at the end of clause 21.1(a). It is true that the term "financial contributions" is not obviously apt to cover the cost of providing affordable housing, but it would certainly cover the payment of an affordable housing subsidy, or a payment in lieu of the provision of affordable housing, to the Council. In such circumstances, therefore, not only would Woodford be freed from the ultimate burden of the payment by clause 21.3, but it would also be freed (as a matter of contract between the parties) from any obligation to make the payments to the Council as and when they fell due, or indeed at any other time.
37. Some further support for this interpretation may be found in paragraph 1.7(c) of schedule 2, which obliges Persimmon to indemnify Woodford against all liability arising under a section 106 agreement "which relates to the Property only". This provision must be read with its counterpart in paragraph 1.7(d), which requires Woodford to indemnify Persimmon in respect of any such liability "which relates to the Excluded Land". The Excluded Land is defined in part 2 of schedule 1, and includes the Seller's Retained Residential Property. In my view the provision for affordable housing in a section 106 agreement, when no residential land had been retained by Woodford, would plainly be a liability which related to the Property only, and would therefore be covered by the indemnity in paragraph 1.7(c). This indemnity, and its counterpart had there been any retained residential property, seem to me to reflect and reinforce clause 21.3, which imposes the burden of providing affordable housing on the parties in proportion to the amounts of residential land acquired or retained by them.
38. The provisions which I have so far examined appear to me to be clear, coherent and consistent. If it were not for paragraph 11 of schedule 7, no problem would arise. How then is paragraph 11 to be interpreted? The first point to note is that paragraph 11 denotes a general category of Development Costs, and it extends to all sums paid or costs incurred in complying with a section 106 agreement. It says nothing explicitly about the costs of providing affordable housing or payments in lieu thereof, although such costs or payments are a commonplace feature of section 106 agreements. In the absence of clause 21 and paragraph 1.7(c) of schedule 2, there could be no doubt that the wording of paragraph 11 would be wide enough to embrace the expenditure now in issue. But given the presence of those provisions, which deal explicitly with affordable housing, the position seems to me very different. The apparent conflict should in my judgment be resolved by reading the general provision in paragraph 11 as subject to the specific provision in clause 21. This is really a principle of common sense, although it is sometimes expressed in the Latin maxim "generalia specialibus non derogant", or (in English) the principle that general provisions do not derogate from specific ones. Since the parties took the trouble to spell out their specific agreement in relation to affordable housing requirements in a section 106 agreement, it cannot sensibly be supposed that they intended their agreement to be contradicted and overridden by a general provision relating to the costs of compliance with section 106 agreements. Conversely, it is easy to understand how a general provision was inserted to deal with any costs etc of a section 106 agreement that were not already the subject of express provision.
39. This way of resolving the apparent conflict strikes me as so simple, and so obvious, that I confess I find it hard to understand how Woodford came to make the concession which it did on the reference to Mr Male. Nor do I find the contrary argument briefly (and, it seemed to me, rather half-heartedly) advanced by Mr McGhee at all persuasive. Mr McGhee relies on what Brightman LJ said in East v Pantiles (Plant Hire) Ltd about correction of mistakes by construction, as qualified by Lord Hoffmann's observations in Chartbrook at [23] to [25]. He submits (and I agree) that there is an apparent conflict between clause 21.3 on the one hand and paragraph 11 of schedule 7 on the other hand. He then says that it is unclear how the apparent conflict is to be resolved. There are two possibilities: either clause 21.3 should prevail, on the basis that it contains an explicit reference to affordable housing, and paragraph 11 should be construed as referring to the costs of complying with a section 106 agreement other than affordable housing costs; or clause 21.3 is dealing only with the initial allocation of responsibility for affordable housing costs as between the parties, and not with the question of which party should ultimately bear those costs. There being nothing in the Agreement to make it clear which of those two possibilities is to be preferred, the court can only conclude that a mistake has been made and it cannot correct it as a matter of construction.
40. In my judgment this submission breaks down at a number of levels. First and foremost, it seems to ignore the fact that the relevant provisions in the Agreement must have either one meaning or the other. The parties clearly intended to deal with the incidence of the costs of affordable housing, and the question, in essence, is whether paragraph 11 should yield to clause 21.3, or vice versa. That is a question of construction, to be decided in the usual way on the balance of probabilities. The court does not have the option of saying that the answer is unclear, and that it should therefore proceed without more ado to the question of rectification.
41. Secondly, I have already explained why, on the true construction of the Agreement, I consider that clause 21.3 should prevail over paragraph 11. That is therefore the answer that the court must give to the question of construction, because that is what, properly construed, the Agreement means.
42. Thirdly, as Lord Hoffmann was at pains to explain in Chartbrook, there is no separate province of construction that deals with the correction of mistakes. There is just "the single task of interpretation".
43. Fourthly, I would not, for myself, regard the present case as one where a "mistake" has been made which needs to be "corrected". The question is simply which of two apparently inconsistent provisions in the Agreement should prevail, and it is answered by reference to the usual principles of interpretation of written instruments. At worst, the drafting of the Agreement on this point was careless, because it left to be answered by implication a question which it would have been wiser to answer explicitly.
44. Finally, even if it were necessary for the court to find a "clear" answer in order to correct a "mistake", I would for the reasons which I have given regard the answer as clear. The suggestion that clause 21.3 deals only with the initial allocation of responsibility for affordable housing costs is in my judgment wholly implausible, especially when clause 21.1 and paragraph 1.7(c) of schedule 2 are also taken into account. If that is what the parties had intended to achieve, they could very easily have said so.
45. For all these reasons I hold that on the true construction of the Agreement the burden of the costs of providing affordable housing under a section 106 agreement falls on Persimmon, and is not deductible from the purchase price. It follows that the Agreement does not need to be rectified in order to produce this result, and the rectification claim must therefore be dismissed.

Rectification:

(1) Introduction

46. In case I am wrong on the question of construction, I will proceed to consider the issue of rectification. I will do so as briefly as I can, because I feel little doubt about the conclusion I have reached on construction. I will, however, need to make findings of fact about the course of the negotiations, and to say a little more about the witnesses. The relevant law was largely agreed.

(2) The law

47. In Swainland Builders v Freehold Properties Ltd [2002] EWCA Civ 560, [2002] 23 EG 123, Peter Gibson LJ (with whom Jonathan Parker LJ agreed) restated the principles upon which rectification for common mistake can be granted as follows:

"33. The party seeking rectification must show that:

(1) the parties had a common continuing intention, whether or not amounting to an agreement, in respect of a particular matter in the instrument to be rectified;

(2) there was an outward expression of accord;

(3) the intention continued at the time of the execution of the instrument sought to be rectified;

(4) by mistake, the instrument did not reflect that common intention.

34. I would add the following points derived from the authorities:

(1) The standard of proof required if the court is to order rectification is the ordinary standard of the balance of probabilities: "But as the alleged common intention ex hypothesi contradicts the written instrument, convincing proof is required in order to counteract the cogent evidence of the parties' intention displayed by the instrument itself"(see Thomas Bates & Sons Ltd v Wyndham's (Lingerie) Ltd [1981] 1 WLR 505 at p521 per Brightman LJ).

(2) While it must be shown what was the common intention, the exact form of words in which the common intention is to be expressed is immaterial if, in substance and in detail, the common intention can be ascertained: Co-operative Insurance Society Ltd v Centremoor Ltd [1983] 2 EGLR 52 at p54, per Dillon LJ, with whom Kerr and Eveleigh LJJ agreed.

(3) The fact that a party intends a particular form of words in the mistaken belief that it is achieving its intention does not prevent the court from giving effect to the true common intention: see Centremoor at pp55A-B and Re Butlin's Settlement Trusts (Rectification) [1976] Ch 251 at p260 per Brightman J."

48. The summary in Swainland was approved by Lord Hoffmann in Chartbrook at [48]. In Chartbook the House of Lords also decided that the English objective theory of contractual interpretation should be applied to ascertainment of the common continuing intention required for rectification: see Lord Hoffman's speech at [56] to [66]. Thus Lord Hoffmann said at [60]:

"Now that it is has been established that rectification is also available when there was no binding antecedent agreement but the parties had a common continuing intention in respect of a particular matter in the instrument to be rectified, it would be anomalous if the "common continuing intention" were to be an objective fact if it amounted to an enforceable contract but a subjective belief if it did not. On the contrary, the authorities suggest that in both cases the question is what an objective observer would have thought the intentions of the parties to be."

49. Lord Hoffmann then quoted, as "perhaps the clearest statement" of this principle, what Denning LJ had said in Frederick E Rose (London) Ltd v William H Pim Jnr & Co Ltd [1953] 2 QB 450 at 461:

"Rectification is concerned with contracts and documents, not with intentions. In order to get rectification it is necessary to show that the parties were in complete agreement on the terms of their contract, but by an error wrote them down wrongly; and in this regard, in order to ascertain the terms of their contract, you do not look into the inner minds of the parties – into their intentions – any more than you do in the formation of any other contract. You look at their outward acts, that is, at what they said or wrote to one another in coming to their agreement, and then compare it with the document which they have signed. If you can predicate with certainty what their contract was, and that it is, by a common mistake, wrongly expressed in the document, then you rectify the document; but nothing less will suffice."

50. It is also relevant to quote what Lord Hoffmann said in paragraphs [64] and [65]:

"64. The other case [relied upon by counsel for Chartbook] is the decision of Laddie J in Cambridge Antibody Technology Ltd v Abbott Biotechnology Ltd [2005] FSR 590, in which he rejected a submission that evidence of the subjective state of mind of one of the parties contained in statements which had not been communicated to the other party ("crossed the line") was inadmissible. In my opinion, Laddie J was quite right not to exclude such evidence, but that is not inconsistent with an objective approach to what the terms of the prior consensus were. Unless itself a binding contract, the prior consensus is, by definition, not contained in a document which the parties have agreed is to be the sole memorial of their agreement. It may be oral or in writing and, even if the latter, subject to later variation. In such a case, if I may quote what I said in Carmichael v National Power Plc [1999] 1 WLR 2042, 2050-2051:

"The evidence of a party as to what terms he understood to have been agreed is some evidence tending to show that those terms, in an objective sense, were agreed. Of course the tribunal may reject such evidence and conclude that the party misunderstood the effect of what was being said and done."

65. In a case in which the prior consensus was based wholly or in part on oral exchanges or conduct, such evidence may be significant. A party may have had a clear understanding of what was agreed without necessarily being able to remember the precise conversation or action which gave rise to that belief. Evidence of subsequent conduct may also have some evidential value … "

51. So it comes about that the existence or otherwise of a continuing common intention has to be ascertained objectively, and not by reference to the subjective beliefs or intentions of the parties. Nevertheless, evidence of such subjective beliefs or intentions, even if not communicated to the other side, may still be admissible for the light (if any) that it may shed on the objective enquiry.

(3) The witnesses

52. Apart from the witnesses whom I have already mentioned, I also heard evidence from the in-house solicitors instructed on each side to deal with the transaction, Mr Geoffrey ("Geoff") Dean for Woodford and Mr James ("Jim") Baird for Persimmon, and from Woodford's senior land manager, Mr Stuart Mapp. I am satisfied that all of the witnesses did their best to assist the court, although (as will appear) I disagree with Mr Baird's view about the extent of his authority, and there are one or two points where I think that Mr Parkinson's recollection is probably mistaken.
53. Mr Dean was the group legal director of the Woodford group from late 2005 until March 2009. His opposite number, Mr Baird, was at the relevant times a company solicitor for the Persimmon group, having been employed in that capacity since 2000. In 2008 he became a group legal manager. He described the difference between the two posts by saying that as a company solicitor his work was mainly concerned with the acquisition of land, whereas a legal manager would be more involved with the actual work of development.
54. An issue of some potential significance concerns the scope of Mr Baird's actual or apparent authority to bind Persimmon, and whether he had a sufficient degree of management or control in relation to the transaction for his state of mind to be attributed to Persimmon in accordance with the rules of attribution discussed by Lord Hoffmann, delivering the advice of the Privy Council, in Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500 at 506-507. A more recent review of the main authorities on this topic, which was cited to me by both counsel, may be found in KR v Royal & Sun Alliance Plc [2006] EWCA Civ 1454, [2007] Bus LR 139, at paragraphs [51] to [55] of the judgment of the court. In his witness statement Mr Baird said that he performed a dual role in the negotiation of the Agreement as both solicitor and principal, and although he regarded Mr Collingwood as his client it was also within his remit, where possible, to negotiate more favourable terms for Persimmon without taking instructions from Mr Collingwood. He said he would only revert to Mr Collingwood for express instructions when he was concerned that Persimmon was exposed to a commercial or legal risk, and except in such circumstances he felt comfortable negotiating the best terms he could for Persimmon.
55. This perception, however, was not shared either by Mr Saunders (who was in overall charge of the transaction) or by Mr Collingwood (who reported to Mr Saunders, and had day to day control of it). Mr Saunders, in particular, was very clear that Mr Baird had no authority to make any major changes to the contract without coming back to him. He said that he would not give any solicitor (whether in-house or external) who was acting for Persimmon on a transaction the authority to renegotiate a deal. He had been involved with Mr Baird for many years, and knew how he operated. Mr Baird would generally take the heads of terms which had been negotiated and produce a draft contract; if any significant changes to the heads of terms were proposed, Mr Saunders would expect Mr Baird to flag it up to him, and to tell him before the changes were made. Nevertheless, Mr Saunders agreed with the proposition put to him by Mr Pymont at the end of his cross-examination that "you would instruct your solicitor generally to do whatever he could to achieve the deal that you have negotiated in embryo, and along the way to make it as attractive from Persimmon's point of view as possible. That would be a standing understanding between any client and his solicitor …"
56. To similar effect, Mr Collingwood said in cross-examination that if the discussions between Mr Baird and Mr Dean had led to any significant change in the deal, he would have expected Mr Baird to tell him about it, and not to try and change the deal significantly without first coming back to him.
57. Mr Baird's oral evidence also seemed to me rather at odds with the picture painted in his witness statement. He struck me as a very cautious and careful lawyer, who would be most unlikely to go out on a limb of his own initiative. Furthermore, he twice expressly accepted that, if there had been any change in the deal with regard to responsibility for the cost of affordable housing, he would have raised the matter with Mr Collingwood, and Mr Collingwood would have raised it with Mr Saunders.
58. Having heard the oral evidence, I am unable to accept that Mr Baird was in any meaningful sense a principal in relation to the deal. The persons whose actions and intentions were attributable to Persimmon, for the purpose of ascertaining the intention of Persimmon in the context of the rectification claim, were Mr Saunders and Mr Collingwood. Mr Baird acted only as an agent and legal adviser, in accordance with instructions given to him by Mr Collingwood or Mr Saunders, and he had no authority (either actual or apparent) to negotiate significantly different terms on his own initiative. He could, no doubt, seek improvements on points of detail, and within the scope of his authority he would naturally seek to make the agreement as attractive as possible from Persimmon's point of view; but I am satisfied that any major renegotiation of terms would be a matter for his client, upon which he would have to take instructions. Consistently with this analysis, as Mr McGhee QC pointed out, not a single unprivileged communication passing between Mr Baird and anyone else at Persimmon has been disclosed in the action.

(4) The course of the negotiations

59. I can now pick up the story where I left it in paragraph 22 above.
60. On 22 December 2005 Mr Parkinson prepared draft heads of terms, which were expressly stated to be subject to contract, and circulated them internally to Mr Daubney (Woodford's chairman), Mr Rainford and Mr Mapp. He based his draft on an earlier version which had been prepared on 15 December by Mr Mapp. Like its predecessor, this draft provided (in a box headed "Deductions") that "all abnormal costs" were to be deducted from the basic consideration, and gave three examples, but then continued, in bold and italics:

"NB. For the avoidance of doubt there are to be no deductions for affordable housing."

This proviso, the importance of which to Woodford was emphasised by the use of bold and italic script, was of course entirely consistent with Mr Saunders' letter of the same date to Mr Parkinson (see paragraph 21 above). The basic consideration was shown in the heads of terms as £933,000 per net developable residential acre, but Mr Parkinson thought in cross-examination that this was probably a typographical error for £930,000. There was also a note at the foot of the heads of terms, not presaged in any previous discussions with Persimmon, which said in capital letters:

"NOTE: WOODFORD RESERVE THE RIGHT TO RETAIN UP TO 25% OF THE DEVELOPABLE ACREAGE AT COMPLETION."

61. On 23 December Mr Dean faxed the draft heads of terms to Mr Baird at Persimmon for his information, and said that a draft contract would be issued by 4 January 2006. Mr Baird replied on the same day, confirming that he had received instructions to act for Persimmon in the matter. He noted that the parties were aiming for exchange of contracts by 17 February 2006, and informed Mr Dean that the purchaser was to be Persimmon Homes Ltd. He enclosed standard pre-contract enquiries, and noted that a draft contract would be issued by 4 January.
62. The next step was for Mr Dean to produce a draft contract, which he did on or about 3 January 2006. Mr Dean had only recently joined Woodford, and he had not yet built up a bank of precedents of his own. He therefore used as a template an earlier agreement between Woodford and the Miller Group Ltd which related to some land at Saxon Park, Warrington. His reason for using this precedent was that it was Woodford's only example of the use of put and call options. For reasons which he was unable to remember, the decision had been taken by Woodford to proceed in this way rather than by a highly conditional contract for sale of the Site. On 5 January Mr Dean sent the draft to Mr Parkinson under cover of a memorandum which raised a number of specific questions. Mr Parkinson went through the draft and made some notes. He and Mr Dean then met to consider the matters arising on 6 January, and Mr Dean amended his first draft to reflect the instructions given to him at this meeting. He subsequently forwarded a clean copy of the draft agreement to Mr Baird on 9 January. In his covering letter to Mr Baird, headed "Subject to contract", he said that he enclosed the draft contract in duplicate for approval.
63. Meanwhile, on 6 January Mr Saunders had written to Mr Parkinson saying that Woodford's draft heads of terms were generally acceptable, but pointing out that the proposal for Woodford to reserve the right to retain up to 25% of the developable acreage had not previously been discussed. Mr Saunders said that he nevertheless had no objection in principle to the proposal, provided that the retained land bore its percentage of any affordable housing required for the Site as a whole, and, if Woodford decided to sell the retained land, Persimmon had a right of pre-emption to purchase it at the current agreed price.
64. In a number of significant respects, which I will not rehearse but which were helpfully set out by Mr Pymont QC and Mr Ayres in their written closing submissions, the draft contract sent by Mr Dean to Mr Baird did not follow, or went beyond, the draft heads of terms. In particular, the draft contract provided for no deductions from the purchase price, although this had been expressly provided for by the heads of terms, subject to the exclusion of costs of affordable housing. Both Mr Parkinson and Mr Dean said in their oral evidence that the question of deductions was something which they expected Persimmon to raise in response to Woodford's draft contract. According to Mr Parkinson, it was usual practice for the purchaser "to come back with a list of abnormals they want deducted".
65. Clause 21 of the draft was not taken from the Saxon Park agreement, and was therefore Mr Dean's own handiwork. So far as material, it provided as follows:

"21. Planning Agreement Obligations (Including Affordable Housing)

The parties will bear all costs liabilities and expenses associated with the grant of the Planning Permission as follows:-

21.1 The Seller shall be responsible for payment of the following costs identified in a S106 Agreement:-

(a) Financial contributions in lieu of provision of educational facilities and public open spaces within the Site (but not the cost of laying out and securing adoption of any areas of Public Open Space to be provided by the Buyer within the Property pursuant to clause 21.3 of this Agreement).

(b) …

…

21.3 The Buyer will comply with its obligations relating to the provision and adoption of any Public Open Space within the Property as is required under the provisions of any Section 106 Agreement and will be responsible for the payment of any commuted sums associated therewith.

21.4 The parties will bear any provision for affordable or social housing on the Site in the Agreed Shares."

It will be noted that the heading and the opening words of clause 21, and the provisions of clause 21.4, were already in the form that was to be found in the Agreement as finally executed, although clause 21.4 had by then become clause 21.3.

66. In the light of the emphatic provision relating to affordable housing in the draft heads of terms, and in the light of Mr Saunders' letters to Mr Parkinson of 22 December and 6 January 2006, it seems to me clear beyond argument that a reasonable recipient of the draft contract in Mr Baird's position would have understood clause 21.4 as intended to reflect the parties' agreement about the burden of affordable housing costs. Nor did Mr Baird suggest the contrary. Although he said he could not be entirely sure after five years, his understanding of clause 21.4 was that the parties were to bear the provision of affordable housing in the agreed shares. He also accepted that if there had been a change in the deal so far as responsibility for the cost of affordable housing was concerned, he would have raised the matter with Mr Collingwood, who in turn would have raised it with Mr Saunders.
67. In his oral evidence Mr Parkinson said that once matters had reached the stage of a draft contract, it was that document which was important and the draft heads of terms would recede into the background, although they might still provide material to support a negotiating stance on a particular point. As a general proposition, that may well be true; but in my judgment it does not advance Persimmon's case, because the express provisions of clause 21.4 adequately reflected the agreement which the parties had reached on affordable housing costs. On this point, at any rate, there was a seamless transition from the heads of terms to the first draft of the contract.
68. On 11 January 2006 Mr Dean sent a revised draft of the contract to Mr Baird incorporating certain changes, none of which is material for present purposes. On the same day Mr Baird wrote to Mr Dean, raising a number of points on title and saying that he had an appointment with Mr Collingwood on the following day to discuss the revised draft agreement, following which he would let Mr Dean have his comments. Mr Baird and Mr Collingwood then met, and on 20 January Mr Baird sent a long letter to Mr Dean raising a number of points on the draft contract in 21 numbered paragraphs. Near the end of his letter, he said this:

"Thank you for forwarding the draft Agreement by way of email. I will return the draft Agreement by way of email with our suggested amendments thereto so far. Further amendments will no doubt be necessary to take into account the proposed phasing.

My client suggests that when you have had [the] chance to read through our suggested amendments we have a round the table meeting to discuss the matter further.

The draft is returned subject to any further comments my client may have on it."

69. It seems that Mr Baird then prepared his version of the contract on or shortly after 20 January, and attempted to send it by email to Mr Dean; but there was a failure in communication, and the revised draft did not reach Mr Dean until 2 February when it was sent again by Mr Baird's secretary.
70. Mr Baird's revised draft showed all the changes which he was proposing to make both sidelined and underlined. The changes included: an amendment to the definition of Purchase Price to allow for the deduction of Development Costs; a definition of "Development Costs" by reference to schedule 7; and a new schedule 7 containing a detailed list of costs to be deducted. Mr Baird took this list from a Persimmon standard document. Paragraph 14 of schedule 7 allowed for the deduction of all costs of complying with a section 106 agreement, as follows:

"14. Any sums paid or costs of carrying out works or otherwise of providing any consideration due under and complying with a Section 106 Agreement and development brief or otherwise affecting the Property/Site or any other costs in respect of a planning gain and a reasonable allowance for reduction in development value of the Property/Site attributable to this Agreement or any Section 106 Agreement."

It will be noted that, down to the words "planning gain", this paragraph was identical to the future paragraph 11 of the Agreement as executed.

71. Mr Dean naturally appreciated the potential significance of the new schedule 7, and the deductions from the purchase price which it contained. On 3 February he sent a copy of the draft contract with the tracked amendments to Mr Parkinson and highlighted those which they needed to discuss. In his covering memorandum he said:

"You will note in particular that they have added a new Schedule 7 as "Development Costs". The relevance of this appears on page 6, where these costs are to be deducted from the Purchase Price."

Mr Parkinson then considered the proposed terms of schedule 7 himself, going through them in turn and noting down those which he accepted and those which he did not accept. He did not take anybody else's advice on this, but relied on his own judgment and experience of property development. When he came to paragraph 14, he deleted the last part after the words "planning gain", but left the first part unchanged. Mr Parkinson and Mr Dean then met, probably on 6 February, to discuss the draft, and on 7 February Mr Dean wrote to Mr Baird saying that he had now had an opportunity to consider his amendments, which were agreed save in relation to the specific points which he then set out. These points reflected Mr Parkinson's notes, and in relation to schedule 7 Mr Dean said:

"Paragraph 14 is acceptable subject to the paragraph terminating at the words "planning gain" on the penultimate line."

He concluded by saying that he would be happy to meet Mr Baird at a round table meeting at Woodford's offices on Friday, 10 February, if that would assist in finalising the outstanding issues.

72. I pause at this point, because Mr Baird's amendments to the travelling draft on 2 February, and Mr Dean's acceptance of them subject to the removal of the final part of paragraph 14, are the principal matters relied on by Persimmon as showing that there was a change in the parties' intentions, and that it was now agreed, on an objective appraisal, that the affordable housing costs of a section 106 agreement would be deductible from the purchase price. I am unable to accept this submission, for essentially the same reasons which have already led me to conclude that the Agreement, on its true construction, does not have that effect. Given the clear prior understanding that such costs were to be borne by Persimmon, and given the absence of any explicit statement by or on behalf of Persimmon that it wished to renegotiate this part of the deal, as well as Mr Baird's lack of actual or ostensible authority to make any such change of his own initiative, I am satisfied that, viewed objectively, the intentions of the parties in relation to affordable housing costs remained essentially unchanged. Paragraph 14 was clearly meant to be read subject to clause 21.4, just as paragraph 11 is to be read subject to clause 21.3 in the concluded Agreement. Not only would it have been most surprising if Persimmon had sought to alter the deal in this very significant respect without raising the point expressly in discussions or correspondence with Woodford, but it would have been equally surprising if Woodford had accepted the change without comment or complaint. In my judgment everything points to a continuation of the same common intention on this critical point as before.
73. A further indication that nothing had changed is provided by an internal note prepared by Mr Collingwood on or about 7 February and attached by him to a viability study prepared by Persimmon. The note included this passage:

"Our offer is subject to all abnormals being knocked off the price apart from affordable housing. The viability therefore includes a figure of £3,902,400 as the affordable housing contribution. We have arrived at this figure by estimating that the net land value for the Site after deductions will be £600k per acre and multiplying this figure by the number of acres and then taking 15% of this sum."

74. The meeting proposed in Mr Dean's letter of 7 February to Mr Baird duly took place at Woodford's offices on 10 February. It started at midday and lasted for at least two hours. Woodford was mainly represented by Mr Parkinson and Mr Dean, who had held a preliminary "pre-meeting" with Mr Daubney earlier in the morning to discuss the agenda and Woodford's stance on the issues that were likely to be controversial. Persimmon was represented by Mr Collingwood and Mr Baird. Mr Dean's recollection is that the meeting, although not acrimonious, was a difficult one, because there were outstanding commercial issues that it was not easy to resolve.
75. For present purposes the most important point about the meeting is a negative one. None of the four witnesses who were present has any positive recollection of affordable housing being discussed, or of its being an issue that needed to be resolved. There is no reference to affordable housing in the manuscript note which Mr Baird took at the meeting, or in the letter which he sent to Mr Dean on 13 February following up various points discussed at the meeting. Mr Baird said that he was a careful note taker, and I have little doubt that if affordable housing had been the subject of any substantive discussion his note would have referred to it. I am also confident that Mr Dean would have remembered any such discussion, if its purport had been that Woodford was now going to bear the cost of affordable housing, because in his own words that would have been a deal breaker.
76. The only evidence which might suggest that the topic was discussed in any detail is a page from Mr Parkinson's notebook, which plainly refers to the meeting and lists a number of points in black ink. There are also a few comments in blue ink, clearly added at a later stage, and seven of the points have been highlighted in blue at the side. The writing in black includes (at the foot of the page) "Clause required regarding costs for affordable housing", and (opposite the underlined heading "Schedule 7") "Section 106 – POS [Public Open Space] & AH [Affordable Housing] – out".
77. Mr Parkinson said in his witness statement, and stoutly maintained in cross-examination, that the passages in black ink were his contemporary notes taken at the meeting. I do not think, however, that this can be correct. Many of the points look much more like a note of topics to be raised, and had there been any substantive discussion of affordable housing I would expect Mr Baird to have recorded it in his notes. Far more likely, in my view, is the suggestion put to Mr Parkinson in cross-examination that the passages in black were an agenda or memorandum of points to be raised at the meeting, perhaps prepared by him at the preliminary meeting with Mr Daubney and Mr Dean. The comments in blue ink were then probably added by Mr Parkinson at the main meeting, and the blue highlighting might well indicate points that he subsequently discussed with Mr Dean.
78. It is interesting to note, in this connection, that the "agenda" explanation of the document was accepted by Mr Dean after he had heard Mr Parkinson give evidence, and when he was called to give evidence himself he retracted a sentence in his witness statement (based on the page in Mr Parkinson's notebook, but not on any independent recollection) saying that it was agreed at the meeting that a further amendment needed to be made to make it absolutely clear that affordable housing would not be a deduction in calculating the purchase price.
79. In any event, whatever the precise nature and status of this document may be, I am satisfied on the evidence as a whole that affordable housing did not feature to any significant degree in the discussion at the meeting on 10 February. It follows that nothing which happened at the meeting can have affected the objective understanding of the parties that the cost of affordable housing was to be borne by Persimmon. I do not think it is useful to speculate about what Mr Parkinson or Woodford may have had in mind with reference to affordable housing before the meeting, or whether they had spotted the possible inconsistency between clause 21 and paragraph 14 of schedule 7. For whatever reason, they were clearly content not to make an issue of it at the meeting and to rely on the clear understanding between the parties which went back to the draft heads of terms.
80. The remainder of the history can be briefly stated. As I have already said, Mr Baird's letter to Mr Dean of 13 February said nothing about affordable housing. Nor did a letter which Mr Collingwood sent to Mr Parkinson on the following day, after having had the opportunity to speak to Mr Saunders and take instructions from him on a number of points. One of those points was a reluctant agreement to Woodford's recent proposal to increase the maximum amount of retained residential land from a quarter to a third. Mr Collingwood also said that in schedule 7 he needed condition 14 to be reinstated, so presumably he was not at this stage happy with the deletion of the final limb of paragraph 14 which Mr Dean had proposed in his letter of 7 February. Mr Parkinson replied to Mr Collingwood on the following day, saying (among other matters) that the inclusion of paragraph 14 was acceptable, but only with the deletion that Mr Dean had previously proposed.
81. On 16 February Mr Dean returned the travelling draft contract to Mr Baird, incorporating the changes which he thought had been agreed but also making a number of additions identified in bold type. Time was by now very short, because the parties were still hoping to exchange contracts on the following day. In Mr Dean's draft, paragraph 14 of schedule 7 (without the final limb) had become paragraph 11. There was no change to clause 21.1.
82. Mr Baird responded later the same day by email. He made no change to paragraph 11 of schedule 7, but amended clause 21.1(a) by removing all the references to public open spaces so that it read simply "financial contributions save in respect of affordable housing". Both clause 21.1(a) and paragraph 11 were now in the same form as when the Agreement was eventually signed on 27 February, and it is not suggested on either side that anything which happened between 17 and 27 February has any bearing on the rectification issue.

(5) Conclusion

83. As I have explained in my analysis of the history of the relevant negotiations, I am satisfied that the objectively ascertained understanding of the parties in relation to the burden of the costs of affordable housing remained unchanged from December 2005 until the date of the Agreement. There was plainly an outward expression of accord, in the heads of terms and the communications passing between the parties; and the common intention continued up to the date of execution of the Agreement. Accordingly, if I am wrong on the question of construction, I would accede to the rectification claim and order that the Agreement should be rectified by the addition of the words "save in respect of Affordable Housing" at the end of paragraph 11 of schedule 7. In the event, however, the action must be dismissed, because on its true construction the Agreement already means what Woodford says it ought to mean.