How to interpret contracts

Section 106 of the Town and Country Planning Act 1990 provides that a local planning authority may enter into an agreement with any landowner in their area for the purpose of restricting or regulating the development or use of the relevant land.
Such an agreement was made in connection with a proposed development at Longstanton in Cambridgeshire between South Cambridgeshire District Council as the local planning authority, Cambridgeshire County Council as the local highways authority, Beazer Homes, which intended to develop the land for housing, and a number of owners of the affected land.
Two of the parties to the Section 106 agreement, Mr Stroude, who was one of the landowners and Beazer, had separately negotiated with the intention of collaborating and fixing contributions between each other relating to the development.
They had not reached a concluded agreement and ended up in litigation over the meaning of the Section 106 agreement. In particular, Stroude claimed that he had rights of access across certain land that was needed for the construction of the proposed development.
In opposition to this claim, Beazer's in-house solicitor had prepared a witness statement in which he made assertions about the earlier failed negotiations for the collaboration agreement between Stroude and Beazer.
Rights of access
Beazer sought to rely on this material to show that it had never been intended by Stroude or Beazer, either expressly or by implication in the Section 106 agreement, that any rights of access over the relevant land should be guaranteed.
Stroude applied to the court for a ruling that evidence concerning the parties' negotiations towards the intended collaboration agreement was inadmissible for the purpose of construing the Section 106 agreement.
In the Chancery Division of the High Court, Mr Justice Rimer agreed with Stroude. The matter came before the Court of Appeal.
The basic legal principle was not in dispute. Evidence of negotiations leading to the making of a contract or of the parties' subjective intentions as to the meaning of the contract is not admissible for the purpose of construing the contract.
Beazer argued that it was not seeking to introduce evidence of negotiations surrounding the making of the Section 106 agreement for the purpose of ascertaining the meaning of that agreement. Instead, it was seeking to introduce evidence regarding negotiations concerning the abortive collaboration agreement between Beazer and Stroude.
Beazer argued that these negotiations were part of the essential factual background and provided evidence of the shared knowledge of the parties. They were relevant to the construction of the Section 106 agreement because they showed that it was not the commercial aim or purpose of the Section 106 agreement that it should address rights of access to the land in question.
Subjective intentions
Lord Justice Mummery rejected these submissions and reached the same conclusion as the earlier trial judge. The dispute between the parties in connection with the access rights enjoyed by Stroude concerned the meaning of the Section 106 agreement.
The evidence put forward by Beazer related to the subjective intentions of the parties and, accordingly, it was inadmissible. It would not help the court to resolve the meaning of the Section 106 agreement.
If Beazer and Stroude had concluded contemporaneously a collaboration agreement, that might have been admissible in construing the Section 106
agreement.
However, that did not happen. Beazer was seeking to rely on evidence of negotiations, drafts and other examples of the subjective intentions of the parties and these were not admissible as evidence of the purpose, meaning and scope of the Section 106 agreement. The draft collaboration agreement, the abortive negotiations for it and the subjective intentions of Stroude and Beazer in relation to it were worthless.
Lord Wilberforce said in the 1971 case of Prenn -v- Simmond: "The reason for not admitting evidence of these exchanges is not a technical one or even mainly one of convenience. 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, is still divergent. It is only the final document that records a consensus. Far more dangerous is to admit evidence of one party's objective, even if this is known to the other party.
Partial recognition
"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."
As a consequence, Beazer's appeal was dismissed.