Can an adjudicator consider pre-contract negotiations?

Chris Holwell considers the exclusionary rule on the interpretation of contracts and whether there are any circumstances in which an adjudicator can go around it.

The rule that pre-contract negotiations should not be admitted to aid the interpretation of a contract (the ‘exclusionary rule’) has long been embedded in UK law and was reaffirmed in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38.

Lord Hoffman stated in Chartbrook: ‘The rule that pre-contractual negotiations are inadmissable was clearly reaffirmed by this House in Prenn v Simmonds…where Lord Wilberforce said…that earlier authorities “contain little to encourage, and much to discourage, evidence of negotiation or of the parties’ subjective intentions.” It is clear that the rule of inadmissibility has been established for a very long time.’

At paragraph 29, Lord Hoffman referred to the judgment of Lord Blackburn in Inglis v John Buttery (1873) 3 App Cas 552: ‘[T]he formal contract shall supersede all loose and preliminary negotiations – that there shall be no room for misunderstandings which may often arise, and which do constantly arise, in the course of long, and it may be desultory conversations, or in the course of correspondence or negotiations during which the parties are often widely at issue as to what they will insist on and what they will concede…The written contract is that which is to be appealed to by both parties, however different it may be from their previous demands or stipulations whether contained in letters or verbal conversation.’

Policy reasons

There are sound public policy reasons that exceptions to the rule are few and far between. As Lord Hoffman stated in Chartbrook (quoting from Lord Wilberforce in Prenn v Simmons [1971] 1 WLR 1381): ‘[S]uch 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, through converging, still divergent. It is only the final document which records the consensus.’

Further, the admission of pre-contractual negotiations would create greater uncertainty of outcome in disputes over interpretation and add to the cost of advice, litigation, or arbitration. As Lord Hoffman put it in Chartbrook: ‘Everyone engaged in the exercise would have to read the correspondence and statements would have to be taken from those who took part in oral negotiations. Not only would this be time consuming and expensive but the scope for disagreement over whether the material affected the construction of the agreement…would be considerably increased.’

Lord Hoffman made these comments in the context of arbitration and litigation. It must logically follow that if it is inappropriate for such negotiations to be admitted before an arbitrator or a judge, then adjudication is certainly not the forum within which to consider this issue. In the short amount of time within which an adjudicator has to decide a matter, it is a matter of public policy that pre-contract negotiations should not be admitted into adjudication proceedings.

It would be particularly unfair to admit evidence of pre-contractual negotiations in construction cases where third parties were not privy to such negotiations but took an assignment or novation of a contract or advance money on its security.

It might even be argued that trying to deal with a full analysis of pre-contract negotiations in as truncated a process as adjudication would be a breach of natural justice. However, the question of whether complexity of evidence, combined with the statutory time limits for adjudication, can result in breaches of natural justice is a much wider issue than there is time to look at in this article.

This article was first published by Solicitors Journal on 27.10.15 and is reproduced with kind permission.

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