High Court decisions illustrate limitations of Chartbrook principle which allows court to correct drafting errors by interpretation

In two recent decisions, the High Court has considered the so-called Chartbrook principle, which allows the court to correct a mistake in a contract if it is clear both that something has gone wrong with the language and how it should be corrected: 

• In Shenzhen H&T Intelligent Control Co. Ltd v Smarter Applications Ltd [2026] EWHC 805 (Comm), the court corrected an obvious mistake in the drafting of a limitation of liability clause, as it was clear how it should be corrected.
• In BLCP Eden 1 Ltd v Rooksmead Securities Ltd [2026] EWHC 1268 (Ch), on the other hand, the court held that an obvious mistake in letters of appointment and acceptance of receivers could not be corrected by construction, as there were two possible corrections, either of which might be appropriate.

These decisions show that persuading the English court to correct a drafting error by construction is no easy feat. First, it must be clear that the contract contains a mistake – which requires showing that the literal interpretation would be irrational or absurd rather than merely imprudent or unwise. Second, and importantly, it must be clear how that mistake should be corrected. Where the counterparty puts forward an alternative correction that may also be appropriate, the court may conclude that the mistake cannot be interpreted away. In such circumstances, the party seeking a correction will need to plead and prove a case in rectification. 

There appears to be a tension in the authorities as to whether the Chartbrook principle is merely part of the iterative process of interpreting a contract, established in various appellate authorities culminating in the Supreme Court decision in Wood v Capita Insurance Services Ltd [2017] UKSC 24 (considered here), or whether it is an entirely separate exercise. In the cases considered in this post, it is sometimes described as the latter, though in Shenzhen the court ultimately appears to come down in favour of the former, commenting that the various arguments put forward by the party seeking the correction worked together as part of the iterative process of construction to show, on the basis of the words used and the factual matrix, that there was clearly a drafting error. That is consistent with Chartbrook itself, in which Lord Hoffmann described the principle as merely an aspect of the single task of interpreting the agreement in its context, and an "expression of the common sense view that we do not readily accept that people have made mistakes in formal documents". 

In any event, the decisions underline the need to take care in ensuring that a written contract properly implements the contractual bargain the parties think they have agreed. 

Background

In Shenzhen, the correct construction of a limitation of liability clause in a manufacturing agreement was in dispute. 

The agreement provided for the claimant to purchase fridge cameras from the defendant manufacturer. Following a dispute, the claimant brought breach of contract proceedings seeking around £100 million. In response, the defendant sought a declaration that the relevant clause limited its liability to the amounts paid by the claimant in that contract year – ie, a total of US$31,664.90, which sum the defendant had already returned to the claimant. Accordingly, the defendant argued that the claimant had no further claim for damages.

The issue was that, on a literal reading of the limitation of liability clause, it limited the liability of the "Customer" (ie the claimant) not the "Manufacturer" (ie the defendant). 

In BLCP, an issue arose as to whether receivers were validly appointed over properties owned by the claimants.

The claimant companies had been acquired using funds loaned to a company connected to their direct corporate owner, which in turn loaned the funds to the claimants' owner. The loan was secured by inter-company guarantees and a debenture which gave the lender a right to appoint receivers over any of the companies in the event of default.

The claimants later entered into a contract for the sale of all their land, which included provision for the buyer's solicitors to repay the loan directly to the lender. The lender later sent a document purporting to appoint receivers, exercising its rights under the debenture. The document stated that receivers were appointed to the assets of the borrower listed in the schedule – however, the schedule listed the land held by the claimants. The receivers' letter of acceptance confirmed that they accepted their appointment as joint receivers of assets of the borrower. The receivers then purported to complete the transfer of the land.

The claimants disputed that the receivers were validly appointed. 

Decision

In both cases, the court referred to Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 as confirming the court's ability to correct a mistake by the process of construction (rather than making an order for rectification) – which has become known as the Chartbrook principle. In order to do so, two requirements must be met. First, it must be clear that something has gone wrong with the language. Second, it must be clear what a reasonable person would have understood the parties to have meant. Where those requirements are established, there is no "limit to the amount of red ink or verbal rearrangement or correction which the court is allowed".

The decision in Shenzhen

The High Court (Louise Hutton KC sitting as a Deputy High Court Judge) held that there was a clear mistake in the drafting, and it was clear how it ought to be corrected.

The court noted that there is an abundance of recent Supreme Court authority on the principles relating to the construction of contracts, including Wood v Capita Insurance Services Ltd [2017] UKSC 24 (considered here) and Arnold v Britton [2015] UKSC 36 (considered here). These establish that the court's task is to ascertain the objective meaning of the language used – ie, what a reasonable person, with the available background knowledge, would have understood the parties to have meant. Interpretation is a unitary exercise in which the court must strike a balance between considering the language used (textualism) and its commercial implications (contextualism). It does not matter which approach the court deploys first, provided it balances the indications given by each. Where there are two possible constructions, the court is entitled to prefer the one consistent with business common sense but must be alive to the possibility that one side may have agreed to something that with hindsight did not serve its interest.

The court also noted that in this case the defendant relied on the principle of correction by construction, or the Chartbrook principle, referred to above. 

The court referred to the Court of Appeal's decision in MonSolar IQ Ltd v Woden Park Ltd [2021] EWCA Civ 961 (considered here) which described these as two different exercises in contractual interpretation. The first, as set out in the Supreme Court decisions referred to above, applies where a contractual provision is open to two possible interpretations. The second applies where a contractual provision is clear and unambiguous. In that scenario, the court is concerned with the application of the Chartbrook principle. In deciding whether there is a clear mistake the court must distinguish between provisions that seem merely commercially imprudent or unwise (even if they have potentially serious financial consequences) and those that are arbitrary, irrational, nonsensical or absurd. 

The limitation of liability clause in dispute in Shenzhen provided that the "Customer's total aggregate Liability…shall not exceed an amount equal to the amounts paid by Customer to Manufacturer under this agreement in that Contract Year." The defendant argued that the first reference to "Customer" was a mistake, and that this should in fact read "Manufacturer" (ie, the clause was meant to limit the defendant's liability to the amount paid to it by the claimant in a contract year). 

The court agreed for a number of reasons, including:

• It was relevant that both parties agreed that in various other places in the agreement, "Customer" had been used when the parties clearly intended to refer to "Manufacturer" and vice versa. This went to the quality of drafting, which was a relevant factor (as noted in Lukoil Asia Pacific Pte Ltd v Ocean Tankers (Pte) Ltd [2018] EWHC 163 (Comm)), and meant that less weight could be put on the parties' use of the word "Customer" than otherwise would be the case.
• It was also relevant that there was authority showing parties to commercial contracts using the drafting technique of limiting one party's liability by reference to payments made by the other. In the court's view, that technique made commercial sense, relating the risk undertaken to the reward received. In contrast, the claimant had identified no case where this drafting technique was used to limit the liability of one party by reference to payments made by that same party.
• The court accepted the defendant's submission that the clause on its face was absurd, as it would enable the claimant to avoid any liability simply by failing to pay the sums due under the agreement. Although the court saw force in the claimant's argument that "amounts paid" could be construed as including amounts "payable" as well as "paid", that argument itself recognised there was a problem with the literal interpretation of the clause as drafted. In the court's view, the correct conclusion was not to construe the clause as the claimant contended, but to find that it mistakenly referred to "Customer" rather than "Manufacturer".
• The court also saw force in the defendant's submission that the agreement limited the claimant's liability through a number of other clauses, and therefore the only liability that would be subject to the limitation in question (on the claimant's construction) was liability for wrongfully rejecting goods. As the claimant was under no obligation to place any orders, its liability was necessarily limited to the price of the particular order. There was therefore no wider liability requiring a general cap. 
• It was not difficult to see how the error had come about. While it is not necessary for the court to understand how a mistake happened before it can correct it, as noted in MonSolar, "the fact that there is a plausible explanation as to how the error occurred can support the conclusion that there has indeed been such an error."

The court described as "attractive" the claimant's submission that the existence of a clear or obvious mistake was undermined by the defendant's need to advance “intricately constructed reasons” to support its argument. However, the court ultimately dismissed it, saying that in this case the arguments worked together as part of the iterative process of construction to show, on the basis of the words used and the factual matrix, that there was clearly a drafting mistake and that the correction to be made was clear. This was not a case where the defendant was asking the court to rewrite a commercially unattractive bargain. Rather, the defendant's case was consistent with the purpose of interpretation identified in the Supreme Court authorities: to identify what the parties have agreed, not what the court thinks they should have agreed.

The decision in BLCP

The High Court (Saira Salimi sitting as a Deputy High Court Judge) held that the appointment of receivers was invalid.

The court noted that it was being invited to apply the Chartbrook principle, and it was common ground that the letters of appointment and acceptance contained a mistake. One company was named and the property belonging to two other companies was specified in the schedule. The question for the court was whether it was sufficiently clear what correction was required. 

The defendants argued that the terms of appointment were clear: the receivers were appointed in relation to the properties listed in the schedule, being land held by the claimants. A reasonable recipient of the letters, with all the knowledge held by the receivers and the lender, would have understood that the receivers intended to accept appointment over that land. It would be absurd and contrary to commercial sense and reality to conclude that the lender intended to offer, or the receivers to accept, anything other than receivership over the land in question. The defendants also highlighted the serious consequences of the appointment being held invalid – the subsequent transfer of land would be liable to be unwound even though millions of pounds had changed hands. 

The claimants, however, argued that it was possible that the references to the borrower as the company in respect of which receivership was to be granted should remain intact, but the schedule should be amended to refer to property held by the borrower. 

The court acknowledged that both possible corrections could be appropriate. While it accepted that the correction contended for by the defendants may be the more likely in all the circumstances, it was not the obvious correction. There were at least two reasonable possibilities. Accordingly, the court held that the appointment of the receivers was invalid. Although the commercial consequences of this finding would be unwelcome, that did not mean the court could properly correct the contract in the way for which the defendants contended.