"Mathematophobia"?

We were going to comment here on the recent House of Lords case of Chartbrook Limited -v- Persimmon Homes Limited, but instead we note that John Halton of Cripps Harris Hall LLP has given an excellent summary in his blog.

However, we wish to emphasise his point about legal drafting.  We do not understand the phobia that many lawyers appear to have about using mathematical expressions in commercial contracts.  After all, massive legal expenses were incurred in Chartbrook to take the case all the way to the House of Lords as a result of the ambiguity in the definition:

Additional Residential Payment (“ARP”) means “23.4% of the price achieved for each Residential Unit in excess of the Minimum Guaranteed Residential Unit Value less the Costs and Incentives.”

The whole case hinged on the question of what the percentage applied to. What did the words mean?  If we represent:

R = price achieved for each Residential Unit (£23.849m)
M = Minimum Guaranteed Residential Unit Value (£4.684m)
C = Costs and Incentives (approx £2,500 – exact figure not given in the judgement)

then the value of ARP could have been:

1.  ARP = 23.4% *(R – M – C) = £4,484,025

2.  ARP = (23.4%*(R – M)) – C = £4,482,110

3.  ARP = (23.4%*R) – M – C = £  894,166

The maximum difference in interpretation of the definition was therefore £3,589,859.  How much simpler would it have been to have defined ARP by the correct mathematical expression intended by the parties, as set out above, instead of by unpunctuated and unbracketed words?

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