Absurdity did not defeat a clear clause
A standard lease of plots on a caravan park, contained a provision which appeared to increase the rent by 10% in each year. The tenants argued that such a substantial increase could not have been intended.
Held: The tenants’ appeal failed (Lord Carnwath dissenting). The words were clear, and even though they might lead eventually to an absurdly high service charge, they remained the primary source for any interpretation of the lease.
When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to ‘what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean’. The court was to discover what had actually been agreed, and not what should have been agreed. It was not the court’s job to save a party from a bad decision or from imprudent advice. The Court cautioned against making too free a use of business common sense and commercial context in order to give to a contract a meaning that its language cannot properly bear.
Judges:
Lord Neuberger, President , Lord Sumption , Lord Carnwath , Lord Hughes , Lord Hodge
Citations:
[2015] UKSC 36, [2015] HLR 31, [2016] 1 All ER 1, [2015] WLR(D) 247, [2015] 2 WLR 1593, [2015] AC 1619, UKSC 2013/0193
Links:
Bailii, Bailii Summary, SC, SC Summary, SC Video, WLRD
Jurisdiction:
England and Wales
Citing:
Cited – Reardon Smith Line Ltd v Yngvar Hansen-Tangen (The ‘Diana Prosperity’) HL 1976
In construing a contract, three principles can be found. The contextual scene is always relevant. Secondly, what is admissible as a matter of the rules of evidence under this heading is what is arguably relevant, but admissibility is not decisive. . .
Cited – Walker v Giles 1848
The court sought to reconcile conflicting parts of a deed.
Wilde CJ said: ‘And as the different parts of the deed are inconsistent with each other, the question is, to which part effect ought to be given. There is no doubt, that, applying the . .
Cited – Prenn v Simmonds HL 1971
Backgroun Used to Construe Commercial Contract
Commercial contracts are to be construed in the light of all the background information which could reasonably have been expected to have been available to the parties in order to ascertain what would objectively have been understood to be their . .
At CA – Arnold v Britton and Others CA 22-Jul-2013
The court examined provisions in leases creating service charges. The disputed provision increased the service charge by 10% every year.
Held: Davis LJ discussed the thinking behind the clause: ‘Lack of correspondence between outlay and . .
Cited – F L Schuler AG v Wickman Machine Tools Sales Limited HL 4-Apr-1973
The parties entered an agreement to distribute and sell goods in the UK. They disagreed as to the meaning of a term governing the termination of the distributorship.
Held: The court can not take into account the post-contractual conduct or . .
Cited – Reardon Smith Line Ltd v Yngvar Hansen-Tangen (The ‘Diana Prosperity’) HL 1976
In construing a contract, three principles can be found. The contextual scene is always relevant. Secondly, what is admissible as a matter of the rules of evidence under this heading is what is arguably relevant, but admissibility is not decisive. . .
Cited – Antaios Compania Naviera SA v Salen Rederierna AB (‘the Antaios’) HL 1984
A ship charterer discovered that the bills of lading were incorrect, but delayed withdrawal from the charter for 13 days. They now sought leave to appeal the arbitration award against them.
Held: Though he deprecated extending the use of the . .
Cited – Bank of Credit and Commerce International SA v Ali, Khan and others (No 1); BCCI v Ali HL 1-Mar-2001
Cere Needed Releasing Future Claims
A compromise agreement which appeared to claim to settle all outstanding claims between the employee and employer, did not prevent the employee later claiming for stigma losses where, at the time of the agreement, the circumstances which might lead . .
Cited – Chartbrook Ltd v Persimmon Homes Ltd and Others HL 1-Jul-2009
Mutual Knowledge admissible to construe contract
The parties had entered into a development contract in respect of a site in Wandsworth, under which balancing compensation was to be paid. They disagreed as to its calculation. Persimmon sought rectification to reflect the negotiations.
Held: . .
Cited – McHale v Cadogan CA 21-Jan-2010
‘This appeal concerns two questions of law which have arisen out of the legislation concerned with the collective enfranchisement of leasehold property. The first raises the issue of whether or not the leasehold interest, like the freehold interest, . .
Cited – Rainy Sky Sa and Others v Kookmin Bank SC 2-Nov-2011
Commercial Sense Used to Interpret Contract
The Court was asked as to the role of commercial good sense in the construction of a term in a contract which was open to alternative interpretations.
Held: The appeal succeeded. In such a case the court should adopt the more, rather than the . .
Cited – Aberdeen City Council v Stewart Milne Group Ltd SC 7-Dec-2011
The parties disputed the construction of a contract for land intended for a business park development. It provided for an uplift to be later payable in certain circumstances, and the uplift was now claimed. The question was as to whether the uplift . .
At ChD – Arnold v Britton and Others ChD 3-Dec-2012
The parties disputed the effect of 5 versions of a clause in lease by the appellant to various lessees on a chalet park. . .
Cited by:
Cited – Foster v McNicol and Another QBD 28-Jul-2016
Incumbent Labour leader did not need nominations
The claimant challenged a decision of the National Executive Committee of the Labour Party to allow its present Leader to stand in the leadership election challenging his position without the need for him to submit first the otherwise standard . .
Cited – Marks and Spencer Plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd and Another SC 2-Dec-2015
The Court considered whether, on exercising a break clause in a lease, the tenant was entitled to recover rent paid in advance.
Held: The appeal failed. The Court of Appeal had imposed what was established law. The test for whether a clause . .
Cited – PST Energy 7 Shipping Llc Product Shipping and Trading SA v OW Bunker Malta Ltd and Others CA 22-Oct-2015
The oil owners had contracted for its transport with OWBM aboard Res Cogitans under standard terms which would allow the captain to use the oil for navigation before transfer of the title in the oil. The court was now asked whether the agreement . .
Cited – Wood v Capita Insurance Services Ltd SC 29-Mar-2017
Construction of term of contract for the sale and purchase of the entire issued share capital of a company.
Held: The appeal was dismissed: ‘the SPA may have become a poor bargain, as it appears that it did not notify the sellers of a warranty . .
Cited – Lehman Brothers International (Europe) v Exotix Partners Llp ChD 9-Sep-2019
The parties had contracted to trade global depository notes issued by the Peruvian government. Each made mistakes as to their true value, thinking them scraps worth a few thousand dollars, whereas their true value was over $8m. On the defendant . .
Cited – Barnardo’s v Buckinghamshire and Others SC 7-Nov-2018
The Court considered the interpretation of a clause in a pension scheme trust deed which defines the phrase ‘Retail Prices Index’ and which allows the trustees of the pension scheme to adopt a ‘replacement’ of the officially published Retail Prices . .
Cited – The Financial Conduct Authority (FCA) v Arch Insurance (UK) Ltd and Others ComC 15-Sep-2020
Test case to determine issues of principle in relation to policy coverage under various specimen wordings underwritten by the defendants in respect of claims by policyholders to be indemnified for business interruption losses arising in the context . .
Lists of cited by and citing cases may be incomplete.
Landlord and Tenant, Contract
Leading Case
Updated: 27 November 2022; Ref: scu.547712