Arnold v Britton [2015] UKSC 36

KEY POINTS

• When interpreting a written contract, the court should determine the parties' intention based on how a reasonable person, possessing all the relevant background knowledge available to the parties, would understand the language used in the contract. 
• The unfavourable or disastrous outcome of an arrangement does not justify deviating from the ordinary interpretation of the language used in the contract. Similarly, the imprudence of a specific term does not serve as a reason for departing from its natural meaning.
• The court reiterates the principle of "commercial common sense" as a guiding factor in contractual interpretation but warns against using it to rewrite the contract based on subjective views of fairness or commercial reasonableness. 

FACTS

• Oxwich Leisure Park, consisting of ninety-one chalets, is each leased for 99 years from 25 December 1974 with similar terms. The current tenants under 25 of these leases are the appellants. The leases contain a service charge covenant, and the lessor is obligated to provide various services to the park.
• The dispute centres around the interpretation of clause 3(2) of the leases, particularly regarding the payment of the service charge. The landlord, the respondent, contends that the clause requires an initial annual service charge of £90, increasing at different intervals for the first 70 chalets and the last 21 chalets.
• The main question before the court is whether the respondent's interpretation of clause 3(2) in the 25 leases, where the increase is yearly, is correct.

COMMENTARY

• Arnold v Britton reinforces the importance of clear and precise drafting in contracts. It demonstrates the courts' commitment to upholding the parties' original intentions as expressed in the contractual terms, even if the outcome is financially detrimental or imprudent.