Arnold v Britton [2015] UKSC 36

Facts

• The case concerned service charge clauses in leases for chalets at a leisure park.
• The contracts, signed in 1974, required tenants to pay a service charge to the lessor, increasing by 10% annually.
• The leases were executed during a period of high inflation, sometimes exceeding 10%.
• Over time, lessees faced substantially higher payments due to the compounding increases.
• Lessees argued that such an onerous annual increase was improbable and not what original parties would have intended.
• Both the High Court and Court of Appeal held the lessees bound by the explicit lease terms.
• The Supreme Court upheld this view, emphasizing adherence to the contract’s literal language.

Issues

1. Whether courts should prioritize the natural meaning of contractual terms or allow commercial common sense and context to override clear wording.
2. Whether it is appropriate for courts to reinterpret unambiguous contractual provisions to avert commercially disadvantageous outcomes.
3. Whether the position in Chartbrook Ltd v Persimmon Homes Ltd, permitting a broader role for commercial context in interpretation, should continue.

Decision

• The Supreme Court held that clear contractual wording must take precedence over commercial common sense or contextual considerations.
• The Court found no basis for rewriting or reinterpreting contract terms merely because their effect subsequently appears onerous or imprudent.
• It was determined that while context may be referenced to interpret ambiguous language, it cannot displace the natural meaning of clear terms.
• The Court expressly departed from the broader interpretive approach in Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 as regards overriding explicit contractual language.

Legal Principles

• The primary element in the interpretation of contracts is the language used by the parties.
• Commercial common sense and factual context may assist interpretation but cannot override the clear meaning of contractual words.
• Courts are not entitled to recast contracts to align with what, in hindsight, might be perceived as fairer or more sensible for one party.
• The decision reinforces the limits of the doctrine of interpretation; parties remain bound by agreements, even if disadvantageous.
• The judgment upholds the primacy of the written agreement, with contextual factors relevant only where terms are ambiguous.

Conclusion

The Supreme Court in Arnold v Britton [2015] UKSC 36 confirmed that the natural and ordinary meaning of contractual terms prevails, limiting the use of commercial common sense to override explicit provisions, and affirmed the centrality of precise drafting in contractual obligations.