BAILII is celebrating 24 years of free online access to the law! Would you consider making a contribution?
No donation is too small. If every visitor before 31 December gives just £1, it will have a significant impact on BAILII's ability to continue providing free access to the law.
Thank you very much for your support!
[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback] | ||
England and Wales High Court (Chancery Division) Decisions |
||
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Arnold v Britton & Ors [2012] EWHC 3451 (Ch) (03 December 2012) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2012/3451.html Cite as: [2012] EWHC 3451 (Ch) |
[New search] [Context] [View without highlighting] [Printable RTF version] [Help]
CHANCERY DIVISION
CARDIFF DISTRICT REGISTRY
ON APPEAL FROM CARDIFF COUNTY COURT
(HH JUDGE JARMAN QC)
2 Park Street, Cardiff, CF10 1ET |
||
B e f o r e :
____________________
PADDY ARNOLD |
Claimant/ Appellant |
|
- and - |
||
RODNEY BRITTON & OTHERS |
Defendants/ Respondents |
____________________
Mark Loveday (instructed by Fursdon Knapper) for the Respondents
Hearing date: 9th November 2012
____________________
Crown Copyright ©
Mr Justice Morgan:
Introduction
Version 1
"To pay to the Lessors without any deductions in addition to the said rent a proportionate part of the expenses and outgoings incurred by the Lessors in the repair maintenance renewal and the provision of services hereinafter set out the yearly sum of Ninety Pounds and value added tax (if any) for the first three years of the term hereby granted increasing thereafter by Ten Pounds per Hundred for every subsequent Three year period or part thereof."
Version 2
"To pay to the Lessors without any deductions in addition to the said rent as a proportionate part of the expenses and outgoings incurred by the Lessors in the repair maintenance and renewal of the facilities of the Estate and the provisions of services hereinafter set out the yearly sum of Ninety pounds and Value Added tax (if any) for the first year of the term hereby granted increasing thereafter by ten pounds per hundred for every subsequent year or part thereof."
Version 3
"To pay to the Lessor without any deductions in addition to the said rent a proportionate part of the expenses and outgoings incurred by the Lessor in the repair maintenance renewal and the provision of services hereinafter set out the yearly sum of Ninety Pounds and Value Added tax (if any) for the first Year of the term hereby granted increasing thereafter by Ten Pounds per hundred for every subsequent year thereof."
Version 4
"To pay to the Lessor without any deductions in addition to the said rent a proportionate part of the expenses and outgoings incurred by the Lessor in the repair maintenance renewal and the provision of services hereinafter set out for the yearly sum of Ninety Pounds and value Added tax [if any] for the first year of the term hereby granted increasing thereafter by Ten Pounds per Hundred for every subsequent year thereof."
"PROVIDED ALWAYS AND IT IS HEREBY EXPRESSLY AGREED that whilst the term hereby created is vested in the said William Richard Short and the said Janice Short or the survivor of them then maintenance shall be calculated as follows:- To pay to the Lessor without any deduction in addition to the said rent a proportionate part of the expenses and outgoings incurred by the Lessor in the repair maintenance renewal and the provision of services hereinafter set out the yearly sum of Ninety Pounds and Value Added tax (if any) for the first Three years of the term hereby granted increasing thereafter by Ten Pounds per Hundred for every subsequent Three-year period or part thereof."
Version 5
"To pay to the Lessors without any deductions in addition to the said rent as a proportionate part of the expenses and outgoings incurred by the Lessors in the repair maintenance and renewal of the facilities of the Estate and the provisions of services hereinafter set out the yearly sum of £90.00 and Value Added Tax (if any) for the first year of the term hereby granted commencing on 25th December 1974 increasing thereafter by ten pounds per hundred for every subsequent year or part thereof."
The background
" "service charge" means an amount payable by the tenant of a dwelling as part of or in addition to the rent –
a) which is payable, directly or indirectly, for services, repairs, maintenance, or improvements or insurance or the landlord's costs of management, and
b) the whole or part of which varies or may vary according to the relevant costs."
The dispute
The judgment under appeal
i) Upon a true construction of clause 3(2), the lessees are liable to pay a proportionate part of the expenses and outgoings incurred by the lessor in the repair maintenance renewal and provision of services set out in the leases;
ii) The above charge was limited to a yearly sum of £90 and VAT (if any) for the first year of the term and increasing by 10% for every subsequent year of the term; and
iii) The above charge was a "service charge" within the meaning of section 18(1) of the Landlord and Tenant Act 1985.
The law as to the construction of leases
"The approach to contractual interpretation
16 Each of the declarations granted below raises a question of interpretation of a provision in a commercial contract. The answer to such a question does not simply depend upon the words used in that provision: it is also dependent on the other provisions of the contract, on commercial common sense, and on the surrounding circumstances (or the matrix of facts) at the time the contract was made. Accordingly, when construing a provision in a commercial document, one should not carry out "a detailed semantic and syntactical analysis of the words used" — per Lord Diplock in The Antaios II [1985] AC 185 , 201.
17 The ultimate aim of interpreting such a provision is to determine what the parties to the contract meant by it. And that involves ascertaining what a reasonable person would have understood the parties to the contract to have meant. In that connection, we were referred, in particular, to passages in the speeches of Lord Hoffmann in Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749, passim, Investors Compensation Scheme Ltd v West Bromwich Building Society [1988] 1 WLR 896, 912F-913G and in Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101, paras 21-26.
18 Those well known and important passages demonstrate that while one may proceed on the prima facie assumption that the words at issue mean what they naturally say, they cannot be interpreted in a vacuum. The words must be interpreted by reference to what a reasonable person (who is informed with business common sense, the knowledge of the parties, including of course of the other provisions of the contract, and the experience and expertise enjoyed by the parties, at the time of the contract) would have understood by the provision. So construed, the words of a provision may have a meaning which is not that which they may appear to have if read out of context, or the meaning which they may appear to have had at first sight. Indeed, it is clear that there will be circumstances where the words in question are attributed a meaning which they simply cannot have as a matter of ordinary linguistic analysis, because the notional reasonable person would be satisfied that something had gone wrong in the drafting.
19 In both Investors Compensation [1998] 1 WLR 896 and Chartbrook [2009] 1 AC 1101, Lord Hoffmann made it clear that there is a fundamental difference between interpretation and rectification: the difference arises from the fact that in a claim for rectification, the court can take into account, and in an appropriate case can give effect to, the negotiations between the parties, whereas it cannot do so on an issue of interpretation. This case is concerned with interpretation, so what was said in negotiations is irrelevant and thus inadmissible (thereby ruling out some of PFM's evidence).
20 Further, as Lord Hoffmann also made clear in Investors Compensation [1998] 1 WLR 896, there is a difference between cases of ambiguity, which may result in giving the words a meaning they can naturally bear, even if it is not their prima facie most natural meaning, and cases of mistake, which may result from concluding that the parties made a mistake and used the wrong words or syntax. However, he emphasised the court does "not readily accept that people have made mistakes in formal documents" — Chartbrook [2009] 1 AC 1101, para 23. He also pointed out in paragraph 20, that, as the court, and therefore the notional reasonable person, cannot take into account the antecedent negotiations, the fact that the natural meaning of the words appears to produce "a bad bargain" for one of the parties or an "unduly favourable" result for another, is not enough to justify the conclusion that something has gone wrong. One is normally looking for an outcome which is "arbitrary" or "irrational", before a mistake argument will run.
21 Accordingly, before the court can be satisfied that something has gone wrong, the court has to be satisfied both that there has been "a clear mistake" and that it is clear "what correction ought to be made" (per Lord Hoffmann in Chartbrook [2009] 1 AC 1101, paras 22-24, approving the analysis of Brightman LJ in East v Pantiles (Plant Hire) Ltd (1981) 263 EG 61, as refined by Carnwath LJ in KPMG LLP v Network Rail Infrastructure Ltd [2007] Bus LR 1336
22 To the same effect, Chadwick LJ said in City Alliance Ltd v Oxford Forecasting Services Ltd [2001] 1 All ER (Comm) 233, para 13 (in a passage cited with approval in Lediaev v Vallen [2009] EWCA Civ 156, para 68) that the court cannot "introduce words that the parties have not used" into a contract unless "satisfied (i) that the words actually used produce a result which is so commercially nonsensical that the parties could not have intended it, and (ii) that they did intend some other commercial purpose which can be identified with confidence." "
"The correct approach to construction
14 For the most part, the correct approach to construction of the bonds, as in the case of any contract, was not in dispute. The principles have been discussed in many cases, notably of course, as Lord Neuberger of Abbotsbury MR said in Pink Floyd Music Ltd v EMI Records Ltd [2010] EWCA Civ 1429, para 17, by Lord Hoffmann in Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749, passim, in Investors Compensation Scheme Ltd v West Bromwich Building Society [1988] 1 WLR 896, 912F-913G and in Chartbrook Ltd v Persimmon Homes Ltd (Chartbrook Ltd Part 20 defendants) [2009] AC 1101, paras 21–26. I agree with Lord Neuberger (also at para 17) that those cases show that the ultimate aim of interpreting a provision in a contract, especially a commercial contract, is to determine what the parties meant by the language used, which involves ascertaining what a reasonable person would have understood the parties to have meant. As Lord Hoffmann made clear in the first of the principles he summarised in the Investors Compensation Scheme case [1988] 1 WLR 896, 912 h, the relevant reasonable person is one who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.
…
21 The language used by the parties will often have more than one potential meaning. I would accept the submission made on behalf of the appellants that the exercise of construction is essentially one unitary exercise in which the court must consider the language used and ascertain what a reasonable person, that is a person who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract, would have understood the parties to have meant. In doing so, the court must have regard to all the relevant surrounding circumstances. If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other.
…
23 Where the parties have used unambiguous language, the court must apply it. This can be seen from the decision of the Court of Appeal in Co-operative Wholesale Society Ltd v National Westminster Bank plc [1995] 1 EGLR 97. The court was considering the true construction of rent review clauses in a number of different cases. The underlying result which the landlords sought in each case was the same. The court regarded it as a most improbable commercial result. Where the result, though improbable, flowed from the unambiguous language of the clause, the landlords succeeded, whereas where it did not, they failed. The court held that ordinary principles of construction applied to rent review clauses and applied the principles in Antaios Cia Naviera SA v Salen Rederierna AB (The Antaios) [1985] AC 191. After quoting the passage from the speech of Lord Diplock cited above, Hoffmann LJ said, at p 99:
"This robust declaration does not, however, mean that one can rewrite the language which the parties have used in order to make the contract conform to business common sense. But language is a very flexible instrument and, if it is capable of more than one construction, one chooses that which seems most likely to give effect to the commercial purpose of the agreement."
"… it is the policy of the authorities not to bring within the general words of a service charge clause anything that does not clearly belong there. To put the matter another way, service charge provisions have been construed restrictively."
In that case, the Court of Appeal held that the ordinary meaning of the words used was in accordance with the submissions of the landlord and not with those of the tenant. The general remarks in that case no doubt mean that if a landlord wants to be entitled to charge for some particular work or service, it is reasonably to be expected that the landlord will specify that work or service in any list of recoverable matters and that general words will not be read in an extensive way to cover matters which could have been adequately specified.
Other matters
"In Pennant Hills Restaurants Pty Ltd v Barrell Insurances Pty Ltd [1981] HCA 3, (1981) 145 CLR 625, 639 Gibbs J said that is was unreasonable to suppose that an economist will be able to predict with accuracy the nature and extent of changes in the purchasing power of money during a period extending for several decades ahead and that, while predictions as to the economic future in thirty years time might perhaps be made by a soothsayer, expert evidence could not rationally be given on such a subject."
Discussion
The overall result