On appeal from: [2013] EWCA Civ 902

The Supreme Court dismissed the appeal by a majority of 4-1 in the case concerning the true interpretation of 5 versions of a clause which has been described as a service charge clause in the long lease agreement of 25 chalets in the respondent’s leisure park.

The appellants are the current tenants under 25 leases in Oxwich Leisure Park containing 91 chalets. The respondent, the current landlord, argues that the service charge provision in clause 3(2) requires the lessee to pay an initial annual service charge of £90, which increases at a compound rate of 10% for the first 70 chalets to be let, every 3 years, but for the last 21 chalets, every year. The Court had to decide if the respondent’s interpretation of the clause was correct.

In delivering the lead judgment, Lord Neuberger stated that, when interpreting a written contract, the court must identify the intention of the parties by reference to “what a reasonable person having all the background knowledge… would have understood them to be using the language in the contract to mean”. Whilst reliance must be placed on commercial common sense, this should not undervalue the importance of the language in the provision. He reasoned that the fact that an arrangement has worked out badly or even disastrously is not a reason for departing from the natural meaning of the language. In the present case, Neuberger stated that the reasonable reader of clause 3(2) would see the first half of the clause as descriptive and the second half as a qualification of the service charge. Although it may be alarming that in the case of 21 leases an annual increase in the service is required, that is not enough to depart from the natural meaning of the clause.

In his dissenting judgment, Lord Carnwath considered that the commercial purpose of clause 3(2) was to enable the lessor to recover from the lessees the costs of maintaining the estate on their behalf, the payment by each lessee being intended to represent a “proportionate” part of the expenses incurred and therefore would have allowed the appeal.


For judgment, please download: [2015] UKSC 36
For Court’s press summary, please download: Court’s Press Summary
For a non-PDF version of the judgment, please visit: BAILII