Interpretation of contract: Arnold v Britton revisited – Westfield Park v Harworth Estates Investments [2025] EWCA 1374

The case concerns a sale contract between Westfield (buyer) and Harworth (seller) for land used as a holiday park. The contract required Westfield to pay deferred consideration to Harworth if the Coal Authority confirmed that a protective buffer zone (the “zone of influence”), with a radius of 27m around two mine shafts in which all development (including the installation of static caravans) was prohibited, was reduced in size before a longstop date. 

The Coal Authority subsequently agreed to reduce the area in which no static caravans were allowed to a radius of 3.66m – but did not reduce the zone of influence. The issue for the court was one of contractual interpretation: did the reduction of the area in which static caravans were prohibited mean that deferred consideration was payable under the contract (given that was its main purpose), even though the zone of influence itself had not been reduced in size. In other words, and using existing principles of English contract law construction, did the contract mean what it said?’

Decision:

At first instance in the High Court, HHJ Klein was influenced by Coal Authority guidance which he believed meant it lacked power to reduce the zone of influence. Accordingly, he concluded that the words used by the parties could not be given their natural and ordinary meaning as this defied commercial common sense. Instead, he gave effect to what he perceived to be the overall purpose of the transaction – namely that, as the purpose of the transaction was the sale of land for the siting of static caravans, the deferred consideration was triggered when the Coal Authority allowed the caravans to be sited on it (regardless of the zone of influence). He held that Harworth was therefore entitled to payment of the deferred consideration. 

This purposive approach to contract interpretation was subsequently criticised by the Court of Appeal (“CoA”). The CoA upheld Westfield’s appeal that the Coal Authority’s agreement to reduce the area in which no static caravans were allowed did not amount to a reduction in the zone of influence, and that consequently, no deferred consideration was payable under the contract. 

The CoA noted that the judge, at first instance, appeared to have been influenced by irrelevant pre-contractual negotiations and the subjective intentions of the parties and had failed to apply the well-known principles of contract construction explained by the Supreme Court in Arnold v Britton [2015] UKSC 36, namely that when interpreting contractual provisions the meaning of the relevant words must be assessed in the light of:

“(i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the [contract], (iii) the overall purpose of the clause and the [contract] itself, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party’s intention”.

The CoA held that the reasonable reader, with all the relevant background knowledge which would reasonably have been available to Harworth and Westfield when they entered into the contract, would have understood the contract to mean what it says. It provided for deferred consideration to be paid following a reduction of the zone of influence not to a change of use or grant of consent for particular uses, e.g. static caravans. The natural and ordinary meaning of the words used did not result in ambiguity or commercial absurdity.

Takeaways:

The case is a useful reminder of the rules of contract construction summarised in Arnold v Britton. Specifically, lawyers are reminded of the importance of clear and unambiguous legal drafting, as the courts are unlikely to look beyond the natural and ordinary meaning of the words they have used just to save their client from a bad bargain. 

This is demonstrated clearly by the facts of Arnold v Britton itself. In that case, chalet tenants entered into long-term lease agreements requiring them to pay an annual service charge toward the upkeep of a chalet park. The service charge was £90 in the first year and increased at the compound rate of 10% per annum. This meant that by 2015 the service charge was £2,500 and by 2072 it would be £550,000. The Supreme Court held that the natural and ordinary meaning of the words used was not in doubt, even though the consequences were disastrous for the tenants!