99 year leases of chalets in a caravan park in South Wales granted between 1977 and 1991 contained a covenant to pay an annual service charge, starting at £90 and increasing, on a compound basis, by 10% each year. Taking, for example, a lease granted in 1980, the service charge would consequently be over £2,500 in 2015, and, by 2072, over £550,000. Had something gone wrong with the wording of the relevant clause, so that the court could intervene to change it?
The Supreme Court, by 4-1, said it had not. From 1974-1981, for instance, annual inf lation had been running at well over 10%, although it was less than 10% after 1981. The 10% annual increase was included to allow for a factor out of the control of either party, namely inf lation, and there is no principle of interpretation entitling a court to re-write a contractual provision simply because the factor the parties catered for does not seem to be developing in the way they might well have expected. Just because a contractual arrangement, if interpreted according to its natural language, has worked out badly, or even disastrously, for one of the parties is not a reason for departing from the natural language. A court should be very slow to reject the natural meaning of a provision as correct simply because it appears to be a very imprudent term for one of the parties to have agreed, even ignoring the benefit of hindsight. The purpose of interpretation is to identify what the parties have agreed, not what the court thinks that they should have agreed.