Campbell v Daejan Properties Ltd

A court may correct contractual language through construction only where it is clear both that the language has gone wrong and what a reasonable person, equipped with the available background knowledge, would have understood the parties to mean. Language which is unusual, improvable or commercially disadvantageous does not satisfy this demanding test.

There is no presumption that service charge provisions in a lease enable a landlord to recover all expenditure. A court must give effect to the lease as written unless the requirements for correcting a clear mistake are met.

A lessee’s maisonette occupied the third and fourth floors of a larger building. The lease required the lessor to repair the roof and outside walls of the “premises”, with the lessee contributing 40% of that expenditure. The lessor sought to substitute “house” for “premises”, which would extend the repairing covenant and the lessee’s contribution to other roofs and walls.

Roth J declared that the clause contained an obvious mistake and should be construed with the proposed substitution. The lessee appealed. She also sought permission to introduce the head lease and correspondence showing the parties’ previous application of the repairing provisions.

The central issues were whether the additional evidence should be admitted and whether the stringent requirements for correcting contractual language through construction were satisfied.

1. Appeal allowed unanimously. Jackson LJ delivered the leading judgment. Lloyd LJ agreed and gave additional reasons. Laws LJ agreed with both judgments. The declaration substituting “house” for “premises” was set aside.

2. A court ordinarily gives effect to the express terms of a written contract. Correction through construction is confined to cases where it is clear that something has gone wrong with the language and clear what a reasonable person, possessing the relevant background knowledge, would have understood the parties to mean. This approach followed Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38 and Pink Floyd Music Ltd v EMI Records Ltd [2010] EWCA Civ 1429.

3. The lease contained several different bases for calculating the lessee’s contributions. Those provisions disclosed no pattern showing that the parties must have intended a 40% contribution towards repairing every external wall and roof. A liability confined to the main roof and walls enclosing the maisonette was unusual but neither absurd nor commercially nonsensical. There is no presumption that a landlord under historic leases recovers all expenditure through service charges.

4. The practical difficulties potentially arising from the estimates procedure did not establish a clear linguistic mistake. Nor was it a proper basis for rewriting the lease that its terms might appear too favourable to both parties. The court’s function was construction, rather than improving terms which might have been drafted differently.

5. The parties’ earlier application of the clause according to its express wording, and their decision to reproduce it without alteration in the 1999 extension lease, reinforced Jackson LJ’s conclusion. Lloyd LJ regarded that correspondence as irrelevant to construction of the 1958 lease, although potentially relevant to the unneeded alternative issue concerning the parties’ later conduct. The construction issue was decisive, so the court did not determine estoppel.

6. The fresh head lease and relevant correspondence were admitted under the Civil Procedure Rules 1998. Applying the Ladd v Marshall criteria, the evidence had not readily been obtained because of the lessee’s circumstances, could have influenced the alternative estoppel issue, and was authentic. An unsent draft letter was excluded.

1. Court of Appeal (Civil Division): The lessee’s appeal was allowed unanimously. The declaration substituting “house” for “premises” was set aside: [2012] EWCA Civ 1503.
2. High Court of Justice: Roth J granted the lessor a declaration that clause 3(iii) should be construed as though “house” appeared instead of “premises”. No neutral citation is stated.