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In Westfield v Harworth, the Court of Appeal affirmed well-known principles of contractual interpretation.
A holiday park with a Zone of Interest
The dispute arose out of a deferred consideration clause in an agreement for Westfield to purchase a holiday park from Harworth Estates. Unfortunately, the park in question was a former mine, and during investigations, Westfield discovered that a "Zone of Interest" (or area more prone to collapse) might prohibit their ability to allow caravans on the land. The parties agreed to reduce the purchase price, subject to the Zone of Interest being smaller than originally contemplated. In this case, Westfield would make good the monetary difference to Harworth by way of a "Released Land Payment", as long as the Coal Authority gave written confirmation.
Over the course of several months, Harworth engaged with the Coal Authority, who ultimately concluded that though the Zone of Interest itself was not reduced, the area on which no caravans were allowed could be. Harworth took this to mean Westfield owed them the additional Released Land Payment: after all, they could use the land for what they originally envisaged.
Purposive vs literal interpretation
The High Court concluded that Westfield's refusal to pay was in violation of the consideration clause. A purposive interpretation of the clause was required to give effect to commercial common sense. In other words, if the whole point of the transaction was to develop land for caravans, then additional payment should have been triggered when caravans were allowed, Zone of Interest or not.
Westfield appealed, arguing that it was wrong not to take the clause on face value. Therefore, though the court also considered an alternative rectification claim, the crux of the case centred around one main question: how should language in a contract be understood?
Interpretation principles
Citing the principles in Arnold v Britton, the Court of Appeal said that interpretation is an exercise that should be commenced by considering the "natural and ordinary" meaning of the words, both alone and in context. The prior negotiations between the parties, which the High Court had used to give sense to the clause, were not relevant. Nor were the subjective intentions of Westfield and Harworth. With that in mind, a reasonable reader with all the relevant background knowledge would have assumed the parties meant what they said (as we should all be assumed to!), when they drafted the clause. Therefore, no payment was due.
Judgment: Westfield v Harworth
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