Wood v. Capita Insurance Services Limited

United Kingdom

29.03.2017

Contract

Court must consider contract as a whole and, depending on nature, formality and quality of drafting of contract

Present appeal raises a question of contractual interpretation. It concerns an indemnity clause in an agreement dated 13 April 2010 (“the SPA”) for sale and purchase of entire issued share capital of a company, Sureterm Direct Limited (“the Company”), which carries on business as a specialist insurance broker, primarily offering motor insurance for classic cars. High Court held that, Clause 7.11 required Respondent to indemnify Capita even if there had been no claim or complaint. Court of Appeal declared that, indemnity under Clause 7.11 was confined to loss arising out of a claim or complaint.

The court’s task is to ascertain objective meaning of language which parties have chosen to express their agreement. In Prenn v Simmonds and in Reardon Smith Line Ltd v Yngvar Hansen-Tangen, Lord Wilberforce affirmed potential relevance to task of interpreting parties’ contract of factual background known to parties at or before date of contract, excluding evidence of prior negotiations.

Textualism and contextualism are not conflicting paradigms in a battle for exclusive occupation of the field of contractual interpretation. Rather, lawyer and judge, when interpreting any contract, can use them as tools to ascertain the objective meaning of language which the parties have chosen to express their agreement. SPA is a detailed and professionally drafted contract. It provided for sale and purchase of Company’s share capital (clause 3) for consideration of £7,681,661 payable on completion (clause 4), and it also provided for deferred consideration (Schedule 8).

General purpose of Clause 7.11, to indemnify Capita and its group against losses occasioned by mis-selling is clear. Had clause 7.11 stood on its own, requirement of a claim or complaint by a customer and exclusion of loss caused by regulatory action which was otherwise prompted might have appeared anomalous. But Clause 7.11 is in addition to wide-ranging warranties in Part 14 of Schedule 4, which probably covered circumstances which eventuated. Capita had two years after completing purchase to examine sales practices of Company’s employees and so un-cover any regulatory breaches in order to make a claim under Schedule 4 indemnities. Prima facie that, was not an unreasonable time scale. Indeed, Capita was able to send its findings to FSA within 20 months of Completion Date. It is not contrary to business common sense for parties to agree wide-ranging warranties, which are subject to a time limit, and in addition to agree a further indemnity, which is not subject to any such limit but is triggered only in limited circumstances.

Contractual context is significant in present case. Indemnity in clause 7.11 is an addition to detailed warranties in Schedule 4. Mis-selling which clause 7.11 addresses is also covered by warranty in Schedule 4. But liability for Schedule 4 warranties is time- limited by Schedule 5. Paragraph 3.1(b) of Schedule required Company to claim within two years of completion of sale and purchase. Scope of Clause 7.11 indemnity, breach of which gives rise to a liability which is unlimited in time, falls to be assessed in context of those time-limited warranties.

From Capita’s standpoint, SPA may have become a poor bargain, as it appears that it did not notify the sellers of a warranty claim within two years of Completion. But it is not function of Court to improve their bargain. In this case, circumstances which trigger that indemnity are to be found principally in a careful examination of language which parties have used. Supreme Court dismissed the appeal.

Tags : Contract Loss Indemnity

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