The Supreme Court Offers Useful Guidance On How Best To Interpret Contracts

The Supreme Court considers the meaning of an indemnity clause and emphasises that textualism and contextualism are not conflicting paradigms when it comes to contractual interpretation.

The Supreme Court handed down judgment in Wood (Respondent) v Capita Insurance Services Limited (Appellant) [2017] UKSC 24 on 29 March 2017. The Court unanimously dismissed the Appellant's appeal. It confirmed that textualism and contextualism are not conflicting paradigms when it comes to contractual interpretation, and that the previous leading authorities on contractual interpretation, Arnold v Britton [2015] AC 1619 and Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900, were saying the same thing.

Background

The issue in dispute was the interpretation of an indemnity provision set out in Clause 7.11 of a sale and purchase agreement ("the SPA") dated 13 April 2010 for the sale of shares in a company called Sureterm Direct Limited ("the Company") to Capita. Mr Wood had been a majority shareholder (94%), and was a Director, of the Company until the end of 2010. He brought proceedings against Capita in respect of the termination of his employment, and Capita brought a counterclaim against Mr Wood pursuant to the indemnity set out in clause 7.11 of the SPA, the indemnity provided:

"The Sellers undertake to pay to the Buyer an amount equal to the amount which would be required to indemnify the Buyer and each member of the Buyer's Group against all actions, proceedings, losses, claims, damages, costs, charges, expenses and liabilities suffered or incurred, and all fines, compensation or remedial action or payments imposed on or required to be made by the Company following and arising out of claims or complaints registered with the FSA, the Financial Services Ombudsman or any other Authority against the Company, the Sellers or any Relevant Person and which relate to the period prior to the Completion Date pertaining to any mis-selling or suspected mis-selling of any insurance or insurance related product or service." [our emphasis added]

Capita claimed that this indemnity provision was triggered as a result of the following circumstances. From 2008 the Company started to sell motor insurance via online aggregator sites such as Confused.com. Potential customers would receive a quotation via this platform, but to complete the purchase of the insurance policy they would have to speak the Company by telephone. Shortly after Capita purchased the Company's shares, the...