Wood v Capita Insurance Services Ltd
Citations:  UKSC 24;  AC 1173.
The buyer purchased shares from the seller. Their agreement contained an indemnity clause requiring the seller to indemnify the buyer against all ‘fines, compensation or remedial action or payments’ imposed on the company ‘arising out of claims or complaints registered with’ the FSA. The contract also contained a wide variety of time-limited seller warranties.
It later became apparent that the company had misled customers. The buyer was obliged to inform the FSA of the malpractice. The company and the FSA agreed to a compensation scheme for affected customers.
The seller brought proceedings against the company and the buyer. The buyer counterclaimed under the indemnity clause. The seller argued that the compensation scheme fell outside of the clause’s scope. This was because the impetus for the compensation scheme had not been a claim or complaint registered with the FSA. Rather, it had arisen out of the buyer’s own disclosure.
- Did the compensation scheme fall within the scope of the indemnity clause?
The Supreme Court held in favour of the seller. The meaning of the indemnity clause was opaque. However, properly construed, it was limited to compensation triggered by a customer complaint or claim. This was because the indemnity clause appeared subsidiary to the wide-ranging (but time-limited) warranties. This indicated that it was to have a narrow scope.
This Case is Authority For…
The court’s task in interpreting contract terms is to ascertain the agreement’s objective meaning. Interpretation should not be overly literal. It should involve consideration of the contract as a whole. More or less weight should be given to the wider context surrounding the agreement depending on the nature, quality and formality of the drafting.
A court faced with a sophisticated and complex agreement is more likely to rely on textualism than contextualism, for example. The opposite might be true of a very sparse and informal contract.
Where there are rival meanings, one way of choosing between them is to consider which is more in accordance with business common sense. At the same time, the court must be alive to the possibility that one party agreed to something which in hindsight was not in their interest or which represented a negotiated compromise.