Wood v Capita Insurance Services Ltd [2017] UKSC 24 (29 March 2017)

Citation:Wood v Capita Insurance Services Ltd [2017] UKSC 24 (29 March 2017)

Rule of thumb 1:Does the purpose of a contract clause have to be considered by the Court before it is interpreted? Yes, before any clause is interpreted the Court should be told the purpose of the clause, which should be considered.

Rule of thumb 2:Where 2 businesses agree a contract, is it the business dictionary or general dictionary which applies to the definitions of words? Generally speaking it will be the business dictionary rather than the ordinary dictionary. Where the parties are businesses from different sectors, it is also presumed that definitions of words from business dictionaries rather than standard dictionaries will be taken for the words.

Background facts:

The facts of this case were that Wood had sold an online motor insurance company to Capita. Despite selling the company, one of the terms of the sales was that Wood was still liable for any legal claims that were raised against the policies he agreed with customers. Wood obtained insurance against possible legal claims against his company with Capita Insurance Services legal indemnity insurance. Sure enough there then were legal claims against the policies Wood agreed. These complaints were firstly made by customers against Wood who then moved them on the Financial Services Authority. The FSA upheld the complaints customers were making. Wood took legal advice on this and was advised by his legal team that he likely was in the wrong and that he would lose in Court. Wood therefore admitted to the FSA that he was in the wrong and a fund was set up so that people could claim and obtain damages through the FSA. Wood sought to resolve these complaints in the way that minimised legal expenses. Wood tried to claim on his insurance with Capita to make Capita liable for this. Capita denied to pay out to Wood for this however.

Parties argued:

Capita argued that these were regulatory fines from the licensing body rather than legal claims formally raised against the company by way of legal intimation letter. The matter went to Court and the debate largely centred around the interpretation of the word 'legal claims indemnity' in the insurance contract. Capita argued that technically these were not legal claims, as legal claims started out with intimation letters and followed the legal process, but these were just run of the mill complaints instead rather than formal legal claims as such. Capita provided dictionary definitions proving that this was the exact meaning of the words in the contract. They argued that dictionary defintions were best to be used rather than rewrite the contract in another language other than formal English. Wood argued that these basically were legal claims and he took an extended meaning of legal claim, with it being deemed to mean the full alternative dispute resolution process starting from informal complaints and including regulatory complaints all the way onto formal legal claims and the Court process. He also argued that it was clear that the purpose of him taking out the policy was to cover him in the event that anything he did was a breach of law causing damages.

Judgment:

The Court upheld the arguments of Wood. The Court affirmed that if the exact literal dictionary definition was taken, then Capita did have a solid argument. However, if it was the intent of the parties, and the ordinary meaning that everyone in business understood by legal claims, then this was deemed to be the definition held by Wood. The Court affirmed that in taking the definition of words in contracts it is not the literal definition taken from the dictionary, rather the general purpose of the clause must be looked at first, and then the ordinary meaning in context as understood by people in business has to be looked at - a full and careful examination of all the possible definitions of the words in full context had to be obtained looking at both the purpose of the clause and the practical meaning of the words.

Ratio-decidendi:

‘40. The 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, the requirement of a claim or complaint by a customer and the exclusion of loss caused by regulatory action which was otherwise prompted might have appeared anomalous. But clause 7.11 is in addition to the wide-ranging warranties in Part 14 of Schedule 4 (paras 18 and 19 above) which probably covered the circumstances which eventuated. Capita had two years after completing the purchase to examine the sales practices of the Company’s employees and so uncover any regulatory breaches in order to make a claim under the Schedule 4 indemnities. Prima facie that was not an unreasonable time scale. Indeed, Capita was able to send its findings to the FSA within 20 months of the Completion Date. It is not contrary to business common sense for the 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. 41. From Capita’s standpoint the 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 the function of the court to improve their bargain. 42. In this case, the circumstances which trigger that indemnity are to be found principally in a careful examination of the language which the parties have used’, Lord Hodge.

'the general purpose of the clause is clear ... business common sense ... careful examination of the language', Lord Hodge

Warning: This is not professional legal advice. This is not professional legal education advice. Please obtain professional guidance before embarking on any legal course of action. This is just an interpretation of a Judgment by persons of legal insight & varying levels of legal specialism, experience & expertise. Please read the Judgment yourself and form your own interpretation of it with professional assistance.