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Don’t get caught out by a web of words in your contracts.

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

With contracts, there can be issues with interpretation as literal wording and their meaning in context can be different.

The issue in this case was of the proper construction of an indemnity given by Mr Wood under the terms of a share purchase agreement under which Capita bought the entire issued share capital of Sureterm Direct Limited. The key issue was establishing from the wording when the indemnity would be triggered.

The High Court held that the indemnity applied even if there had been no claim or complaint by a customer, but the Court of Appeal upheld Mr Wood’s appeal and found the indemnity was not triggered by Sureterm’s self- reporting as no liability could arise under it unless a mis-selling claim had been made against Sureterm or a complaint had been made to the FSA.

The decision was appealed by Capita and the Supreme Court dismissed the appeal by laying down a definitive test for interpretation of contracts. The test states that the court must decide on the objective meaning of the language in which the agreement has been made; this was not be taken literally so that the focus should be on the wording of the particular clause; and the court was to consider the contract as a whole and depending on the nature, formality and quality of the drafting of the contract, weight the elements of the wider context in making its decisions.

Top tip: Try to eliminate ambiguity from commercial contracts so that there is no room for misinterpretation.

For advice on share purchase agreements and other commercial matters please contact Kevin Finlayson in our Commercial & Corporate team.