Edward Cumming in leading Supreme Court decision on contractual interpretation
Capita Insurance Services Ltd v Wood [2017] UKSC 24: Edward Cumming appears as sole counsel in leading Supreme Court authority on contractual interpretation
The Supreme Court today handed down judgment in Capita Insurance Services Ltd v Wood [2017] UKSC 24, which is now the leading authority on the proper approach to the interpretation of contacts. Edward Cumming appeared before the Supreme Court as sole counsel for the Appellant, Capita Insurance Services Ltd, successfully arguing that Arnold v Britton [2015] AC 1619 did not involve a “rowing back” from Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900, notwithstanding that today’s judgment ultimately dismissed the appeal.
Further analysis of the Supreme Court’s judgment will follow, together with a consideration of the possible future approach of the lower courts in light of Lord Hodge’s observations (at paragraph 28) that “Business common sense is useful to ascertain the purpose of a provision and how it might operate in practice. But in the tug o’ war of commercial negotiation, business common sense can rarely assist the court in ascertaining on which side of the line the centre line marking on the tug o’ war rope lay, when the negotiations ended”. The background to the decision is set out below.
Background to the decision
Capita Insurance Services Limited (“Capita”) entered into an agreement (“the SPA”) with the respondent for the sale and purchase of the entire issued share capital of Sureterm Direct Limited (“the Company”), a company which primarily offers motor insurance for classic cars.
Shortly after Capita’s purchase of the Company’s share capital, employees of the Company raised concerns about the Company’s sale processes. A Company review revealed that in many cases the Company’s telephone operators had misled customers to make a sale. Capita and the Company informed the Financial Services Authority (“FSA”) of the findings. Capital and the Company agreed to pay compensation to customers affected by the mis-selling.
Clause 7.11 of the SPA was an indemnity clause. It provided “the Sellers undertake to pay to the Buyer an amount equal to the amount which would be required to indemnify the Buyer […] 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 misselling or suspected mis-selling of any insurance or insurance related product or service”.
When, sometime after the takeover, the respondent commenced proceedings for wrongful dismissal against the Company and Capita, Capita brought a counterclaim against the respondent under clause 7.11 alleging that it had suffered loss as a result of a remediation scheme that it was required to undertake by the FSA due to the mis-selling of insurance products in the period before the completion of the sale. The respondent claimed that the circumstances fell outside the scope of clause 7.11 as the requirement to compensate which had arisen was not as a result of a claim by the Company’s customers or a complaint by those customers to the FSA or another public authority.
The High Court held that clause 7.11 required the respondent to indemnify Capita even if there had been no claim or complaint. The Court of Appeal disagreed. It declared that the indemnity under clause 7.11 was confined to loss arising out of a claim or complaint.
Capita appealed against the Court of Appeal’s order, arguing that it had fallen into error because it had been influenced by the respondent’s submission that the decision of the Supreme Court in Arnold v Britton [2015] AC 1619 had “rowed back” from the guidance on contractual interpretation which the Supreme Court gave in Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900. Capita argued that this had caused the Court of Appeal to give insufficient weight to the factual matrix and, in particular, the commercial context and the commercial consequences of each rival interpretation.
The Supreme Court today found that Rainy Sky and Arnold were “saying the same thing”, but nevertheless dismissed the appeal, finding that the Court of Appeal was correct on the meaning of clause 7.11.
Edward – who has appeared as sole counsel on behalf of Capita (acting against a leading QC) throughout this long-running, and ongoing, dispute – appeared before Lord Neuberger, Lord Mance, Lord Clarke, Lord Sumption and Lord Hodge on the appeal to the Supreme Court in February 2017.