Construction of term of contract for the sale and purchase of the entire issued share capital of a company.
Held: The appeal was dismissed: ‘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.’ The Court of Appeal’s construction of the Contract was correct.
The court when interpreting a contract term must find the objective meaning of the language used. That was not a literalist exercise, parsing the wording and particular clauses, but the court must take the entire contract and, depending on its the nature and formality and the quality of its the drafting, give more or less weight to elements of the wider context in reaching its view as to that objective meaning; that the interpretation of a contract was a unitary exercise and, where there were rival meanings, the court could give weight to the implications of rival constructions by reaching a view as to which construction was more consistent with business common sense; but that, in striking a balance between the indications given by the language and the implications of the competing constructions, the court had to consider the quality of drafting of the clause and also to be alive to the possibility that one side might have agreed to something which, with hindsight, did not serve his interest; that similarly the court should not lose sight of the possibility that the provision might be a negotiated compromise or that the negotiators were unable to agree more precise terms; that that unitary exercise involved a iterative process whereby each suggested interpretation was checked against the provisions of the contract and its commercial consequences were investigated; that when interpreting any contract, textualism and contextualism could be used as tools to ascertain the objective meaning of the language which the parties had chosen to express their agreement, and the extent to which each tool would assist the court in its task would vary according to the circumstances of the particular agreements; that agreements which were sophisticated and complex because they had been negotiated and prepared with the assistance of skilled professionals might be successfully interpreted principally by textual analysis; that the correct interpretation of other contracts, for example those which lacked clarity because of their informality, brevity or the absence of skilled professional assistance, might be achieved by a greater emphasis on considering their factual matrix and the purpose of similar provisions in contracts of the same type; that that approach to contractual interpretation was confirmed by recent case law and the recent history of the common law of contractual interpretation which was one of continuity rather than change.
Judges:
Lord Neuberger, President, Lord Mance, Lord Clarke, Lord Sumption, Lord Hodge
Citations:
[2017] UKSC 24, [2017] 2 WLR 1095, [2017] AC 1173, [2017] CILL 3971, [2017] 4 All ER 615, [2017] WLR(D) 220, 171 Con LR 1, UKSC 2015/0212
Links:
Bailii, Bailii Summary, WLRD, SC, SC Summary, SC Summary Video, SC Video 070217 am
Jurisdiction:
England and Wales
Citing:
Cited – Prenn v Simmonds HL 1971
Backgroun Used to Construe Commercial Contract
Commercial contracts are to be construed in the light of all the background information which could reasonably have been expected to have been available to the parties in order to ascertain what would objectively have been understood to be their . .
Cited – Reardon Smith Line Ltd v Yngvar Hansen-Tangen (The ‘Diana Prosperity’) HL 1976
In construing a contract, three principles can be found. The contextual scene is always relevant. Secondly, what is admissible as a matter of the rules of evidence under this heading is what is arguably relevant, but admissibility is not decisive. . .
Cited – Investors Compensation Scheme Ltd v West Bromwich Building Society HL 19-Jun-1997
Account taken of circumstances wihout ambiguity
The respondent gave advice on home income plans. The individual claimants had assigned their initial claims to the scheme, but later sought also to have their mortgages in favour of the respondent set aside.
Held: Investors having once . .
Cited – Gan Insurance Co Ltd v Tai Ping Insurance Co Ltd CA 3-Jul-2001
A reinsurance contract which contained a clause which provided that no settlement or compromise of a claim could be made or liability admitted by the insured without the prior approval of the reinsurers. The court considered how the discretion to . .
Cited – Sigma Finance Corporation, Re; (in administrative receivership) SC 29-Oct-2009
The court considered how the losses of the insolvent company were to be distributed as between secured creditors and preferential creditors, given the terms of the applicable trust deed.
Held: The court considered the interpretations of the . .
Cited – Rainy Sky Sa and Others v Kookmin Bank SC 2-Nov-2011
Commercial Sense Used to Interpret Contract
The Court was asked as to the role of commercial good sense in the construction of a term in a contract which was open to alternative interpretations.
Held: The appeal succeeded. In such a case the court should adopt the more, rather than the . .
Cited – Arnold v Britton and Others SC 10-Jun-2015
Absurdity did not defeat a clear clause
A standard lease of plots on a caravan park, contained a provision which appeared to increase the rent by 10% in each year. The tenants argued that such a substantial increase could not have been intended.
Held: The tenants’ appeal failed . .
At First Instance – Wood v Sureterm Direct Ltd and Another ComC 14-Oct-2014
Construction of an indemnity provision in an agreement for the sale and purchase of the shares in the First Defendant.
Held: The Court decided a preliminary issue of the interpretation of the indemnity clause holding in effect, that it . .
Appeal from – Wood v Sureterm Direct Ltd and Capita Insurance Services Ltd CA 30-Jul-2015
At issue in this appeal is the true construction of a clause in a sale and purchase agreement in respect of all the shares in a company.
Held: The appeal succeeded. The Court of Appeal declared that Mr Wood’s liability under the indemnity in . .
Cited by:
Cited – MT Hojgaard As v EON Climate and Renewables UK Robin Rigg East Ltd and Another SC 3-Aug-2017
The defendants had requested tenders for the design and construction of an offshore wind farm. The court now considered the situation arising because of inconsistencies between documents in the tender request. The successful tender was based upon an . .
Cited – Lehman Brothers International (Europe) v Exotix Partners Llp ChD 9-Sep-2019
The parties had contracted to trade global depository notes issued by the Peruvian government. Each made mistakes as to their true value, thinking them scraps worth a few thousand dollars, whereas their true value was over $8m. On the defendant . .
Cited – Taurus Petroleum Limited v State Oil Marketing Company of The Ministry of Oil, Republic of Iraq SC 25-Oct-2017
The parties disputed their contract arrangements. It was referred to an arbitration in London, but applying Iraqi law. The respondent failed to meet the award made against it, and the claimant sought to enforce the award here by means of third party . .
Cited – Barnardo’s v Buckinghamshire and Others SC 7-Nov-2018
The Court considered the interpretation of a clause in a pension scheme trust deed which defines the phrase ‘Retail Prices Index’ and which allows the trustees of the pension scheme to adopt a ‘replacement’ of the officially published Retail Prices . .
Cited – The Financial Conduct Authority (FCA) v Arch Insurance (UK) Ltd and Others ComC 15-Sep-2020
Test case to determine issues of principle in relation to policy coverage under various specimen wordings underwritten by the defendants in respect of claims by policyholders to be indemnified for business interruption losses arising in the context . .
Cited – The Financial Conduct Authority and Others v Arch Insurance (UK) Ltd and Others SC 15-Jan-2021
Many businesses, having been ordered to suspend business during the Covid-19 epidemic, sought to claim under business interruption insurance. The claims were rejected by the insurers and the insurers now appealed from a finding that they had been . .
Cited – Green v Petfre (Gibraltar) Ltd (T/A Betfred) QBD 7-Apr-2021
Onerous Contract Terms Unclear – Not Incorporated
The claimant said that he had won a substantial sum on the online gaming platform operated by the defendants, but that they had refused to pay up. The defendants said that there had been a glitch in the game. The court faced a request for summary . .
Cited – Tillman v Egon Zehnder Ltd SC 3-Jul-2019
The company appealed from rejection of its contention that its former employee should be restrained from employment by a competitor under a clause in her former employment contract. . .
Lists of cited by and citing cases may be incomplete.
Contract
Updated: 10 April 2022; Ref: scu.581275