Snowville UK Ltd. v Holidaybreak Plc

Contractual wording may be construed in its commercial and factual context. Where the background shows that the parties used language which cannot reflect their evident objective intention, the court may correct the construction without requiring rectification. An indemnity may therefore extend to the liability it was objectively intended to cover, despite defective drafting. References incorporated into a contract must be read according to their wording. The phrase without prejudice to preserves the independent operation of another clause; it does not necessarily incorporate that clause’s additional terms. Contractual time bars will not apply to an indemnity unless the agreement makes that intention sufficiently clear.

Snowville appealed, and Holidaybreak cross-appealed, against Master Price’s order striking out the claim and dismissing the action under CPR rule 3.4(2), alternatively CPR Part 24. The dispute arose from an indemnity in an agreement for the sale of Baldwin PLC’s shares. The indemnity concerned under-funding of Baldwin’s pension arrangements for a former chief executive, Mr Singh.

The Master held that the indemnity covered the relevant liability but that the claim was barred by contractual notification and litigation time limits. The cross-appeal challenged the finding on liability. The appeal concerned the proper construction of the indemnity and the effect of clauses 4.6.4, 4.6.5.2 and 4.8.

1. Appeal allowed; cross-appeal dismissed. The claim was reinstated, although the judge considered that it required reformulation before proceeding.
2. The literal wording of the indemnity did not produce a commercially coherent result. Applying the principles in ICS Ltd v West Bromwich Building Society Ltd [1998] 1 WLR 896, the objective background could show that something had gone wrong with the language. Rectification was unnecessary where the parties’ intention could be established by construction.
3. The indemnity was construed as requiring Holidaybreak to indemnify Snowville, and Baldwin, against liability arising from under-funding of the pension arrangements. It covered claims by Mr Singh against Baldwin under his service agreement, as well as relevant claims by the pension trustees. The phrase “payable pursuant to the Pension Scheme” included amounts payable generally in respect of the Scheme.
4. Baldwin had no liability to the pension trustees for further contributions where the Rules permitted it to cease contributions if it considered them impracticable or inexpedient. The claim based solely on liability to the trustees therefore failed.
5. Clause 7.1 incorporated clauses 4.6.5.2 and 4.8. The words “without prejudice to clause 4.6.4” in clause 4.8.1 preserved the separate operation of clause 4.6.4; they did not incorporate its time limits into clause 4.8.1. If those limits were intended to apply to the indemnity, express incorporation would have been expected.
6. The pleaded claim did not accurately reflect the contractual obligation identified by the court. The appropriate consequential order was to be determined after hearing counsel.

• High Court (Chancery Division): Appeal from Master Price’s order dated 29 October 2003. The appeal was allowed and the cross-appeal dismissed.
• Master Price: Struck out the claim and dismissed the action under CPR rule 3.4(2), alternatively CPR Part 24. He held that the indemnity applied but that contractual time limits had not been met.