Wood v Sureterm Direct Ltd & Anor

Where an indemnity clause lists broad losses followed by a more specific category of regulatory losses, wording concerning claims or complaints may qualify the specific category without restricting the broad provision. The court should read the clause as a whole, taking account of linguistic structure, commercial context and practical consequences. An indemnity for losses pertaining to suspected mis-selling may apply objectively where there are reasonable grounds for suspicion. The indemnity need not depend on a customer complaint if the clause’s proper construction covers regulatory intervention, remediation or compensation arising through other routes.

The claimant was a seller of shares in an insurance-broking company. Under the share purchase agreement, the sellers agreed to indemnify the purchaser against losses connected with pre-completion mis-selling or suspected mis-selling. Following an investigation into the company’s sales practices, regulatory remediation and customer compensation were required.

The preliminary issue concerned whether the words referring to claims or complaints registered with the Financial Services Authority, the Financial Services Ombudsman or another authority qualified both the broad category of losses and the more specific category of fines, compensation and remedial payments, or qualified only the latter.

1. Construction of the indemnity. The court preferred Capita’s construction. The words referring to claims or complaints registered with a regulatory authority qualified only the specific losses in paragraph (2), not the broad losses in paragraph (1) ([2014] EWHC 3240 (Comm), paras 12–18).
2. The losses specified in paragraph (2), including fines, compensation and remedial payments, were already capable of falling within the broad wording of paragraph (1). Paragraph (2), together with the regulatory wording, was included as an illustrative example and to avoid doubt, particularly in a supervisory and regulatory context. It was not a separate condition restricting paragraph (1) (paras 13–14).
3. The commercial context supported that construction. Regulatory intervention might follow a customer complaint, employee whistleblowing, responsible management referral or a wider supervisory concern. The indemnity should not depend on the particular event which triggered the investigation, especially because customers who had been mis-sold might be unaware of the position and might never complain (paras 15–16).
4. The wording, punctuation and syntax also supported Capita’s construction. The alternative reading would create clumsy and tautologous cover for claims arising out of claims (para 17).
5. The parties agreed that the requirements that losses pertain to mis-selling or suspected mis-selling and relate to the period before completion applied throughout the clause. “Pertaining to” introduced a causative test, and “suspected mis-selling” required reasonable, objectively grounded suspicion rather than mere subjective suspicion (para 11).
6. The preliminary issue was therefore resolved in Capita’s favour (para 18).