Wood v Capita Insurance Services Limited

Contractual interpretation is a unitary and iterative exercise directed to the objective meaning of the parties’ language. The court reads the disputed wording with the contract as a whole and the admissible factual matrix, checking rival constructions against their commercial consequences. Textual and contextual analysis are complementary tools. Their relative weight depends on the nature, formality and quality of the agreement and its drafting. Business common sense may assist, but it does not permit the court to improve a poor bargain or disregard a negotiated compromise. An indemnity expressed to cover losses following and arising from claims or complaints is triggered only by such a claim or complaint where the language and contractual context make that limitation operative.

Wood v Capita Insurance Services Limited concerned an indemnity in a professionally drafted share purchase agreement for an insurance broker. Following the purchase, an internal review revealed suspected mis-selling. Capita reported the findings to the Financial Services Authority and established a customer remediation scheme, although no customer claim or complaint had triggered the regulatory action.

Capita sought indemnification from Mr Wood for the resulting compensation, interest and remediation costs. Popplewell J determined a preliminary issue in Capita’s favour: [2014] EWHC 3240 (Comm). The Court of Appeal reversed that decision, holding that the indemnity required a claim or complaint against the company, a seller or a relevant person: [2015] EWCA Civ 839. The central issue was whether the indemnity also covered losses arising from self-reported mis-selling and consequential regulatory action.

Appeal dismissed unanimously. Lord Hodge gave the judgment, with which Lord Neuberger, Lord Mance, Lord Clarke and Lord Sumption agreed.

1. Contractual interpretation seeks the objective meaning of the language chosen by the parties. It is a unitary and iterative exercise. The disputed wording must be read with the contract as a whole and the admissible factual background, while competing meanings are tested against their commercial consequences. Evidence of prior negotiations remains excluded (paras 10–13).

2. Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 and Arnold v Britton [2015] AC 1619 stated the same approach. Arnold v Britton did not recalibrate or retreat from the earlier guidance. Textualism and contextualism are complementary tools, and the appropriate emphasis depends on the nature, formality and drafting quality of the particular agreement. The court must also recognise that a provision may reflect a compromise or a bargain which later proves disadvantageous (paras 9–15).

3. On its proper construction, clause 7.11 required the relevant loss to follow and arise from either a claim against the company, a seller or a relevant person, or a complaint registered with the Financial Services Authority, the Financial Services Ombudsman or another authority against such a person. The claim or complaint also had to relate to the period before completion and concern actual or suspected mis-selling (paras 25–38).

4. Capita’s construction would deprive the words concerning claims and complaints of any effective limiting function and leave the persons against whom relevant claims might be made to implication. The competing construction gave those words a coherent purpose. The clause’s erratic punctuation and drafting style did not materially support Capita’s interpretation (paras 33–38).

5. The commercial context did not require a broader construction. The agreement already contained extensive regulatory warranties subject to a two-year claims limit, while clause 7.11 created an indemnity unlimited in time but triggered in narrower circumstances. That allocation was commercially intelligible. The court could not improve the bargain merely because Capita apparently failed to notify a warranty claim in time (paras 39–42).

The regulatory remediation following Capita’s own report to the regulator was therefore outside clause 7.11 because it had not arisen from the required claim or complaint. The Court of Appeal’s declaration was upheld.

• United Kingdom Supreme Court: In Wood v Capita Insurance Services Limited [2017] UKSC 24, the court unanimously dismissed Capita’s appeal and upheld the Court of Appeal’s construction of the indemnity.
• Court of Appeal: In [2015] EWCA Civ 839, the court allowed Mr Wood’s appeal and declared that liability under clause 7.11 required a qualifying claim or complaint against the company, a seller or a relevant person.
• High Court: In [2014] EWHC 3240 (Comm), Popplewell J determined the preliminary issue in Capita’s favour and held that the indemnity could apply without a customer claim or complaint.