Project Angel Bidco Limited v Axis Managing Agency Limited & Ors

In a negotiated warranty and indemnity policy, the inclusion of warranties as covered does not necessarily prevail over a specific exclusion. The policy must be read as a whole. The court must ask whether the provisions truly contradict one another, whether the policy supplies an order of precedence, and whether any apparent drafting error has a clear correction. Corrective interpretation requires both a clear mistake and a clear cure. A rational commercial explanation for a negotiated exclusion, together with uncertainty about whether the error lies in the exclusion or the cover wording, may defeat the remedy. By majority, the apparent tension between the covered bribery warranties and the ABC Liability exclusion did not satisfy that threshold. The appeal was dismissed.

The appeal arose from a preliminary issue in PABL’s claim under a buyer-side warranty and indemnity policy issued in connection with the acquisition of King Construction. The policy listed warranties concerning litigation, bribery and corruption as covered, but excluded loss arising from any ABC Liability. PABL argued that the exclusion contained an obvious drafting error and should refer to liability for, rather than liability or, non-compliance with anti-bribery laws. HHJ Pelling KC rejected that argument at [2023] EWHC 2649 (Comm). The central issue was whether the policy contained an apparent contradiction and, if so, whether the court could identify both an obvious mistake and a clear correction.

By a majority, Lewison LJ and Arnold LJ, with Phillips LJ dissenting, the appeal was dismissed.

1. Contractual inconsistency. A term is inconsistent with another only where the provisions contradict or conflict so that effect cannot fairly be given to both. Mere qualification or modification is insufficient. The contract must be read as a whole and in its commercial setting. The ordinary assumption that all terms are intended to have effect is qualified where a complex document contemplates inconsistency. The contract may itself establish precedence, including through expressions such as subject to, notwithstanding, or without prejudice. The nature, location and negotiated status of the provisions may also be relevant. The court applied the approach in Pagnan SpA v Tradax Ocean Transportation SA [1987] 3 All ER 565, Septo Trading Inc v Tintrade Ltd [2021] EWCA Civ 718 and FCA v Arch Insurance (UK) Ltd [2021] UKSC 1.
2. Insurance policy structure. Exclusions must be read with the statement of cover and in the context of the policy as a whole, consistently with its purpose. The Cover Spreadsheet was not merely a summary because it identified the Insured Obligations. Its caveat gave the exclusions precedence to the extent of their scope, but did not resolve a situation in which an exclusion effectively removed all cover for a listed warranty. The contra proferentem principle had also been excluded by clause 1.2.6.
3. Corrective interpretation. The court may correct contractual language only where it is clear that a mistake has been made and clear what correction should be adopted. The high threshold is not met merely by apparent inconsistency, impracticability, redundancy or the availability of a desirable amendment. The court cannot rewrite the contract. Applying those principles, the majority accepted an apparent conflict between warranty 13.5 and the ABC Liability exclusion, but held that the exclusion had a coherent and rational negotiated purpose from the underwriters’ perspective. It was also unclear whether any mistake lay in the exclusion or in marking the warranties as covered. The proposed one-letter correction was therefore not sufficiently clear.
4. Dissent. Phillips LJ considered that the policy had to be read with the SPA and that the sellers were important beneficiaries because the policy effectively released them from liability. He regarded the conflict as fundamental and the correction from liability or to liability for as the obvious cure. He would have allowed the appeal.

1. Court of Appeal (Civil Division) The majority dismissed the appeal. Phillips LJ dissented and would have allowed it: [2024] EWCA Civ 446.
2. High Court of Justice, London Circuit Commercial Court HHJ Pelling KC decided the contractual interpretation issue as a preliminary issue and held that there was no relevant contradiction requiring corrective interpretation: [2023] EWHC 2649 (Comm).