Wood v Capita Insurance Services Limited [2017]

Court: Supreme Court

Facts: Capita Insurance Services Limited (buyer) entered into a Sale and Purchase Agreement (SPA) with Wood (seller) for the purchase of Sureterm Direct Limited. The SPA contained an indemnity clause (Clause 7.11), which required the seller to pay compensation for losses arising from claims or complaints made to the Financial Conduct Authority (FCA) or other public authorities regarding the company's mis-selling of insurance products. After the purchase, the buyer discovered that the company had misled customers and agreed to a compensation scheme with the FCA, though no formal customer complaints were made. Capita argued that the indemnity should cover these payments, even without formal claims or complaints. The seller disagreed, asserting that the indemnity only applied if a formal claim or complaint was lodged.

Issue: Whether the indemnity clause in the SPA covered compensation paid without any formal claim or complaint by customers.

Held: The Supreme Court dismissed Capita’s appeal, holding that the indemnity clause did not cover compensation paid without a formal claim or complaint.

Key Judicial Statement: Lord Hodge emphasised that textualism and contextualism are not conflicting paradigms but complementary tools for interpreting contracts. The court must consider both the contract's language and the broader commercial context. However, business common sense cannot be used to alter a contract if it leads to a bad bargain for one party.

💡 Leveluplaw: This case reinforces that contract interpretation must balance both the text and context. The court's role is not to rewrite poorly drafted contracts or adjust for hindsight. Contracts should be interpreted as written, even if one party ends up with a disadvantageous outcome.