Referring to existing authorities - Arnold v Britton [2015] AC 1619 and Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 - and dismissing Mr Wood's appeal, the Court held that it is appropriate to consider both the text and context when interpreting a contract.
The issue in dispute was the interpretation of an indemnity provision in an SPA for the sale of shares in an online motor insurance company to Capita. Capita claimed that the indemnity provision was triggered as a result of the following circumstances: the FSA considered the customers had been treated unfairly and to their detriment, and Capita, the company and the FSA agreed to conduct a remediation scheme to pay compensation to customers who were identified as potentially affected by the company's mis-selling. Mr Wood argued that the indemnity was not triggered because the customers had not made any claims or complaints to the FSA. The FSA had only become involved, and required compensation be paid, as a result of an internal review conducted by the company and Capita which was reported to the FSA.
The Supreme Court considered that the indemnity was imprecise and opaque. The Supreme Court agreed with the Court of Appeal's view that the indemnity clause required Mr Wood to indemnify Capita even if there had been no claim or complaint by a customer to the FSA. This position was further supported by looking at the contractual context, and the wider factual matrix. The Supreme Court reiterated that the negotiations which lead to the contract are not relevant (Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101), but the Court can consider the business common sense of clauses being included in the contract.
The Supreme Court initially looked at the basic reading of the indemnity clause. The Supreme Court then considered the contractual context (warranties in the agreement etc.) and the wider factual matrix (commercially sophisticated parties and the business common sense) before returning to a more in depth review of the construction and language of the clause. In this case, the Court came to the same conclusions when looking at the both text and context of the clause. However, this may not be the case in all disputes – and the extent to which each tool (text or context) will be used to assist the court will vary according the given circumstances. This case does not change the recent trend in contractual interpretation, but it is a helpful example of the principles in action.
Wood (Respondent) v Capita Insurance Services Limited (Appellant) [2017] UKSC 24
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