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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Wood v Sureterm Direct Ltd & Capita Insurance Services Ltd [2015] EWCA Civ 839 (30 July 2015) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2015/839.html Cite as: [2015] EWCA Civ 839

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IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
COMMERCIAL COURT
MR JUSTICE POPPLEWELL
[2014] EWHC 3240 (Comm)

		Royal Courts of Justice Strand, London, WC2A 2LL
		30/07/2015

Lord Justice Christopher Clarke :

1. At issue in this appeal is the true construction of a clause in a sale and purchase agreement dated 13 April 2010 ("the SPA") in respect of all the shares in a company called Sureterm Direct Limited ("the Company"). The sellers were Mr Andrew Wood, the now Appellant ("Mr Wood"), Mr Christopher Kightley and Mr Howard Collinge. They owned the shares in the Company in the proportions 94%, 1% and 5%. Each of them was a director of the Company, Mr Wood being the managing director. He remained in that position after completion and until the end of 2010, but Mr Kightley and Mr Collinge did not. The purchaser was Capita Insurance Services Ltd ("Capita"), the now Respondent. The Company carries on business as an insurance broker, primarily offering bespoke policies to the classic car market.
2. Under clause 7.11 of the SPA the sellers agreed to indemnify Capita in respect of losses pertaining to the mis-selling or suspected mis-selling of insurance products or services in the period prior to the share sale. Mr Wood brought proceedings against Capita and Capita brought a counterclaim against Mr Wood under the indemnity. Mr Kightley and Mr Collinge were at one time, but are no longer, parties to the proceedings.
3. As the judge recorded [3] Capita's indemnity claim alleged the following facts:

"(1) In around August 2008 the Company began to sell motor insurance via online aggregator sites such as Confused.Com. Sales through those aggregator sites were not made automatically online; potential customers would obtain a quotation from the Company on the aggregator site, and the Company would then contact the potential customer directly with a view to confirming their risk details before selling them an appropriate insurance policy.

(2) Shortly after Capita's purchase of the entire shareholding of the Company, various employees raised concerns about the Company's sales processes, including in particular that certain customers had paid substantially more than they had initially been quoted in circumstances where neither their risk profile nor the underwriting premium had changed significantly upon the customer being contacted by the Company. Rather the Company had significantly increased its own fees without informing the customer of why exactly the quotation was increasing.

(3) In early 2011, in response to these concerns, the Company carried out a review of its sales. This found that for a period of approximately two years between January 2009 and January 2011 the Company had increased its own arrangement fee between quotation and sale in 28,575 instances out of a total of 81,002 sales made using online aggregator sites. In over 5,000 instances the arrangement fee had increased by more than £100 between quotation and sale, and in 158 instances the increase had been by more than £450. In most of the sales sampled, telephone operators had placed the customer on hold and given the customers the impression that they were in discussion with an underwriter, when it was likely that they were not. In the vast majority of cases sampled customers were misled as to the nature of the quotation given by the online aggregator site in order to justify the insurance policy offered being more expensive, and accordingly allowing the Company to charge a higher arrangement fee. In particular it was found that telephone operators consistently misrepresented the total price, comprising the underwriting premium and the Company's own arrangement fee, as being solely the underwriting premium. In more than 10% of the cases sampled undue pressure was placed on the customer, based on erroneous information, in order to ensure that the sale was made. In many cases sampled, changes were made to the customer's risk profile when information to make such a change had not been obtained from the customer.

(4) Capita and the Company were obliged to inform the Financial Services Authority ("FSA") of their findings and they did so on 16 December 2011. By a letter dated 21 September 2012 the FSA informed Capita and the Company that it considered that the latter's findings illustrated that customers suffered detriment at the hands of the Company's sales advisors; that the Company took unfair advantage of customers by misleading them, by manipulation of risk data, by taking advantage of vulnerable customers and through undertaking pressurised selling techniques; that customers were treated unfairly; and that detriment occurred and redress was due.

(5) In November 2012 the FSA conducted a Risk Assessment Visit in relation to the Company, at or following which Capita and the Company agreed with the FSA to conduct a customer remediation exercise for those customers identified as potentially affected by the Company's mis-selling ("the Remediation Scheme"). Deloitte LLP was appointed to provide independent validation of the Remediation Scheme.

(6) Capita claims that as a result, Capita, the Company, and Capita's other subsidiaries have suffered loss and damage, incurred charges, expenses and liabilities, and been required to pay compensation and make other payments relating to the period prior to the SPA which pertained to mis-selling and/or suspected mis-selling of insurance and/or insurance related products and/or services. The amount of loss identified includes an estimate of principal sums liable to be paid to customers by way of redress in an amount of approximately £1.35 million; interest of some £400,000; and costs involved in relation to the Remediation Scheme. The total claim is £2,432,883.10."

4. I refer to these facts, many of which are not seriously disputed, because they are the background which gives rise to the claim. They are not, however, (with the possible exception of (1)), facts by reference to which the SPA is to be construed. I should further record that Mr Andrew Twigger QC, for Mr Wood, observed that there can be valid reasons for an increase in the fee (such as an increase in the time that had to be spent dealing with the insurance); that in respect of about 17,000 of the 28,575 instances the increase was less than £ 50; and that the 75 cases sampled were all drawn from those where the increase was over £ 450. He also drew attention to the fact that the 4 October 2011 review report by the Company's Head of Compliance concluded that many policies had been sold at a price that was less than could be obtained elsewhere, that the charges made were disclosed, that any detriment to clients was immaterial and no further action was required. In addition there is a dispute as to (a) the extent to which there were reasonable grounds for suspecting mis-selling; and (b) whether, in any event, it was appropriate or reasonable to agree to implement the Remediation Scheme, which involved making payment to the clients involved in all 28,575 sales despite the fact that (as Mr Wood contends) none of them had issued a claim of any kind or made a complaint. There is an issue, which I do not propose to resolve, as to whether the Respondent's pleadings, and in particular the Respondent's Answer to the Appellant's Part 18 request, allege, at any rate with any clarity, that any claim or complaint has been made by any client.
5. As is apparent, the requirement to pay compensation is said to have arisen not from a legal claim raised by clients; nor from a complaint made by clients to the FSA or any other regulatory authority, but as a result of the referral by Capita and the Company of the findings of the review to the FSA, the requirement by the FSA that compensation should be paid for what it regarded as the Company's mis-selling and the agreement with the FSA to put into effect the Remediation Scheme.

The SPA

6. The SPA is a substantial, professionally drafted document. It was drawn up by Addleshaw Goddard, Capita's then solicitors. Clause 1 contained certain definitions including the following:

"Authority means any local, national, multinational, governmental or non-governmental authority, statutory undertaking, agency or public or regulatory body (whether present or future) which has jurisdiction over the Business or any decision, consent or licence which is required to carry out the Business and Authorities shall be construed accordingly.

Company means Sureterm Direct Limited …

Employees has the meaning given to it at paragraph 6 of schedule 4 [which refers to a list of all of the employees employed by the Company]

FSA means the Financial Services Authority and any body which supersedes it.

Regulatory Authority means any body by which any part of the Business is or was regulated pursuant to any Applicable Financial Services Laws (including, but not limited to, the FSA, the Personal Investments Authority Limited, the General Insurance Standards Council, the Insurance Brokers Registration Council and including the Financial Services Ombudsman and any voluntary regulatory body with whose rules the Company has agreed to comply)

Relevant Person means an Employee or a former employee of the Company and any dependant of an Employee or a former employee of the Company.

Shares means all of the issued shared in the capital of the Company

Warranties means the Tax Warranties and the warranties set out in schedule 4"

7. Clause 3 provided for the sale and purchase of the Shares. By clause 4 the consideration for the sale of the Shares was to be £ 7,681,661 payable on Completion. In addition there was provision for Deferred Consideration as extensively defined in Schedule 8.
8. Clause 7 dealt with Warranties. It included the following terms:

"7.1. Each of the Sellers severally warrants (for his own account and on a proportionate basis) to the Buyer in the terms of the Warranties.

7.2. The Warranties are qualified to the extent, but only to the extent, of those matters fairly disclosed in the Disclosure Letter. For this purpose, fairly disclosed means disclosed in such manner and detail as to enable the buyer to make a reasonably informed and accurate assessment of the matter concerned and its significance for the Company.

7.3. Where a Warranty is qualified by the expression "so far as the Sellers are aware" or "to the best of the knowledge, information and belief of the Sellers" or any similar expression, such expression shall be deemed to mean the actual knowledge of the Sellers, and for these purposes the Sellers confirm that immediately prior to the date of this Agreement they have made due and careful enquiry of Tracey Albone (Compliance Manager), Alex Jeffrey (IT Director) and Sue Brenchley (HR Director).

…

7.5. Each Warranty is to be construed as a separate and independent warranty and, save as expressly provided otherwise in this Agreement, will not be limited by reference to or inference from any other Warranty or by any other provision of this Agreement and the Buyer will have a separate claim for every breach of Warranty.

…

7.11. The Sellers undertake to pay to the Buyer an amount equal to the amount which would be required to indemnify the Buyer and each member of the Buyer's Group against all actions, proceedings, losses, claims, damages, costs, charges, expenses and liabilities suffered or incurred, and all fines, compensation or remedial action or payments imposed on or required to be made by the Company following and arising out of claims or complaints registered with the FSA, the Financial Services Ombudsman or any other Authority against the Company, the Sellers or any Relevant Person and which relate to the period prior to the Completion Date pertaining to any mis-selling or suspected mis-selling of any insurance or insurance related product or service.

7.12. Andrew Wood:

…

(b) shall indemnify the Buyer and each member of the Buyer's Group against all actions, proceedings, losses, claims, damages, costs, charges, expenses, and liabilities suffered or incurred by the Buyer and/or the Company whether, wholly or in part, resulting directly or indirectly from, or connected in any way with any failure by Neil Moss to agree to enter into the Neal Moss Contract, including any claim or demand by or on behalf of Neal Moss, whether in contract, tort, under statute, pursuant to European law or otherwise, including, without limitation, any claim for unfair dismissal, wrongful dismissal, breach of contract, unlawful deduction from wages, discrimination on the grounds of sex, race, disability, sexual orientation, religion or religious belief, or demand of any other nature arising directly or indirectly from any failure by Neal Moss to agree to enter into the Neal Moss Contract (including in relation to any action taken by the Buyer and/or the Company in respect of any failure by Neal Moss to agree to enter into the Neal Moss Contract), whether or not such losses were foreseeable at the date of entering into this Agreement."

9. Schedule 4 contained a large number of warranties. These included the following:

"14.1

(a) The Company conducts, and has conducted the Business in accordance with the requirements of all Competition laws and Applicable Financial Services Laws applicable to the business and has not been and is not being investigated for any alleged non-compliance or infringement of such Competition Laws and Applicable Financial Services Laws.

(c) The Company has no reason to believe that any action will be taken

against it in relation to any of its current or past activities based on any alleged non-compliance or infringement of any Competition Laws and Applicable Financial Services Laws."

10. Schedule 5 contained a number of limitations on the Sellers' liability. Under paragraph 1 the aggregate maximum liability of all claims under the Agreement (with one particular exception) was not to exceed the purchase price and the liability of each Seller was not to exceed his proportionate liability (i.e. 94%, 5% and 1%).
11. Paragraph 3 of Schedule 5 provided

"3.1. Save in respect of a Warranty Claim or a claim under the Tax Covenant notified in writing to the Sellers prior to such a date, the Sellers will cease to be liable:

(a) for any claim under the Tax Warranties or under the Tax Covenant on the seventh anniversary of Completion; and

(b) for any other Warranty Claim on the second anniversary of Completion."

Clause 7.11

12. Clause 7.11 bears some of the hallmarks of a clause which has grown in the course of drafting and contains a combination of phrases which are not wholly easy to parse. The judge set out the way in which the parties contended that the clause should be read in terms which I gratefully adopt.

Capita's construction

13. Capita, he recorded, contended that the clause should be read as follows:

"The Sellers undertake to pay to the Buyer an amount equal to the amount which would be required to indemnify the Buyer and each member of the Buyer's Group against

(1) all actions, proceedings, losses, claims, damages, costs, charges, expenses and liabilities suffered or incurred, and

(2) all fines, compensation or remedial action or payments imposed on or required to be made by the Company following and arising out of claims or complaints registered with the FSA, the Financial Services Ombudsman or any other Authority against the Company, the Sellers or any Relevant Person

(3) and [in each case] which relate to the period prior to the Completion Date pertaining to any mis-selling or suspected mis-selling of any insurance or insurance related product or service."

14. Under this interpretation Capita would, in principle, be entitled to recover what it had had to pay as compensation for the mis-selling on the footing that such compensation constituted a loss, cost, charge, expense or liability suffered or incurred within [1].

Mr Wood's construction

15. Mr Wood, the judge recorded, submitted that the clause was to be read in the following way:

"The Sellers undertake to pay to the Buyer an amount equal to the amount which would be required to indemnify the Buyer and each member of the Buyer's Group against

(1) all actions, proceedings, losses, claims, damages, costs, charges, expenses and liabilities suffered or incurred, and

(2) all fines, compensation or remedial action or payments imposed on or required to be made by the Company

[in each case] following and arising out of

claims, or

complaints registered with the FSA, the Financial Services Ombudsman or any other Authority

against the Company, the Sellers or any Relevant Person

and [in each case] which relate to the period prior to the Completion Date pertaining to any mis-selling or suspected mis-selling of any insurance or insurance related product or service."

16. Under this interpretation Capita would not be entitled to recover if there has been no claim made against the Company, nor any complaint registered with the FSA, the Financial Services Ombudsman or any other relevant Authority but the compensation had had to be paid because the Company referred the report to the FSA. The same result would apply if the compensation fell to be paid because a whistle-blower alerted the FSA, which then called for compensation, (unless, perhaps, in those circumstances, there could properly be said to have been a complaint registered against the Company, which does not appear to me to be pleaded and which issue I do not decide) or the FSA made inquiries of its own motion.

The parsing aid version of clause 7.11

17. For the purposes of exposition the judge labelled the constituent parts of the clause as follows:

"The Sellers undertake to pay to the Buyer an amount equal to the amount which would be required to indemnify the Buyer and each member of the Buyer's Group against

(1) all actions, proceedings, losses, claims, damages, costs, charges, expenses and liabilities suffered or incurred, and

(2) all fines, compensation or remedial action or payments imposed on or required to be made by the Company

(A) following and arising out of claims or complaints registered with the FSA, the Financial Services Ombudsman or any other Authority against the Company, the Sellers or any Relevant Person

(B) and which relate to the period prior to the Completion Date pertaining to any mis-selling or suspected mis-selling of any insurance or insurance related product or service."

Hereafter in this judgment my references to "(1)", "(2)", "(A)" and "(B)" are, save in paragraph 39, references to the phrases as identified above.

18. The critical distinction between the rival constructions was, in the judge's view, whether the words in (A) governed and qualified both (1) and (2), as Mr Wood contended, or only (2) as Capita contended.
19. The judge also recorded that three aspects of the clause, which were neutral in resolving the question of construction, were common ground. These were as follows:

"First, the twin requirements in (B) apply to the whole of the clause. The types of loss in (1) and (2) only trigger the indemnity if they pertain to mis-selling or suspected mis-selling of insurance related products and services, and if they relate to the period prior to the Completion Date (which was defined as the date of the SPA). The words "and which" attach the final part of the clause to the whole of what has gone before. Secondly "pertaining to" in (B) introduces a causative test. Thirdly "suspected mis-selling" in (B) imports an element of objectivity: there must be reasonable grounds for the suspicion; mere subjective suspicion is not sufficient."

The judge's conclusion

20. The judge concluded that Capita's construction was to be preferred for three main reasons.

Reason 1

21. The first was that that construction was supported by the language of (2) and its overlap with (1). It was common ground that the types of loss and damage enumerated in (1) ("all actions, proceedings etc.") were expressed in wide enough terms to encompass all the types of loss and damage enumerated in (2). This suggested that (2) was included so as to be illustrative of (1). The types of loss or damage singled out in (2) were particularly apposite to a supervisory and regulatory context which was provided for in (A). This suggested a link between the content of (2) and the wording in (A) which was absent in relation to the content of (1). There was an obvious rationale for bringing particular losses of the kind illustrated in the combined wording of (2) and (A) in order to avoid any argument that (1) was not wide enough to cover, for, example, penalties or sanctions. But if the regulatory wording in (A) applied to both (1) and (2) there would appear to be no purpose in including a narrower definition of certain types of loss in (2) which were already covered in (1).
22. Accordingly, so the judge held:[14]

"The wording in (A) is not therefore to be characterised as a condition qualifying and restricting the scope of either (1) or (2). It is part of the description of losses identified in (2); the description in (2) and (A) is intended as illustrative of the scope of the indemnity in (1), not as a separate category of indemnified loss".

23. This passage in the judge's judgment appears to have been intended to meet Mr Twigger's submission that the wording in (A) was a condition applicable to (1) and (2) which had to be fulfilled if the indemnity was to apply. This was met by characterising the wording in (A) as no more than a description of losses identified in (2) and not as a separate category of indemnified loss.
24. I do not derive much assistance from considering whether the wording in (A) is to be regarded as a description or a condition. If it was only a description it would, if applicable, still be one into which the facts would have to fall if the indemnity was to bite. The important question is what the description or condition applied to. I also have some difficulty in regarding the description in (2) and (A) as not constituting a separate category of indemnified loss. It may be that category (1) embraces category (2) in the sense that what comes under (2) also comes under (1), although not vice versa. But that does not seem to me to mean that there are not in truth two categories specified.

Reason 2

25. The judge's second reason was that Capita's construction was supported by the commercial context and the practical consequences of the rival contentions. There was, he held, no good reason why the "happenstance" of what triggered an FSA investigation should be determinative of the Sellers' obligation to indemnify in respect of the consequences of the investigation. The obligation to indemnify in respect of compensation or penalty should not only arise if clients had lodged a claim or complaint with the FSA, or to the extent that a causative link could be established with any such claim or complaint. It ought, also, to arise if the FSA became involved as a result of (i) a whistle-blower; (ii) a reference to the FSA by the management itself; or (iii) the FSA requiring an investigation as a result, for instance, of perceived market wide mis-selling. This was particularly so given that it was in the nature of mis-selling claims that customers who have been mis-sold are commonly unaware of the fact prior to regulatory investigation and may never have lodged a complaint or claim.

Reason 3

26. The third reason was that there were, in the judge's view, a number of "more minor" linguistic and syntactical points which supported Capita's construction. The first was that the comma after "incurred" at the end of (1), coupled with the absence of any such comma after "Company" in (2), pointed in that direction. So too did the fact that, if Mr Wood's construction was correct, it would provide clumsy and tautologous cover for "claims …arising out of claims".
27. Mr Edward Cumming for Capita submits that the judge was right to reach the conclusion that he did for the reasons that he gave. He draws particular attention to (i) the misnomer involved in speaking of a claim arising out of a claim; (ii) the absence of any break between (2) and (A), compared with the break between (A) and (B) , the latter break being apparent from the words "and which"; (iii) the use of a present participle ("following and arising out of") in (A) - which, he submitted, indicated that the phrase related and belonged to what immediately preceded it – compared with the relative pronoun ("and which") in B - which indicated that what followed applied to everything that had preceded it. As to the last point Mr Twigger observes that the participle "pertaining to …" in (B) cannot be regarded as belonging solely to the words immediately preceding it ("which relates to the period prior to the Completion Date"). So, he submits, there is no reason to treat "following…" as belonging only to what immediately precedes it.

The process of interpretation

28. The principles upon which contracts are to be interpreted have been stated and restated at the highest level, including most recently in Arnold v Britton [2015] UKSC 36. It is not necessary to review them again. The principles which, in my judgement, are most relevant for present purposes are as follows:

i) The aim of the court is to determine what a reasonable person who had all the background knowledge which would reasonably have been available to the parties when they contracted would have understood the parties to have meant: Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 [14] and the cases there cited; this exercise relates to their understanding at the time that the contract was made: Arnold v Britton at [19].

ii) The exercise of construction is essentially one unitary exercise – Rainy Sky [21], which should be "neither uncompromisingly literal nor unswervingly purposive": per Sir Thomas Bingham MR in Arbuthnott v Fagan [1995] CLC 1396, 1400. It is also an iterative exercise: Arnold [76]. The court looks to see where different constructions lead, how they fit with other provisions in the contract (or other phrases in the same clause), what obstacles to a particular interpretation are met upon the way, and what results are reached.

iii) In a case where, as here, parties have used language which is capable of more than one meaning, the court should consider the implications of the rival constructions: Gan Insurance Co Ltd v Tai Ping Insurance Co Ltd [2001] CLC 1,103 at [16]; and is entitled to prefer a construction which is consistent with business common sense and to reject one that is not.

29. Care must, however, be taken in using "business common sense" as a determinant of construction. What is business common sense may depend on the standpoint from which you ask the question. Further the court will not be aware of the negotiations between the parties. What may appear, at least from one side's point of view, as lacking in business common sense, may be the product of a compromise which was the only means of reaching agreement. As Nicholas Strauss QC, sitting as a Deputy High Court judge, said in Churchill v Temple [2010] EWHC 3369 at 37 (d):

"It is always necessary to keep in mind the position of both parties. It is not enough just to consider what the vendor may have wanted to achieve. There is also the consideration that the purchaser might not see what the vendor wants as being in his interests, and that the vendor might, as a result, find it difficult to sell, or to get his price, if he insists upon it. The resulting covenant may represent a compromise. It is therefore not surprising to find covenants which are not altogether logical from the point of view of either party, or do not entirely achieve the probable aims of either of them. See Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd [1990] QB 818 at 870 (C.A.)."

30. Businessmen sometimes make bad or poor bargains for a number of different reasons such as a weak negotiating position, poor negotiating or drafting skills, inadequate advice or inadvertence. If they do so it is not the function of the court to improve their bargain or make it more reasonable by a process of interpretation which amounts to rewriting it. Thus:

"A court should be very slow to reject the natural meaning of a provision as correct simply because it appears to be a very imprudent term for one of the parties to have agreed... The purpose of interpretation is to identify what the parties have agreed, not what the court thinks that they should have agreed… when interpreting a contract a judge should avoid re-writing it in an attempt to assist an unwise party or to penalise an astute party": Arnold at [20].

31. In effect a balance has to be struck between the indications given by the language and the implications of rival constructions. The clearer the language the less appropriate it may be to construe or confine it so as to avoid a result which could be characterised as unbusinesslike. The more unbusinesslike or unreasonable the result of any given interpretation the more the court may favour a possible interpretation which does not produce such a result and the clearer the words must be to lead to that result. Thus if what is prima facie the natural reading produces a wholly unbusinesslike result, the court may favour another, even if less obvious, reading. But, as Lord Neuberger observed in Arnold v Britton at [17] "commercial common sense and surrounding circumstances …should not be invoked to under value the importance of the language of the provision which is to be construed". It is material, however, to note that Arnold was a case where the interpretation argued for involved adding in the words "up to" in the relevant clause so as to constitute the sum specified a maximum and not a definition of the amount which had to be paid – a very radical change.

My interpretation

32. In the present case I have come to the conclusion that Mr Wood's construction is to be preferred. I have reached that conclusion for a number of reasons.
33. First, the exercise of dividing the clause into component parts – and putting forward different possible versions of which part is to be taken to relate to which other part indicated by the inclusion of appropriate paragraphing - is useful as an aid to proper parsing. But the parties did not write their contract that way and it is necessary to look at the structure of the clause read as a whole in its original form.
34. So read the clause appears to me most naturally to start with an obligation to indemnify against two categories of loss or events giving rise to loss: (1) "all actions, proceedings …suffered or incurred" and (2) "all fines, compensation or remedial action ...required to be made by the Company". The subject matters of the indemnity are then qualified by the requirement that they must be:

(a) "following and arising out of claims or complaints registered with the FSA etc. against the Company, the Sellers or any Relevant Person";

(b) and "which relate to the period prior to the Completion Date"; and

(c) "pertaining to any mis-selling of any insurance or insurance related product or service".

35. Whilst this involves a degree of inelegance I see no reason why the conditions cannot be expressed either by an adjectival participle ("following and arising out of"/"pertaining to any mis-selling...") or a relative pronoun ("and which..."). Further, the expression "and which" is indicative of the fact that there has been an earlier condition applicable to the obligation to indemnify. Mr Cumming submitted that, if that was so, the earlier condition was to be found in items (1) and (2). I disagree. Items (1) and (2) are the items to which the condition applies.
36. That analysis appears to me to militate against the construction argued for by Capita -see [13] above.

Cats and dogs

37. In this connection Mr Twigger proffered an analysis based on the relative likelihood of different meanings of a hypothetical predicate. Suppose, he said, that X says "I like cats and dogs which are black and fluffy". That might mean (a) "I like cats and dogs which, in each case, are both black and fluffy"; or (b) "I like cats of any kind and dogs that are black and fluffy". But it is most unlikely to mean: "I like cats which are fluffy and dogs which are black and fluffy". Yet that is the approach which Capita in effect adopts. On their construction the indemnity against "actions etc" (the first mentioned object) attracts the second condition ("and which relate to the period prior to the Completion Date pertaining to any mis-selling etc"). But the indemnity against "fines etc..." (the second mentioned object) attracts both the first condition ("following and arising out of the claim etc.") and the second ("and which relate to the period etc. …").
38. Statements about black and fluffy cats and dogs differ in form, context and content from the wording in the present case, and may be said to owe more to grammarian ingenuity than commercial interpretation. Nevertheless it appears to me that Mr Twigger's analogy provides a small pointer (but no more) toward the interpretation which I favour. It tallies with my less hypothetical view that all three requirements identified in [34] above apply to the obligation to indemnify against each of two categories of loss.
39. Second, the Capita construction, as I understand it, has the effect that, if there is an action by a customer which does not involve a claim or complaint registered with the FSA or any other Authority, and in relation to which they have played no part, there is no part of the clause which specifies in terms against which entity that action must be brought. Part (2) in the Capita construction – see, for this purpose, paragraph [13] above – comprises "all fines etc imposed on or required to be made by the Company following and arising out of claims or complaints registered with the FSA etc. against the Company, the Sellers or any Relevant Person". That part is not, however, applicable to an action in which there is no FSA involvement whatever. In respect of such an action, the only limitation is that contained in (3) namely that the action must pertain to the mis-selling of any insurance or insurance related product or service by whomsoever supplied.
40. The learned judge did not address this point; which is not surprising because, as Mr Twigger candidly admitted, it was not put to him. But it is, in my view, a good one.
41. In response Mr Cumming argues that it is inconceivable that the clause could be interpreted so as to enable Capita to recover from Mr Wood an indemnity in respect of its own mis-selling before the Completion Date (both because that would be absurd commercially and because it would involve an indemnity against loss caused by the negligence of the party indemnified, which would require clear wording: Canada Steamship Lines v R [1952] AC 192); and that what was plainly in contemplation was mis-selling by or on behalf of the Company. I shall assume that to be so.
42. But that ignores the fact that the provision that the claim or complaint is to be against the Company, the Sellers or any Relevant Person is the means by which the scope of the indemnity is in terms circumscribed. In order for the clause to fulfil that function in relation to an action commenced without any FSA involvement, it is necessary for the words in (A), or at least the words "against the Company, the Sellers or any Relevant Person" to apply to "all actions, proceedings etc…". Further, even if an award of damages in a civil suit is to be treated as "compensation or remedial action or [a] payment [...] imposed on or required to be made by the Company following and arising out of [a] claim" within (A), which I did not understand Capita to suggest, there would still need to be a claim against the persons specified out of which the compensation arises.
43. Indeed, if one ignores the words in (2) and (A) which, on Capita's construction, are to be read together and relate to regulatory impositions, the clause becomes, so far as relevant:

"The Sellers undertake to pay to the Buyer an amount equal to the amount which would be required to indemnify the Buyer and each member of the Buyer's Group against

(1) all actions, proceedings, losses, claims, damages, costs, charges, expenses and liabilities suffered or incurred,

(3) and which relate to the period prior to the Completion Date pertaining to any mis-selling or suspected mis-selling of any insurance or insurance related product or service."

which is incoherent in that it fails to contain any provision about the person against whom the action must be brought.

44. The Sellers are Messrs Wood, Kightley and Collinge. Any Relevant Person means an employee or a former employee of the company and any dependent of those persons. The circumstances in which Capita could be said to have suffered any loss which might be recoverable under the indemnity if the claim was against a Seller or any Relevant Person, as opposed to the Company, are not wholly clear but it is perfectly possible to envisage a claim against a Seller or an employee for mis-selling which leads to a claim by the Seller or the employee for an indemnity from the Company. The phraseology makes clear that the latter claim would come within the indemnity. The fact that a civil claim against a Seller or a Relevant Person might not self-evidently give rise to an indemnity against Capita is a further reason for adopting the interpretation which I favour.
45. The third point is related to the second. On the judge's construction the words in (A) are, in effect, surplusage (albeit for the avoidance of doubt), at any rate so far as claims and complaints against the Company are concerned; whereas on the contrary construction they fulfil a function not provided for elsewhere, namely to delineate against whom the claim must be brought if the indemnity is to apply.
46. By contrast Mr Wood's construction provides for each of the requirements – (i) "following and arising out of..."; (ii) "and which relate to the period prior to Completion Date"; and (iii) "pertaining to any mis-selling…" to apply to the two categories of loss indemnified.
47. It also involves the indemnity covering claims against the Company in which neither the FSA nor any other authority is involved. Mr Twigger accepted that Mr Wood's formulation:

"[in each case] following and arising out of

claims, or

complaints registered with the FSA, the Financial Services Ombudsman or any other Authority

against the Company, the Sellers or any Relevant Person"

signified that the claim does not have to be a claim against the Company which is registered with the FSA or any other Authority. It covers an ordinary legal claim in circumstances where there has been no involvement on the part of the FSA or any other Authority. That is consistent with the fact that the FSA does not entertain claims by customers (although the Ombudsman may do so).

48. The last sentence of clause 13 of the judge's judgment ("If, on the other hand, the regulatory related wording in (A) applied to both (1) and (2), as Mr Wood contends, there would appear to be no purpose in including a narrower definition of certain types of loss in (2) which are already covered in (1)") causes me to think that he may have thought that it was Mr Wood's case that both the claim and the complaint had to be registered with the FSA. It is not so.
49. I have not ignored the fact that, on this footing, the indemnity is in part one in respect of "...claims ...following and arising out of… claims". The phrase "all actions, proceedings, losses, claims, damages, costs, charges, expenses and liabilities" lumps together (i) amounts that are or are to be paid ("damages, costs, charges, expenses"); (ii) obligations to pay ("liabilities suffered or incurred"); (iii) the way in which the payment is to be obtained ("actions, proceedings")] and (iv) "claims" themselves. The draftsman obviously intended to include as wide a set of items as possible. In such circumstances, I do not regard the validity of my interpretation to be impugned because there is an element of tautology in taking one of those items ("claims") together with the description "following and arising out of claims or complaints registered with the FSA." Tautology in commercial contracts is not unknown and inherently more likely when there is a degree of verbal exuberance. As it happens there could be a claim arising out of a complaint registered with the FSA if the necessary causal connection is established e.g., if the client complains to the FSA and is told that his remedy is to bring a legal claim. Further still, there can be a claim (in an action) arising out of a prior claim against the company for legal redress.
50. Nor have I ignored the fact that there is a comma after "incurred" and none after "the Company" in (2), and that Mr Wood's interpretation inserts a comma after "claims" in (A) and probably ought to do so after "any other Authority". I do not regard this circumstance as requiring a different interpretation. There are no set rules for the use of commas. The draftsman appears to have abandoned their use after "incurred" save in the phrase "with the FSA, the Financial Services Ombudsman or any other Authority against the Company, the Sellers or any Relevant Person". He did not even include one after "Relevant Person" in (A). I do not regard his erratic use of the comma as any real guide to meaning. Indeed the absence of commas, save in the phrase which I have quoted, appears to me consistent with the applicability of all three requirements to both categories of loss indemnified.
51. In [16] of his judgment the judge said:

"Moreover Mr Wood's construction would produce the anomalous result that if, following an FSA investigation, the FSA required the Company to compensate all customers where the selling met certain criteria, and the Company wrote inviting such customers to lodge a claim and agreeing to pay it, the indemnity would be engaged; whereas if the Company merely sent the customers a cheque in fulfilment of its obligations without inviting a claim it would not."

52. It seems to me open to question whether in the example postulated the indemnity would be engaged. It could be said that in such circumstances liability would in truth have arisen because of what the FSA required the Company to do and not as a result of the customer's claim. Other circumstances may arise where questions as to causation would arise e.g. if X makes a claim as a result of which the FSA compels the Company to compensate all others in a similar position. It could be said that the liability to the others arises out of X's original claim. I do not intend to decide these hypothetical questions.

Commercial considerations

53. The judge regarded an exclusion from indemnity of compensation resulting from whistle-blowing, Company self-reporting, or action taken by the FSA of its own accord, as lacking any good commercial reason and that such a lack supported the conclusion which he reached. Mr Cumming emphasized that the Sellers were in day to day control of the Company and the Buyer had no oversight of it. That afforded, he submitted, good reason why it should not be a criterion for exclusion from the indemnity that there had been no claim or complaint by a client which led to the need to make compensation.
54. That approach has some attractions. But there are other considerations which need to be taken into account to which the judge did not advert. Under the SPA Capita had the benefit of warranties 14.1 and 14.3. Mis-selling or suspected mis-selling prior to completion was highly likely to amount to, or involve, a breach of one or both of those warranties. Capita could, therefore, claim damages for breach of warranty provided that they gave notice within two years of completion. Their entitlement to recover in respect of mis-selling was not, therefore, dependent on bringing the case within clause 7.11.
55. Clause 7.11 was not, however, subject to any time or monetary limit. In those circumstances it would not be wholly surprising to restrict recovery under that clause to claims brought by a client and exclude those that arose from one or other of the circumstances which, on Mr Wood's construction are excluded. Such an exclusion from the indemnity may not have been a particularly good deal for Capita. But Mr Wood may have taken the view that claims for mis-selling from a client would be likely to materialise during the first two years and was thus willing to have the indemnity with no time bar applicable only to late claims brought by third parties (anticipated to be small in number) but not to claims which arose otherwise e.g. because of some (unpredictable) FSA initiative. The fact that the deal may have been, in this respect from Capita's view, a poor one, is not, in my view, a circumstance which should dictate a different interpretation from that which, for the reasons that I have stated, I derive from the words used.
56. I would, accordingly, allow the appeal and (subject to any submissions that may be made as to the precise terms of the order) order that Mr Wood's liability under the indemnity cannot arise unless there has been either (i) a claim made against the Company, a Seller or a Relevant Person or (ii) a complaint has been registered with the FSA, the Financial Services Ombudsman or any other Authority against the Company, the Sellers or any Relevant Person and, in either case, the claim or complaint (a) related to the period prior to the Completion Date and (b) pertains to any mis-selling or suspected mis-selling of any insurance or insurance related product.

Lady Justice Gloster:

57. I agree.

Lord Justice Patten:

58. I agree.