Andrew Wood v (1) Sureterm Direct Ltd (2) Capita Insurance Services Ltd (2014) (Internal material - CMS only)


The court was required to determine as a preliminary issue the interpretation of an indemnity provision in an agreement for the sale and purchase of the shares in the first defendant company (S).

S was an insurance broker which primarily offered bespoke policies to the classic car market. The claimant (W) was a director of S and held 94 per cent of the shares. The shares in S were purchased by the second defendant (C). Shortly afterwards, various employees of S raised concerns about S's sales processes, including in particular that certain customers had paid substantially more than they had initially been quoted. S reviewed its past transactions and S and C reported the findings to the Financial Services Authority. C and S agreed with the FSA to conduct a customer remediation exercise for those identified as potentially affected by S's misselling. C and S claimed that they had suffered loss and damage amounting to £2.4 million, consisting of sums totalling £1.35 million liable to be paid to customers as redress, interest of £400,000 and the cost of the remediation scheme. They sought to recover that sum by way of counterclaim in proceedings brought by W, relying on an indemnity given by the sellers in the share sale agreement "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 issue was whether, as W contended, the words "following and arising out of claims or complaints registered with the FSA" governed all that went before, so that in the absence of any actual claim or complaint by customers W would not be liable; or whether, as C contended, those words were just a description of the immediately preceding "fines, compensation [etc]" which were merely a type of the losses first mentioned.

HELD: C's construction was to be preferred for three main reasons. The first was that it was supported by the language: it was common ground that the types of loss and damage enumerated in the first part of the indemnity clause were wide enough to encompass the "fines, compensation or remedial action etc" that followed. That suggested that the second part was illustrative of the types of losses and was included for the avoidance of doubt. Those types of loss or damage were particularly apposite to a supervisory and regulatory context, providing a link with the immediately following words. There was an obvious commercial rationale for explicitly bringing within the scope of the indemnity particular losses of the kind illustrated in the combined wording, arising from regulatory action, in order to avoid any argument that they were otherwise not covered. On the other hand, if the regulatory wording applied to the whole clause, there would appear to be no purpose in including a narrower definition of certain types of loss, namely fines and compensation, already covered within loss and damage. Secondly C's construction was supported by the commercial context and the practical consequences of the rival contentions. Customers requiring compensation might be identified, as had happened, without any claim or complaint to the FSA. It was in the nature of misselling claims that customers were commonly unaware of the fact prior to regulatory intervention. Thirdly there were a number of more minor linguistic and syntactical points which supported C's construction (see paras 12-18 of judgment).

Preliminary issue determined in favour of defendants

For the claimant: Andrew Twigger QC
For the first defendant: No appearance or representation
For the second defendant: Edward Cumming

For the claimant: Birketts LLP
For the second defendant: Enyo Law LLP

Link to full judgment here.