Case Law Update: Ambiguous contract clauses

Dispute Resolution - 2 minutes read

This case makes for a good reminder of the importance of clarity in a contract. Businesses so keen to get a deal done that the wording a particular clause is not given enough consideration, do so at their peril. This particular case involved a dispute arising as to the meaning of an indemnity clause in a contract for the sale of shares in a business.  

In the event of a dispute, the Courts will consider the natural and ordinary meaning of the words used, and will consider the remainder of the contract, and the facts known to the parties at the time it was made. Whilst the Courts have regard to business sense, it will not regard subjective factors such as either party’s intentions. ¬†

The difference of opinion as to how to construe the clause here was taken all the way to the Supreme Court, which held that the clause must be considered in the context of the contract. The Court provided guidance, that an iterative process should be followed, seeing the clause in light of both the ¬†remainder of the contract terms, and the wider context. It rejected the appeal, ¬†upholding the Court of Appeal’s decision that the indemnity clause in question did not cover the circumstances in this particular case.¬†

The lessons?¬†Businesses should be careful that the contracts they enter contain no ambiguities. If they don’t, and there is a disagreement, the Courts will apply a complex combination of factors to help them interpret the contract, and won’t necessarily be guidance by what makes business sense !¬†

The Case? Wood v Capita Insurance Services Limited [2017] UKSC 24

When considering each interpretation, the quality of the drafting can be taken into account, eg. where drafting is by a professional it may be appropriate to pay more attention to the rest of the contract than the factual matrix ¬Ė although business common sense can never be ignored entirely