In this recent case, the Supreme Court appears to have confirmed that the cases applying Arnold v Britton in the lower courts discussed above have taken the correct approach. However, in a unanimous decision the Supreme Court stated that Arnold v Britton did not in fact mark a departure from the approach in Rainy Sky. Rather, the two cases were essentially saying the same thing.
The case concerned whether liability for past mis-selling was recoverable under an imprecise and “opaque” indemnity in an SPA. The indemnity required the Seller to indemnify the Buyer against a comprehensive list of events arising out of “claims or complaints registered with the [company’s regulator]… against the company”. The Seller argued that it did not have to indemnify the Buyer because the company had reported itself to the regulator, so there was no complaint against it.
Although the Supreme Court considered the indemnity in its contractual and commercial context, it concluded that the interpretative tool of “principal” importance was still a “careful examination of the language”. The Supreme Court adopted the literal interpretation of the indemnity advanced by the Seller and disregarded what many would have understood to be the parties’ commercial intention in agreeing such an indemnity.
Lord Hodge noted that it has long been accepted that interpretation is not a purely “literalist exercise focused solely on... the wording” but requires consideration of the contract as a whole, the wider context, business common sense and the commercial purpose. According to Lord Hodge, the amount of weight attributed to each of these factors depends on the context. The Supreme Court expressly acknowledged that some contracts may need to be interpreted with “greater emphasis” on their factual matrix and commercial purpose for reasons such as informality, brevity, differing drafting practises, deadline pressures and failures of communication.