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The Supreme Court has given reaffirmed its previous guidance on the interpretation of contracts. In Impact Funding v AIG the court said that a term would only be implied where the implication could be said to be necessary from an objective standpoint. The court also confirmed the longstanding view that the contra proferentum rule only operates against insurers where there is a need to remove a doubt in construction not for the purpose of creating a doubt.

On the question of implication, Lord Hodge said,

31. I see no basis for implying additional words into the exclusion in order to limit its scope. In Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2016] AC 742 this court confirmed that a term would be implied into a detailed contract only if, on an objective assessment of the terms of the contract, the term to be implied was necessary to give the contract business efficacy or was so obvious that it went without saying (paras 15-31 per Lord Neuberger). This court also held that the express terms of the contract must be interpreted before one can consider any question of implication (para 28).

32. In my view, it cannot be said that the Policy would lack commercial or practical coherence if a term restricting the scope of the exclusion were not implied.

Lord Hodge dealt with approaching construction and the question of the contra proferentum rule saying,

5. …the court has, first, to construe the relevant terms of the Policy against its factual matrix and, secondly, to construe the relevant terms of the disbursements funding master agreement (“DFMA”) between Impact and Barrington once again against its factual matrix.

6. This approach to construction is well established. The court looks to the meaning of the relevant words in their documentary, factual and commercial context: Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900, para 21 per Lord Clarke of Stone-cum-Ebony; Arnold v Britton [2015] AC 1619, para 15 per Lord Neuberger of Abbotsbury. As I see no ambiguity in the way that the Policy defined its cover and as the exclusion clause reflected what The Law Society of England and Wales as the regulator of the solicitors’ profession had authorised as a limitation of professional indemnity cover, I see no role in this case for the doctrine of interpretation contra proferentem. As Lindley LJ stated in Cornish v Accident Insurance Co Ltd (1889) 23 QBD 453, 456:
“… in a case of real doubt, the policy ought to be construed most strongly against the    insurers; they frame the policy and insert the exceptions. But this principle ought only to be applied for the purpose of removing a doubt, not for the purpose of creating a doubt, or magnifying an ambiguity, when the circumstances of the case raise no real difficulty.”

7. The extent of AIG’s liability is a matter of contract and is ascertained by reading together the statement of cover and the exclusions in the Policy. An exclusion clause must be read in the context of the contract of insurance as a whole. It must be construed in a manner which is consistent with and not repugnant to the purpose of the insurance contract. There may be circumstances in which in order to achieve that end, the court may construe the exclusions in an insurance contract narrowly. The judgment of Carnwath LJ in Tektrol Ltd (formerly Atto Power Controls Ltd) v International Insurance Co of Hanover Ltd [2006] 1 All ER (Comm) 780, to which counsel for Impact referred, is an example of that approach. But the general doctrine, to which counsel also referred, that exemption clauses should be construed narrowly, has no application to the relevant exclusion in this Policy. An exemption clause, to which that doctrine applies, excludes or limits a legal liability which arises by operation of law, such as liability for negligence or liability in contract arising by implication of law: Photo Production Ltd v Securicor Transport Ltd [1980] AC 827, 850 per Lord Diplock. The relevant exclusion clause in this Policy is not of that nature. The extent of the cover in the Policy is therefore ascertained by construction of all its relevant terms without recourse to a doctrine relating to exemption clauses.

On the question of exclusion or limitation of liability, Lord Toulson said,

35. The fact that a provision in a contract is expressed as an exception does not necessarily mean that it should be approached with a pre-disposition to construe it narrowly. Like any other provision in a contract, words of exception or exemption must be read in the context of the contract as a whole and with due regard for its purpose. As a matter of general principle, it is well established that that if one party, otherwise liable, wishes to exclude or limit his liability to the other party, he must do so in clear words; and that the contract should be given the meaning it would convey to a reasonable person having all the background knowledge which is reasonably available to the person or class of persons to whom the document is addressed. (See, among many authorities, Dairy Containers Ltd v Tasman Orient Line CV [2005] 1 WLR 215, para 12, per Lord Bingham.) This applies not only where the words of exception remove a remedy for breach, but where they seek to prevent a liability from arising by removing, through a subsidiary provision, part of the benefit which it appears to have been the purpose of the contract to provide. The vice of a clause of that kind is that it can have a propensity to mislead, unless its language is sufficiently plain. All that said, words of exception may be simply a way of delineating the scope of the primary obligation.

36. The Law Commission and the Scottish Law Commission gave a homely illustration in their joint report on Exemption Clauses, 1975, Law Com No 69, para 143:
“If a decorator agrees to paint the outside woodwork of a house except the garage doors, no-one can seriously regard the words of exception as anything but a convenient way of defining the obligation; it would surely make no difference if the promise were to paint the outside woodwork with a clear proviso that the contractor was not obliged to paint the garage doors, or if there were a definition clause brought to the promisee’s attention saying that ‘outside woodwork’ did not include the garage doors. Such provisions do not … deprive the promisee of a right of a kind which social policy requires that he should enjoy, nor do they … give the promisor the advantage of appearing to promise more than he is in fact promising.”
37. This approach was reflected in the Law Commissions’ Bill which passed into law as the Unfair Contract Terms Act 1977… Section 3 brought under statutory control, in cases where one party deals with the other as a consumer or on the other’s standard terms of business, a term which excludes or restricts the other’s liability for breach, or a term which entitles the other “to render a contractual performance substantially different from that which was reasonably expected of him”. The Act does not apply to insurance contracts (Schedule 1, paragraph 1), but it is nonetheless instructive to note the types of “exemption clause” which the Law Commissions saw as potentially suspect in consumer contracts.
38. In the case a non-consumer contract (with which we are concerned, albeit that consumer protection was an important end purpose), Photo Production Ltd v Securicor Transport Ltd is authority that business people capable of looking after their own affairs should be free between themselves to apportion risks as they choose: [1980] AC 827, 843 (Lord Wilberforce) and 851 (Lord Diplock).

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