UpdateGame of Unknowns: CA Interprets ambiguity in Exclusion Clause

25th June 20160
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Summary

The Court of Appeal (‘CA’) dismissed a claim concerning the interpretation of an exclusion clause in a share purchase agreement (‘SPA’). The CA held that any ambiguity in a contractual provision should be resolved by adopting the narrowest interpretation available. Similarly, the contra proferentem rule applies even where both parties are subject to similar exclusion clauses.

Facts

The case involved the sale of a company (the ‘Target’) by the Defendants (the ‘Sellers’) to the Claimants (the ‘Buyer’) by way of a SPA. Both parties gave extensive warranties to each other, the extent of which was limited by exclusion clauses. Some time later, the Buyer brought a claim against the Sellers for breach of warranty relating to the Target’s accounts (the ‘Claim’). However, the Sellers argued that the Claim was time barred because, in violation of the relevant exclusion clause, the Buyer had failed to serve a notice of the claim on the Seller ‘within 20 Business Days after becoming aware of the matter’ (the ‘Notice Period’). The dispute therefore turned on the meaning of ‘becoming aware of the matter’. If what was required was an awareness of the facts giving rise to the Claim (or that there might be a claim), the Buyer’s Claim would be time-barred. However, if the Buyer had to become aware of “a proper basis” for the Claim, there would be no limitation issue. The trial judge ultimately adopted the latter interpretation, although he rejected the contra proferentem rule on the basis that both parties had given warranties which were subject to similar limitation periods. The Sellers appealed.

Held

The CA dismissed the appeal. While it arrived at the same outcome as the trial judge, it did so for different reasons. Disagreeing with the trial judge, Briggs LJ held that the contra proferentem rule applies even where both parties have given warranties which are subject to similar exclusion clauses. As a result, there is no reason why an ambiguity in an exclusion clause cannot be resolved by adopting a narrow interpretation where a linguistic, contextual, purposive and common-sense analysis does not definitively discern the meaning of the clause.

On the facts, Briggs LJ noted that the parties had set out three distinct interpretations of the phrase ‘aware of the matter’, namely (1) becoming aware of the facts giving rise to the Claim; (2) becoming aware that there might be a claim; and (3) becoming aware of the Claim. While the language of the Notice Period clause failed to point clearly to any of the three interpretations, Briggs LJ rejected option (2) as being uncommercial. This left both (1) and (3) as plausible interpretations. However, given that the purpose of the Notice Period was to prevent the Buyer from pursuing claims it previously ‘kept up its sleeve’, Briggs LJ preferred option (3). In any event, had the parties intended the effect of interpretation (1), they would have used clearer words. Although both Moylan J and Hallett LJ agreed with Briggs LJ, both would have placed greater weight on commercial sense in upholding the trial judge’s decision.

Nobahar-Cookson & Ors v The Hut Group Ltd [2016] EWCA Civ 128

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