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contractual Interpretation: check your Capitals to protect Your capital!

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In Hopkinson v Towergate, the Court of Appeal deployed correction by way of interpretation to fix drafting errors.

Hopkinson and Howard sold a company to Towergate. The company gave financial advice to retail customers. Following FCA reviews, significant compensation was payable to the customers for the period where the sellers owned the company. Towergate claimed under an indemnity in the sale agreement from Hopkinson and Howard (and their spouses). The dispute was about whether Towergate had complied with the notice provisions for that claim. The Hopkinsons/Howards said they had not and applied for summary judgment.

The Hopkinsons/Howards argued that the notice was not effective since it did not provide sufficient detail of the claim. In making this argument, they proposed that, in the relevant provision, "Claim" (ie with a capital C) should not be confined to the defined meaning in the agreement.

The agreement as a whole contained badly drafted provisions and capitalised words which either weren’t defined terms or, to the extent they were, were inaccurately referenced to create inconsistencies across the agreement.

The court accepted Lord Hodge’s proposition in Wood v Capita that sophisticated agreements which were professionally negotiated and drafted can be interpreted principally on a textual basis. However that proposition only applied to “well-drafted” provisions, which this was not.

Accordingly, the court considered the context and purpose of the provision as a whole. After considerable discussion about whether "Claim" could mean "claim" and whether this accorded with commercial common sense, the court ultimately resolved the issue itself via a different route. After quoting Lord Hoffmann in Chartbrook v Persimmon, the court held that “Taxation Covenant” should be read as “Tax Warranties”. This was an example, it said, of interpretation by means of correction of an obvious error. [Ed: may be de-Hoffmanisation isn't complete after all?]

The net result of all this was that the Hopkinsons'/Howards' summary judgment application was rejected (ie the notice had not breached the terms of the agreement and was valid). Underpinning its analysis the court felt there was good reason to distinguish the amount of detail required in notices of indemnity, as opposed to warranty, claims.

Update April 2020

The provision in the sale agreement had two time limits for giving notice: “as soon as possible” and “on or before the seventh anniversary”. In related proceedings, as a preliminary matter, the court has held that the time limits operated as a dual condition precedent and that while Towergate had given notice before the seven years was up, it had failed to give notice “as soon as possible”. Its indemnity claim failed as a result.

As is often the case for breach of warranty or indemnity claims, the formalities really matter.

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