The Court of Appeal confirmed that, where necessary, exclusion clauses should be construed narrowly to resolve ambiguity.
The Court was asked to consider the construction of a clause for the making of warranty claims pursuant to a Share Purchase Agreement. The clause in question stated that the Buyer had to serve notice of any claim on the Sellers “…as soon as reasonably practicable and in any event within 20 Business Days after becoming aware of the matter.” The Judge at first instance found in favour of the Buyer, the Seller brought an appeal and invited the Court to choose between three alternative constructions of the phrase “aware of the matter” ranging from being aware of the facts, being aware that there might be a claim, and awareness that there was a proper basis for the claim. The Court settled on the narrowest interpretation, that of awareness of a proper basis for the claim.
The reason for taking a narrow approach was not based upon the contra proferentum doctrine, which had been firmly rejected by the Judge at first instance. Rather, the need for a narrow interpretation flows from the fact that a clause such as this “…cuts down or detracts from the ambit of some important obligation in the contract, or a remedy conferred by the general law… parties are not lightly to be taken to have intended to cut down the remedies which the law provides for breach of important contractual obligations without using clear words having that effect.”
The Court was assisted in this analysis by considering what the function of the clause was. It was not to stop all claims entirely, but merely to prevent the Buyer from keeping a claim “up his sleeve” to be used later. Briggs LJ concluded that while this case was perhaps unusual, “a thoroughly modern recourse to purposive construction happily marches hand in hand with a perhaps more old fashioned recourse to rules or canons of construction, which continue to assist the court where all else fails.”
William Skjøtt / 6th May 2016
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