High Court Clarifies Exclusion of Anti-Bribery and Corruption Liabilities in Insurance Policies

Citation: [2023] EWHC 2649 (Comm)
Judgment on

Introduction

The High Court of Justice’s recent judgment in the case of Project Angel Bidco Limited (In Administration) v Axis Managing Agency Limited & Ors is a significant elucidation on the principles of contract construction within the context of insurance policy wording, particularly concerning exclusions related to Anti-Bribery and Corruption (ABC) liabilities. The case addresses whether an insurance policy can be construed to exclude all alleged breaches of Warranty & Indemnity Insurance Policy (W&IP) due to ABC liabilities. The court’s analysis is steeped in established legal principles on contract interpretation and the bar for estoppel by convention.

Key Facts

Project Angel Bidco Limited purchased shares in a target company, which later led to financial loss and a subsequent insurance claim against Axis Managing Agency Limited, the underwriter, due to breaches of warranties regarding ABC laws. At issue was the construction of the policy, specifically whether the clause excluding “any ABC Liability” precluded the claimant from recovering for alleged breaches of warranties in the Share and Purchase Agreement (SPA).

The claimant argued that an exclusion clause within the insurance policy, as drafted, contained an error and should be limited to exclude only actual or alleged non-compliance with ABC laws, not any liability in respect of such laws. The defendants, however, contended the clause was clear in excluding both direct and third-party losses arising from ABC liabilities.

In constructing the insurance policy, the court applied several well-entrenched legal principles pertinent to the interpretation of contractual terms:

  1. Natural and Ordinary Meaning: Contracts should be interpreted based on the natural and ordinary meaning of the words and provisions they contain, considering the overall purpose and intent of the contract (Arnold v Britton).

  2. Factual and Commercial Context: The interpretation must consider the factual and commercial context known to the parties at the time the contract was made, avoiding reliance on subjective evidence of intent (Wood v Capita Insurance Services Limited).

  3. Commercial Common Sense: The court may take into account commercial common sense when ascertaining the meaning of unclear contract provisions, particularly when there are two plausible interpretations (Rainy Sky SA v Kookmin Bank).

  4. Contra Proferentem Principle: This principle, which suggests any ambiguity in exclusion clauses should be construed against the party relying on them, was expressly excluded by the parties in this instance.

  5. Mistake Correction: The judiciary can correct clear mistakes in a contract’s language if necessary (Chartbrook Ltd v Persimmon Homes).

  6. Estoppel by Convention: A party may be precluded from denying a common assumed fact or law which both parties have acted upon, though this requires a high standard of proof to establish such a mutual assumption.

Outcomes

The court rejected the claimant’s construction that an error in the policy needed to be rectified, affirming that the language chosen by the parties was neither absurd nor irrational. The clause clearly excluded any loss arising out of any ABC liability, including the alleged breaches of warranties within the SPA.

Regarding the estoppel by convention, the court found no mutual assumption to the extent necessary to preclude the claimant from arguing its interpretation of the ABC exclusion.

Conclusion

The judgment firmly establishes that in the absence of an obvious error or inconsistency, the courts will interpret insurance policy clauses based on their natural and ordinary meaning, considering the overall purpose and context at the time of contract formation. This case underscores the necessity for precision in drafting insurance policies and the reluctance of courts to intervene in the absence of clear contractual mistakes. The decision not only offers guidance for interpreting “exclusion” clauses in insurance policies but also clarifies the threshold for applying estoppel by convention in contractual disputes.

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