Court House of Lords | ||
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Citation(s) [1997] UKHL 28, [1998] 1 WLR 896, [1998] 1 All ER 98 Similar Chartbrook Ltd v Persimm, Attorney General of Belize v B, The Diana Prosperity, The Moorcock, Liverpool City Council v | ||
Investors Compensation Scheme Ltd. v West Bromwich Building Society [1997] UKHL 28 is a frequently-cited English contract law case which laid down that a contextual approach must be taken to the interpretation of contracts.
Contents
Lord Hoffmann set out five principles, so that contract should be construed according to:
- what a reasonable person having all the background knowledge would have understood
- where the background includes anything in the 'matrix of fact' that could affect the language's meaning
- but excluding prior negotiations, for the policy of reducing litigation
- where meaning of words is not to be deduced literally, but contextually
- on the presumption that people do not easily make linguistic mistakes
Facts
Investors received negligent advice from their financial advisers, solicitors and building societies, including West Bromwich Building Society ('West Bromwich BS'). They had claims in tort and for breach of statutory duty. The investors had been encouraged by financiers to enter "Home Income Plans", which meant mortgaging their properties to get cash that they would put into equity linked bonds. They lost money when house prices and stocks fell. Under the Financial Services Act 1986 section 54 the Securities and Investments Board started the Investors Compensation Scheme Ltd, where investors could be directly compensated for their losses, and ICS would try recoup the cost by suing the building societies on everyone’s behalf. Accordingly, to get the compensation investors signed a contract to assign their claims to ICS. But in section 3(b) of the claim form the assignment excluded ‘Any claim (whether sounding in rescission for undue influence or otherwise) that you have or may have against the West Bromwich Building Society’, so that investors could still sue on some claims individually. While ICS Ltd was suing, West Bromwich BS argued that ‘or otherwise’ meant that claims for damages, as well as rescission, had not been assigned. ICS Ltd argued that the clause actually meant that claims for damages had been assigned, because ‘or otherwise’ referred to rescission based claims other than undue influence, but not damages.
Evan-Lombes J held that the right to claim rescission had been retained but the right to claim damages had been assigned. Leggatt LJ overturned the High Court, and ICS Ltd appealed.
Judgment
The House of Lords held by a majority that the right to claim rescission was retained by the investors, but the right to claim for damages had indeed been assigned. Construed in its context, the words ‘Any claim (whether sounding in rescission for undue influence or otherwise) that you have or may have against the West Bromwich Building Society’ in effect had meant 'Any claim sounding in rescission (whether for undue influence or otherwise)'. It followed that ICS Ltd could sue West Bromwich BS, and other building societies, to vindicate the investors' claims. Lord Lloyd dissented.
Lord Hoffmann stated the following.
Lord Goff, Lord Hope and Lord Clyde concurred.