Investors Compensation Scheme Research Articles

An Overview of the Interpretation of Contracts by English Courts and Its Impacts on the Corporate Sector of the Country

Contracts, and thus the law governing it, is the pillar of all commercial and corporate transactions in any country. In fact, contracts, in such sectors, is an entire source of law in itself. In addition to statutes and common-law, contracts are the legally binding agreements that regulate the units of the corporate sector. Therefore, the manner in which courts interpret contracts in cases of a dispute has far-reaching consequences on corporate business conduct. The courts’ role in such domains has implications not only on matters of legal governance and regulation but also on the national economy, international trade, and international politics. It is, therefore, imperative to assess the role courts play in establishing standard norms and conventions of good practice and conduct in commercial and corporate settings by way of judgement regarding cases involving the corporate sector. This paper attempts to analyze this role of the English Courts by referring to certain prominent judgements such as Investors Compensation Scheme v. West Bromwich Housing Society, Hadley v Baxendale, and several others which proved instrumental in defining the practice of courts in determining intent and damages in contracts. It assesses how the English Courts have, through active involvement in the process of interpretation, affected the corporate landscape of the country. The paper largely discusses the evolution and effects of the general practice of courts in matters of determination of the matrix of fact, active investigation of intent, the place of good faith in English contracts, and the nature of damages to contracts.

A Sea Change in the Law of Contract Interpretation?

This article challenges the recent extrajudicial argument of Sir Geoffrey Vos, Chancellor of the High Court of England and Wales, that there has been a "distinct sea change" in the law of contract interpretation as a result of the United Kingdom Supreme Court's decisions in Rainy Sky SA v Kookmin Bank, Arnold v Britton and Wood v Capita Insurance Services Ltd. He suggests that these decisions have the effect that Lord Hoffmann's well-known restatement of the law in Investors Compensation Scheme Ltd v West Bromwich Building Society, particularly his Lordship's fourth and fifth principles, no longer represent the law. In his view, the position now is that a court must give the words of a contract their plain meaning except "in a most exceptional case or a case of obvious absurdity". However, Professor McLauchlan argues that Sir Geoffrey reads more into the decisions than is warranted by the Supreme Court's reasoning and that Lord Hoffmann's restatement has survived largely unscathed. In substance, the reasoning spelt out what was either explicit or implicit in the restatement in the first place.

A Sea Change in the Law of Contract Interpretation?

This article challenges the recent extra-judicial argument of Sir Geoffrey Vos, Chancellor of the High Court of England and Wales, that there has been a “distinct sea change” in the law of contract interpretation as a result of the UK Supreme Court’s decisions in Rainy Sky SA v Kookmin Bank, Arnold v Britton and Wood v Capita Insurance Services Ltd. He suggests that these decisions have the effect that Lord Hoffmann’s well-known restatement of the law in Investors Compensation Scheme Ltd v West Bromwich Building Society, particularly his Lordship’s fourth and fifth principles, no longer represent the law. In his view, the position now is that a court must give the words of a contract their plain meaning except “in a most exceptional case or a case of obvious absurdity”. However, Professor McLauchlan argues that Sir Geoffrey reads more into the decisions than is warranted by the Supreme Court’s reasoning and that Lord Hoffmann’s restatement has survived largely unscathed. In substance, the reasoning spelt out what was either explicit or implicit in the restatement in the first place.

THE “UNITARY EXERCISE” OF CONTRACTUAL INTERPRETATION

LORD Hoffmann's famous “restatement” of the principles of contractual interpretation in Investors Compensation Scheme v West Bromwich Building Society [1998] 1 W.L.R. 896, 912–13, was heralded as a “quiet revolution” (McLauchlan (2000) 19 N.Z.U.L.R. 147, at 148) in that it appeared to overthrow the legalistic approach of the past. That approach, often associated with the “plain meaning rule” (Bank of New Zealand v Simpson [1990] A.C. 182 (PC), 189) involved giving effect to the expressed meaning of the text, which (limited exceptions aside) could not be contradicted by the relevant background (or matrix of fact). By contrast, the approach in ICS mandated the Court to search for the apparently intended meaning by consulting the relevant and admissible background in all cases. The ICS approach rapidly became dominant, and indeed orthodox, across multiple jurisdictions. However, in a series of judgments commencing with Re Sigma Finance Corporation [2009] UKSC 2; [2010] 1 All E.R. 571, the Supreme Court of the United Kingdom has gradually moved away from the approach in ICS (albeit without expressly overruling it) and emphasised the importance of giving effect to the natural and ordinary meaning of the words used, in combination with other factors (see especially Marley v Rawlings [2014] UKSC 2; [2014] 2 W.L.R. 213, at [18]–[19]; Arnold v Britton [2015] UKSC 36; [2015] A.C. 1619, at [14]–[23]). This return to a more traditional approach to interpretation vindicates sustained criticism of the validity of the ICS approach in principle and practice (see e.g. Staughton [1999] C.L.J. 303; Berg (2006) 122 L.Q.R. 354; Buxton [2010] C.L.J. 253).

A question of taste: the Supreme Court and the interpretation of contracts

ABSTRACTThis is the text of the inaugural Farquharson Lecture, delivered at Keble College, Oxford, on 8 May 2017. These Lectures were established by the Harris Society, the law society at Keble College, in honour of The Rt Hon Sir Donald Farquharson, an Old Member and Honorary Fellow of the College who served as a Lord Justice of Appeal between 1989 and 1995 and passed away in 2011. The 2017 Lecture discusses the approach to the interpretation of contracts adopted by the Supreme Court in a number of recent cases. It concludes that the Court may be retreating from the principles set out by Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896. The Lecture is reproduced here with the kind permission of its organisers, Dr James Goudkamp and Mr Sebastian Bates, and appears as it was delivered, with only minor editorial changes.

Is the Plain Meaning Approach to Construction of “Unambiguous Words” in Contracts Still Alive in the English Courts?

Several pronouncements from all the three reasoned judgments in the recent appeals of Rainy Sky SA v. Kookmin Bank have essentially answered the question raised above in the affirmative. Two of the judgments take the view that clear and unambiguous language of contracts means what it says, and must be applied accordingly. For the third, however, the court should apply the language unless the application will produce an extremely unreasonable result. This article seeks to evaluate the soundness of these plain meaning approaches to construction in the light of Investors Compensation Scheme Ltd v. West Bromwich Society and selected subsequent decisions.

Commercial Purpose and Business Common Sense in Contractual Interpretation

What is the role to be played by considerations of business common sense in determining what the parties meant? In a pithy and unanimous judgment, Lord Clarke writing for the Supreme Court in Rainy Sky SA v Kookmin Bank1 held that where a term of a contract is open to more than one interpretation, one should adopt the interpretation that is most consistent with business common sense. This case is significant: not only does it shed light on when and how business common sense can be deployed by the courts, the dicta can be read as an important qualification of the circumstances in which courts can depart from the clear and unambiguous meaning of the words in a contract in order to give effect to its commercial purpose or to make the contract more commercially sensible. Thus, the fifth principle of interpretation enunciated by Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society2 ('ICS') may have to be carefully applied in light of the qualified approach in Rainy Sky.

Plain Meaning and Commercial Construction: Has Australia Adopted the ICS Principles?

In this article Professor McLauchlan discusses the effects of Lord Hoffmann’s famous restatement of the fundamental principles of contract interpretation in the Investors Compensation Scheme case and traces the history of its reception in Australia. He argues that the case law is characterised by misunderstandings and mixed messages and concludes that the status of the restatement in Australia remains problematic. Indeed, he suggests that, if the reasoning of the New South Wales Court of Appeal in Kooee Communications case is correct, the Investors Compensation Scheme case itself would have to be decided differently in Australia.

Contracts and Contract Law: Challenging the Distinction Between the ‘Real’ and ‘Paper’ Deal

This article examines the claim that there are two different and often incompatible ‘worlds’ within which contractual relationships can be placed-a real world created by the parties and an artificial world created by contract law and formal contract documents. This distinction, often made by sociolegal scholars, is usually accompanied by the suggestion that legal reasoning might be improved by more attention to the real world of contracting at the expense of the artificial world of documents and classical doctrine. After examining the relationship between trust and contract, the role of legal institutions in supporting agreement-making and the reasons parties might have for formalizing commercial relationships, the article argues that a sharp distinction between the real and paper deal cannot be drawn and that in many commercial agreements these must be understood as integrated phenomena, rather than wholly discrete aspects of contracting behaviour. The article then considers the capacity of contract law to respond to this finding, with particular reference to the law's approach to uncertainty in agreements and the contextual approach to contract interpretation as developed by Lord Hoffmann in Investors Compensation Scheme and subsequent cases.

Joseph Gerald Taylor v Investors Compensation Scheme

This was an appeal from an earlier decision of the Queens Bench Divisional Court in R v Investors Compensation Scheme ex parte Gerald Taylor (judgment date 29th November, 1996) which has already been considered in this journal (see ‘Timing was crucial for ICS claim’, Vol. 5(2), Journal of Financial Regulation and Compliance 1997 at p. 178).

Investors Compensation Scheme Ltd v West Bromwich Building Society

These are set out in the earlier comment on this case when it arose at first instance and was considered in Vol. 5, No. 1, Journal of Financial Regulation and Compliance, p. 78. The investors concerned in this appeal had suffered losses through investment in Home Income Plans arranged by an independent financial adviser (IFA) and the West Bromwich Building Society (WBBS). The IFA was in default and so the Investors Compensation Scheme (ICS) had paid the investors compensation as a result thereof.

Assignment of individual investors' claims to the Investors Compensation Scheme declared invalid (1) Investors Compensation Scheme Ltd v West Bromwich Building Society; (2) Same v Hopkin & Sons; (3) Alford & Ors v West Bromwich Building Society; (4) Armitage v West Bromwich Building Society

This case concerned the validity of assignments to the Investors Compensation Scheme (ICS) of the claims of various individual investors which arose out of the widespread mis‐selling of home income plans between 1989 and 1991. The factual background to the case is given in a statement of facts agreed between all parties and appended to the judgment. A FIMBRA regulated firm of independent financial advisers, Fisher Prew Smith Ltd advised the claimants (including Messrs Alford and Armitage in this action), to take out home income plans involving equity release mortgages with the West Bromwich Building Society (WBBS) which were arranged by Hopkin & Sons (the Solicitor Defendants). The firm of independent financial advisers concerned failed and, as they were authorised persons (FIMBRA members), claims against them for negligence, breach of contract, fiduciary and statutory duty were to an extent covered by the s.54A Financial Services Act (FSA) statutory compensation scheme. The claimants were duly compensated by the ICS within a range of 50—75 per cent of their claims at law but despite this many of the individuals affected (including the Plaintiffs in the third and fourth actions) still have outstanding liabilities to the WBBS. When the individual claimants received offers of compensation from the ICS they signed a standard claim form which contained a declaration that the claimants had received no compensation of any kind in relation to the claim and confirmed that they did not expect to receive any such in the future, a declaration that ICS would take over the claimants' rights and claims against third parties on the payment of any compensation. The claim form further provided ‘ICS agrees that the following claim shall not be treated as a third party claim for the purpose of this agreement and the benefits of such claim shall inure to you absolutely: Any claim (whether sounding in recission for undue influence or otherwise) that you have or may have against [the WBBS] in which you claim an abatement of sums which you would otherwise have to repay to that society in connection with the transaction and dealings giving rise to the claim (including interest on any such sums’. The claim form further provided that the claimants agreed, in the event of their receiving any money or assets in respect of the claim from the scheme participant firm or from any FSA trustee, to transfer such money or assets to the ICS. It provided for an assignment to ICS of claimants' third party claims in the following words ‘We hereby assign to ICS each and every third party claim and the benefit thereof’.