“Marvellous mistakes.” “Progress not perfection.” “Make your mistakes mindfully.”
Good mantras for life. But poor contract wording advice.
The English law doctrine of “mistake”, promising as it sounds, rarely rescues a poorly drafted agreement. Recent case law confirms the stringent test judges apply before they will correct drafting errors.
Project Bidco v Axis[1] concerned warranty and indemnity cover for the acquisition of an engineering company (Target Co) by Project Bidco (PB). PB claimed under the policy for diminution in Target’s Co share value. Target Co had warranted that it was free from the taint of bribery and corruption but was, in fact, investigated for exactly that – and duly lost most of its business as a result.
The key issue for the court was the construction of an ‘ABC’ (Anti-Bribery and Corruption) clause which excluded insurers’ liability for:
“Any liability or actual or alleged non-compliance by any member of the Target Group … in respect of Anti-Bribery and Anti-Corruption laws” [our emphasis].
PB claimed there was a mistake in the policy drafting: it should have excluded “liability for actual or alleged non-compliance”. In other words, PB alleged “for” should replace “or” so that the exclusion did not apply and the policy covered the loss.
The court refused to give the “f” that PB sought under the doctrine of mistake, both at first instance and on appeal. The Court of Appeal majority judgment by Lord Justice Lewison confirmed that the court only corrects drafting mistakes if:
1. the mistake itself is clear; and
2. the correction required is obvious.
Lewison LJ also reminded us that inconsistency and implausibility – enough for many to conclude there has been a “mistake” in the everyday sense – are not enough for there to be a correctable “mistake” under English law. In short, the court found there was no obvious error, no obvious correction, and thus no joy for the claimant.
In Hamilton Corporate v Afghan Global Insurance[2], the court considered the word “seizure” in a political violence exclusion clause. The Taliban had seized a warehouse of army supplies during the US withdrawal from Afghanistan. The key issue was whether the seizure exclusion applied to all seizures or only to seizures by a “governing authority” (which the Taliban at the time was not).
Ruling for the reinsurers, Mr Justice Calver held that the exclusion applied. On an ordinary and natural reading of the language in the clause, “seizure” was not confined to seizure by a government authority. Calver J further explained that “courts do not easily accept that people have made linguistic mistakes in formal documents, particularly where they have been drafted by professional people in the relevant market”[3].
We could add that courts do not readily intervene to fix clumsily drafted clauses – as our final case, Bellini v Brit UW[4], also demonstrates.
Bellini claimed Covid-19 business interruption losses from insurers. The relevant insuring clause covered business interruption losses arising from infections or human contagious disease where such losses were caused by damage. The policy defined “Damage” as “physical damage” and “physical destruction”.
Bellini argued that the court should find there was a drafting mistake and correct the insuring clause to replace the words “caused by damage” with “in consequence of the insured perils”. Insurers, on the other hand, argued there was no mistake. There was BI cover under this particular infectious disease extension only where there was also physical damage.
The court held that there was no mistake in the policy wording. Cover under the infectious disease extension did indeed apply only if there was physical damage. There was no physical damage, so Bellini’s claim failed.
The lesson? The doctrine of mistake seldom rescues clumsy or imprecise drafting. Courts are reluctant to red pen any agreement if it can be given its natural and ordinary meaning – whether or not this accords with either party’s subjective understanding.
In other words, best get it right first time.
For more information on how our expert policy wording team can help you do that, please get in touch.
Andrew Schütte - Partner & Head of Reinsurance
Neema Daniel - Assistant Solicitor
[1] Project Angel Bidco Ltd (in Administration) v Axis Managing Agency Ltd [2024] EWCA Civ 446
[2] Hamilton Corporate Member Ltd & Ors v Afghan Global Insurance Ltd & Ors [2024] EWHC 1426 (Comm)
[3] Hamilton Corporate Member Ltd & Ors v Afghan Global Insurance Ltd & Ors [2024] EWHC 1426 (Comm) paragraph 62.
[4]Bellini (N/E) Ltd (t/a Bellini) v. Brit UW Ltd [2024] EWCA (Civ) 435
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