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Interpretation – House of Lords departing from plain meaning of written contract.

The facts

An Investment Compensation Scheme was established by statute to compensate investors for losses in respect of ill-advised investments.

The Compensation Scheme was funded by contributions from authorized investment advisors.

Investors, in return for partial indemnification by the Compensation Scheme, assigned to the Compensation Scheme claims against the investment advisors and third parties liable for the losses.

Relevant portions of the claim form submitted by the investors claiming compensation read as follows:

“section 4

1.      I/we agree that my/our rights against the Participant Firm in respect of the Claim shall pass to Investors Compensation Scheme Ltd. (‘I.C.S.’) on payment of compensation pursuant to the Financial Services (Compensation of Investors) Rules 1990 (‘the Rules’). . . .

3.      I/we acknowledge that under the Rules on payment of the amount of £20,345.15 I/we will not longer have the right to make a claim against the Participant Firm [investment advisor] in respect of the Claim and that any such right will be vested in I.C.S. pursuant to the Rules, and I/we further acknowledge that any sums which would otherwise be payable to me/us in respect of the Claim by the Participant Firm, or by any trustee appointed under the Financial Services Act 1986, shall be paid instead to I.C.S. . . .

5.      I/we agree that in the event of my/our receiving any moneys or assets in respect of the Claim from the Participant Firm or from any trustee appointed under the Financial Services Act 1986 I/we will forthwith pay or transfer them to I.C.S.

6.      I/we hereby assign absolutely to I.C.S. each and every Third Party Claim and the benefit thereof.

12.      In this document, ‘Third Party Claim’ means any right, claim or cause of action which the claimant has or may have against any person other than the Participant Firm or against any fund or property in the hands of any person other than the Participant Firm and arising out of the circumstances giving rise to the Claim or otherwise relating to the Claim whether such claims shall arise in debt, breach of contract, tort, breach of trust or in any other manner whatsoever (and including all sums to which I/we may become entitled under sections 6 and 61 of the Financial Services Act 1986).

Explanatory note –

4.      You also agree that I.C.S. should be able to use any rights which you now have against anyone else in relation to the claim. Examples might be directors of the firm or other persons also responsible for causing the loss for which you are being compensated. You give up all those rights and transfer them to I.C.S. (paragraph 6).”

Section 3(b), [the “exception paragraph”] provided:

“I.C.S. agrees that the following claims shall not be treated as a ‘Third Party Claim’ [as defined in section 4 of this form] for the purposes of this agreement and that the benefits of such claims shall enure to you absolutely: Any claim (whether sounding in rescission for undue influence or otherwise) that you have or may have against the West Bromwich Building Society [the moneylender] in which you claim an abatement of sums which you would otherwise have to repay to that Society in respect of sums borrowed by you from that Society in connection with the transaction and dealings giving rise to the claim (including interest on any such sums).” Emphasis added

In an action against the moneylender, the question arose whether, by making the claims and necessarily assigning to the Compensation Scheme every third party claim (paragraph 4.6), which of the investors or the Compensation Scheme had a claim against the moneylender.

The Compensation Scheme contended that the exception in the claim form should be interpreted to confine the claims (“enuring absolutely”) to the investors, to those for rescission of the loans. This had the effect that other claims against the moneylenders (eg for misrepresentation) were assigned to the compensation Scheme and investors had lost their right to claim against the moneylenders for these claims.

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