Coulson v Newsgroup Newspapers Ltd

Mr Coulson, the Claimant, was employed by News Group Newspapers Limited, the Defendant, in the United Kingdom as the Editor of the News of the World newspaper between 13 January 2003 and 28 February 2007, when his employment terminated.

On 26 February 2007 the Claimant and the Defendant entered into an agreement (“the Agreement”) in relation to the termination of his employment. The Agreement included the following term:

“4.6

To the extent that it is lawfully able to do so, the [Defendant] will pay any reasonable professional (including, without limitation, legal and accounting) costs and expenses properly incurred by the [Claimant] after the Termination Date which arise from his having to defend, or appear in, any administrative, regulatory, judicial or quasi-judicial proceedings as a result of his having been Editor of the News of the World.”

On 8 July 2011 the Claimant was arrested by the Metropolitan Police and interviewed under caution in connection with allegations of conspiracy to unlawfully intercept communications contrary to section 79 of the Regulation of Investigatory Powers Act 2000 (“RIPA”) and making unlawful payments to police officers contrary to the Prevention of Corruption Act 1906, section 1. (I shall refer to these allegations together as “the criminal allegations”). Mr Coulson was not charged. He was bailed until October 2011 and bail continues. He denies the criminal allegations.

In these proceedings the Claimant seeks a declaration that upon a proper construction of clause 4.6 (“the clause”):

“the Defendant must pay the professional costs and expenses properly incurred by the Claimant in defending the criminal allegations.” (Particulars of Claim, para 23).

The present claim is made under Part 8 of the Civil Procedure Rules 1998. The Part 8 procedure is available to a claimant where he “seeks the court’s decision on a question which is unlikely to involve a substantial dispute of fact” (CPR 8.1(a)). In the light of one matter that arose during the hearing I invited further submissions in writing as to whether Part 8 proceedings were appropriate in this case. Having received and considered the submissions made by the parties I am satisfied that the issues are suitable for determination under Part 8. (See para 35 below).

In August 2006 Mr Clive Goodman, a senior News of the World employee, was charged with conspiracy to unlawfully intercept communications in breach of RIPA, section 79. Mr Glenn Mulcaire, a private investigator paid by the News of the World, was charged with related offences. Both Mr Goodman and Mr Mulcaire pleaded guilty in November 2006. They were sentenced to custody in respect of these offences on 26 January 2007.

On 18 November 2008 the Culture, Media and Sport Committee of the House of Commons opened an inquiry into matters relating to phone hacking, which culminated in a report published on 24 February 2010 entitled “Press Standards, Privacy and Libel”.

On 7 September 2010 the Home Affairs Select Committee opened an inquiry into the issue of unauthorised tapping into or hacking of mobile communications.

On 26 January 2011 the Metropolitan Police announced that it would open a fresh investigation into phone hacking, which became known as “Operation Weeting”.

On 10 February 2011 Ms Jo Rickards, of DLA Piper UK Limited (“DLA”), the Claimant’s solicitors, wrote to BCL Burton Copeland, the Defendant’s solicitors. The letter states, so far as is material:

“Thank you very much for referring Mr Coulson to me.

I am writing to you to explain how we calculate our fees as your client, News International Limited (‘NI’) is responsible for Mr Coulson’s legal costs.

2.

Scope of services

We will provide advice in connection with the investigations (civil, criminal and parliamentary) into the allegations of phone hacking at the News of the World newspaper and any other allegations which arise relating to Mr Coulson’s editorship.

7.

Bills and payment

We will invoice NI at the end of each month in respect of the work undertaken, and for disbursements and expenses incurred, in the preceding month.”

The Defendant has paid DLA’s fees covering work conducted between 25 January 2011 and 23 August 2011.

In July 2011 the UK Government announced the institution of a public inquiry into, inter alia, phone hacking and allegations of illicit payments made by journalists to police officers (the “Leveson Inquiry”).

On 6 July 2011 the Metropolitan Police announced that they would be conducting an investigation into inappropriate payments made to police officers as a result of evidence uncovered as part of Operation Weeting. The investigation into these payments has been named “Operation Elveden”.

On 8 July 2011 the Claimant was arrested in respect of the criminal allegations (see para 3 above).

On 23 August 2011 Mr Tom Mockridge, Chief Executive Officer of NI Group Limited, on behalf of the Defendant, wrote to Mr Coulson, so far as is material, as follows:

“We take this opportunity to be clear that NGN Limited’s payment of your reasonable professional costs and expenses under the Agreement… relates solely to your required participation in any such proceedings by reason of the performance of your duties as Editor of News of the World as a former employee of NGN Limited under the terms set out in your contract of employment. Therefore, NGN Limited will pay for your reasonable expenses in accordance with clause 4.6 in respect of the Leveson inquiry and the Select Committee investigations.

As a result of recent events, NGN Limited has reviewed clause 4.6 and has formed the view that clause 4.6 does not require it to reimburse costs that relate to proceedings (including criminal) which relate to alleged conduct outside the scope of your contract of employment. Consequently, effective from the date of this letter, neither NGN Limited nor any Associated Company will provide any assistance towards costs and expenses incurred by you in defence of, or appearance in, any criminal proceedings or other proceedings relating to alleged conduct outside the scope of the terms set out in your contract of employment. If NGN Limited has previously made payment of invoices relating to any such proceedings it will not seek to recover payment at this stage. If you have any claims for fees incurred up until the date of this letter, please forward them to NGN Limited as soon as possible. Any future invoices for costs incurred after the date of this letter and relating to the matters described above will not be paid by NGN Limited.”

By letter dated 30 August 2011 DLA challenged the Defendant’s construction of the clause. In reply by letter dated 5 September 2011 Allen & Overy, the Defendant’s solicitors in these proceedings, confirmed the Defendant’s position.

Mr James Laddie, for Mr Coulson, submits that the parties intended that the Defendant should pay the legal costs properly incurred by Mr Coulson in all types of proceedings, including criminal proceedings, concerning his conduct as Editor of News of the World.

No more complicated analysis, Mr Laddie submits, is required. However a more detailed analysis of the words used in the clause reinforces the submission. Mr Laddie makes, in particular, three points. First, the list of proceedings in which costs may be incurred is deliberately wide: “… any administrative, regulatory, judicial or quasi-judicial proceedings”. The list encompasses not only formal legal proceedings, but, he submits, proceedings in which the law may play a part (as, for example, in an arrest and interview conducted under the provisions of the Police and Criminal Evidence Act 1984). Second, the phrase “to defend, or appear in” does not suggest an intention to limit the payment of legal costs by reference to the nature of the case, the evidential or legal issues in the case or the persons against whom any allegations are made. Third, the phrase “as a result of” in “…any proceedings... as a result of his having been Editor…” could not be any broader in terms of defining the relationship between the Claimant’s editorship and the proceedings for which the Defendant must pay his legal costs. As long as the proceedings are a consequence or outcome of Mr Coulson’s editorship, a simple factual question, then the fees are payable by the Defendant. The Defendant’s obligation to pay legal fees is not contingent on the Claimant having performed his editorial duties in any particular way, whether by reference to his contract of employment or otherwise.

Mr Laddie submits that it was in the Defendant’s interest just as much as in the Claimant’s interest to assist the Claimant to defeat allegations of unlawful conduct arising out of his editorship of the News of the World. There was no divergence of interest between the Claimant and the Defendant. If the Claimant with the assistance of lawyers paid for by the Defendant was able to rebut allegations of wrongdoing (whether in a civil or criminal context) the Defendant benefited too because it eliminated the possibility of the Defendant being held vicariously liable for the Claimant’s actions.

Mr Christopher Jeans QC, for the Defendant, submits that the clause is directed at protecting Mr Coulson from legal professional expenses arising from the ordinary occupational hazards of having been an Editor. The purpose of the clause is to protect him from the cost of the sort of inquiries and proceedings into which an Editor may inevitably be drawn by virtue of his position. Editors may be drawn into a wide range of inquiries and proceedings as a result of being Editor. Libel actions and press complaints inquiries are the most obvious examples. A criminal investigation into the Editor’s alleged personal criminal behaviour, relating to payments to police officers or interception of communications, is not, Mr Jeans submits, among the ordinary occupational hazards of being an Editor. It is not within the contemplation of the clause.

If Mr Jeans’ primary submission is correct the claim must fail. However if Mr Jeans is wrong in that submission, he submits the claim fails for three further reasons. First, as yet there are no criminal proceedings. A police investigation is not “proceedings”. Unless and until any such proceedings are started, the obligation to indemnify cannot arise and any claim under the indemnity is necessarily premature. Second, Mr Jeans invokes the ex turpi causa principle which, he submits, points strongly against a construction which would result in the Claimant recovering his legal costs consequent on personal criminal activity. Third, and connected to the second point, is the fact that the clause is silent as to time of re-imbursement. There cannot be an obligation to reimburse, Mr Jeans submits, unless and until the inquiries have been completed without any finding of guilt on the part of Mr Coulson.

Mr Laddie submits that given the plain and ordinary meaning of the clause, the construction for which Mr Jeans contends would necessarily involve the introduction of an implied term. The words “any… judicial or quasi-judicial proceedings” must include criminal proceedings. To imply a term that criminal proceedings should be excluded is to contradict an express term, which is not permissible. Further implication of terms is prohibited by the existence of the “entire agreement” clause at clause 11 of the Agreement.

A further reason put forward by Mr Laddie as to why the court should not imply a term akin to the one proposed by the Defendant is that a term will not be implied into a contract unless it is capable of being formulated with sufficient clarity and precision. The Defendant’s proposed term fails this test: how, he asks, is one supposed to determine whether proceedings relate to alleged conduct outside the scope of the contract of employment? The test for vicarious liability in tort recognises, Mr Laddie submits, that criminal conduct at work lies within the scope of employment.

An additional reason, Mr Laddie submits, why the court should not imply a term akin to the one proposed by the Defendant is that it is capable of working a manifest injustice. It is a principle of English law that a man is innocent until proven guilty. Adopting the Defendant’s construction would mean that the Defendant would bear no responsibility for the payment of the Claimant’s legal costs even where no charge was preferred or where the Claimant was acquitted of all charges.

In Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 Lord Hoffmann at 912-913 summarised the principles by which contractual documents are nowadays construed as follows:

“(1)

Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

(2)

The background was famously referred to by Lord Wilberforce as the ‘matrix of fact’; but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.

(3)

The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respect unclear. But this is not the occasion on which to explore them.

(4)

The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co. Ltd v Eagle Star Life Assurance Co. Ltd [1997] AC 749.

(5)

The ‘rule’ that words should be given their ‘natural and ordinary meaning’ reflects the common sense proposition that we do not easily accept people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191, 201:

‘if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense.’ ”

The factual background in the present case, to which regard may plainly be had, includes Mr Coulson’s contract of employment. His duties as Editor are set out in clause 3.1 of his contract of employment. Clause 3.1, so far as is material, states:

“The Editor shall be employed as Editor of the News of the World (‘News’). The Editor shall well and faithfully serve the Company and News as Editor and use his best endeavours to promote the success and reputation of the Company and News. In particular (but without prejudice to the generality of the foregoing) the Editor shall:

(a)

Be generally responsible for and have control of the editorial content of News with full power to invite, accept or reject any contribution on any subject and (within the annual budget as set and regularly reviewed by the Board for editorial space, staffing levels and expenditure) to agree the amount or rate of payment for such contribution or series of contributions;

(b)

Within the annual budget and the staffing, expenditure and pagination levels set and reviewed by the Board from time to time have power to employ or engage such persons as he may think fit as sub-editors, leader writers, reporters, correspondents and otherwise to agree with such persons the rate of remuneration for their services and (having regard to the Company’s disciplinary and other procedures in this respect and the need for the efficient management of the resources available to him) to determine such employments or engagements at his discretion;

(c)

Endeavour so far as he can, to obtain accurate and authentic information upon all matters and questions dealt with by News;

(d)

Take all reasonable precautions to prevent the insertion in any issue of any libellous, blasphemous or immoral matter or advertisements or of any contribution or matter infringing the copyright or other rights of any other person, save that he will not be in breach of this or any other clause in this Agreement if, in the reasonable exercise of his discretion as Editor of News, any such matter is supplied, furnished, written or published and, having taken such reasonable precautions, he does not know that such material is actionable or, knowing either, has grounds to believe that there is a defence to any action brought or that no action will be brought.

(e)

Undertake such other duties and exercise such other powers in relation to the conduct and management of the Company and/or News and its business and affairs as the Board shall from time to time assign to or vest in him.”

Clause 19.1 of the contract of employment provides, in so far as is relevant, that:

“The Company may, notwithstanding any of the terms of the Editor’s employment and irrespective of whether the grounds for termination arose before or after it began, at any time by notice in writing terminate the Editor’s employment with immediate effect and without compensation:

(d)

If the Editor is convicted of a criminal offence, except one which the Board considers does not affect his position as Editor.”

In Neary v Dean of Westminster [1999] IRLR 288 Lord Jauncy, at paragraph 22, asked “What degree of misconduct justifies summary dismissal?” He answered as follows:

“I have already referred to the statement by Lord James of Hereford in Clouston & Co Ltd v Corry. That case was applied in Laws v London Chronicle (Indicator Newspapers) Ltd [1959] 1 WLR 698, where Lord Evershed MR, at p.700 said: ‘It follows that the question must be – if summary dismissal is claimed to be justified – whether the conduct complained of is such as to show the servant to have disregarded the essential conditions of the contract of service.’ In Sinclair v Neighbour Sellers LJ at p.287F, said: ‘The whole question is whether that conduct was of such a type that it was inconsistent, in a grave way – incompatible – with the employment in which he had been engaged as a manager.’ Sachs LJ referred to the ‘well established law that a servant can be instantly dismissed when his conduct is such that it not only amounts to a wrongful act inconsistent with his duty towards his master but is also inconsistent with the continuance of confidence between them.’ In Lewis v Motorworld Garages Ltd [1985] IRLR 465, Glidewell LJ at 469, 38, stated the question as whether the conduct of the employer ‘constituted a breach of the implied obligation of trust and confidence of sufficient gravity to justify the employee in leaving his employment… and claiming that he had been dismissed.’ This test could equally be applied to a breach by an employee. There are no doubt many other cases which would be cited on the matter, but the above four cases demonstrate clearly that conduct amounting to gross misconduct justifying dismissal must so undermine the trust and confidence which is inherent in the particular contract of employment that the master should no longer be required to retain the servant in his employment.”

Plainly, as Editor, Mr Coulson was required to act lawfully. That being so the reference to “Editor” in the clause must be to someone performing the lawful duties of Editor. His duties comprised only lawful activities. Accordingly it cannot have been intended that activity outside the scope of an Editor’s lawful responsibilities would be covered by an indemnity; still less that the indemnity should extend to any serious criminal activities for which he was alleged personally to be responsible.

Mr Jeans accepts that the words “judicial proceedings” as a matter of language do not exclude criminal proceedings. However he submits, and I agree, personal wrongdoing is not within the intention of the clause. The clause has to be read as a whole. The words “having to defend, or appear in” confirm, Mr Jeans submits, that what is envisaged is the Editor being “drawn” in to judicial proceedings as a result of his responsibility for content or because of a supervisory, organisational or vicarious responsibility. It may be that he will have to appear, for example, as a witness in criminal proceedings brought against another employee of the Defendant. However these words are not apt to describe the Claimant’s participation in criminal proceedings brought against him arising from his own alleged personal misconduct. They are not a natural way of expressing the concept of defending oneself.

Further Mr Jeans points to the wording of clause 9.8 of the Agreement which provides that:

“The Employer accepts that the terms of this Agreement are also in full and final settlement of any claims (save in respect of any fraud committed by the Employee) that the Employer and any Associated Company has or may have against the Employee arising out of or in connection with the Employee’s employment, or its termination…”

Mr Jeans observes, rightly in my view, that it cannot have been intended that the Defendant could bring civil proceedings against the Claimant for making a fraudulent claim for expenses, or even that there be criminal charges brought against the Claimant arising out of such a claim, but at the same time the indemnity as to legal costs in the clause applied.

I do not accept Mr Laddie’s submission that the construction of the clause for which the Defendant contends must involve the introduction of an implied term. In my view the proper construction of the clause is that Mr Coulson’s duties as Editor comprise only lawful activities. That being so there is no need for the introduction of an implied term into the Agreement and Mr Jeans does not suggest there is. Accordingly Mr Laddie’s arguments against the implication of such a term do not arise for consideration.

Similarly it is not necessary to consider in any detail the issue of vicarious liability or the authorities to which I have been referred. The principles relating to vicarious liability are clear. An employer is vicariously liable for his employee’s acts or omissions committed in the course of his employment. The court must consider whether there is a sufficiently close connection between the wrongdoing and the purpose of the employment in question to make it fair and just to hold the employer vicariously liable.

Mr Laddie referred to the cases of Brink’s Global Services Inc v Igrox Ltd [2011] IRLR 343 and Maga v The Trustees of the Birmingham Diocese of the Roman Catholic Church [2010] 1 WLR 1441. In Brinks the Court of Appeal held that there was a sufficiently close connection between an employee’s theft of silver from a container and the purpose of his employment to make it fair and just that his employer be held vicariously liable for his actions. Similarly in Maga there was a sufficiently close connection between the employment of the priest at the church and the abuse which he inflicted on the claimant to render it fair and just to impose vicarious liability for the abuse on his employer, the Archdiocese.

The Particulars of Claim, at paragraph 21.4, state that the criminal allegations were within the scope of the Claimant’s contract of employment. Mr Jeans does not accept this is so. However it is neither party’s case that the Claimant’s job entailed the commission of the alleged, or any, criminal offences. The Claimant denies that he is guilty of criminal wrongdoing. I agree with Mr Jeans that whether the Defendant would or could be held vicariously liable if the Claimant was guilty of criminal activity whilst Editor is nothing to the point.

In support of his submission that proceedings have started Mr Laddie referred to the Contempt of Court Act 1981. Paragraph 3 of Schedule 1 to the Act provides that criminal proceedings are active from the relevant initial step specified in paragraph 4 which, at sub-paragraph (a), is arrest without warrant. However Mr Laddie accepted that that definition of proceedings is not intended to apply beyond that particular statute.

Mr Jeans referred to the cases of R v Brentwood Justices ex p. Jones (1979) RTR 155 and R v Elliott (1985) 81 Cr App R 115 in support of his submission that proceedings have not as yet commenced. In Brentwood Justices, where the Divisional Court was dealing with a case in which the proceedings had begun by arrest without warrant, Lord Widgery CJ said at 160:

“…that the proceedings commenced when the suspect was taken to the police station pursuant to such arrest, and when he was formally charged in the presence of a station officer, which would be the normal procedure at the station.”

In the later case of Elliott the Court of Appeal, noting that the Brentwood Justices case was not a decision of the Court of Appeal but of the Divisional Court, concluded that section 63 of the Administration of Justice Act 1982 should be interpreted as meaning that instituting proceedings relates to the time when a person comes to court to answer the charge.

In my view whether “proceedings” start when the accused is formally charged at the police station or only at the later stage when the accused is brought to court to answer the charge, they have not in the present case yet started.

The decision of the Divisional Court in R (on the application of Hale) v North Sefton Justices [2002] EWHC 257 (Admin), on which Mr Laddie relies, does not in my view lead to a contrary conclusion. That case concerned the words “in the proceedings” in Regulation 7 of the Costs in Criminal Cases (General) Regulations 1986. One issue was whether claims for attendance on the claimant prior to charge are for expenses incurred by the claimant “in the proceedings”. The court decided that claims for attendance prior to charge were encompassed by those words. Instructions were given at a time when charge was imminent and the bail on which the claimant had been placed was about to expire. Auld LJ said:

“It seems to me that on a sensible approach it cannot reasonably be said that the advice sought and given at the initial attendance was not ‘in the proceedings’ simply because the charge had not yet been preferred.”

In Hale there were proceedings that led to a trial. In the present case there are no proceedings; if no charges are ever preferred there will never be proceedings.

Article 6 of the European Convention on Human Rights does not in my view assist the Claimant. Mr Laddie submits that “proceedings” should be construed in the light of the jurisprudence of the European Court of Human Rights and the Supreme Court on Article 6. In Cadder v HM Advocate [2010] 1 WLR 2601 Lord Hope referred to paragraph 55 of the decision of the Grand Chamber of the European Court in Salduz v Turkey (2008) 49 EHRR 421 where the Grand Chamber concluded as follows:

“ … the court finds that in order for the right to a fair trial to remain sufficiently ‘practical and effective’ ... article 6(1) requires that, as a rule, access to a lawyer should be provided as from the first interrogation of a suspect by the police, unless it is demonstrated in the light of the particular circumstances of each case that there are compelling reasons to restrict this right. Even where compelling reasons may exceptionally justify denial of access to a lawyer, such restriction – whatever its justification – must not unduly prejudice the rights of the accused under article 6 … The rights of the defence will in principle be irretrievably prejudiced when incriminating statements made during police interrogation without access to a lawyer are used for a conviction.”

Lord Hope observed at paragraph 41:

“The statement in para 55 that article 6(1) requires that, ‘as a rule’, access to a lawyer should be provided as from the first interrogation of a suspect must be understood as a statement of principle applicable everywhere in the Council of Europe area. The statement that the rights of the defence will ‘in principle’ otherwise be irretrievably prejudiced must be understood in the same way.”

However it does not follow that because access to a lawyer should be provided as from the first interrogation of a suspect that the word “proceedings” in the clause should be interpreted as starting at that time. As Mr Jeans observes Article 6 does not go to the issue of the meaning of the clause.

Finally Mr Laddie tentatively suggested that the reference to “administrative… proceedings” in the clause is sufficiently wide to cover arrest and the grant of bail. I reject this submission. Neither arrest by a police officer nor the grant of bail can properly be described as “administrative” proceedings.

The clause does not specify a time at which payment must be made. Mr Laddie submits that payment should be made within a reasonable time of payment becoming due. In Hick v Raymond [1893] AC 22 at 33 Lord Watson said:

“When the language of a contract does not expressly, or by necessary implication, fix any time for the performance of a contractual obligation, the law implies that it shall be performed within a reasonable time. The rule is of general application, and is not confined to contracts for the carriage of goods by sea. In the case of other contracts the condition of reasonable time has been frequently interpreted; and has invariably been held to mean that the party upon whom it is incumbent duly fulfils his obligation, notwithstanding protracted delay, so long as such delay is attributable to causes beyond his control, and he has neither acted negligently nor unreasonably.”

In the present case, Mr Laddie submits, where it is usual for legal bills to be rendered to clients regularly during legal proceedings, the clause can only operate effectively if costs are defrayed as and when they are demanded. Accordingly the indemnity requires the Defendant to meet the Claimant’s legal costs as they arise. To date the Defendant has been invoiced each month in respect of the work undertaken by DLA in accordance with paragraph 7 of DLA’s letter of 10 February 2011 (see para 10 above).

Mr Jeans contends that if, contrary to his submissions, the clause covers the legal costs of defending the criminal allegations and “proceedings” have commenced, the Defendant is not obliged to make any payment unless and until the criminal enquiries and any criminal proceedings have been completed without any finding of guilt on the part of Mr Coulson.

In Askey v Golden Wine Co Ltd [1948] 2 All ER 35 at 38 Denning J, as he then was, said:

“It is, I think, a principle of our law that the punishment inflicted by a criminal court is personal to the offender, and that the civil courts will not entertain an action by the offender to recover an indemnity against the consequences of that punishment.”

In the more recent case of Safeway Stores Ltd v Twigger [2010] EWCA Civ 1472 the Court of Appeal decided that if an undertaking infringed provisions of the Competition Act 1998 relating to anti-competitive activity and was duly penalised by the Office of Fair Trading, that undertaking was not entitled to recover the amount of such penalties from its directors or employees who are themselves responsible for the infringement. Longmore LJ considered the application of the maxim. He said at paragraph 16:

“… The modern law has now culminated in Gray v Thames Trains Ltd [2009] UKHL 33 … when Lord Hoffmann said (para 30) that it expressed not so much a principle as a policy and that it was a rule which may be stated in a narrower form and a wider form (para 32). In its narrower form it is that a claimant cannot recover for damage which is the consequence of a sentence imposed upon him for a criminal act; in its wider version it is that a claimant may not recover for damage which is the consequence of his own criminal act. Both versions of the rule are often in play as they are in the present case because it is said that recovery of the penalty likely to be imposed by the OFT is recovery for the consequence of a sentence for the criminal (or quasi-criminal) act of entering into an illegal agreement, whereas recovery of the costs of the OFT investigation is recovery for the consequences of making the illegal agreement. The main difference between the application of the two forms of the rule appears to be that there is no question of any causation problem in the application of the narrower version whereas difficult problems of causation may (in theory) arise if it is only the broader version of the rule on which reliance can be placed (para 51). The rationale of the maxim is the need for the criminal courts and the civil courts to speak with a consistent voice. It would be inconsistent for a claimant to be criminally and personally liable (or liable to pay penalties to a regulator such as the OFT) but for the same claimant to say to a civil court that he is not personally answerable for that conduct.”

Lloyd LJ at paragraph 38 said:

“It follows that the ex turpi causa principle does apply to preclude the claimants from seeking to recover from the defendants either the amount of the eventual penalty (under the narrow version of the principle) or the costs of coping with the OFT investigation (under the wider version).”

Mr Laddie submits that what distinguishes the authorities on which Mr Jeans relies for the application of the ex turpi causa principle from the present case is first, that in all those cases the claimant had been convicted of a criminal offence (or was liable to pay penalties to a regulator) and was relying on the conviction (or liability) to found the claim; and second, in none of those cases was there a formal contractual agreement, the terms of which obliged one party to indemnify the other in relation to legal costs. Mr Jeans does not submit that the clause is contrary to public policy and an illegal agreement. I agree with Mr Laddie that the maxim ex turpi causa has no application to the present case. Accordingly I reject Mr Jeans’ submission that the claim was premature on that ground. I accept Mr Laddie’s submission that the indemnity requires the Defendant to meet the Claimant’s legal costs within a reasonable time of payment becoming due.

In my judgment

For the reasons I have given, this claim fails.