Rust Consulting Ltd v PB Ltd

that its position prior to the consent judgment was that it was under no obligation to indemnify and the Claimant knew this; and

that the decision to consent to judgment was caused by the decision of other group companies not to fund a defence.

A Rejoinder was served on the same dayand this admitted that PB Limited had notice of the Eagle One proceedings.

whether PB is obliged to indemnify Rust against its liability to the Eagle One companies; and if it is

whether PB is obliged to indemnify Rust against the Consent Judgment in favour of the Eagle One companies.

The APA

The Agreement(s) between Rust and the Eagle One Companies

The Issues

The Relevant Factual Background and the Evidence

The Construction of the APA

“the book debts and other liabilities (including VAT thereon) owing by the Vendor at completion insofar as they are attributable to the Business, Assets, the Subsidiaries or the Contracts”:

There can be no doubt that any actual or potential liability on the part of Rust to the Eagle One Companies was not a "book debt” because no claim had even been hinted at, let alone acknowledged. Subject of course to ultimate proof that Rust was in breach of the November 1995 or November 1996 Agreements or the Warranty, there would have been a liability of Rust as at 31 December 1996 because Rust had substantially performed the obligations of which it is said to have been in breach by that date. There is no qualification on the word "liabilities" so it is safe to assume that it included all liabilities, whether known about or not at the time that PB assumed liabilities and obligations of Rust as from 31 December 1996. Liability for breach of contract arises from the date of the breach of contract; the liability does not arise only when loss or damage is incurred (unlike a claim in negligence). Liability for negligence arises if and when the tortfeasor’s breach of the duty of care causes damage. If there had been no damage for the tort of negligence, a breach of duty on its own would not give rise to any liability, contingent or otherwise.

This liability was clearly “attributable to the Business” of Rust because the business at least included carrying out geotechnical investigations and the provision of reports such as that provided by Rust to Eagle One in February 1996.

It matters not whether this liability is also attributable to "the Assets, the Subsidiaries or the Contracts" because these are, so to speak, alternatives to the “Business”.

“insofar as they are reflected in the accounts of [Rust] as at the Effective Date”

However, this liability to be one of the "Liabilities" under the APA must be "reflected in the accounts of” Rust. It is common ground that the parties must have intended to be referring to the Company Accounts for the year ending 31 December 1996, albeit that they had not been signed or published by the time that the APA was signed.

It is rightly, also, common ground that no actual sum is allowed in the accounts for any "contingent liabilities". There could of course be no doubt that, if as little as 50 pence was allowed in the accounts for a possible liability to the Eagle One Companies, a liability to those Companies would be "reflected" in Rust’s company accounts. The wording in the definition of "Liabilities" is "insofar as they are reflected in the accounts" and not "only to the extent that they are reflected in the accounts".

"Contingent liability” in practice must include a possible liability for breach of contract which had already occurred prior to 31 December 1996. The liability would be contingent because there might never be a claim for it and in commercial terms the liability is contingent upon a potential claiming party actually presenting or pursuing a claim.

In my judgement, the Rust company accounts for the year ending 31 December 1996 do “reflect” the type of contingent liability which Rust might have to the Eagle One Companies for breach of the November 1995 or November 1996 Contracts. Whilst it is true that no sum is allowed with regard to this particular contingent liability or, indeed to any contingent liability, the Notes to the Accounts are expressly to be read as part of the Profit and Loss account and the Balance Sheet. The Notes do not play some sort of subsidiary role within the accounts. The contingent liabilities are reflected in the accounts because they are referred to expressly in Note 17 (d) and any reader is told that such liability has been assumed by PB. That at least partly explains why no specific sum is allowed against any contingent liability; there is no need specifically to make a monetary allowance because PB is taking over the contingent and other liabilities. In that sense, provision is being made within the accounts for the contingent liability in that an explanation is being given as to what was to happen with them. Anyone reading these accounts would assume that all liabilities, contingent and otherwise, were being assumed by PB.

"all contracts, orders and commitments of the Vendor or any of its Subsidiaries”: obviously, the Agreements and Warranty fall within this broad definition.

However it is necessary to determine whether the obligations of all the parties had by 31 December 1996 "been fully performed". In my judgement, there is essentially only one respect in which the Warranty had not been fully performed as at that time. The only obligation which is prospective is the insurance one which is to run for 12 years from February 1996: Rust undertook to maintain £2m’s worth of insurance in favour of Eagle Festival into the future, subject to the insurance being available at commercially reasonable rates.

In practical and commercial terms, Rust had fully performed its obligations under the November 1995 and 1996 Agreements and it was only the maintenance of insurance which represented part of the Warranty which remained to be performed. It was argued that in respect of the term that Rust "has exercised and will continue to exercise reasonable skill and care and diligence in the performance of its duties" to Eagle One under the November 1996 Agreement, Rust would continue to be in breach for an appreciable period after the Warranty was entered into. This can not be right because, as all parties knew, and the Preamble to the Warranty makes clear, the report and supplementary advice had been provided in February and March 1996. There were no further duties for Rust to perform. It was simply Rust warranting that what it had done had been done with reasonable skill, care and diligence. It is theoretically possible, albeit nobody has suggested that this happened, that Eagle One could have asked Rust for explanations or advice after 8 November 1996 in relation to the report and advice provided some months prior; it may be that the warranty relating to the future performance of duties could relate to that if it arose. That is not suggested factually here.

The Warranty is not as such a time related guarantee that the Report and any later advice were correct or non-negligently prepared. If it was, the terms of the Warranty would have had to have been very different. All that it did, apart from the insurance obligation, was to create as between Rust and Eagle Festival a cause of action as at 8 November 1996 to the extent that Rust was in breach of the earlier Agreements.

The November 1996 agreement again is largely retrospective in its treatment of the Ove Arup Report; by adopting it, if that Report was negligently drawn, Rust would become liable for such negligence in effect “as if it was its own”. The only prospective part of the November 1996 agreement is the undertaking by Rust to provide collateral warranties within the 14 day period following a request. There is no suggestion that that obligation was still outstanding at 31 December 1996.

It would be inappropriate for the Court to decide what the precise scope of the November 1996 agreement was in relation to anything else other than the adoption of the Ove Arup report. There remains an issue as to whether in some way it adopted for limitation purposes the terms of the November 1995 Agreement or whether breach of the November 1995 agreement attracts a 6 or 12 year limitation period.

It follows that the only outstanding obligation not fully performed was the obligation on the part of Rust to Eagle Festival to maintain £2m’s worth of professional indemnity insurance up to 2008.

Clause 3.1 talks about PB assuming responsibility for the satisfaction, fulfilment and discharge of the Contracts. Given the definition of "Contracts", relating as it does to contracts under which the obligations were not fully performed as at 31 December 1996, as the November 1995 and 1996 Agreements had been fully performed, Clause 3.1 does not apply to them in any event. The satisfaction, fulfilment and discharge of the Warranty relates only to the continuing insurance obligation.

Clause 3.1 is dealing with consideration for the APA albeit that it was not strictly necessary given that it was to be executed as a Deed. It may well also have been thought important for transparency purposes to demonstrate that real consideration was being given by PB for the purchase.

Part of the consideration is PB "assuming responsibility for the satisfaction, fulfilment and discharge of all the Liabilities and the Contracts of the Business outstanding at the Effective Date”. In the context of this case, PB assumed responsibility for the satisfaction of the contingent or potential contractual liability (if any) of Rust to the Eagle One Companies for any breach by Rust of the November 1995 or November 1996 Agreements or of the Warranty dated 8 November 1996. The only obligation under the Warranty which had not been fully performed by 31 December 1996 was the maintenance of professional indemnity insurance for 12 years until 2008.

I will return to consider the impact of the indemnity in Clause 3.1.

It is expressly concerned with “Contracts” as defined. The definition and the opening words of Clause 8 make it clear that PB only assumes the obligations (and becomes entitled to the benefits) of the “contracts, orders and commitments” which Rust had entered into before 31 December 1996 "to the extent that they were not fully performed”. Clause 8 is primarily concerned with assignment (of benefits) or novation, presumably where obligations remain to be performed.

Clauses 8.1 and 8.2 only come into play (i) if consent to the assignment or novation of the Contract “is required” and (ii) until any such consent is obtained.

There is no contractual requirement within the November 1995 or November 1996 Agreements or the Warranty that consent is required as such for any novation. There does not appear to be anything of value and benefit in them which appears to have been readily capable of assignment by Rust.

One can comprehend why consent to an assignment may be required contractually between the original parties; there is commonly a prohibition against assignment without the consent of the other contracting party.

What the parties are concerned with in this case is whether novation of the November 1995 or November 1996 Agreements or the Warranty was "required" for the purposes of Clause 8. I do not see that it was required either contractually or as a matter of law. There is no suggestion that there was any ad hoc agreement between all the parties that there should be a novation. It is not required by implication or as a matter of construction, particularly in circumstances where Clause 3 involves the assumption of responsibility for the “Liabilities” of Rust (as to which see above). One must bear in mind that the language is not such as to require the securing of a novation as such but the securing of a consent to the novation.

Irrespective, however, of whether consent to novation or novation itself was required, Clause 8 only impacts in respect of the one unperformed obligation, which was Rust’s undertaking under the Warranty to Eagle Festival to maintain insurance until 2008. Clause 8.1 is concerned only with holding benefits on trust and that is immaterial to the current dispute between the parties.

Clause 8.2 only requires PB to continue to perform the unperformed insurance obligation; the indemnity is clearly intended only to apply in respect of a failure by PB to perform the outstanding unperformed insurance obligation. It would be illogical, given the structure, for Clause 8.2 to provide a further indemnity in relation to both the performed and unperformed obligations of Rust under their various agreements with the Eagle One Companies; there is no obvious point in repeating Clause 3.1 within the body of Clause 8.2. The structure of Clause 8 is to legislate in relation to unperformed obligations, which PB performs after the Effective Date. As between Rust and PB, PB is responsible to do that, this being partly reflected in Clause 6 (set out above). If PB, having not secured any requisite novation, effectively puts Rust in breach of its unperformed contractual obligations, it must indemnify Rust in effect against the consequences. In the context of this case, that bites only on the unperformed insurance obligation.

I can not see how in this case the Clause 8.2 indemnity can be activated by "any failure to obtain the relevant consent" to any novation. Even if one assumes that PB was in some way required to secure a novation as between it and the Eagle One Companies and thus secure the consent of the Eagle One Companies, it is difficult to see how the failure to obtain a consent to the novation will lead to "cost, proceedings, claims, demands and expenses” (in this case neither of the Eagle One Companies complained about that) unless there was a contractual or legal duty on the part of Rust to the Eagle One Companies to secure such a novation; there was no such duty.

The Scope of the Clause 3.1 Indemnity

Duffield v Scott (1789) 100 ER 628 was a decision of the Court of King’s Bench of some antiquity. Although decided by four puisne judges, it is unclear if it was a first instance decision. The facts are not terribly clear from the judgements or the report. A Mr Balcher (later deceased) had given a bond of some sort to the plaintiff to the effect that he would indemnify the plaintiff against his wife's debts and “against all demands by reason of any cause, matter or things whatsoever concerning” (quoting from Lord Kenyon’s judgement). One Cuthbert sued the plaintiff for a debt directly or indirectly incurred by the wife; he obtained judgement in damages as well as a sum for costs. It appears that the deceased or his executors had notice of the Cuthbert action. It is unclear from Lord Kenyon’s judgement whether he was simply deciding it on the basis of some construction of the bond. The judgement of Ashurst J does not obviously advance the jurisprudence; he highlighted the fact that the defendants had notice of the earlier proceedings by way of a pleading point. Buller J took up the pleading point:

“This case has been argued on two grounds; 1^st, on a rule of pleading, which is that a replication (when entire) which is bad in part, is so in the whole; 2dly, that it is not alleged that the defendants had notice of Cuthbert’s demand. As to the first: though there is such a rule in law, it is misapplied in this case…But the rule cannot apply to any case where the objection is merely on account of surplusage... With respect to the second point; it is said that the plaintiff has demanded three things by his replication. Now if he is entitled to one of these, he must have judgement. He is undoubtedly entitled to recover the amount of Cuthbert’s debt; and the question is, whether he is not also entitled to the costs and expenses. As to that, I believe there are cases which say that, to entitle a person to recover on a bond of indemnity, he must show that he was compelled by law to pay the debt. They go a great way to prove that the plaintiff in this case is entitled to recover the costs and expenses. The purpose of giving notice is not in order to give a ground of action; but if a demand be made which the person indemnifying is bound to pay, and notice be given to him, and he refused to defend the action, in consequence of which the person to be indemnified is obliged to pay the demand, that is equivalent to a judgement, and it stops the other party from saying that the defendant in the first action was not bound to pay the money.”

This is a case which is distinguishable from the current case. It relates to a specific bond of indemnity. It is a case partly about a pleading point and it is primarily about the need to pay costs of proceedings for a debt which is covered by a bond of indemnity of which the indemnifier had notice. It does not cover cases in which the indemnified person consents to judgement against him.

Another King’s Bench decision, Smith v Compton and others (1832) 110 ER 146, was relied upon. This was not a case in effect for a contract of indemnity but involved a covenant of good title which was breached by the defendant. The plaintiff was held entitled to recover what he paid in compromise of an action brought against him by a party who had a better title as well as his own costs of those proceedings. Although Lord Tenterden talked in terms of indemnity, it was not obviously a case about contractual indemnity. Although Parke J referred to the Duffield case about notice being given to the defendant, this case is more readily comprehended as one which simply addresses the recoverability of damages including costs of and occasioned by compromising proceedings which flow from a breach of contract or covenant. Lord Tenterden did say in the context of this case:

“The only effect of want of notice in such a case as this, is to let in the party who is called upon for an indemnity to show that the plaintiff has no claim in respect of the alleged loss, or not to the amount alleged; that he made an improvident bargain; and that the defendant might have obtained better terms if the opportunity had been given him. That was not proved here, and we cannot assume it.”

Mary Ann Jones v John Williams (1841) 151 ER 860 was a decision of the Court of Exchequer which did address a contractual indemnity. The indemnity was given to RJ by the defendant that he would save harmless and indemnify him from any loss or damage by reason of RJ executing a bond to WJ in the sum of £600. The indemnity was not expressly in the terms of an indemnity but was apparently given by way of what the Court called an "actual binding guarantee" which was contained in two letters. RJ’s administratrix became liable to pay the bond and the defendant had notice of this. The defendant did not indemnify her with the result that she was called upon and obliged to pay £310 secured by the bond and a further sum for the costs of an action against her in relation to the bond. She was held entitled to recover the principal and the costs. Lord Abinger CB dealt with several pleading points and went on:

“I think, however, that it was not necessary for the plaintiff to prove more than was proved in this case. The defendant had notice of the action, and might have come in and defended it, if there was a good defence by reason of the want of notice…”

Parke B said:

“It was proved that the defendant had notice of the action upon the bond, and he ought to have undertaken the defence. The case is within the authority of Duffield…On that ground, I am of opinion that sufficient evidence was given that the defendant was bound to pay, having had notice of the action, and having made no defence to it”

The other judges agreed. The case is distinguishable from the current case because the guarantee was in very broad terms “I should consider it a matter of favour to myself if your brothers will join, and I will see that they come to no harm". That is and was treated as a very broad undertaking.

It is the Court of Appeal (in Chancery) decision in Parker v Lewis (1872-3) LR 8 Ch App 1035 which is most relied upon by Rust in this case and is clearly, if applicable, binding upon a judge at first instance. The case involved a complex history whereby shareholders in a company sued all the directors of a company for breach of trust and fraud; there was or was to be a share transaction supported by a bank which in turn relied upon a guarantee from the company in question signed by three of the directors. The terms of the guarantee were that the company would "guarantee the subscription of 40,000 shares…we further guarantee payment of £5 per share”. The company was then wound up and shareholders complained that all the directors, including some who had not signed the guarantee, had acted in breach of trust. As the payment out under the guarantee had led to the company's demise, the judges came to consider the impact of the guarantee. James LJ decided that the case against one director had no foundation as the fraud charge had not been proved. He did not decide the case at all on the basis of the terms of the guarantee. A flavour of the sort of points which he addressed is:

“It was said-and very strongly contended before us-that it was not open to those parties to go into the merits of the case at all, but that the bank, having defended the suit in Gray v Lewis, and having had a decree made against them, were at liberty to compromise it on the best terms they could, and that it was not open to the Defendants to shew that they could have obtained better terms. I think there is no foundation for this. It would seem to be a very strong proposition to say that the bank having had a decree against them for £230,000, in the absence of any one of the directors in that character, might have compromised it for £200,000, or for any other sum less than the £230,000, or any sum they thought fit, and that every one of those twelve directors would have been personally answerable, jointly and severally, for the whole amount so decreed against them, and so compromised by them without having an opportunity of being heard in this Court to say that there was no foundation for the decree at all. I cannot conceive that that can be the law, and I have heard no authority and adduced to satisfy me that there is any foundation for it.”

Mellish LJ gave a longer judgement, making it clear that he agreed with James LJ but he then went on "add a few observations as to the last point” set out above. He considered the dictum of Buller J in Duffield and confirms that it and the other cases referred to above were “actions on express contracts of indemnity”, and so, he went on

“…I think that the law with reference to express contracts of indemnity is, that if a person has agreed to indemnify another against a particular claim or a particular demand, and an action is brought on that demand, he may then give notice to the person who has agreed to indemnify him to come in and defend the action, and if he does not come in, and refuses to come in, he may then compromise at once on the best terms he can, and then bring an action on the contract of indemnity. On the other hand, if he does not choose to trust the other person with the defence to the action, he may, if he pleases, go on and defend it, and then, if the verdict is obtained against him, and judgment signed upon it, I agree that at law that judgment, in the case of express contract of indemnity is conclusive. But I apprehend it is conclusive on account of what the law considers the true meaning of such a contract of indemnity to be. It is obvious that when a person has entered into a bond, or brought land, or altered his position in any way on the faith of a contract of indemnity, and an action is brought against him for the matter against which he was indemnified, and a verdict of a jury obtained against him, it would be very hard, indeed, if, when he came to claim the indemnity, the person against whom he claimed it could fight the question over again, and run the chance of whether a second jury would take a different view and give an opposite verdict to the first. Therefore, by reason of that contract of indemnity, the judgment is conclusive; but in my opinion it is conclusive because that is the meaning of the contract between the parties ...”

He emphasised however that the case he was dealing with was "not brought on any contract of indemnity but for a breach of trust”.

The ratio in Parker v Lewis is not the above quote from Mellish LJ. That quote is not supported by the other member of the Court and is clearly obiter. It is therefore not binding on me. That is not to say that it does not merit respect and attention. In any event, he emphasises that one must look to the meaning of the indemnity in question.

The above quote from Mellish LJ’s judgement is relied upon by several editors of various works. Halsbury’s Laws of England, fifth edition (2008), volume 49, at paragraph 1264:

“The holder of an indemnity, when acting within the scope of his authority, is generally entitled to recover the amount payable by him by virtue of any judgment recovered against or compromise reasonably made by him in any legal proceedings in respect of any matter comprised by the indemnity, together with all costs properly incurred in defending such legal proceedings, including his own costs.

“It is not necessary in order to bring the claim against the indemnifier that notice of the proceedings should have been given to the indemnifier, but if it is not given it will be open to impugn the judgment or the compromise. It is therefore prudent to join him as a party to the proceedings. If, having been put on notice, he then refuses so to act, he will, in general, be estopped from denying the validity of the judgment or the reasonableness of the compromise ...”.

Re Kitchin (1881) 17 Ch D 668, Mr Kitchin (senior) undertook and guaranteed that all wines supplied by a wine supplier to his old firm “shall be duly paid for”. Disputes between the old firm and the supplier were referred to arbitration, and, following an award against the firm not being honoured, judgement was entered against it which itself was not satisfied. The firm pursued Mr Kitchin. James LJ (with whom the others effectively agreed) stated:

“The real question is, what is the true intent and meaning of the guarantee?...It is contended that he is liable to pay any sum which arbitrators shall say is the amount of the damages. The guarantee must be expressed in very clear words before I could assent to a construction which could lead to the grossest injustice. It is perfectly clear that in an action against a surety the amount of the damage cannot be proved by any admissions of the principal. No act of the principal can enlarge the guarantee, and no admission or acknowledgement by him can fix the surety with an amount other than that which was really due and which alone the surety was liable to pay. If a surety chooses to make himself liable to pay what any person may say is the loss which the creditor has sustained, of course he can do so, and if he has entered into such a contract he must abide by it. But it would be a strong thing to say that he has done so unless you find that he has said so in so many words.”

This has been followed and applied in later cases such as The Vasso [1979] 2 LL Rep 412 in which Robert Goff J said at page 418:

“It is well established that general words in a guarantee guaranteeing the due performance of all the obligations of the principal debtor do not themselves have the effect that the surety is bound by an arbitration award in an arbitration between the principal debtor and creditor, even where the arbitration award arises out of an arbitration clause in the contract containing the obligations of the principal debtor guaranteed by the surety…The short answer is that, as a matter of construction, a guarantee containing general words, as in the case of the guarantee of the defendant, although applicable generally to obligations of the principal debtor arising under the relevant agreement, does not apply to an obligation to honour an arbitration award”.

It is clear that the Re Kitchin principles have been applied beyond guarantees. An example is the case of Lincoln National Life v Sun Life of Canada [2004] 1 LL Rep 737 which addressed reinsurance contracts. Toulson J (as he then was) suggested at Paragraph 92, somewhat broadly, as follows:

“It is probably only at the level of the House of Lords that the rules about the extent to which a judgment or award between A and B may be relied upon by or against B in proceedings between B and C, where those proceedings involve an issue about the rights between A and B, could be comprehensively reconsidered. The modern tendency when tackling the diverse problems of serial litigation involving a common issue has been to move away from technical rules towards a broader consideration of what is fair. Thus the rules of res judicata and issue estoppel have been supplemented by the court's jurisdiction to strike out claims or defences where the issue has been previously determined, not necessarily between the same parties and it would be unfair in all the circumstances for the previous decision to be challenged in the later proceedings. In considering whether and to what extent the findings of a competent tribunal in proceedings between A and B should be able to be relied upon by or against B in proceedings between B and C, there is a strong argument for saying that the real considerations should be what is most fair to the parties and will avoid bringing the administration of justice into disrepute. The fact that C was not a party to the earlier proceedings (and normally, although not invariably, will therefore have had no opportunity to influence them) would in many cases make it unfair that the earlier judgment should be relied upon by B, but not necessarily against B, although the cases to which I have referred show that circumstances can vary greatly. Among other things, one could imagine circumstances in which it might make a difference in terms of justice whether the earlier decision was the product of an informal arbitration, in which the arbitrator had not properly addressed the arguments, compared with proceedings in which the issues had been fully and properly investigated and addressed in a reasoned decision. Where the previous decision was an arbitration award, the confidentiality of the arbitration proceedings could also be a relevant factor.”

Bingham J (as he then was) in Ben Shipping Co (PTE) v An Bord Bainne [1986] 2 All ER 177 had to address an implied term of indemnity by charterers against claims made by cargo owners against ship owners. The charterers were informed by the ship owners of proceedings against them by the cargo owners but turned down an invitation to take over the defence or take part in the proceedings; this gave rise to an issue about estoppel. By reason of his findings in relation to the indemnity, his judgement in relation to the estoppel point is obiter but nonetheless demands respect. He considered the cases relied upon by Rust in this case (as set out above) and went on at page 187 as follows:

“To succeed in their estoppel claim, the shipowners must establish as a matter of law that having given notice to the charterers of the claim made against…the shipowners…and the charterers having declined to conduct the defence, and the ship owners having compromised the claim, they (the charterers) are estopped from contesting the liability of the shipowners to the third party…and the reasonableness of the compromise and the incurring of costs, even though there was no express contract of indemnity and the charterers bone fide and on reasonable grounds challenged the shipowners’ right to indemnity and the claim was settled without immediate reference to the charterers. I do not think any such principle can be clearly found in the authorities relied on. Nor do I think it desirable to attempt to lay down such a far reaching principle. It is of course good sense and common practice for a defendant to give notice of a claim against him and any proposed settlement to a person against whom he intends to seek indemnity or contribution, if such person is not joined as a third party. This gives that person the opportunity to raise any points or objections he wishes, and will make it somewhat harder for him to raise arguments later which he could have raised at the time. It is, however, a large stride from a commonsense tactical practice to a rule of law…The rule contended for would present the charterers with a choice between taking over the defence of the claim which they believe to be nothing to do with them and thereafter (if that belief was falsified) finding themselves bound to indemnify the shipowners against settlement of the claim even though the claim could be shown to be ill-founded or the settlement unreasonable. The authorities may well support, and I can see virtue in, a much more limited principle, but that would not avail the shipowners here.”

The first step which any court or other tribunal must take is to determine as a matter of contractual interpretation what the extent and scope of the indemnity, guarantee or other form of surety actually is. It is of course open to contractual parties to agree whatever they want and it is the Court’s job to interpret their agreement.

Thus, if contractually, the indemnifier or guarantor undertakes in effect to pay any relevant judgement sum however the judgement is procured, the beneficiary can recover the judgement sum. If however the indemnity or guarantee covers only for actual liabilities of the person whose conduct is being indemnified for or guaranteed, then the liabilities in question have to be established against the indemnifier or guarantor.

Clear wording is required to make a guarantor or indemnifier liable for judgements obtained against the beneficiary of the guarantee or the indemnity.

Estoppel of the various different types can of course, on the facts of any given case, come into play in the field of guarantees or indemnities.

Where what is being guaranteed or indemnified against includes claims, proceedings or judgements against the beneficiary, the giving of notice to the guarantor or indemnifier may form at least one basis for or strand of a case in estoppel. The active participation of the guarantor or indemnifier in the proceedings, may, depending on the circumstances, level and scope of the participation, go much further to establish an estoppel against it. The positive concurrence by the guarantor or indemnifier with a consent judgement against the beneficiary will go further still.

Given the wide range of factual permutations which may arise in any particular case, it is inappropriate for this Court to lay down any specific requirements needed to establish an estoppel in these types of circumstances. Whilst the giving of notice to, the active participation by and the giving of approval to a consent judgement by the guarantor or indemnifier may in many cases give rise to an estoppel against it so as to prevent it from denying an obligation to indemnify against or pay out for the amount of the consent judgement, it would be wrong to be absolutely prescriptive. It is necessary to look at all the relevant evidence and circumstances before deciding whether there is or is not an estoppel.

The Answers to the Issues