Rust Consulting Ltd v PB Ltd [2010] EWHC 3243 (TCC)

[2010] EWHC 3243 (TCC)Case No HT-10-188
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 21 st December 2010
Before
MR JUSTICE AKENHEAD
Between
RUST CONSULTING LIMITEDClaimantPB LIMITEDDefendant
David Thomas QC and Justin Mort (instructed by Clarke Willmott LLP) for ClaimantDavid Streatfeild-James QC and Jennifer Jones (instructed by Fenwick Elliott LLP) for DefendantHearing Hearing date: 11 November 2010
JUDGMENT
[1]The Eagle One Group are developers. In the late 1990s two of the group’s companies, Eagle One (formerly Rockeagle) Festival Shopping Ltd (“Eagle Festival”) and its parent company Eagle One Ltd (formerly Rockeagle Ltd) (“Eagle One”) developed a shopping village on the former site of the National Garden Festival at Ebbw Vale, Gwent. That site had been reclaimed from an area formerly used for the deposition of steel waste products from the old Ebbw Vale steelworks.[2]On 13thNovember 2007 the Eagle One companies issued proceedings against Clarke Bond Partnership (“Clarke Bond”) and Rust Consulting Ltd (“Rust”), the current Claimant. Clarke Bond had been retained by the Eagle One companies as consulting engineer on the development and Rust carried out geotechnical engineering work. Particulars of Claim were served on 11March 2008. The Eagle One companies alleged that in the period 1995/6 those Defendants gave advice as to the character of the land, adopted an earlier report by Ove Arup, advised as to the appropriate foundations to be used, and produced their own Report dated February 1996. Eagle One alleged that it purchased the land and carried out the development in reliance on that advice and that, following construction, the buildings began to suffer structural damage due to the presence of unstable steel slag waste. The Eagle One companies claimed that they suffered loss and damage selling the development at a reduced value and incurring additional costs in maintaining the operation of the buildings. They claimed their losses from Clarke Bond and Rust alleging breach of contract and negligence. Watson Burton acted for Rust. Rust went into creditors’ voluntary liquidation on 24April 2008.[3]Rust was retained first by an agreement made in correspondence (“the 1995 Agreement”) with Eagle One andthen an agreement by deed (“the 1996 Agreement”). Rust also entered a deed of warranty (“the Warranty”) dated 8November 1996for the benefit of Eagle One Festival whereby it warranted that it had exercised reasonable skill and care in the performance of its duties and promised to maintain professional indemnity insurance of at least £2million for 12 years from the date of Rust’s Report. Breach of each of those agreements was alleged.[4]Subsequently the Eagle One companies also brought proceedings against Skanska Construction (Regions) Limited who had been the building contractors for the development of the shopping village. By order dated 28November 2008 the two actions were ordered to be managed and tried together.[5]At the hearing on 28November 2008 the liquidators of Rust, represented by Watson Burton, consented to judgment for a total sum of £8,069,822.32. This represents 100% of the maximum damages claimed.[6]The Eagle One companies investigated the circumstances of the liquidation and the insurance position of Rust. During this process they learnt of the existence of and obtained a copy of an Asset Purchase Agreement dated 5September 1997 (“the APA”) and a linked set of accountsby which Rust had been taken over by Kennedy & Donkin Ltd. Kennedy & Donkin Ltd has changed its name on several occasions and is now known as PB Limited (“PB”), the Defendant to the current proceedings. As at the time of the APA, PB and Rust were companies within the same group, both owned by Kennedy & Donkin Holdings Limited.[7]The APA contains two indemnity clauses whereby PB(1) by Clause 3.1 assumed “responsibility for the satisfaction, fulfilment and discharge of all of the outstanding Liabilities and Contracts of [Rust’s] Business” and indemnified Rust “against all proceedings, claims and demands in respect thereof”;(2) by Clause 8, until any consent to any necessary novation of a “Contract” was obtained, indemnified Rust “against all costs, proceedings, claims, demands and expenses which may be incurred… as a result of any act or omission by [PB] in relation to the [particular] Contract or any failure to obtain the relevant consent [to novation]”.[8]The Eagle One companies pressed the liquidators of Rust to claim on the indemnities in respect of the consent judgment but they refused stating that they were legally advised that the indemnities in the APA did not cover the judgment because they were not in respect of either a Liability or a Contract as defined. The Eagle One companies maintained that the indemnities did apply to the judgment.[9]In due course it was agreed that the Eagle One companies’ actions against Clarke Bond and Skanska would be stayed pending the outcome of what turned into these current proceedings. The stay is currently due to expire on 14January 2011. On 29September 2009 the Eagle One companies, as the principal creditor of Rust, replaced the liquidators and the new liquidators appointed Clarke Willmott to act for them.[10]The present proceedings issued on 28May 2010 are therefore brought by the liquidators of Rust (but effectively for the benefit of the Eagle One companies as principal creditor) to enforce the indemnity. The proceedings were issued under Part 8 as it did not appear likely that there would be a substantial dispute of fact. The Particulars of Claim alleged that PB was obliged to indemnify Rust against the judgment, setting out why as a matter of construction the judgment was covered by the indemnity under Clauses 3 and/or 8 of the APA. It also alleged that PB conducted the Defence of the proceedings brought by the Eagle One companies against Rust, relying on correspondence from Watson Burton in which they said that they were instructed by PB limited to conduct Rust’s Defence including the letter dated 22March 2010and a draft Deed of Indemnity signed by the liquidators.[11]The Defence served by PB on 30June 2010 sets out PB’s case on construction in relation to Clauses 3 and 8 of the APA. Paragraph 19 denies any agreement between the liquidators and PB that PB would conduct the Defence. PB asserts that it was not bound in any way by the consent judgment and alleges that Rust must prove its liability to the Eagle One companies and further or alternatively that the settlement embodied in the judgment was reasonable.[12]At the CMC on 28July 2010 the parties were requiredto attempt agreement of preliminary issues of construction and this was done. PB was ordered to plead a positive case as to why it was not bound by the judgement. The Amended Defencewas served on 31August 2010. Further facts pleaded by PB were:(1) that its position prior to the consent judgment was that it was under no obligation to indemnify and the Claimant knew this; and(2) 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.[13]The agreed schedule of issues runs to some 11 sub-issues. However, there are two broad issues to resolve:(1) whether PB is obliged to indemnify Rust against its liability to the Eagle One companies; and if it is(2) whether PB is obliged to indemnify Rust against the Consent Judgment in favour of the Eagle One companies. The APA[14]The APA, dated 5 September 1997, is headed "Intra-Group Assets Purchase Agreement” and in broad terms this was clearly what was intended by the two members of the same corporate group, showing the same office address. The second recital, referring to Rust as the Vendor and PB as the Purchaser, says:
“The Vendor agreed with the Purchaser to sell to the Purchaser the whole of its property, undertaking business and assets (except its subsidiaries) and the Purchaser agreed to assume all of its liabilities and obligations, all with effect from 31 December 1996, upon the terms of this agreement.”
There is no suggestion that this sale and purchase was anything other than a legitimate and bona fide transaction.[15]The Definitions clause, Clause 1.1, is important:
““Assets”: the whole of property, undertaking, rights and assets of the Vendor whatsoever and wheresoever situate; “Contracts”:all contracts, orders and commitments of the Vendor…under which the obligations of all the parties thereto had not at the Effective Date been fully performed; “Effective Date”: close of business on 31st December 1996; “Liabilities”: the book debts and other liabilities…owing by the Vendor at Completion insofar as they are attributable to the Business, the Assets, the Subsidiaries or the Contracts and insofar as they are reflected in the accounts of the Vendor…as at the Effective Date…”
[16]Clause 2.1 states:
“Subject to the conditions set out in this Agreement the Vendors sold and transferred as legal beneficial owner and the Purchaser purchased and took over as a going concern with effect from the Effective Date the whole of the Business and Assets of the Vendor…”
[17]Clause 3.1 is a key term of the APA:
“The consideration for the sale and transfer by the Vendor referred to in clause 2 is (i) the sum of £1,000 and (ii) the Purchaser assuming responsibility for the satisfaction, fulfilment and discharge of all the Liabilities and the Contracts of the Business outstanding at the Effective Date and the Purchaser hereby indemnifies and covenants to keep indemnified the Vendor against all proceedings, claims and demands in respect thereof…”
It will be necessary to return to analyse this clause.[18]Clause 6 reflected certain transitional arrangements: “The Vendor and the Purchaser hereby acknowledge and agree that the Vendor has since the Effective Date been operating the Business as agent for the Purchaser and shall continue to do so until Completion so that all profits and losses relating to the Business arising between the Effective Date and Completion shall be for the account of the Purchaser and that any assets acquired or created by the Vendor relating to the Business between the Effective Date and completion shall have been acquired or created by the Vendor as agent for the Purchaser. The Purchaser shall indemnify and keep indemnified the Vendor in respect of any liabilities incurred since the Effective Date.” “Completion” was defined by reference to the performance of obligations under Clause 4 which related to various Value Added Tax provisions to be observed.[19]Clause 8 is also a key clause in so far as the issues between the parties are concerned:
“With effect from the Effective Date the Purchaser has, to the extent that they were not fully performed, assumed the obligations of and become entitled to the benefits of the Vendor under the Contracts. If consent to the assignment or novation of any of the Contracts is required from any person, until such consent is obtained:- 8.1 the Vendor shall continue to hold the benefit of the Contract on trust for the Purchaser and shall immediately upon receipt pay to the Purchaser any sums received by it under the Contract; 8.2 the Purchaser shall at its own cost and for its own benefit continue to perform the Vendor’s obligations under the Contract and shall indemnify the Vendor fully at all times from and against all costs, proceedings, claims, demands and expenses which may be incurred by the Vendor as a result of any act or omission by the Purchaser in relation to the Contract or any failure to obtain the relevant consent…”
[20]Finally, various General provisions in Clause 11 made it clear that the Agreements represented an "entire agreement" and that the Courts of England would have jurisdiction in respect of any dispute.

(s) between Rust and the Eagle One Companies

[21]It seems to be uncontroversial that on 5 September 1995 Eagle One’s engineers, Clarke Bond, invited Rust to provide a price for undertaking geotechnical and environmental studies at one of the Garden Festival sites. This was to be by reference to a "Design Brief”, which was enclosed and referred to an earlier report dated October 1994 from Ove Arup. The Brief stated that Rust would be required to sign a Warranty. Rust replied by letter dated 8 September 1995 enclosing its proposal for these studies; it offered for a fee of £1000 to negotiate a "suitable mutually acceptable" Warranty. Clarke Bond replied by letter dated 21 November 1995 on behalf of its clients accepting the proposal of 8 September 1995, confirming that a warranty would be required for "the benefit of the Local Authority" and stating that "the level of professional indemnity insurance required is five million pounds.” This latter point may conceivably have been the subject matter of other discussions because the original Design Brief does not refer to insurance at all.[22]In February 1996, Rust provided its Interpretative Geotechnical and Environmental Report. It is a substantial document which discusses in some detail the 22 trial pits excavated by Rust as well as the seven bore holes drilled together with other work. It reviewed the geotechnical recommendations contained in the earlier Ove Arup report. It seems, although I make no finding of fact about this, that thereafter Rust provided no further professional services in relation to this retainer, other than, possibly, advice in a letter dated 26 March 1996.[23]For reasons best known to them, Rust and Eagle One then entered into a written agreement, sealed at least by Rust, but dated 8 November 1996. Relevant provisions of that agreement are:
“1…[Rust] adopts the Ove Arup Report as if it was its own and [Eagle One] shall be entitled to rely upon the Ove Arup Report as if it had been prepared by [Rust] and addressed to and commissioned by [Eagle One]. 3. Within fourteen days of written request by [Eagle One] [Rust] will… execute complete and deliver to [Eagle One] collateral warranties in the form annexed to this Agreement…in favour of: 3.1 Eagle Festival…”
[24]On the same day, 8 November 1996, Rust executed under seal the Warranty in favour of Eagle Festival. The Preamble refers to the November 1995 and November 1996 Agreements and to the production of the February 1996 report together with advice said to have been given in the letter dated 26 March 1996. Relevant provisions of the Warranty are:
“1. [Rust] warrants to [Eagle Festival] that it has exercised and will continue to exercise reasonable skill care and diligence in the performance of its duties to [Eagle One]… 3. [Rust] shall maintain professional indemnity insurance in an amount of not less than…£2,000,000 for any one occurrence or series of occurrences arising out of any one event for a period of 12 years from the date of issue of the final report provided always that such insurance is available at commercially reasonable rates…”
The Issues[25]The Issues agreed between the parties and upon which the Court is required to rule are:
“1. Is the Claimant [Rust] entitled to rely on the consent judgement to establish: 1.1 that it had failed to perform its obligations of reasonable skill and care under or in relation to the November 1995 and/or the November 1996 agreements and/or a warranty and/or that it had an obligation or was liable to compensate the Eagle One Companies for breach of those agreements and/or 1.2 its liability to the Eagle One Companies for the judgement sum on the assumption or assumptions that: (a) the indemnity relied upon by the Claimant is expressed in the APA; and/or that (b) the Defendant had knowledge of the proceedings brought by the Eagle One Companies against the Claimant; and/or that (c) the Defendant took over the control of the Claimant’s defence of the proceedings brought by the Eagle One Companies and instructed and paid Watson Burton to conduct that defence; and/or that (d) it was the Defendant which decided that the Claimant would consent to judgement; and/or that (e) the terms of the consent judgement were negotiated on behalf of the Claimant by Watson Burton acting on the instructions of the Defendant. 2. In the light of the answer to 1 or in any event (and, if necessary, on the assumption that the Claimant had failed to perform its obligations of reasonable skill and care under or in relation to the November 1995 and November 1996 agreements and the warranty, and it was liable to compensate the Eagle One Companies for breach of those agreements and negligence): 2.1 was the consent judgement given in "proceedings…in respect thereof” within the meaning of clause 3.1 of the APA for any of the following reasons: (a) the proceedings and judgement were in respect of a Contract of the Business [sic] outstanding at the Effective Date? (b) the proceedings and judgement were in respect of the satisfaction, fulfilment or discharge of a Contract of the Business outstanding at the Effective Date? (c) the proceedings and judgement were in respect of the satisfaction, fulfilment or discharge of obligations which had not been fully performed at the Effective Date? (d) the proceedings and judgement were in respect of a Liability of the Business outstanding at the Effective Date? (e) the proceedings and judgement were in respect of the satisfaction, fulfilment or discharge of a Liability of the Business outstanding at the Effective Date? 2.2 as to clause 8 of the APA: (a) was consent to the assignment or novation of the November 1995 and/or November 1996 agreements and/or the warranty required within clause 8 of the APA; or (b) was it only required to the extent that obligations thereunder were not fully performed as at the 31st December 1996; and/or (c) was it only required if necessary for those obligations which were not fully performed as at 31 December 1996 to be fully performed [sic]? 2.3 In the light of the answers to 2.2, was the consent judgement given in proceedings incurred as a result of failure of the Defendant to obtain the consent of the Eagle One Companies to such assignment or novation within clause 8.2 of the APA? 3. if the answer to 2.1 or 2.3 above is yes: 3.1 is the Claimant entitled to judgement to £8,069,822.32 plus interest? or 3.2 would the Claimant be entitled to judgement for £8,069,822.32 plus interest on one or more of the assumptions referred to in 1.2 above (and, if so, which?)? or 3.3 does the Claimant have to prove any (and if so which) of the matters set out in paragraph 27 of the Defence against the Defendant in order to be entitled to judgement for £8,069,822.32 plus interest? 4. If the answer is to 2.1 and 2.3 above are no, is the Defendant entitled to judgement?”
At least as the argument has developed, these issues appear to be unnecessarily prolix to address the real issues between the parties. 1.1 that it had failed to perform its obligations of reasonable skill and care under or in relation to the November 1995 and/or the November 1996 agreements and/or a warranty and/or that it had an obligation or was liable to compensate the Eagle One Companies for breach of those agreements and/or 1.2 its liability to the Eagle One Companies for the judgement sum on the assumption or assumptions that: (a) the indemnity relied upon by the Claimant is expressed in the APA; and/or that (b) the Defendant had knowledge of the proceedings brought by the Eagle One Companies against the Claimant; and/or that (c) the Defendant took over the control of the Claimant’s defence of the proceedings brought by the Eagle One Companies and instructed and paid Watson Burton to conduct that defence; and/or that (d) it was the Defendant which decided that the Claimant would consent to judgement; and/or that (e) the terms of the consent judgement were negotiated on behalf of the Claimant by Watson Burton acting on the instructions of the Defendant. 2.1 was the consent judgement given in "proceedings…in respect thereof” within the meaning of clause 3.1 of the APA for any of the following reasons: (a) the proceedings and judgement were in respect of a Contract of the Business [sic] outstanding at the Effective Date? (b) the proceedings and judgement were in respect of the satisfaction, fulfilment or discharge of a Contract of the Business outstanding at the Effective Date? (c) the proceedings and judgement were in respect of the satisfaction, fulfilment or discharge of obligations which had not been fully performed at the Effective Date? (d) the proceedings and judgement were in respect of a Liability of the Business outstanding at the Effective Date? (e) the proceedings and judgement were in respect of the satisfaction, fulfilment or discharge of a Liability of the Business outstanding at the Effective Date? 2.2 as to clause 8 of the APA: (a) was consent to the assignment or novation of the November 1995 and/or November 1996 agreements and/or the warranty required within clause 8 of the APA; or (b) was it only required to the extent that obligations thereunder were not fully performed as at the 31st December 1996; and/or (c) was it only required if necessary for those obligations which were not fully performed as at 31 December 1996 to be fully performed [sic]? 2.3 In the light of the answers to 2.2, was the consent judgement given in proceedings incurred as a result of failure of the Defendant to obtain the consent of the Eagle One Companies to such assignment or novation within clause 8.2 of the APA? 3.1 is the Claimant entitled to judgement to £8,069,822.32 plus interest? or 3.2 would the Claimant be entitled to judgement for £8,069,822.32 plus interest on one or more of the assumptions referred to in 1.2 above (and, if so, which?)? or 3.3 does the Claimant have to prove any (and if so which) of the matters set out in paragraph 27 of the Defence against the Defendant in order to be entitled to judgement for £8,069,822.32 plus interest?[26]I do not intend to repeat at any length the extensive arguments put forward very competently by each side’s Counsel both in writing and orally. In the broadest terms, Rust argues that the APA needs to be interpreted in the context that there was, as between it and PB, a total transfer of the whole of its business, including all rights, obligations and liabilities, to PB. It argues that, from the definition of “Liabilities” and “Contracts” in the APA, PB assumed responsibility for the contractual (and tortious) liabilities of Rust to the Eagle One Companies and undertook to indemnify Rust against the consequences of such liabilities, including the consent judgement obtained against it by the Eagle One Companies. It asserts that as well as the indemnity available under Clause 3.1 there is also an indemnity available to it on the basis of Clause 8.2 which flows from a failure by PB or possibly Rust to secure from the Eagle One Companies consent to the novation of the November 1995 and November 1996 Agreements and of the Warranty to PB. PB argues that the indemnity in Clause 3.1 does not bite because any "Liability" of Rust was not “reflected” in its company accounts as at 31 December 1996 and because, materially, there were no obligations which Rust had not "fully performed" as at the same date; it also argues that the Clause 8.2 indemnity does not apply materially. The Relevant Factual Background and the Evidence[27]The APA was signed and entered into on 5 September 1997 but it reflected the fact agreed between Rust and PB that the agreement between the parties had already been entered into with effect from 31 December 1996 some eight months before. It can also be taken to have been common knowledge as between the two companies that Rust had been engaged at a very substantial level of trading with regard to the provision of multi-discipline professional disciplinary services to the construction industry. The Rust company accounts show some £20m and £19m’s worth of turnover for 1995 and 1996 respectively. Thus, it can be taken to have been common knowledge that, over the 12 years prior to the APA, Rust had entered into and fulfilled hundreds and probably thousands of different retainers for the provision of professional services. Therefore, whilst doubtless the parties would expect the large bulk of such retainers to have no residual liability risks, there must have been some appreciation of the possible risk of some lingering liability which might surface after September 1997, even if no actual claims or liabilities were known about.[28]There is no suggestion that prior to September 1997 (or indeed for some years after) there had been any hint or suggestion of criticism let alone a possible claim by the Eagle One Companies against Rust arising out of the professional services provided by it in relation to the Garden Festival site work.[29]I heard evidence from an expert accountant from each party in effect in relation to how contingent liabilities are or should be dealt with in company accounts. This was relevant because the definition of "Liabilities" talks about the "book debts and other liabilities" being "reflected in the accounts of" Rust as at 31 December 1996.[30]The Rust company accounts to which both parties have referred are those for the year ending 31 December 1996, albeit that they were finally prepared, signed and filed on 27 October 1997 which is of course after the APA was signed, albeit that the APA anticipated, presumably, that the accounts would be duly filed thereafter. The auditors were Arthur Andersen. The Directors’ report expressly states: “With effect from 31 December 1996, the company’s trade, assets and liabilities were sold for £1000 to [PB], a fellow subsidiary undertaking. The company ceased to trade from that date but continued to operate as an agent for [PB] until 5 September 1997."[31]The Profit and Loss account shows an accumulated deficit at the end of the year of £9.697m albeit the bulk of that is accounted for by the loss on the sale of the trade assets and liabilities of Rust to PB. Both this document and the Balance Sheet made it clear expressly that the "accompanying notes are an integral part" of the two documents. The Balance Sheet showed a net asset value of £1000 (representing the sale price from Rust to PB of the business) and against the entry "Provisions for liabilities and charges" no sum is entered but beside it there is a reference to Note 13, which adds little to the matters in issue in this case. Note 17 is of more interest, headed as it is "Guarantees and other financial commitments". Sub-notes (a) and (b) address capital commitments and lease commitments, the latter identifying that these had all been assumed by PB. Sub-note (c) deals with pension arrangements and identified that the Rust scheme merged with the PB group scheme.

(d) states:

“Guarantees and bonds The company has contingent liabilities in the ordinary course of business including guarantees and bonds. Any losses foreseen under these arrangements are provided in the accounts. With effect from 31 December 1996, the obligation to make good any contingent liability that crystallises has been assumed by [PB]”
[32]It is common ground between the parties and experts that the overwhelming probability is that no actual financial allowance was made against contingent liabilities in the accounts, either generally in relation to all or some contracts historically entered into by Rust or specifically in relation to the work done for the Eagle One Companies.[33]Other than being provided with some general assistance about accounting practices, I was not very much assisted by the experts’ evidence, professionally prepared and given as it was by both experts. The real question which needs to be considered is whether a general reference to contingent liabilities which have not yet crystallised is sufficient for the purposes of the definition of Liabilities which refers to liabilities "reflected" in those accounts. That, it seems to me, is a question of interpretation of the APA. The Construction of the APA[34]I have formed the very clear view that the factual matrix (effectively and specifically referred to in the Recital) shows that the APA was entered into following an agreement whereby Rust and PB had already agreed that PB should "assume all of [Rust’s] liabilities and obligations” as from 31 December 1996. This is mirrored in Note 17 (d) of the Rust company accounts, albeit filed after the APA was signed. I read the Recital clearly as confirming this agreement and the terms of the agreement are simply to legislate for the consequences of that agreement. If it is necessary to become "syntactical", the use of the comma before the words "upon the terms of this agreement" in the Recital supports that.[35]I next turn to consider what the “Liabilities” are in the context of the APA and in particular of Clause 3.1. One can break the definition down as follows: (a) “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”: (i) 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. (ii) 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. (iii) 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”. b) “insofar as they are reflected in the accounts of [Rust] as at the Effective Date” (iv) 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. (v) 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". (vi) "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. (vii) 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.[36]I now come to consider whether, materially, the November 1995 or November 1996 Agreements and the Collateral Warranty to Eagle Festival were "Contracts" within the APA definition. The definition can be broken down:(a) "all contracts, orders and commitments of the Vendor or any of its Subsidiaries”: obviously, the Agreements and Warranty fall within this broad definition.(b) 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.(c) 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.(d) 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.(e) 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.(f) 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.(g) 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.(h) 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.[37]Having reviewed and determined the meaning (in the context of this place) of the words "Liabilities" and “Contracts", one can then turn to considering the meaning of Clause 3.1:(a) 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.(b) 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.[38]Save in one limited respect I do not consider that Clause 8 of the APA is germane to the issues between parties. One can and should analyse Clause 8 as follows:(a) 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.(b) Clauses8.1 and8.2 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.(c) 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.(d) 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.(e) 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.(f) 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.(g) 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.(h) 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[39]It is now necessary to turn to perhaps what was the most contentious part of these proceedings, namely the extent to which the Clause 3.1 indemnity covers the consent judgement entered into by Rust against itself and whether Rust must prove in effect that it was liable to the Eagle One Companies.[40]The first question to consider is the simple construction of Clause 3.1. The indemnity is "against all proceedings, claims and demands in respect thereof". The words "in respect thereof" must relate to the assumption of "responsibility for the satisfaction, fulfilment and discharge of all the Liabilities and the Contracts”. One can to a large extent discount the responsibility for the “Contracts” in the context of the current case because the only outstanding obligation at the Effective Date resting on Rust was the maintenance of professional indemnity insurance until 2008; there would be a legitimate case to be made against PB to the extent that Rust suffered loss because (should such be proved) PB had failed to maintain professional indemnity insurance until February 2008 (12 years from the warranty). However, obviously the Eagle One Companies’ case was not for breach of any duty on the part of Rust to insure but it was a case of professional negligence.[41]The indemnity therefore relates to proceedings, claims and demands in respect of the responsibility assumed by PB for the satisfaction, fulfilment and discharge of all of the “Liabilities”, which includes the satisfaction, fulfilment and discharge of the contingent liability (if any) of Rust to the Eagle One Companies arising under the November 1995 and November 1996 Agreements and the Warranty. Simply looked at as a matter of construction of Clause 3.1, in my judgement, the indemnity is against “all proceedings, claims and demands” in respect of actual liabilities, which had been contingent in that no claim had been made against Rust until about 2007 when the Eagle One Companies instituted proceedings. I reach that view because "Liabilities" as defined talks about "other liabilities…in so far as they are reflected in the accounts of the Vendor…as at the Effective Date". In my view, “liabilities” with a small “l” within the definition of "Liabilities" must mean just that, namely actual liabilities. There would be no point in commercial terms reflecting a liability in the company accounts, even if it was done in purely verbal terms without any actual figure being allowed for it, if there was no liability.[42]The one remaining question therefore is whether legal precedent as such either prevents or at least influences any such contractual interpretation. In my view, it does not. Parties can use the words "indemnity", “guarantee” or "warranty" but whatever such words they use, one needs by way of contractual interpretation to determine what is being indemnified, guaranteed or warranted. In my judgement, what Rust was being indemnified against was "proceedings, claims and demands in respect" of the satisfaction, fulfilment and discharge of any actual liability which Rust had, in the context of this case, to the Eagle One Companies. The fact that proceedings were issued against Rust by the Eagle One Companies in relation to the relevant Festival site does not of itself mean that PB was liable to indemnify Rust against them; similarly, simply because a judgement had been entered against Rust, and even if after contested proceedings Rust was found to be liable, PB would not, without more, be bound by that judgement, unless for instance it was a Part 20 Defendant or third party in such proceedings.[43]Out of deference for the work done by Counsel, I will briefly refer to the various authorities most relied upon by both parties, firstly those relied upon by Rust’s Counsel: (a) 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; 1st, 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. (b) 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.” (c) 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. (d) 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.” (e) 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”. (f) 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. (g) 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 ...”. (h) Spencer Bower and HandleyRes Judicata, fourth edition (2009), states at paragraph 9.27: “9.27 Apart from statute a defendant who has suffered judgment and sues another for indemnity or contribution cannot rely on the judgment as res judicata because that other party was neither party nor privy. Where the principal contract contains an arbitration clause a surety is not bound by an award against the principal debtor. The position is different where there is an express contract of indemnity as Mellish LJ explained [in Parker v Lewis]: “the law with reference to express contracts of indemnity…”
Mellish LJ said that in the absence of an express contract the requirements for mutuality would apply. This exception only applies as between the parties to such a contract”. “the law with reference to express contracts of indemnity…”[44]The authorities relied upon by Counsel for PB follow a different route: (a) 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”. (b) 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.” (c) 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.”
[45]A review of these cases leads me to the following conclusions:(a) 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.(b) 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.(c) Clear wording is required to make a guarantor or indemnifier liable for judgements obtained against the beneficiary of the guarantee or the indemnity.(d) 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.(e) 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.(f) 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.[46]It follows from the above that, as I have formed the view that the Clause 3.1 indemnity is such that it does not of itself operate without Rust establishing against PB that it was liable to the Eagle One Companies for the damages either as claimed by the Eagle One Companies or in the amount of the consent judgement against Rust, I must conclude that Rust can not recover on that indemnity simply because there is a consent judgement against it in relation to one or more of the contracts which it had with the Eagle One Companies. The answer to the question of whether or not PB is estopped from challenging the consent judgement will depend on all the circumstances. The Answers to the Issues[47]I have found the issues as formulated somewhat convoluted. As to Issue 1, Rust may be entitled to rely on the consent judgement to establish not only its liability under the November 1995 or November 1996 Agreements or the Warranty or for the consent judgement sum on the various assumptions put forward in this issue as formulated but it will be necessary to establish all the facts and circumstances to determine if there is any material estoppel.[48]With regard to Issue 2, the proceedings by the Eagle One Companies against Rust were in relation only to possible “Liabilities” as defined in the APA and referred to in Clause 3.1 or to the satisfaction, fulfilment or discharge of such "Liabilities". They were not in relation to any of the “Contracts” as defined in the APA and referred to in Clause 3.1. Clause 8 of the APA is inapplicable and provides no indemnity which is material to any failure on the part of Rust to exercise reasonable care and skill in the discharge of any of its duties or services under the November 1995 or November 1996 Agreements or the Warranty.[49]As to Issue 3, Rust is not yet or possibly at all entitled to judgement in relation to the consent judgement. Subject to estoppel, Rust will have to prove that it was not only liable to the Eagle One Companies but also liable for any particular sum. In relation to Issue 4, it is not possible at this stage to determine whether PB is entitled to judgement against Rust as estoppel issues remain to be resolved on the facts.

Cited in 3 later judgments