Kingston & Anor v Francis & Anor

An indemnity against all actions, costs, claims and demands arising from breach is not confined to claims that are well founded or successful. The relevant question is whether the claim arose from, or was caused by, the breach. A misconceived claim remains within the indemnity where the breach was its only reasonable cause. A claim brought out of spite or malice, without real regard to the breach, might fall outside it. A mistaken view of legal rights does not, without more, break causation. A downstream covenantor may be liable where the resulting indemnity liability was reasonably foreseeable and the intervening claim was within the parties’ reasonable contemplation.

The claimants purchased a farmhouse from the defendants. The transfer gave them the benefit of a covenant by Eric Moody, the purchaser of adjoining land, to construct and maintain an access road until adoption by the highway authority. The road was not completed to the required standard.

The claimants sued the defendants, rather than Moody, alleging contractual and other liability. Their claim was dismissed by His Honour Anthony Tibber in the Bristol County Court. The defendants obtained an indemnity from Moody, and Moody’s claim against the McLays, who had later acquired the adjoining land and covenanted to construct the road, was dismissed. Moody appealed. The central issue was whether the claim and resulting costs arose from breach of Moody’s covenant.

Disposition

The appeal of the first Part 20 defendant, Moody, was allowed in principle. Lord Justice Rix agreed with the judgment of Sir Martin Nourse. The dismissal of the claimants’ claim against the defendants was not appealed.

1. Construction of the indemnity. The covenant indemnified the defendants against all actions, costs, claims and demands arising from breach of Moody’s road covenant. Its operation did not depend on the quality, merits or success of the claim. The proposed limitation excluding unsuccessful or seriously misconceived claims was inconsistent with the language and purpose of the indemnity.
2. Causation. The claimants’ proceedings arose from the breach because the failure to construct the road in accordance with the covenant was the only reasonable cause of the claim. The fact that the claim was misconceived, and included allegations of fraud, collateral contract and breach of a contractual provision, did not alter that conclusion. An extreme claim brought out of spite or malice, without genuine regard to the breach, might have a different causal character.
3. Liability of the McLays. The judge had found that the McLays were in breach of their covenant, were clearly aware of Moody’s liability to the defendants, and could reasonably foresee that liability. The claimants’ mistaken view of their legal rights was not a new intervening act breaking the chain of causation. The claim was within the reasonable contemplation of the McLays when they gave their covenant.
4. Consequences. Moody was entitled in principle to recover from the McLays the £2,000 retention released because the covenant had not been complied with, together with recoverable costs. Consequential matters were left for post-judgment submissions. The costs cross-appeal by the second Part 20 defendant was adjourned sine die with liberty to restore.

• Court of Appeal (Civil Division): Appeal by the first Part 20 defendant allowed in principle. The costs cross-appeal by the second Part 20 defendant was adjourned sine die with liberty to restore.
• Bristol County Court: His Honour Anthony Tibber dismissed the claimants’ claim against the defendants, ordered an indemnity in favour of the defendants against Moody pursuant to the concession, dismissed Moody’s claim against the McLays, and made consequential costs orders.