Shaw v Lighthousexpress Ltd

An express contractual indemnity is not inherently personal or unassignable. Its assignability depends on the true construction of the contract. A business sale transferring the business and the benefit of current contracts may include a continuing indemnity obligation, even after the active aspects of the underlying contract have ended. A clause is not void for uncertainty merely because it is difficult to construe. The court should read it in its contractual and commercial context, and invalidity is a last resort. Where recovery depends on a professional indemnity insurance excess, the claimant must prove that the payment fell within the excess. A contractual six-year cut-off may protect the former contracting party unless a claim is notified within that period.

Lighthousexpress Ltd, successor to a partnership operating a network of independent financial advisers, sought an indemnity from Philip Nicholas Shaw for compensation paid following a Financial Services Ombudsman award concerning advice given while Shaw was engaged by the partnership.

The Torquay and Newton Abbott County Court, before Mr Recorder Gardner QC, accepted the claimant’s case. On appeal, Shaw challenged the proof of the contractual documents, assignment under the Business Sale Agreement, construction and certainty of the indemnity clause, proof that the payment represented an insurance excess, responsibility for the underlying award, and the meaning of clause 4.17. The central issues were whether the indemnity had been assigned and was enforceable, and whether the six-year provision barred the claim.

Disposition. The appeal was allowed. Lord Justice Jacob gave the leading judgment and Lord Justice Patten agreed. Lord Justice Sedley was not certain that he would have differed on the insurance-excess issue, but agreed that the appeal had to be allowed because clause 4.17 barred the claim.

1. Missing contractual documents. The court rejected the argument that the absence of documents referred to in clause 4.5 prevented construction of the Appointed Representative Contract. No plausible provision in the missing material had been identified as relevant to the disputed clauses. The judge was entitled to proceed on the basis that the material terms had been proved.
2. Assignment and personal character. The Business Sale Agreement transferred the business as a going concern and the benefit of its contracts so far as assignable. Read against that background, “current contracts” included live contractual obligations owed to or by the partnership, even though the active aspects of Shaw’s engagement had ended. A right of indemnity was not inherently unassignable. Its character depended on the true construction of the contract. Sheers v Thimbleby (1897) 76 LT 709 was confined to a guarantee construed as personal, while British Union and National Insurance Co v Rawson [1916] 2 Ch. 276 illustrated that an indemnity could be assignable.
3. Certainty and the insurance excess. Clause 16.5 was to be read with the provisions on professional indemnity insurance in clause 5.4 and Schedule 2. It covered the identified costs, charges and expenses, including a professional indemnity insurance excess, and was not void for uncertainty. The principle stated in Scammell v Ouston [1941] AC 251 was applied: difficulty of construction was insufficient, and invalidity for uncertainty was a last resort. However, the claimant failed to prove that the payment for Mrs Lalaz fell within an insurance excess. The policy was not produced, the later schedule was unreliable, the contemporaneous correspondence suggested no cover, and the bare assertion of the finance director was insufficient. The burden of proof was not discharged.
4. Clause 4.17. Despite its poor drafting, clause 4.17 was a limitation clause. It referred to debts and liabilities owed to the Firm and limited liability to six years following resignation or termination. Final resolution or proceedings within that period were unnecessary. Notification of an actual or contingent claim within the period was sufficient to stop time running. The Company had made no such claim before the six-year period following Shaw’s resignation expired. Shaw was therefore protected by the clause.

• Court of Appeal (Civil Division): The appeal was allowed under [2010] EWCA Civ 161. The court held that the claimant had not proved the payment was a professional indemnity insurance excess and that clause 4.17 protected Shaw because no claim had been made within six years.
• Torquay and Newton Abbott County Court: Mr Recorder Gardner QC accepted the claimant’s construction of the Appointed Representative Contract and its entitlement to pursue the indemnity, giving rise to the appeal.