Capita (Banstead 2011) Ltd & Anor v RFIB Group Ltd

An indemnity covering liabilities or claims arising directly or indirectly from services or advice provided before a transfer date ordinarily covers losses legally caused by pre-transfer conduct. It does not cover losses caused by post-transfer negligence or dishonesty merely because earlier conduct was also an effective cause. Where concurrent causes exist, the indemnity must be construed against the commercial allocation of risk between seller and buyer. A continuing retainer may create continuing breaches where the adviser undertakes to maintain a state of affairs. An indemnity against liability need not require prior payment, and a gratuitous third-party payment does not necessarily extinguish the indemnified party’s claim.

The claim arose from an indemnity in a share purchase agreement under which RFIB agreed to indemnify Capita Banstead and CHBC against liabilities, costs, claims and expenses arising from services or advice provided by CHBC before the transfer date. QEF and pension trustees had alleged negligence, deceit and breach of duty concerning ineffective amendments to a pension scheme. CHBC settled that claim for £3.85 million, funded by Capita Banstead. The issues were the temporal and causal scope of the indemnity, the proper apportionment of the settlement, whether Capita Banstead could sue after making the payment, and recovery of legal costs.

1. Scope of indemnity. Clause 5.8.5 drew a line between conduct before and after 30 April 2004. It covered liabilities and losses whose effective cause was pre-transfer services or advice. The words “directly or indirectly” required a legally sufficient causal link, extending beyond immediate causation but not to conduct that was merely background or causative only on a “but for” basis.
2. Concurrent causes. The pre-transfer failures were continuing effective causes of the losses, but post-transfer breaches and misrepresentations were also effective causes. Applying the reasoning in EE Caledonia Ltd v Orbit Valve Co Europe, the buyer had assumed the risk of losses caused by post-transfer negligence or dishonesty. The indemnity therefore did not respond to losses occurring after the transfer merely because earlier conduct remained a concurrent cause.
3. Apportionment. The settlement was attributable to losses up to 1 December 2007, when a formal amendment should have been executed. On the limited actuarial evidence, 50 per cent of the settlement represented losses whose sole effective cause was pre-transfer advice or services. RFIB was therefore liable for £1,925,000.
4. Title to sue. CHBC had an ascertained liability within the indemnity when the settlement agreement was made. The indemnity did not contain an implied condition requiring prior payment. Capita Banstead could sue on CHBC’s behalf, and its later gratuitous payment did not extinguish that cause of action.
5. Legal expenses and order. The claim for legal expenses was proved. The recoverable half was £33,415.73. Judgment was entered for Capita Banstead in the sum of £1,958,415.73 plus interest.