Durley House Ltd v Firmdale Hotels Plc

A contractual indemnifier may be ordered to pay the indemnified party before the indemnified party has paid the creditor. Equity permits payment to the creditor, payment into a fund, or, in appropriate cases, payment to the indemnified party. A contractual obligation to pay a third party may also give rise to substantial damages when the promised payment is not made, even though the promisee has not first paid the third party. A settlement agreement does not avoid the claimant’s loss where its release operates only after the proceeds of the litigation have been paid over. Late amendments may be allowed where they introduce no substantially new facts or evidence and the balance of justice favours allowing the real issue to be determined.

The judgment concerned consequential issues following the court’s main judgment on agreements under which Firmdale Hotels plc was liable for rent payable by Durley House Ltd to its lessor. The relevant rent was £932,386.88. Durley House had entered into a settlement agreement with the lessor requiring litigation proceeds referable to rent to be paid over, after which its liabilities would be released.

The court considered amendment of the pleadings, the construction and effect of the settlement agreement, whether Durley House could obtain a money judgment without first paying the lessor, the availability of specific performance, interest, the counterclaim and costs.

1. Amendment. Permission was granted to amend the Particulars of Claim. The proposed amendments principally recategorised the legal basis of relief and introduced no substantially new factual case or evidential burden. The defendant’s lack of prejudice, subject to costs, and the need to determine the real dispute outweighed the lateness of the application.

2. Settlement agreement. On its true construction, the agreement created a sequence: determination of the net proceeds, payment by Firmdale to Durley House, payment by Durley House to the lessor, and only then release of the liabilities under the lease and possession order. Until those steps occurred, Durley House remained liable to the lessor. The settlement therefore did not avoid the loss relied upon in the claim.

3. Indemnity. A contract of indemnity is distinct from a guarantee. Since the Judicature Acts 1873 and 1875, the equitable remedy prevails. The indemnified party is entitled to relief even without prior payment to the creditor. The court may order payment to the creditor or into a fund and, in appropriate cases, may order payment to the indemnified party. No additional general conditions concerning primary liability, direct liability to the creditor or absence of a windfall were established by the authorities.

4. Direct payment obligation. Firmdale’s obligation to pay rent directly to the lessor was distinct from its indemnity obligations. Its failure to make the payments entitled Durley House to substantial damages representing the relevant liability under the possession order. Prior payment by Durley House was not required.

5. Relief and interest. Specific performance was available in principle, even though the creditor was not a party, but damages were adequate in the circumstances. Judgment was entered for £932,386.88 together with the part of the possession-order sums representing interest referable to that rent. Firmdale received interest on its counterclaim at 6% per annum from 15 November 2011.

6. Costs. Durley House was the overall winner, but Firmdale had succeeded on substantial issues. Firmdale was ordered to pay 70% of Durley House’s costs up to and including 23 December 2013, with later costs to be addressed separately.

First-instance consequential judgment following the court’s main judgment. No appellate history is stated in the judgment.