Renewable Power & Light Ltd v McCarthy Tetrault & Ors

A contractual indemnity covering claims, losses, costs and legal fees may extend to the contracting party’s own unsuccessful claim against the indemnified party. The court should not imply a restriction limiting the indemnity to third-party claims where the wording does not support one. References to “all costs”, “proper fees” and “proper legal fees” require reasonable costs reasonably incurred, with the burden of proving unreasonableness on the paying party. The court may declare the entitlement and order detailed assessment on the indemnity basis. A statutory or regulatory exclusion must be properly raised before it requires determination.

The claimant discontinued its entire claim during trial. The third defendant, Grant Thornton, maintained parts of its counterclaim and sought indemnification for the costs of defending the proceedings under clause 6.1 of the Grant Thornton Contract and clauses 8.3 and 8.7 of the Placing Agreement.

The court treated the discontinued claim as satisfying the contractual condition that Grant Thornton be found not liable. The central questions were whether the indemnities covered claims brought by the contracting party itself, whether they covered the defence and counterclaim costs, and how the indemnity was to be quantified.

1. The claimant’s discontinuance disposed of its claim, but the counterclaim and consequential matters remained to be dealt with. The first part of the counterclaim was stayed on agreed terms.

2. Paragraph 120 of the counterclaim was construed so that the condition that Grant Thornton be found not liable included the present situation, in which the claimant had discontinued its claim. It was unnecessary to continue the trial to determine negligence.

3. Clause 6.1 of the Grant Thornton Contract was expressed in wide terms. Its reference to all costs and legal fees covered reasonable costs reasonably incurred. The burden of establishing unreasonableness rested on the paying party. The principle in Gomba Holdings UK Ltd v Minories Finance Ltd (No 2) [1993] Ch 171 was applied.

4. Neither clause 6.1 nor clauses 8.3 and 8.7 of the Placing Agreement contained an express restriction to third-party claims. No such limitation should be implied. The indemnities therefore covered Grant Thornton’s costs in defending the claimant’s claim, including the costs of the counterclaim where applicable.

5. The proviso to clause 6.1 did not exclude the indemnity. Its first limb was inapplicable because there was no relevant final judgment. The alleged regulatory or statutory prohibition had not been pleaded and was not pursued, so it was unnecessary to rule on it.

6. The court made declarations of entitlement to indemnity and ordered detailed assessment of the relevant costs on the indemnity basis. It also awarded interest on costs already paid at 1.5 per cent over base rate until the order and thereafter at 8 per cent, and ordered a payment on account of £1.5 million.