Renewable Power & Light Ltd v McCarthy Tetrault & Ors

The claimant discontinued its claim during trial. The court held that the respondent Grant Thornton was entitled to a contractual indemnity for costs under clause 6.1 of the Grant Thornton Contract and under clauses 8.3 (read with 8.4 and 8.6) of the Placing Agreement. The words "all costs ... including legal fees" were construed as extending to reasonable costs reasonably incurred assessed on the indemnity basis, with the burden of proving unreasonableness on the paying party. The proviso to clause 6.1 (excluding indemnity where losses are finally found to result from fraud, wilful default or negligence or where payment is prohibited by regulatory rules) did not apply on the facts and no limiting implication was to be read into the clause to restrict it to third-party claims. The court stayed part of the counterclaim (paras 114–119) and determined the indemnity counterclaim (para 120) on the basis that discontinuance amounted to the claimant not succeeding. The court ordered interest on costs already paid and a payment on account of indemnity costs of 1.5 million, with a detailed assessment to follow.

This was a first instance ruling given after the claimant served notice of discontinuance mid-trial. The claimants discontinuance disposed of its claim but left a two-part counterclaim by Grant Thornton. The first part of the counterclaim (paras 114119) was pleaded on the basis that the claimant's allegations were found true; that part was stayed. The second part (para 120) sought contractual indemnity for Grant Thorntons costs, fees and expenses if Grant Thornton was found not liable in negligence; paragraph 121 sought interest under section 35A of the Senior Courts Act 1981.

Relief sought: Grant Thornton sought a declaration and order that it was entitled to be indemnified by RPL for its legal costs under clause 6.1 of the Grant Thornton Contract and clauses 8.3/8.7 of the Placing Agreement, interest on costs already paid and a payment on account pending detailed assessment.

Issues framed:

• whether the contractual indemnity clauses covered costs incurred in defending the claim after the claimant discontinued;
• whether the indemnities extended only to claims by third parties or also to a claim by the company itself;
• whether the proviso to clause 6.1 (final judgment or regulatory prohibition) excluded the indemnity on these facts;
• the proper basis and procedure for quantifying indemnity costs (reasonable costs reasonably incurred; indemnity basis assessment) and interest and payment on account.

Courts reasoning: The judge read clause 6.1 broadly and held that the phrase "all costs ... including legal fees" must be interpreted as reasonable costs reasonably incurred, following the approach in Gomba Holdings. The proviso applied only where there was a final judicial finding of fraud, wilful default or negligence or where indemnity payment was prohibited; none of those conditions were established. The court declined to imply a limitation restricting indemnity to third-party claims, noting analogous support from John v Price Waterhouse. Clauses 8.3/8.6 of the Placing Agreement likewise provided an indemnity for "proper legal fees" interpreted as reasonable and not excluded by the definition of Excluded Loss. Procedurally the judge declared entitlement to indemnity, ordered costs to reflect that entitlement and directed a detailed assessment on the indemnity basis rather than making a separate inquiry. The judge ordered interest at 1.5% above base rate on costs already paid until the date of the order and at the Judgment Act rate (8%) thereafter, and ordered a payment on account of 1.5 million, leaving quantification by assessment and other possible heads of indemnity (for example management time) open to further application.

The court expressly did not base its order on any general discretionary award of indemnity costs and left all conduct-based arguments and further quantification issues open.

First instance: The claimant's claim was discontinued. The court stayed paragraphs 114119 of the counterclaim and determined that Grant Thornton was entitled to a contractual indemnity for its legal costs under clause 6.1 of the Grant Thornton Contract and clauses 8.3/8.7 of the Placing Agreement, subject to the usual reasonableness test and with the burden on the paying party to show unreasonableness. The court ordered interest on costs already paid (1.5% over base rate until the date of the order and 8% thereafter), payment on account of 1.5 million, and a detailed assessment of costs on the indemnity basis; other heads of indemnity were left open for further application.