Otuo v Brierley

A contractual indemnity procedure is governed by the agreement’s objective meaning and commercial context. A party seeking payment of partnership liabilities must provide information reasonably sufficient to establish the creditor’s identity and the source and legitimacy of the claim where that information is within the party’s control. Where a clause requires an initial request followed by notice of intended further payment, those steps must be completed sequentially. A notice attempting to satisfy both requirements at once is ineffective. A party cannot rely on a breach of the same contract to obtain a contractual benefit. The claim therefore failed because the conditions for invoking the indemnity had not been satisfied before proceedings were issued.

The claimant and defendant had been partners in a property development business. Their partnership was brought to an end by a settlement agreement under which the claimant retired, transferred his interests and received staged payments. The agreement required the defendant to pay specified partnership creditors and gave the claimant a procedure for seeking an indemnity if the defendant did not agree to make further payments.

The claimant sought damages and related relief for sums said to have been paid to creditors, including claims concerning tenants’ deposits. The issues were whether he was entitled to invoke clause 4.3, whether he had complied with its notice procedure, and whether any indemnity was payable.

1. Construction of “Creditors”. Clause 2.3(a)(i)(A), read in its contractual context, defined “Creditors” as creditors of the Partnership listed in Schedule 2. It did not include creditors of the Company or creditors of the claimant personally. The fact that Schedule 2 could include liabilities of the Company or the claimant did not enlarge the defined term.
2. Implied condition precedent. The defendant could not reasonably be expected to pay an alleged partnership creditor without adequate evidence identifying the creditor and establishing the source and legitimacy of the claim. Because the claimant had controlled the business and held the relevant records, it was an implied condition precedent to the defendant’s obligation under clause 4.1 that the claimant provide that information. The claimant had not done so before issuing proceedings, subject to possible factual exceptions that did not affect the outcome.
3. Sequential notice procedure. Clause 4.3 required compliance with its stages in sequence. The defendant first had to be given the opportunity, under clause 4.3(a), to state whether the sums had been paid. Only then could the claimant give 14 days’ written notice under clause 4.3(b) of intended further payments. The claimant’s letter purporting to satisfy both stages was insufficient.
4. Tenants’ deposits and other claims. The evidence did not establish the identity and legitimacy of the remaining alleged creditors. The tenants’ deposits could potentially represent partnership liabilities, but the claimant had not supplied sufficient records or complied with the clause 4.3 procedure. The court also applied the principle stated in Alghussein Establishment v Eton College [1991] 1 All ER 267 (HL), since the claimant sought an indemnity while relying on conduct amounting to breach of the same contractual arrangements.
5. The claimant had no cause of action under clause 4.3 when proceedings were issued. His claim failed except for £3,825 interest on the late payment of £60,000, which the defendant accepted was due. The claims for specific performance also failed.

Not an appeal. The judgment referred to earlier interlocutory decisions in the same litigation, including [2013] EWHC 2869 (Ch) and [2015] EWHC 472 (Ch).