The English Electric Company Ltd v Alstom UK

In construing an indemnity given on an intra-group transfer of a business, the court must begin with the language used. Commercial context may inform meaning, but cannot displace natural language or be assessed retrospectively. An indemnity covering claims arising on completed and uncompleted contracts may include liabilities under employment contracts, including liabilities relating to former employees, unless the wording creates an exclusion. A general reservation concerning trading and the rights of the business does not qualify that conclusion where it does not refer to employment contracts. Late-raised factual speculation and uncertainty caused by missing documents do not overcome clear contractual wording.

The claimant had acquired Associated Electrical Industries Ltd’s turbine generator business in 1970. The transaction was recorded in an internal resolution containing an indemnity for claims arising on completed and uncompleted contracts. In 1989, the claimant sold the business to a predecessor of Alstom UK, with a further indemnity.

After the widow of a former AEI apprentice recovered damages for mesothelioma arising from asbestos exposure, the parties disputed whether the 1970 indemnity required the claimant to indemnify AEI. The High Court held that it did. Alstom appealed, principally contending that the indemnity covered only trading contracts with customers and that reservations in the agreement might exclude employment liabilities.

The Court of Appeal unanimously dismissed the appeal.

1. Context and construction. The transaction was an informal internal reorganisation within a group. The natural inference from an inter-company transfer of a business was an out-and-out transfer of the entire undertaking, unless the agreement specified otherwise. That inference could include liabilities arising under employment contracts. Pre-TUPE legal impediments arising from privity of contract, exemplified by Nokes v Doncaster Amalgamated Collieries Ltd [1940] AC 1014, did not alter the commercial aim or contractual consequences of the transfer. The written terms nevertheless remained the first port of call.
2. Indemnity wording. The natural and ordinary meaning of the indemnity for claims arising on completed and uncompleted contracts was all contracts to which AEI was or had been a party. The wording included contracts of employment and was not confined to customer contracts. Although describing an employment contract as completed or uncompleted was unusual, it was intelligible. The claimant’s liability relating to the former apprentice’s employment was therefore within the indemnity. Section 1(2) of the Apprenticeship, Skills, Children and Learning Act 2009 supported the use of completion terminology. The approach was consistent with Arnold v Britton [2015] UKSC 36, which required primary attention to contractual language and limited use of commercial common sense.
3. Reservations and subsidiary arguments. The phrase referring to certain reservations related back to reservations concerning trading and the rights of the turbine generator business and goodwill. It did not refer to employment contracts. The missing documents therefore did not justify resolving the matter against the claimant, although that evidential issue was unnecessary to decide. A new rationalisation argument raised too late on appeal was not taken into account. The suggestion that negligence took the claim outside the indemnity was also misplaced, since negligence was a common basis of employer liability.
4. Order. The claimant was entitled to rely on the indemnity, and Alstom’s appeal was dismissed.

• Court of Appeal (Civil Division): In [2016] EWCA Civ 1314, Longmore LJ gave the judgment, with Beatson LJ and Sales LJ agreeing. The appeal was dismissed.
• High Court, Queen’s Bench Division, London Mercantile Court: HHJ Mackie QC held that the 1970 indemnity covered the claimant’s liability to AEI in respect of the mesothelioma claim. The citation of that decision is not stated in the judgment.