L v A

Under an express indemnity, the extent of the indemnity and the time when the cause of action arises depend on the proper construction of the contract. Where the indemnity is general and covers consequences, a judgment of a competent court establishes and ascertains the indemnified liability. Security provided in respect of that liability constitutes payment for these purposes. The fact that the judgment is foreign, or is subject to an appeal, does not postpone accrual unless and until it is overturned. The indemnifying party may then seek restoration of the sum paid.

The parties were involved in an arbitration concerning an indemnity in a voyage charterparty. The tribunal held that the charterer had given an express indemnity, but declined to award a specific sum because related Indian proceedings remained subject to appeal.

The claimant appealed under section 69 of the Arbitration Act 1996. The central issue was whether an appeal against the foreign judgment prevented the claimant’s liability from being established and ascertained for the purposes of the indemnity.

1. Permission and substantive appeal. The judge rejected the request for a different judge to hear the substantive appeal. The view formed at the permission stage was provisional, reached on written submissions, and did not prevent a judicial determination with an open mind after oral argument. The appeal under section 69 of the Arbitration Act 1996 was allowed.
2. Construction of the indemnity. The extent of an express indemnity and the time when its cause of action arises depend on construction of the contract, applying The Fanti and the Padre Island (No 2) [1989] 1 Lloyd’s Rep 239, which agreed with Telfair Shipping Corporation v Inersea Carriers SA (The Caroline P) [1984] 2 Lloyd’s Rep 466; [1985] 1 WLR 553.
3. The indemnity in this case was general and operated against consequences. The Indian judgment established and ascertained the claimant’s liability to the port operator. The fact that the judgment was given by an overseas court did not alter that conclusion. Provision of security in the judgment sum was no less a payment for the purposes of enforcement of the indemnity.
4. The pending appeal did not change the existing legal position. Unless and until the appellate court overturned the Indian judgment, liability remained established and the loss remained ascertained. If the judgment were later reversed, the claimant would have to restore the sum paid under the indemnity. Any insolvency risk was a consequence of insolvency, not a reason to defer the indemnity.
5. The tribunal had therefore asked itself the wrong question by considering the likely ultimate outcome of the Indian appeal. It was not open to the tribunal to delay or deny the consequences of the indemnity. The indemnified sum was the judgment sum; an order requiring replacement of security was unnecessary, since the respondent could choose to offer replacement security.

• Arbitration: The tribunal awarded declarations and costs-related relief under the indemnity but declined to award a specific monetary sum while the Indian proceedings remained unresolved.
• High Court (Commercial Court): The court granted permission to appeal under section 69 of the Arbitration Act 1996 and allowed the substantive appeal.