First Names (Jersey) Ltd & Anor v IFG Group Plc

An indemnity may be implied into an employee’s contract where the employee is required by the employer to undertake directorships for client companies and, without an indemnity, the contract would be futile, inefficacious or commercially absurd. The indemnity covers liabilities incurred in good faith in performing the required directorship. An indemnity under a share purchase agreement may be triggered by potential litigation notified while the liability remains contingent. Contractual notice requirements must be applied according to their terms. Where an estimate is required only to the extent information is available, the absence of an immediately quantifiable estimate does not necessarily invalidate notice. It may postpone payment until the liability becomes actual or quantifiable, but does not avoid the indemnity.

First Names (Jersey) Limited employed three individuals who were required to act as directors of a client company, Ignition Romanian Land Fund #1 Limited. After Ignition entered liquidation, its liquidator brought claims against the directors. First Names Jersey accepted that it was obliged to indemnify them and sought an indemnity from IFG Group Plc under a share purchase agreement concerning the sale of First Names’ parent.

The dispute concerned whether the employment contracts contained an implied indemnity, whether the indemnity was affected by Companies (Jersey) Law 1991, and whether notice under the share purchase agreement and its Schedule 5 complied with the contractual requirements.

1. Implied indemnity. The contracts of employment contained an implied indemnity. The employees had been required to become directors of a client company as part of their employment. Without protection against liabilities incurred in that role, the contracts would be futile, inefficacious and commercially unworkable. The implied term indemnified an employee acting in good faith against costs, losses and liabilities incurred in the course of the directorship.
2. The indemnity was not confined to vicarious liability. The employer’s Articles of Association, its established policy and the commercial context supported an obligation covering the consequences of requiring employees to undertake client directorships. The availability of employer-arranged insurance did not displace the indemnity.
3. Companies (Jersey) Law 1991. Article 77(1) did not apply. The liability for which indemnification was sought was not a liability attaching to the directors by reason of their being officers of First Names Jersey. The court therefore did not need to determine the effect of Article 77(2)(b) or (d).
4. Share purchase agreement. Clause 8.1 covered liabilities arising directly or indirectly in connection with litigation arising from pre-completion facts or circumstances. A claim could be notified while the underlying litigation remained potential or the liability remained contingent. The contractual indemnity was distinct from the negotiated warranties.
5. Schedule 5 did not impose an absolute requirement that an estimate of the amount claimed be supplied where no such information was available. The requirement to provide reasonable detail, to the extent information was available at the time, applied to the estimate as well as to the events giving rise to the claim. The absence of an available estimate did not invalidate the notice. Under paragraph 3.3, liability was postponed until the contingent or unquantified liability became actual or capable of quantification, rather than avoided.
6. The relevant liability became actual when the liquidator commenced proceedings against the directors, not when those proceedings concluded. The claim had been commenced within the contractual four-month period. First Names Jersey and First Names Group therefore succeeded. Questions concerning the form of declaratory relief were left to be addressed when the order was drawn.

Not stated in the judgment.