AXA SA v Genworth Financial International Holdings, Inc & Ors

A bespoke contractual payment clause must be construed by reference to its language, the agreement as a whole and the admissible factual matrix. The court should not first classify it as an indemnity or performance bond and then import consequences from that classification. A covenant to pay specified losses on demand is enforceable according to its express criteria. An additional obligation to pursue all reasonably available defences will not be implied where the contract contains no such term and the surrounding regulatory and commercial context points against it. Contractual subrogation depends on the common intention expressed in the contract and cannot arise where the recipient of payment and the entity holding the relevant third-party rights are different legal persons. An express contractual regime governing third-party recoveries may exclude any further implied subrogation rights.

AXA acquired the businesses of Financial Insurance Company Limited and Financial Assurance Company Limited from Genworth under a sale and purchase agreement. Clause 10.8 required Genworth to pay 90% of defined losses arising from historic PPI selling activity by Santander, payable by AXA’s demand.

The court determined liability principles before a later quantum hearing. The principal issues were the construction of clause 10.8, whether AXA had to pursue all reasonably available defences, whether Genworth acquired subrogation rights against Santander, the scope of PPI, the operation of consent provisions in Schedule 5, and the allocation of recoveries from Santander.

1. Construction of clause 10.8. Clause 10.8 was a bespoke covenant to pay, not an indemnity or performance bond. Its meaning had to be derived from its language, the SPA as a whole and the admissible factual matrix, without preconceived classification. The relevant obligation was to pay 90% of losses incurred by FICL or FACL relating to a claim or complaint concerning PPI, underwritten by FICL or FACL, sold by Santander before 1 January 2005.
2. Reasonable defences. There was no express or implied contractual requirement for AXA, FICL or FACL to assert all reasonably available defences before making a demand. The detailed drafting of the SPA, the absence of such wording, the contrast with express reasonable-endeavours provisions elsewhere, and the regulatory complaints regime all supported that conclusion. Issue 3 was answered in the negative.
3. Subrogation. No contractual subrogation arose. FICL and FACL were not parties to the SPA, AXA alone could enforce clause 10.8, and the relevant rights against Santander belonged to FICL and FACL. Even if clause 10.8 had been an indemnity, clause 20.1 and Schedule 5 paragraph 8.2 excluded or displaced any implied subrogation regime.
4. Related issues. A payment under clause 10.8 would not extinguish or prejudice FICL/FACL’s potential claims against Santander. Bundled PPI products fell within the clause because the relevant market context was regulatory remediation, where redress was calculated on the entire policy. Schedule 5 paragraph 7 concerned civil third-party claims, not regulatory complaints, the CHA or the Standstill Agreement. Genworth was alternatively estopped from relying on consent requirements for redress payments, and its withholding of consent would have been unreasonable.
5. Other findings. The aggregated approach applied under Schedule 5 paragraph 8.2: recoveries from Genworth and Santander were considered together when determining excess recovery. The grossing-up issue was adjourned to the quantum hearing. AXA succeeded on construction and Genworth failed on the Subrogation Declaration.

This was a first-instance Commercial Court decision on liability principles. The judgment records that Andrew Baker J had previously struck out Genworth’s wider Part 20 claim as an abuse of process in [2018] EWHC 2898 (Comm), while permitting a limited subrogation issue to be pursued. The present court determined that issue and the other liability questions.