Axa S.A. v Genworth Financial International Holdings, Llc & Ors

Under a contractual indemnity, expenditure is “incurred” when the relevant party becomes legally liable for it. Actual payment is unnecessary unless the contract requires payment as the trigger.

A tax gross-up clause referring to a sum being subject to taxation in the recipient’s hands may operate only when the recipient has an enforceable liability to pay the relevant tax. The court must construe the words in the context of the contract, including linked provisions and their commercial purpose. A clause intended to make the recipient whole does not ordinarily require an advance payment calculated by reference to a hypothetical tax liability which may never arise.

AXA claimed approximately £500 million from Genworth under clauses 10.8 and 15.1 of a sale and purchase agreement. The claim concerned losses arising from historic mis-selling of payment protection insurance underwritten by FICL and FACL and sold by Santander.

The court had previously determined liability in [2019] EWHC 3376 (Comm). The quantum hearing concerned whether the claimed losses had been incurred, whether disputed policies were underwritten by FICL or FACL, and the construction and operation of the tax gross-up provision in clause 18.5.

1. Incurred losses. The word “incurred” in the definition of PPI Mis-selling Losses meant being rendered legally liable, whether or not payment had yet been made. The contractual wording expressly included liabilities incurred in respect of PPI complaints. Accordingly, uncashed cheques represented incurred liabilities, and AXA was not required to prove payment out in every case (paras [52]–[76]).
2. The court rejected Genworth’s submission that the indemnity was limited to sums actually paid. The reference to complying with an order or settlement did not displace the broader wording of the definition. The court accepted limited reductions for cancelled cheques and variable non-payroll administration costs, but rejected a general reduction for payroll costs (paras [77]–[93]).
3. Underwriting evidence. AXA bore the burden of proving, on the balance of probabilities, that the disputed policies were underwritten by FICL or FACL. The absence of matching policy terms did not establish that another insurer was involved. The evidence, including Santander’s evidence, Agency Agreement addenda, scheme numbers, TIA references and store-card agreements, established that all 136 disputed complaint files related to FICL or FACL policies (paras [104]–[152]).
4. Tax gross-up. Clause 18.5 had to be read with clause 18.4. “Subject to Taxation in the hands of the receiving party” meant actually taxed in the recipient’s hands. The gross-up obligation arose only when the recipient had an enforceable liability to pay tax, following assessment by the relevant revenue authority. It did not require an advance payment based on a hypothetical tax calculation which might produce a windfall (paras [153]–[222]).
5. Issues concerning a hypothetical tax liability and the tax treatment in the United Kingdom or France did not arise. Questions of reasonable endeavours, causation or remoteness were left to any actual factual situation in which they might arise (paras [223]–[229]).

This was a first-instance quantum judgment following the liability judgment in [2019] EWHC 3376 (Comm).