Tethys Petroleum Limited v The Rt Hon The Lord Lilley & Anor

On a strike-out or summary-judgment application, the court may determine a short point of law or construction where the evidence is sufficient and the parties have had a proper opportunity to address it. A director’s indemnity in company articles must be construed as a whole and may extend to omissions and claims brought by the company itself. Where the indemnity excludes wilful act, neglect or default, “wilful” may govern all three terms and requires conscious wrongdoing or, at minimum, appreciation that the conduct might breach duty followed by a conscious decision to proceed. A claimant cannot recover loss suffered by a subsidiary without a pleaded legal basis. A claim which is not pursued should be discontinued or struck out.

The claimant, a Cayman Islands company, brought negligence and directors’ duty claims against two former directors concerning a transaction entered into by its Kazakh subsidiary. It claimed approximately US$3.4 million paid by the claimant to settle enforcement proceedings against the subsidiary’s pledged assets.

The defendants applied to strike out the claim or obtain summary judgment. The claimant sought permission to amend its pleading and to rely on a linguist’s report concerning the construction of an indemnity in the claimant’s articles. The court also considered the claimant’s abandoned claim concerning a Georgian investment, the alleged employment claim against the second defendant, and consequential costs issues.

1. Disposition. The dismissal application succeeded. The claim was struck out under Civil Procedure Rules 1998, rule 3.4(2), alternatively summary judgment was entered under rule 24.2. The amendment and expert applications were dismissed. The hearing was adjourned for consequential orders and costs.

2. Indemnity. Both defendants were appointed on the footing that the claimant’s articles applied. Article 133(A) therefore applied in principle. Its wording was sufficiently wide to cover liabilities arising from acts in or about the execution of office, including omissions. It also applied to claims brought by the company itself; there was no justification for inserting a third-party-claims limitation.

3. Wilful conduct. The exception for “wilful act, neglect or default” required more than negligence, however gross. “Wilful” governed act, neglect and default. The relevant conduct involved a deliberate and conscious decision to act or fail to act in knowing breach of duty, or appreciation that the conduct might breach duty followed by a conscious decision to proceed without regard to the consequences. The proposed amendments pleaded negligence and warnings, but did not sufficiently plead conscious wrongdoing. Permission to amend was refused.

4. Expert evidence. Expert evidence on the ordinary meaning and construction of an English contractual provision was not reasonably required. Construction was a matter for the court, and the proposed report impermissibly sought to rewrite the clause and usurp the judicial function. The expert application was dismissed as no longer pursued.

5. Employment claim. The service agreement named Tethys Services Limited and Mr Hammond, not the claimant. The claimant therefore had no apparent contractual claim based on that agreement. No exception to privity was pleaded, and the Contract (Rights of Third Parties) Act 1999 did not assist because it excluded employment contracts. In any event, the pleaded employee and director breaches substantially overlapped and were covered by the indemnity.

6. Loss. The transaction agreements were entered into by the subsidiary, which alone was exposed to enforcement action. The claimant voluntarily funded the settlement but was not legally obliged to do so. The pleaded loss was therefore loss suffered by the subsidiary, not the claimant. The claimant had no pleaded basis to recover its subsidiary’s loss.

7. Abandoned claim. The Georgian claim, which was not particularised and was not pursued, was liable to be struck out. The court would address its discrete costs consequences at the consequential hearing.