England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
LEEDS DISTRICT REGISTRY
IN THE MATTER OF THE POPPLETON & APPELBY PARTNERSHIP

		The Court House Oxford Row Leeds LS1 3BG
		25/11/2016

Judge Behrens:


 


1 Introduction

1. This is a Part 8 Claim brought by Andrew Wood as a former salaried partner in the firm of Poppleton & Appleby ("P&A") in relation to the indemnity provided to him by Jeremy Priestley and John Russell ("the Partners") in their capacity as the equity partners of P&A.
2. Mr Wood contends that the indemnity arises principally as a result of clause 11 of a Partnership Agreement dated 13 November 2001. He contends that on its true construction the Partners are bound to indemnify him in respect of the costs and expenses of defending and/or any award made against him in

1. an application brought by the liquidators of F W Mason & Sons Ltd ("FWM"), any award that is made against him in those proceedings,

2. investigations into the affairs of P & A by the Department of Business Innovation and Skills and by the Insolvency Practitioners Association.

3. He also contends that he is entitled to an indemnity pursuant to clause 4.6 of the Partnership Agreement which purported to impose a trust.
4. The Partners challenge the construction of clause 11 of the Partnership Agreement. They contend that, on its true construction, clause 11 relates only to liabilities of the Partnership or action or proceedings against the Partnership.
5. They also contend that the trust imposed by clause 4.6 does not give rise to the indemnity sought by Mr Wood.

2 The underlying facts

6. Mr Wood is a licensed insolvency practitioner. His relationship with P & A was governed by a Partnership Agreement dated 13 November 2001. It will be necessary to refer to it in some detail later in this judgment. For present purposes it is sufficient to note that it contained a clause that made it clear that any insolvency appointment (including that of administrator or liquidator) that he received was for the benefit of the Partners and held on trust for the Partners. It also contained the indemnity clause which is central to the arguments in this application.
7. On 25 March 2011 Mr Wood and Mr White (another salaried partner of P & A) were appointed joint administrators of FWM. The administration lasted until 21 March 2012. During that period sums totalling £918,663 were taken from FWM's assets in respect of fees/remuneration. All of those sums were paid to P & A.
8. On 21 March 2012 FWM entered into creditors voluntary liquidation and Mr Wood and Mr White were appointed joint liquidators. On 6 September 2013 Mr Wood and Mr White were replaced as joint liquidators by Mr Richardson and Mr Hellard ("the new liquidators"). During that period sums totalling £301,197 were taken from FWM's assets in respect of fees/remuneration. All of those sums were paid to P & A.
9. A breakdown of the fees can be seen from the following table:


10. It will be seen that the fees withdrawn in respect of Mr Wood and Mr White's work were relatively small compared with the total fees and significantly less than those withdrawn in respect of the Partners.
11. On 11 September 2014 the new liquidators issued an insolvency application against Mr Wood and Mr White in which they claimed Mr Wood and Mr White were guilty of misfeasance and/or breach of fiduciary duty. The application was followed by Particulars of Claim dated 22 September 2014. The principal allegations made against Mr Wood and Mr White were:

1. That they had acted in breach of fiduciary duty in causing FWM to pay an improper referreal fee (of £22,500 plus VAT) to a firm of accountants (Haines Watts).

2. That they deliberately and/or dishonestly charged and drew from FWM's assets remuneration to which they were not entitled. A number of allegations are particularised. It is suggested that it is improbable that total time costs amounting to £1,219,860 could be genuine. It is alleged that P & A adopted a practice of time dumping. It is pointed out that the time charges are not supported by proper particulars of the work done. Some 31% of the administration fees are not supported by any narrative; some 49% of the liquidation fees are similarly unsupported. It is, however, to be noted that all of the fees charged by Mr Wood are supported by a narrative.

3. In the alternative that Mr Wood and Mr Wilson were negligent in drawing fees in excess of what they ought to have known represented their proper entitlement.

12. It is important to note that all of the allegations made by the new liquidators are denied.
13. On 30 September 2014 the practice of P & A was transferred to the P & A Partnership Ltd ("P&AL"). Mr Wood's employment was transferred to P&AL under the TUPE regs 2006.
14. Mr Wood's employment with P&AL terminated on 3 July 2015^[1] pursuant to the terms of a Settlement Agreement dated 11 February 2015 made between Mr Wood, the Partners and P&AL. There are terms of the Settlement Agreement which are said to be relevant to the construction of the Partnership Agreement.
15. Following a hearing on 16 July 2015 Registrar Derrett handed down a judgment on 16 November 2015 in which she granted permission to the new liquidators to bring a claim against Mr Wood and Mr White in respect of the administration period not withstanding their discharge as administrators (but not as liquidators) and refused an application to strike out the claim by the new liquidators.
16. There are two professional indemnity policies relevant to the funding of Mr Wood's defence. The first has cover limited to £1 million. It is common ground that that sum has been exceeded and that there is no further liability under that policy. There is currently an issue as to whether Mr Wood is entitled to the benefit of the second policy. The insurers have accepted that they are liable to fund Mr White's defence and are currently doing so. As there is no significant conflict between Mr Wood and Mr White it is suggested by the Partners that Mr Wood can in fact rely on the defence being put forward by Mr White.
17. In a letter dated 4 February 2016 from the solicitors for the insurers to Fenchurch Law (solicitors then acting for the Partners and funded by Mr Priestley) a number of questions were raised as to whether Mr Wood was entitled to the benefit of cover under the policy. The letter concluded by suggesting that arbitration under the policy was premature and that the insurers would review the situation after seeing the underlying papers. Mr Priestley did not provide any further funding to Fenchurch Law with the result that the matter is unresolved. The current position is that Mr Wood does not have the benefit of cover.
18. Some time after February 2016 Mr Wood instructed Gorvins to act on his behalf. On 20 April 2016 Gorvins sent an email to Keeble Hawson (the Partners' solicitors) which was in effect a letter before action. In that letter Gorvins asserted that the Partners were under an obligation to fund the litigation and threatened to make an application for a declaration that the indemnity is enforceable and/or to join the Partners in the litigation as part 20 Defendants to enable the court to make an order against them.
19. Following further correspondence these proceedings were issued on 7 June 2016.

3 The Partnership Agreement

20. I was referred to a number of the clauses in the Partnership Agreement. In the Interpretation Clause there are definitions of Partners, Partnership and Partnership Business:

"Partners means the Partners and such other persons as shall become equity partners in the Partnership during the subsistence of the Partnership"

"Partnership means the practice of accountants carried on by the Partners in partnership under the name or style "Poppleton and Appleby" or any other name or style from time to time adopted".

"Partnership Business means the business from time to time of the Partnership".

21. Mr Wood is referred to as "the Salaried Partner" Under clause 2 he was engaged for a term of 2 years from 1 January 2002. The engagement was to continue thereafter unless determined either by either party giving 6 months notice or summarily under clause 13. Clause 13 gave the right to the Partners to terminate the contract forthwith in a number of specified events.
22. Under clause 5 there is fixed remuneration of £40,000 per annum subject to annual upward review. Mr Wood is not entitled to share in the profits of the partnership.
23. There are a number of clauses (such as clause 3, 4, 10, 12 and 13) which demonstrate that Mr Wood's position was more that of an employee than of a partner.
24. Clause 4 deals with Mr Wood's relations with other businesses. Clause 4.6 deals with appointments taken by Mr Wood as liquidator, administrator and the like. The relevant part provides:

"Any appointments taken by the Salaried Partner whether as liquidator, administrator, receiver or administrative receiver, supervisor, nominee or trustee or in any other capacity for the benefit of the Partners and shall be held on trust for the Partners. … Upon the termination of [Mr Wood's] employment any such appointment shall notwithstanding its personal nature continue to be held for the benefit of the Partners.

25. Clause 11 is, of course, central to this dispute. It is headed "INDEMNITY" and provides:

"The Partners undertake with the Salaried Partner to pay and discharge all liabilities of the Partners including all actions and proceedings in respect of negligence against the Partnership (save to the extent that any such liability is actually the subject matter of payment by the professional indemnity insurers of the Partners) and to indemnify and keep indemnified the Salaried Partner and his personal representatives indemnified against all such liabilities and against all claims, proceedings, costs, demands and expenses in respect of the same. The Partners undertake to use all reasonable endeavours to effect and maintain professional indemnity insurance in an amount and on such terms as the Partners from time to time deem appropriate, (such insurance to contain indemnity cover in respect of the professional negligence of the Salaried Partner) in respect of the Partnership Business."

4 The Settlement Agreement.

26. As already noted the Settlement Agreement was entered into at a time when the new liquidators had instituted their claim but before the application before Registrar Derrett.
27. In the recitals it refers to Mr Wood as "Employee". It contains a definition of "Claims" in wide terms and expressly includes the claims arising from the administration and liquidation of FWM.
28. Clause 2 of the Settlement Agreement deals with pay. It provides that arrears totalling £35,000 will be paid to Mr Wood in 6 instalments ending on 31 July 2015. It also provides that P&AL will continue to pay Mr Wood his normal salary and benefits in the Notice Period.
29. Clause 3 deals with Mr Wood's work during the Notice Period. In summary he was to work on the claims to support the defence and provide assistance to any professional advisors instructed by the Partners.
30. Clause 4 is headed "REASONABLE ASSISTANCE". Clause 4.2 deals the obligations of the Partners. It provides:

4.2 "[The Partners] shall procure that so far as necessary the Partnership or the Company shall:

4.2.1 take all reasonable steps to respond to and deal with the Investigations and the Claims, including instructing suitable legal and other professional advisors to respond to the Investigations and the Claims on behalf of the Partnership and on behalf of [Mr Wood];

4.2.2 bear all of the legal costs that the Partnership or the Company incurs in the Investigations and the Claims (including for the avoidance of doubt but without limitation any legal costs incurred in responding to the Investigations and Claims on [Mr Wood] behalf and not seek any contribution from [Mr Wood] towards those legal costs"

31. Clause 5 is headed "INDEMNITY AND INSURANCE". Clauses 5.1 and 5.2 provide:

5.1 "For the avoidance of doubt, the indemnity in clause 11 of [the Partnership Agreement] shall continue to bind [the Partners] and shall remain in full force and effect both before and after the Termination Date.

5.2 To the extent that the Company has insurance cover of any form of risk that covers any Claims or the Investigations then the Company shall utilise such cover and take all reasonable steps to ensure that any financial liabilities incurred by [Mr Wood]in respect of any Claims are the responsibility of an insurer under the relevant insurance policy. For the avoidance of doubt and subject to 4.2 and 5.1 above, nothing in this clause 5.2 shall require the Company or the Partnership to meet [Mr Wood's] financial liabilities relating to any Claims or the Investigations.

32. Clause 13 provides that the Settlement Agreement constitutes an entire agreement and understanding between the parties in respect of the matters dealt with and supersedes any previous agreement in relation to such matters.

5 Employee as Officeholder

33. There was no dispute between the parties as to the effect of Mr Wood being appointed as an administrator and liquidator of FWM. Both Counsel referred me to Casson Beckman v Papi [1991] BCLC 299 where Lloyd LJ explained the position in this way:

Mr Collins for the defendant draws attention to the unique nature of the liquidator's office. Although he remains an employee of the firm of accountants by whom he is employed, nevertheless the appointment is personal to him. He owes duties to the general body of creditors, which are quite independent of, and may even conflict with, his duty to his employer. Mr Collins concedes that, whilst still in employment, the employee is accountable to his employer for the fees which he receives by virtue of his appointment; and he remains liable for such fees after leaving his employment, insofar as they relate to work already done. But he submits that all other fees belong to the employee. He is no longer under any duty to his employer. But his duties as liquidator continue. He is therefore entitled to be paid in the liquidation for the continuing performance of those duties. He cannot be made to account to his former employer, whether on the basis of an implied term of his contract of employment, or as fiduciary, or on any other basis.

Mr Jacob concedes the personal nature of the liquidator's office. He must be an individual, or one of a small number of individuals. But to divorce his appointment as liquidator from his position as an employee would be to fly in the face of reality. Many firms of accountants do not permit an employee or salaried partner to accept an appointment. But when they do, the individual is, in practice, appointed because he is an employee of the partnership, and because it is understood by all three parties, that is to say, the appointer, the employee, and the employer, that the employee's duties as liquidator will be performed in his employer's time, from his employer's premises, and with the help of his employer's staff.

34. Thus an office holder such as Mr Wood may be open to criticism if he delegates the entire matter to other members of the firm. He has the ultimate responsibility for the insolvency cases to which he has been appointed.
35. If therefore excessive fees have been taken from the assets of FWM it is Mr Wood and Mr White as joint officeholders who bear the ultimate responsibility to the new liquidators.

6 Principles of Construction

36. The principles of construction of contracts are well-known. In his written submissions Mr Brockman referred to the well-known passage from Lord Hoffmann's speech in ICS v West Bromwich BS [1998] 1 WLR 896 at 912. Mr Cawson QC referred to me to the restatement of the principles in Lord Clarke's judgment in the Supreme Court in Rainy Sky v Kookmin [2011] 1 WLR 2900 and by Lord Neuberger in Arnold v Britton [2015] 2 WLR 1593
37. In Arnold Lord Neuberger summarised the relevant principles in paragraph 15 and made some observations on "commercial common sense" in paragraphs 17 – 22:

15. When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to "what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to used by them to mean …. And it does so by 'focusing on the meaning of the relevant words… in their documentary, factual and commercial context. That meaning has to be assessed in light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the lease, (iii) the overall purpose of the clause and the lease, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party's intentions' …

'17 First, the reliance placed in some cases on commercial common sense and surrounding circumstances (eg in Chartbrook [2009] AC 1101, paras 16-26) should not be invoked to undervalue the importance of the language of the provision which is to be construed. The exercise of interpreting a provision involves identifying what the parties meant through the eyes of a reasonable reader, and, save perhaps in a very unusual case, that meaning is most obviously to be gleaned from the language of the provision. Unlike commercial common sense and the surrounding circumstances, the parties have control over the language they use in a contract. And, again save perhaps in a very unusual case, the parties must have been specifically focussing on the issue covered by the provision when agreeing the wording of that provision.

18 Secondly, when it comes to considering the centrally relevant words to be interpreted, I accept that the less clear they are, or, to put it another way, the worse their drafting, the more ready the court can properly be to depart from their natural meaning. That is simply the obverse of the sensible proposition that the clearer the natural meaning the more difficult it is to justify departing from it. However, that does not justify the court embarking on an exercise of searching for, let alone constructing, drafting infelicities in order to facilitate a departure from the natural meaning. If there is a specific error in the drafting, it may often have no relevance to the issue of interpretation which the court has to resolve.

19 The third point I should mention is that commercial common sense is not to be invoked retrospectively. The mere fact that a contractual arrangement, if interpreted according to its natural language, has worked out badly, or even disastrously, for one of the parties is not a reason for departing from the natural language….

20 Fourthly, while commercial common sense is a very important factor to take into account when interpreting a contract, a court should be very slow to reject the natural meaning of a provision as correct simply because it appears to be a very imprudent term for one of the parties to have agreed, even ignoring the benefit of wisdom of hindsight. The purpose of interpretation is to identify what the parties have agreed, not what the court thinks that they should have agreed….

21 The fifth point concerns the facts known to the parties. When interpreting a contractual provision, one can only take into account facts or circumstances which existed at the time that the contract was made, and which were known or reasonably available to both parties. Given that a contract is a bilateral, or synallagmatic, arrangement involving both parties, it cannot be right, when interpreting a contractual provision, to take into account a fact or circumstance known only to one of the parties.

22 Sixthly, in some cases, an event subsequently occurs which was plainly not intended or contemplated by the parties, judging from the language of their contract. In such a case, if it is clear what the parties would have intended, the court will give effect to that intention'

7 Mr Brockman's Submissions

On clause 11 of the Partnership Agreement

38. Mr Brockman submitted that the wording of clause 11 is clear. Applying an objective test the indemnity covers all claims of whatever nature made against him in his capacity as a salaried partner of P&A.
39. Clause 11 breaks down into the following three elements:
40. The Partners undertook to pay and discharge:

1. the costs and liabilities of the Partners including all actions and proceedings in relation to negligence against the Partnership;

2. to indemnify and keep indemnified Mr Wood against all such liabilities;

3. and against all claims, proceedings costs, demands and expenses in respect of the same.

41. He submits that element 3 is clear and unambiguous and covers all claims, including the claims by the new liquidators. He submits that the words "in respect of the same" which appear at the end of element 3 do not refer back to the costs and liabilities in element 1. Rather they refer to the claims, proceedings and costs in element 3 itself. He accepts that there is no express definition of the word "claims" in element 3. He submits that as a matter of common sense it must refer to claims in his capacity as a Salaried Partner. Thus element 3 should have read:

"and against all claims, proceedings costs, demands in his capacity as a salaried partner and expenses in respect of the same."

42. He makes the point that the word "all" is used three times within clause 11. The only possible explanation for this is that they are separate indemnities. He submits that if element 3 referred only to the liabilities of the Partners both elements 2 and 3 would be unnecessary.
43. Having regard to the fact that Mr Wood is a partner in name only and in reality an employee the commercial purpose of clause 11 was to ensure that he was indemnified in respect of claims made against him in his capacity as an employee. It should be interpreted in that way.
44. He also pointed out that the Partners have acknowledged their liability by offering to pay £100,000 in respect of the release of the indemnity and by paying for some of the costs ordered against Mr Wood and Mr White by Registrar Derrett.

On the Settlement Agreement

45. In his skeleton argument Mr Brockman submitted that clause 4.2 of the Settlement Agreement was:

"a recognition by the Partners that the payment of fees in relation to the Claim was their responsibility, whether through P&A, the Company or under the indemnity. They agreed to pay at a time when they were fully aware of the Claim and how it was put, they cannot now deny this responsibility."

46. However, in his oral submissions Mr Brockman expressly accepted that the obligations in clause 4.2 did not give rise to any separate claim and did not create a separate obligation to indemnify Mr Wood against the claims made by the new liquidators.

In relation to the Trust

47. In paragraph 19 of his witness statement Mr Wood asserted that by virtue of the trust created in paragraph 4.6 of the Partnership Agreement he is entitled to look to the Partners for an indemnity in respect of any claim made against him as a trustee.

8 Mr Cawson QC's submissions.

On clause 11 of the Partnership Agreement

48. Mr Cawson QC submits that the indemnity provided for by clause 11 of the Partnership Agreement relates only to liabilities of the Partners. He accepts that clause 11 can be broken down into the three elements identified by Mr Brockman.
49. The first element is an undertaking by the Partners to pay and discharge the liabilities of the Partners including negligence proceedings against the Partnership. It is thus plain that the first element relates to claims against the Partnership. It is not an indemnity clause. Mr Cawson QC points out that Mr Wood is being held out as a partner even though he is in reality an employee. Under s 14 of the Partnership Act 1890 there is a risk that he could be held liable for a partnership debt. Thus it is both appropriate and sensible that he should be given an indemnity in respect of such debts.
50. The second element is an indemnity in favour of Mr Wood in respect of "such liabilities". Mr Cawson QC submits that the words "such liabilities" can only refer to the liabilities referred to in the first element (i.e the liabilities of the Partners).
51. The third element is, of course, central to Mr Brockman's submission. As noted above it arises out of fourteen words:

"and against all claims, proceedings, costs, demands and expenses in respect of the same".

52. Mr Cawson QC submits that the words "of the same" plainly refer back to the same liabilities in the first two elements. He submits that the position is plain and that there is no need to consider the commercial purpose of the clause. Equally there is no need to import the words "in his capacity as a salaried employee" as suggested by Mr Brockman. Mr Cawson QC did not accept that the commercial purpose was to provide an indemnity to Mr Wood for all claims against him in his capacity as an employee. He submitted that the commercial purpose was to provide an indemnity against claims made against the Partnership.

On the Settlement Agreement

53. In the light of Mr Brockman's concession, it is not necessary to record Mr Cawson QC's submissions in any detail. Mr Cawson QC did however point out that the obligation in clause 4.2.2 related only to the legal costs of the Partnership and/or P&AL.
54. Mr Cawson QC submitted that clause 5.1 simply provided that clause 11 of the Partnership Agreement was to remain in full force and effect. It did not purport to explain or interpret clause 11.
55. He also drew my attention to the final sentence of clause 5.2 which made it clear that save as provided in clause 4.2 and 5.1 (which incorporated clause 11 of the Partnership Agreement) there was no obligation on the Partners or P&AL to meet any of Mr Wood's liabilities arising out of the Claims.

Trust claims

56. In the light of the personal nature of the appointments Mr Cawson QC submitted that they could not be held on trust the Partners. Even if they were he submitted that it was premature to decide whether Mr Wood was entitled to an indemnity out of the trust assets.
57. In paragraph 47- 48 of his skeleton argument Mr Cawson QC put the position in this way:

an indemnity will not be available in respect of conduct that amounts to a breach of trust or, more particularly, where the trustee has acted fraudulently, in the latter case because, as a matter of policy, an indemnity ought not to be available to provide an indemnity against the consequences of a trustee having acted fraudulently – see Gatsios Holdings Pty Ltd v Nick Kritharas Holdings Pty [2002] NSWCA 29, referred to in Lewin (supra) at 21-021. As a matter of principle, this ought to be so even if the beneficiary has also been involved in the fraud, cf. the position in respect of contractual indemnities referred to in para 35 above.

In Gatsios, at paras 46-47, Meagher JA said this:

"46 It is well settled that this right to indemnification extends to reimbursement of the trustee for damages awarded against him for torts committed by him in the course of carrying on the trust business. The cases most usually cited for this proposition are Benett v Wyndham (1862) 4 DF&J 259; 45 ER 1183 and in re Raybould [1900] 1 Ch 199. In the present case the trustee argued successfully that damages under the consumer protection provisions of the Trade Practices Act should, for this purpose, be equated with damages for common law torts. I quite agree with this submission.

47 What are the limits to be placed on this right to indemnification? This is a matter which has rarely engaged the attention of either the Australian or the English Courts. Presumably if the activity which generated the liability in question were a breach of trust, the right to an indemnity under the general law would no longer exist; similarly if it were criminal in nature, but no criminal offences were charged against NKH, its associates or officers. Again, one must in principle incline to the view that if the activity in question had been fraudulent the law would withhold the right to indemnification; but in the present case Tamberlin J expressly negatived fraud. I find it difficult to formulate any other limitations. United States authorities, to which Hamilton J refers, might be read as establishing either or both these propositions: (a) that the activity in respect of which indemnity is claimed must be "reasonable", and (b) that the activity must be "proper". In my view, neither such limitation exists in Australian law. As to the former, it is in the circumstances, meaningless; no conduct has to be castigated as "unreasonable" unless one has a clear criterion of what constitutes reasonableness, and here there is none. As to the latter, it is almost as meaningless to endeavour to apply some hypothetical standard of propriety in ordinary commercial life, absent fraud and crime. I find it difficult to view occasional breaches of Trade Practices legislation as anything other than incidental aspects of ordinary commercial life." [Emphasis added]

58. If the new liquidators' claims succeed and if there is a finding of dishonesty against Mr Wood it would be inappropriate for there to be an indemnity. In those circumstances it is inappropriate for an indemnity to be ordered at this stage in these proceedings.

9 Discussion and Conclusions.

General Points

59. As noted above this case has been presented on the basis of an indemnity under clause 11 of the Partnership Agreement and/or as a result of the trust relationship provided by under clause 4.6. I have not been asked to decide whether there is a more general right to contribution or whether the Partners should be joined into the proceedings by the new liquidators. Nothing in this judgment is intended to deal with or comment on such claims.
60. Both sides have sought to pray in aid the professional indemnity insurance position. Mr Cawson QC draws attention to the letter from Beale & Co and to the fact the insurers were prepared to review the situation and complains that Mr Wood has not taken up the offer of a review. Mr Brockman makes the point that Mr Priestley has ceased the funding of Fenchurch Law who were negotiating with Beale & Co over the insurance situation. He also makes the point that as there has been no actual payment by the insurers the insurance position is largely irrelevant.
61. I agree with Mr Brockman that the insurance position is largely irrelevant to the construction of clause 11 of the Partnership Agreement. I agree that as there has been no payment or agreement to pay by the insurers the exception in the first element cannot be a defence to Mr Wood's claim.
62. It is, however, to be noted that under clause 5.2 of the Settlement Agreement there is an obligation on P&AL to

"take all reasonable steps to ensure that any financial liabilities incurred by [Mr Wood]in respect of any Claims are the responsibility of an insurer under the relevant insurance policy."

63. I have not been asked to decide whether or not P&AL is in breach of that obligation and I probably do not have enough information to do so. However, the suggestion that it was for Mr Wood to take up the matter with Beale & Co would seem to be inconsistent with the obligation under clause 5.2. Apart from all other factors I suspect that Mr Wood was not party to the insurance contract. Furthermore, the fact that Mr White was covered by insurance is irrelevant to the question whether P&AL has complied with its obligation under clause 5.2. Nor would it help if at the end of the new liquidators' claims Mr Wood and Mr White are held to be jointly liable to the new liquidators and Mr Wood has to contribute (say) 50% of the sum so ordered. His liability would not be covered by the professional indemnity policy. Whilst the defence of Mr Wood and Mr White may not be significantly different, Mr Wood's fees are significantly lower than those of Mr White and there may be arguments as to the level of contribution between them.

Clause 11 of the Partnership Agreement

64. I prefer the submissions of Mr Cawson QC.
65. In my view the words "of the same" in the third element of the clause plainly refer back to the same liabilities as are referred to in the first two elements. Mr Brockman complains that on that construction the third element would be unnecessary. I do not agree. The third element makes it clear that the indemnity in the second element covers not only the liabilities of the Partners but also "all claims, proceedings costs demands and expenses in respect of the same". It is clarifying the extent of the indemnity.
66. If, contrary to my view the words "of the same" referred back to the word "claims" in the third element it would be uncertain what claims are referred to. It was for that reason Mr Brockman was forced to insert the words "in his capacity as a Salaried Partner" into the third element. However those words are not there and there is no reason to insert them. Mr Cawson QC's construction is perfectly intelligible and, in my view is the natural meaning of the words used.
67. Furthermore, I do not accept that it is necessarily appropriate to give an employee a complete indemnity against all claims in his capacity as an employee. There are many claims where it might well not be appropriate for an employer to indemnify its employee. Examples were not explored in detail in argument but could include claims by third parties against an employee where there was actual dishonesty by the employee, claims where for example there had been misuse by the employee of confidential information belonging to the third party or claims where the act of the employee involved the breach of an express instruction by the employer.
68. Mr Brockman sought to meet this argument by suggesting that the court would not as a matter of public policy enforce such an indemnity where the employee had been dishonest. However, two of the examples I have given do not necessarily involve dishonesty.
69. I am not therefore satisfied that the commercial purpose of clause 11 was to protect Mr Wood against claims made personally against him. Rather, as Mr Cawson QC submitted I think it was to protect him against claims against the Partnership for which he might be liable as a Salaried Partner.

The Settlement Agreement

70. I agree with Mr Cawson QC that the Settlement Agreement does not really take the matter much further. Clause 5.1 makes it clear that Clause 11 of the Partnership Agreement remains in force. I do not think that the final sentence in clause 5.2 really assists in the construction of clause 5.1. It simply provides that clause 5.2 itself does not require the Partnership or P&AL to meet Mr Wood's financial liabilities relating to the Claims. It is, in my view impossible to interpret that clause as an acknowledgment that clause 11 of the Partnership Agreement did impose such a liability on the Partnership.

The Trust Claim

71. I do not find it necessary to decide whether the personal nature of the appointments is inconsistent with a trust though I incline to reject Mr Cawson QC's argument. I cannot provisionally see why an office holder cannot hold the fees he receives from his appointment upon trust for his employer. I note that in Casson Beckman two of the three judges took the view that an employee officer holder had to account for the fees to his employer as a result of a fiduciary duty in his contract of employment. I cannot, in those circumstances see why an employer and employee cannot agree that there is a trust.
72. However, I see considerable force in Mr Cawson QC's other point. The right to an indemnity out of the trust fund is by no means automatic and would depend on the findings made in the new liquidators' claim. Thus it would be inappropriate to grant an indemnity at this stage.
73. Mr Brockman sought to avoid this conclusion by reference to Coulson v News Group [2012] EWCA Civ 1547. However, that case was about the construction of an express indemnity clause which was held to include the costs of defending criminal proceedings. Thus, I derive little assistance from that case.
74. There is a further point which was not explored in detail in argument and not at the forefront of Mr Cawson QC's case.
75. Clause 12.2 of the Settlement Agreement provides that with 3 exceptions the Settlement Agreement is in full and final settlement of all claims (as widely defined) against the Partnership and/or P&AL arising out of Mr Wood's employment. One of the exceptions is clause 12.2.2.3 which expressly excludes claims for contribution or indemnity otherwise than in accordance with clause 11 of the Partnership Agreement.
76. As noted above this is not an argument which was developed in the skeleton arguments. Provisionally, however, clause 12.2 of the Settlement Agreement would appear wide enough to exclude a claim for an indemnity based on the trust argument arising out of clause 4.6 of the Partnership Agreement.

10 Overall Conclusion

77. I would dismiss this claim.

Note 1   The Settlement Agreement provided for earlier termination if agreed by the parties. There is no evidence as to the actual date of termination.    [Back]