It’s not personal…

An indemnity given by a financial advisor was not personal and therefore could be enforced by an assignee said the Court of Appeal in Shaw v Lighthousexpress Ltd [2010] EWCA Civ 161. 

Berkeley Wodehouse Associates, a partnership, operated through a network of independent financial advisors. Mr Shaw provided services to BWA under BWA’s standard form of contract for IFA’s (“IFA Contract”). Under the IFA Contract, Mr Shaw had agreed to indemnify BWA in respect of any costs, charges and expenses, including any excess, charged by BWA’s PI insurers in connection with his provision of services. Mr Shaw resigned and BWA subsequently sold its business to Lighthousexpress Ltd. One of the assets transferred under the sale by BWA to Lighthousexpress was the benefit of BWA’s current contracts. Lighthousexpress was later required to compensate a former client of the BWA business who had been advised by Mr Shaw. Lighthousexpress then sought to rely on the indemnity to recover this compensation (which fell within the excess) from Mr Shaw.

The general rule is that, in the absence of a prohibition on its assignment, an assignee may enforce the terms of a contract unless it is intended to be personal to the assignor. Notably the Court found, in this case, that there was no reason why, on its true construction, the right of the indemnity should be personal to BWA and so not be assignable. In particular, there was always the possibility that the partners of BWA would change or the BWA business would be transferred to a third party and so there was no reason for the indemnity to remain frozen in favour of the partners of BWA as at the date that the indemnity was given.

The Court also considered whether a provision in the business sale agreement between BWA and Lighthousexpress purporting to assign the benefit of the “current contracts” of BWA was effective to assign the benefit of the indemnity in an agreement which had already been terminated. The Court found that the indemnity in the IFA Contract continued in effect following its termination and therefore the IFA Contract remained alive so far as the indemnity clause was concerned. This being the case the Court construed the term “current contracts” used in the business sale agreement widely so as to include live contractual obligations owed to or by BWA.

Unfortunately for Lighthousexpress, its claim ultimately failed because the Court found that a limitation clause in the IFA Contract meant that its claim was out of time. However, the case raises two important points. Firstly, those providing an indemnity should decide whether or not they wish to expressly exclude the ability of the recipient to assign the benefit of that indemnity. Secondly, parties entering into a business sale agreement should make clear whether the assignment of the benefit of the contracts of the business includes those rights surviving under contracts which have already terminated.