Indemnity for fines and penalties

In the wake of the House of Lords’ decision in Stone & Rolls Ltd v Moore Stephens [2009] UKHL 39 on the question as to a defendant’s ability to raise illegality as a bar to recovery of damages or indemnity, two further recent decisions of the High Court shed additional light on this difficult question. In the Moore Stephens case the issue was whether a company in liquidation, which had been used as a vehicle for fraud by its sole director and beneficial owner, could claim against the company auditors for failure to detect the fraud. By majority, the Lords held that in the case of a ‘one man’ company who is also the owner the fraudulent conduct is to be treated as the company’s conduct, and the claim was therefore defeated by the illegality principle. The issue in Safeway Stores Ltd and Others v Twigger and Others [2010] EWHC 11 (Comm) and Griffin v UHY Hacker Young & Partners (A Firm) [2010] EWHC 146 (Ch) was as to the extent to which a company and/or an individual have the right to claim indemnification in respect of the fine or penalty from the person who caused the final penalty to be incurred in the first place. The cases are analysed by Francis Kean of Barlow Lyde & Gilbert LLP.

The Safeway case

This case arises out of an Office of Fair Trading (‘OFT’) investigation into various marketing practices undertaken by a number of supermarkets, including Safeway (now part of the Morrisons Group). The OFT alleged that these practices amounted to a breach of the prohibition against distortion of competition within the UK under the Competition Act 1998. Safeway and the OFT entered into a ‘fast track’ agreement under which Safeway admitted breaches of the Competition Act through the repeated exchange and disclosure of commercially sensitive retail pricing information. The exact size of the penalty which the OFT will impose on Safeway has yet to be decided, but the amount is likely to exceed £10m.