Rust Consulting Limited (in liquidation) v PB Limited (formerly Kennedy & Donkin Limited) [2012], CA
Rust sought to claim under an indemnity given by PB when it purchased Rust business. PB assumed "responsibility for the ... discharge of all the outstanding liabilities and contracts of [Rust's] business" and indemnified Rust against all claims etc in respect of such liabilities. Liabilities were defined by reference to the accounts at completion. Ten years later, a client of Rust claimed against Rust in negligence for faulty advice given. PB took over the defence of the claim and consented to judgment being entered in favour of the client against Rust for about £8 million. Rust's liquidators later claimed against PB under the indemnity in respect of the consent judgment.
The judge held PB did not have any liability. The definition of liabilities required an actual liability to be established. A consent judgment sum did not establish actual liability.
The Court of Appeal allowed Rust's appeal. PB had not only consented to the judgment in the client's favour, but had also instructed Rust to submit to judgment being entered against it. It should not be open to a party who caused judgment to be entered in the belief that it was in its financial interest to challenge the reasonableness of it when it later perceived its commercial interest differently.
Comment
The Court of Appeal adopted common sense reasoning which prevailed over the rather formalistic reasoning of the High Court.
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