Background
The proceedings arose from a shareholders’ deed containing an indemnity under which a Defaulting Shareholder was to indemnify the company and other shareholders against actions, costs, claims, losses and liabilities arising out of, or in connection with, that shareholder’s default. In earlier litigation, Dexus Capital Investors Limited (DCIL) had been found to be a Defaulting Shareholder.
Utilities of Australia Pty Ltd (UTA), a cross-claimant, sought recovery under the indemnity for $1,236,901.10 in solicitors’ fees, counsel’s fees and disbursements incurred in the litigation. Although the parties had previously indicated that UTA’s claim had settled in principle, they later advised that it had not, and the Court relisted the matter for separate determination.
The Court’s Holding
Hammerschlag CJ in Eq gave judgment for UTA against DCIL for the full $1,236,901.10. Applying the construction of the indemnity adopted in the related judgment, the Court held that recoverable costs were not confined to costs that were reasonable or assessed by reference to an indemnity-costs standard; the question was whether they arose out of or in connection with DCIL’s default.
UTA’s solicitors’ fees may have been high, particularly because no client percentage reduction had been applied, but they remained costs incurred in connection with the default. The Court also declined to reduce counsel’s fees for duplication, describing them as modest. Dexus Capital Investment Services Pty Ltd and InfraBridge were ordered to pay UTA’s remaining proceeding costs on the ordinary basis, without double recovery. DCIL was provisionally ordered to pay UTA’s costs of pursuing the indemnity claim on an indemnity basis, subject to objections within seven days.
Key Takeaways
- A broadly drafted shareholder-default indemnity covered all costs arising from or connected with the default.
- The Court did not import a separate reasonableness or costs-assessment limitation into that contractual indemnity.
- UTA recovered its full claimed amount of $1,236,901.10 from DCIL.
Why It Matters
The decision illustrates the potentially expansive effect of contractual indemnities in shareholders’ deeds. Where the language ties recovery to costs arising from or connected with a default, the indemnified party may recover litigation expenditure without the reductions that might be expected in a conventional party-and-party costs assessment.
It also confirms that separate costs orders can be structured to prevent double recovery while preserving the contractual indemnity claim.