Where a contract of indemnity is repudiated and the indemnified party settles a third-party claim, the settlement is recoverable only if objectively reasonable. The onus is on the plaintiff to prove reasonableness, which requires evidence not only that the result was reasonable but that the negotiations were conducted with proper care and skill. If the settlement is found unreasonable, the court may (per the majority) reassess what a reasonable settlement would have been, or (per Handley JA) require the plaintiff to prove its damages on the available evidence without the benefit of the settlement figure. The indemnity clause must be construed to determine whether it extends to legal costs of enforcement proceedings.
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