CONTRACTS — Construction — Shareholders’ Deed amongst shareholders in a company and with the company contains an Indemnity under which a Defaulting Shareholder indemnifies the company and the other shareholders against any actions, costs, claims, demands, losses, damages or other liabilities to which they may become liable arising out of or in connection with the default of the Defaulting Shareholder — after unsuccessful litigation in which one of the Plaintiffs was found to be a Defaulting Shareholder the Defendants cross-claim under the Indemnity — Plaintiffs argue that the Indemnity covers only costs which are not unreasonable and that such costs should be assessed as if the Defendants are entitled to their costs on the indemnity basis but no more — HELD — on the proper construction of the Indemnity all costs are recoverable provided they arise out of or are in connection with the default of the Defaulting Shareholder — judgment for the Defendants/Cross-Claimants in varying amounts
Quick Take
1A contractual indemnity against 'any actions, costs, claims, demands, losses, damages or other liabilities ... arising out of or in connection with' a shareholder's default covers all legal costs actually incurred that bear the requisite connection to the default. It is not confined to costs recoverable on an indemnity basis under UCPR r 42.5, and the court does not exercise a costs-assessment discretion; the inquiry is an evaluative judgment about connection to the default.
2No term limiting such an indemnity to costs 'not unreasonably incurred' or 'not unreasonable in amount' will be implied, because it is neither necessary nor consistent with the express words (Codelfa). Nonetheless, costs may be so grossly excessive or 'beyond the pale' that they no longer arise out of or in connection with the default. Unreasonableness may be one integer in drawing that line, which was not crossed on the facts, even for a senior counsel rate of $4,000 per hour.
3Salaries of full-time executives for time spent on the litigation are not recoverable under such an indemnity absent proof of lost opportunity or additional cost (PND Civil Group v [name withheld]). On the evidence, a standing media advisory retainer whose actual services and benefits were not proved was a prophylactic 'luxury' outside the indemnity.
