Costs judge rules on indemnity in management buy-out dispute

Background

The High Court, presided over by Costs Judge Leonard, delivered a detailed assessment of costs in the case of St Francis Group 1 Limited and others against Mr John Thomas Kelly and Lansdowne Group Limited. The case revolved around a management buy-out (MBO) transaction and subsequent indemnity claims.

The Dispute

The dispute originated from a sale and purchase agreement (SPA) dated 17 March 2017, where the Kelly family sold their companies, Demolition Services Midlands Group Holdings and St Francis Group, to a group of purchasers represented by the Claimants. The transaction, valued at over £100 million, was completed on 31 March 2017.

Central to the case was a Claim Waiver executed by the first Defendant, Mr Kelly, in which he waived any claims against the Claimants and agreed to indemnify them against losses. Despite this waiver, the Defendants initiated a fraud claim against Mr Baker and Mr Braid, alleging breaches of fiduciary duties and misrepresentation of the companies' value.

Judgment and Costs

The fraud claim was dismissed by Mrs Justice Cockerill in July 2022, who found the allegations unfounded and the sale price reflective of the companies' value. The counterclaim for indemnity under the Claim Waiver succeeded, leading to the current costs assessment.

Costs Judge Leonard's assessment focused on the indemnity's scope, particularly whether it covered in-house legal costs and management time. The Claimants sought reimbursement for costs incurred in providing disclosure and management time, particularly that of in-house counsel Mr Adrian Kennedy.

Legal Arguments

The Defendants argued that the costs claimed exceeded the scope of the indemnity and included non-recoverable items. They also challenged the reasonableness of the time and fees claimed, suggesting a lack of delegation and duplication of work.

Judge Leonard, referencing CPR 44.5, emphasised the presumption that costs payable under a contract are reasonable unless proven otherwise. He found the Defendants' objections inadequately particularised, often lacking specificity in identifying disputed items and grounds.

Outcome

Judge Leonard struck out several of the Defendants' preliminary points and item-by-item objections due to their lack of particularity. He upheld the Claimants' right to recover reasonable costs under the indemnity, including in-house legal costs, provided they were reasonable in amount.

Implications

This ruling underscores the importance of clear and particularised objections in costs assessments. It also reaffirms the broad scope of indemnities in commercial transactions, particularly in complex MBO disputes.

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