Via Indian Corporate Law Blog
In the case of Andrew Coulson v. News group newspapers limited the Court of Appeals of the United Kingdon analyzed the indemnity clause contained in an agreement entered into between News Group Newspapers Limited (“NGN”) and Mr. Andrew Coulson, former-editor of the newspaper ‘News of the World’. The question before the Hon’able Court was whether the indemnity clause contained in this agreement is applicable to costs incurred by Mr. Coulson in defending criminal proceedings filed against him in connection with prior criminal proceedings filed against News of the World.
The indemnity clause provided for claim of costs and expenses “properly incurred” from “having to defend, or appear in, any administrative, regulatory, judicial or quasi-judicial proceedings as a result of his having been the Editor of the News of the World.“
The threefold arguments raised by NGN emphasized that (a) the criminal proceedings were not “as a result of his having been Editor”; (b) such costs have not been shown to be “properly incurred”; and (c) such costs cannot be claimed according to the maxim ex turpi causa non oritur action which states no claim can be based on an illegal act or conduct.
NGN argued that “as a result of being an editor” covers only those circumstances where Mr. Coulson has performed his duties as an editor within the confines of the law and therefore excludes indemnity for proceedings arising out of personal misconduct and any illegal activities. Interestingly, NGN recognized that this indemnity clause seeks to protect Mr. Coulson in the capacity of a former editor of the newspaper from any proceedings initiated for libel, press complaint inquiries etc., which are considered an occupational hazard in the field of journalism. The Hon’able Court succinctly notes that if the indemnity clause contemplates to exclude cost incurred towards activities that fall outside the lawful duty of Mr. Coulson then such a clause would be inapplicable to cases of libel or contempt of court proceedings etc. Given the nature of the employment, exclusion of such instances from the scope of indemnity would render the indemnity clause devoid of any practical applicability. The test laid down by the Court is to ascertain “whether the criminal allegations arise out of how the employee went about the performance of his job or whether they arise out of some act having nothing whatever to do with performing the job”.
Shedding light on the interpretation of the phrase “properly incurred” the Court held that this refers to the quantum of cost that may be reasonably required in the defence of a particular proceeding. In criminal proceedings costs “properly incurred” would also include any costs incurred prior to filing of the charge.
Lastly, the Court of Appeals held that the maxim ex turpi causa non oritur action cannot be applied to the present case as this maxim does not prohibit one party from contractually agreeing to pay costs incurred for defending legal proceedings filed against another person.
This judgment is of particular relevance for Directors and officers insurance (“D&O”) policies which seek to indemnify directors and officers of a company from the cost and expenses of legal proceedings. In India, a D&O policy can be taken out by the Company subject to compliance of section 201 of the Companies Act, 1956 which prohibits a company from indemnifying the director and officer unless the judgment is given in their favour. Applying the reasoning of the Court of Appeals to the Indian context, any indemnity claims for recovery of costs incurred in defending criminal proceedings arising out of the course of employment under a D&O policy should be valid subject to compliance of section 201 of the Companies Act, 1956.
  EWCA Civ 1547, available at <http://www.bailii.org/ew/cases/EWCA/Civ/2012/1547.html>, last visited 5 December 2012.
 Clause 4.6 of the Agreement: “To the extent that it is lawfully able to do so, [NGN] will pay any reasonable professional (including, without limitation, legal and accounting) costs and expenses properly incurred by [Mr Coulson] after the Termination Date [viz. 28 February 2007] which arise from his having to defend, or appear in, any administrative, regulatory, judicial or quasi-judicial proceedings as a result of his having been the Editor of the News of the World.”, Id at paragraph 3.
 Supra note 1, paragraph 39.
 Supra note 1, paragraph 24.
 Supra note 1, paragraph 23.
 Supra note 1, paragraph 45.
 Supra note 1, paragraph 59.
Shantanu Naravane, Indemnity clauses and criminal proceedings , available at <http://indiacorplaw.blogspot.in/2012/11/indemnity-clauses-and-criminal.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+IndianCorporateLaw+%28Indian+Corporate+Law%29> dated 29 November 2012.
 Nischal Joshipura and Vedant Shukla, Director’s and Officer’s Insurance: Issues and Challenges, available at < http://www.halsburys.in/directors-officers.html>, last visited 5 December 2012.