COSTS

Defendant director and auditor successfully defending claim brought by company - claiming indemnity for costs of defence - indemnity fresh cause of action not accruing until judgment - court to award indemnity costs on this basis in same proceedings only if entirely satisfied company having no defenceJohn and Others v Price Waterhouse (a Firm) and Another: ChD (Mr Justice Ferris): 12 July 2001The first claimant was a well-known rock musician who carried on business through three companies, (the second, third and fourth claimants).The claimants brought proceedings against the first and second defendants, claiming damages for professional negligence and/or breach of fiduciary duty, in relation to those parties' conduct as auditors of the second, third and fourth claimants and as a director of the second and fourth claimant companies respectively.The defendants joined the claimants' then solicitors to proceedings as part 20 defendants, claiming a contribution or indemnity against the claimant's primary claim by reason of those parties' own alleged negligence.

After a lengthy trial the claimants' action was dismissed.

The defendants claimed costs on the indemnity basis pursuant to the relevant provisions of the claimant companies' articles of association (which were indistinguishable from regulation 118 of table A to the Companies Act 1985).

They, as a director or auditors of the companies respectively, were entitled to be indemnified by those companies against the cost of any unsuccessful proceedings brought by those companies.Jonathan Hirst QC and Neil Calver (instructed by Eversheds) for the claimants.

Cyril Kinsky (instructed by Barlow Lyde & Gilbert) for the auditor.

Andrew Fletcher (instructed by Leboeuf Lamb Greene & MacRae) for the director.

Michel Kallipetis QC and Simon Monty (instructed by Ince & Co) for the part 20 defendants.Held, dismissing the defendants' application, that the contractual right of the defendants to an indemnity under the articles of association could not have been in issue in the proceedings, as no such cause of action accrued until judgment was given in their favour in the main proceedings; that while a new cause of action must ordinarily be the subject of fresh proceedings, a more informal approach might be possible if requiring fresh proceedings would needlessly result in additional costs being incurred; that indemnity costs could only be granted in the present proceedings if there was no possible defence to such a claim; that the relevant regulations in table A to the Companies Act clearly contemplated that directors and auditors would have a (contractual) right to be indemnified as there mentioned and that comparatively little was required to satisfy a court that the indemnity provided for by either regulation had been incorporated into the contract made on the appointment of a director or an auditor; but that the terms of the articles might not be incorporated into a contract between the company and its auditors where the terms of engagement were expressed in a separate document; that it would not therefore be right to order indemnity costs at this hearing, although nothing in this judgment would prevent the auditors from seeking to recover the difference between standard costs and indemnity costs in separate proceedings to enforce the relevant contractual terms.