Intrigue and indemnities: appeals judgment concerning news of the world's Andy Coulson has implications for employers.
And then the ongoing investigation into phone-hacking practices at News of the World came to a head in 2011, resulting in the shuttering of News of the World and the arrests of Coulson, News International's then-CEO Rebekah Brooks, and other journalists accused in the scandal. Prosecutors charged Coulson in July 2012 with conspiring to illegally intercept communications, and on Nov. 20 with bribing government officials for information on the royal family.
It is far from clear what will happen to Coulson if he goes to trial, but following a Nov. 28 ruling from the England and Wales Court of Appeal, at least he knows his former employer will be footing most of his legal fees. News International said it would not appeal the judgment.
The recent judgment has provided useful guidance--and a cautionary reminder--for employers whose indemnity agreements may face scrutiny in England and Wales.
"This decision will be a welcome relief for Andy Coulson, but other employees may also benefit," says Charlotte Lloyd-Jones, solicitor in the employment team at Cobbetts. "Contracts of employment or compromise agreements containing similar clauses are likely to be interpreted in the same way. Employers need to be mindful of their potential exposure and ensure indemnities are tightly drafted."
When Coulson left his position as editor at News of the World in 2007, he and News Group Newspapers Ltd., the News International subsidiary that published News of the World, came to a compromise agreement that would settle any employment claims Coulson might have against the company.
The agreement contained the following indemnity clause: "To the extent that it is lawfully able to do so, [News Group] will pay any reasonable professional (including, without limitation, legal and accounting) costs and expenses properly incurred by [Coulson] after the Termination Date [Feb. 28, 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."
In December 2011, London's high court ruled that News Group was not liable for Coulson's legal fees, concluding that the reference to "Editor" in the clause meant that the clause would cover "someone performing the lawful duties of the Editor." News Group argued, and the high court agreed, that the language did not cover personal wrongdoing that led to criminal proceedings. Coulson appealed the judgment.
The court of appeal disagreed with the London high court's ruling.
It took note of the "wide words" of the indemnity clause (see "Covered or Not"). Once an indemnity allows the coverage of the costs of defense of some criminal charges, the appeals court concluded, the criminal nature of the proceedings in question cannot alone define the scope of the indemnity.
The takeaway for employers that provide indemnities is to carefully consider their extent or limit their application, says Daniel Barnett, barrister at Outer Temple Chambers.
"If employers want to carve out exceptions to indemnities for legal fees, they have to say so at the time," Barnett says. "If they don't, the court won't invent exceptions for them. ... Having said that, employers would also be ill-advised to insert an indemnity clause that is arbitrarily limited, depriving it of all practical use to the employee."
Barnett points to the language in the appeals court's rejection of the high court's view that the indemnity only covered Coulson's lawful duties as editor. That interpretation "would surely deprive the indemnity of all practical use," Lord Justice Richard McCombe wrote for a three-judge panel of the appeals court. It would not even cover publications alleged to be libelous or in contempt of court, which are "the very occupational hazards of editorship," he said.
Some of the appeals court's reasoning stemmed from the larger context of the News International hacking scandal.
The court pointed out that News Group had terminated Coulson's employment, and the compromise agreement had been made with him in the knowledge that phone-hacking offenses had been carried out under his watch.
"Indemnity against costs of a [defense] to criminal charges cannot have been outside the contemplation of the parties to the present agreement," McCombe wrote.
Further, the court of appeal considered what legal support News Group reportedly has given to its other employees in light of its argument in the Coulson matter that "it makes no sense" for any employer to agree to pay for criminal defense costs of a former employee and for criminal activity that was not part of his job.
The appeals court said News Group's argument lost steam in light of evidence indicating that News Group was providing financial support to "another former editor of NoW"--presumably Brooks--"in respect of the same alleged conspiracy." In court, News Group would not confirm or deny the accuracy of this evidence, but separate evidence led the court to infer that News Group was providing such support. And in light of News Group's argument that such support made no sense, McCombe wrote, the evidence had bearing on Coulson's claim.
Barnett suggests that the broader scandal may also have had bearing on the Coulson matter in ways not indicated in the judgment.
"There may be an element of 'deep pocket' syndrome in this case," he says. "The court would not have liked the fact that News International had earned considerable revenue from the proceeds of stories obtained by phone-hacking yet was now trying to disassociate itself from the consequences of those actions."
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RELATED ARTICLE: Covered or Not
THE ENGLAND AND WALES COURT OF APPEAL'S LORD JUSTICE RICHARD McCombe addressed several specific examples of behavior that, in the court's judgment, Andy Coulson's indemnity clause would or would not cover.
The appeals court agreed with the high court of London that the clause would not cover the costs of defense of a criminal allegation related to a fraudulent expense claim submitted to News Group during Coulson's employ-ment--such a claim would not arise as a result of his duties as editor: "[I]t would simply be a fraud."
The court found that the indemnity clause would cover the costs of legal fees in other situations; for example, criminal charges arising out of publication of allegedly obscene material, assault charges against an editor who had broken up a fight in the newsroom, and (in the case of a lorry driver rather than an editor) charges of careless or dangerous driving.
"Obviously if [Coulson was facing] criminal proceedings because he'd been driving his car too fast or behaving outrageously in public, nothing to do with his job, then it would have been a different matter," says Andrew Taggart, partner at Herbert Smith Freehills. "[But this] fell fairly and squarely within the parameters of what had been drafted."
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|Date:||Feb 1, 2013|
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