Capita (Banstead 2011) Ltd & Anor v RFIB Group Ltd

Factual and Procedural Background

This appeal concerns a claim under an indemnity clause in a share purchase agreement relating to negligent services provided by a company before the transfer of its shares ("the Transfer Date"). The dispute centers on whether liability for losses caused by negligent services provided both before and after the Transfer Date should be apportioned by reference to when the liability was incurred or other criteria.

Before the Transfer Date, the company negligently provided pension services and advice to the Trustees of a pension scheme ("the Scheme") and its principal employer ("the Employer"). The negligence involved failing to inform the Trustees and Employer that amendments to the Scheme required formal execution and could not, save in limited respects, be retrospective. The negligent acts began before the Transfer Date but their effects continued afterwards. The judge below found a continuing breach of contract and apportioned losses between pre- and post-Transfer Date periods accordingly. This appeal challenges that conclusion.

The shares in the company were sold by the seller ("Company A") to the purchaser ("Company B") with an indemnity clause covering liabilities arising from services or advice provided by the company prior to the Transfer Date.

The claim arose from negligent advice and breaches of duty by an employee of the company who failed to ensure formal amendments to the Scheme rules were made to implement benefit changes announced between 2000 and 2004. These failures increased the Scheme’s liabilities and funding costs, resulting in a settlement of approximately £3.85 million, which Company B sought to recover from Company A under the indemnity.

Legal Issues Presented

1. Whether the indemnity clause in the share purchase agreement covers losses arising from negligent services provided before the Transfer Date but whose effects continued after that date.
2. Whether liability for losses incurred after the Transfer Date should be apportioned between pre- and post-Transfer Date causes.
3. Whether a continuing breach of contract or duty occurred after the Transfer Date, giving rise to fresh causes of action.
4. The legal effect of concurrent causes of loss, particularly when one cause is negligence or fraud occurring after the Transfer Date.

Arguments of the Parties

Appellant's Arguments

• All post-Transfer Date losses were effectively caused by pre-Transfer Date conduct; post-Transfer Date negligent or deceitful representations were part of the original breach.
• The concept of a continuing breach of contract or duty accruing day by day is artificial and legally incorrect.
• If any misrepresentation claim is relevant, the operative representation was made in late 2004 or 2005, so apportionment should be recalculated accordingly.
• Any post-Transfer Date negligence was at most a concurrent cause and should not preclude reliance on the indemnity.

Respondent's Arguments

• Post-Transfer Date conduct is relevant and cannot be disregarded; the indemnity scheme allocates losses caused by pre-Transfer Date conduct to the seller and post-Transfer Date conduct to the purchaser.
• The employee's post-Transfer Date negligence and representations gave rise to fresh causes of action and concurrent causes of loss.
• The continuing retainer and ongoing contractual obligations support the existence of continuing breaches after the Transfer Date.
• Authority supports that indemnities do not cover losses caused by concurrent negligence or fraud on the part of the claimant.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Canada Steamship Lines Ltd v R [1952] AC 192	Requirement of clear words to exempt liability for negligence; principles for interpreting indemnity clauses.	Used as foundational guidance for construing the indemnity clause, emphasizing the need for clear language to cover negligence or fraud.
Smith v South Wales Switchgear Co Ltd [1978] 1 WLR 165	Application of Canada Steamship principles to indemnity clauses.	Supported the approach to interpreting indemnity provisions with regard to negligence.
Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd [1983] 1 WLR 964	Further consideration of indemnity clauses and negligence.	Reinforced the principles guiding the court’s construction of indemnity clauses.
HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] 1 All ER (Comm) 349	Construction of indemnity clauses and the treatment of negligence and dishonesty.	Confirmed the need for clear and unmistakable language to exclude liability for dishonesty.
Lictor Anstalt v Mir Steel UK Ltd [2013] 2 All E.R. (Comm) 54	Interpretation of indemnity clauses regarding negligence and dishonesty.	Supported the court’s approach to the indemnity clause in the present case.
Midland Bank Trust Co v Hett Stubbs & Kemp [1979] Ch 384	Recognition of continuing duty and continuing breach in certain contractual contexts.	Discussed as a precedent for continuing breaches, but its correctness was debated in light of later cases.
Bell v Peter Browne & Co [1990] 2 QB 495	Single cause of action principle; no continuing breach accruing day by day in certain contexts.	Held to be binding and distinguished from Midland Bank; the court favored Bell’s approach.
Nouri v Marvi [2009] EWCA Civ 1107	Duty of solicitors post-completion; continuing obligation considered.	Aligned with Bell in rejecting continuing breach in similar facts.
Maharaj v Johnson [2015] UKPC 28	Continuing duty of solicitors post-completion; limitation and breach of contract principles.	Supported Bell’s approach and questioned Midland Bank’s correctness.
EE Caledonia Ltd v Orbit Value Co Europe [1994] 1 WLR 221; 1 WLR 1515 (CA)	Concurrent causes of loss and indemnity clauses; indemnity not available if claimant’s own negligence is a concurrent cause.	Applied to conclude that indemnity does not cover losses caused concurrently by claimant’s negligence or fraud.
Wayne Tank v Employers' Liability Assurance [1974] QB 57	Insurance law principle on concurrent causes of loss.	Analogous principle cited for indemnity construction regarding concurrent causes.
New Islington and Hackney Housing Association Ltd v Pollard Thomas & Edwards [2001] P.N.L.R. 20	Ongoing obligations of professionals; continuing duties.	Used to support analysis of continuing contractual obligations.
Larking v Great Western (Nepean) Gravel Ltd [1940] HCA 37; (1940) 64 CLR 221	Distinction between continuing breaches and failure to remedy past breach.	Cited to explain the nature of continuing duties and breaches.
Brickfield Properties Ltd v Newton [1971] 1 WLR 862	Continuing duty of professionals to check and correct designs.	Referenced in discussion of continuing duties in professional contexts.
Carlton v Fulchers [1997] PNLR 337	Continuing retainer and limitation principles.	Supported the existence of continuing duties in appropriate circumstances.

Court's Reasoning and Analysis

The court began by examining the indemnity clause, which covers liabilities arising from services provided prior to the Transfer Date. It emphasized established principles requiring clear contractual language to exempt a party from negligence liability, especially for dishonesty.

The judge below had found that the company was in continuing breach of contract after the Transfer Date because the employee's negligent failure to ensure formal amendments to the Scheme rules persisted day by day, and that post-Transfer Date misrepresentations also gave rise to fresh causes of action. The losses were accordingly apportioned 50/50 between pre- and post-Transfer Date periods.

On appeal, the court considered whether the continuing breach characterization was correct. It analyzed conflicting authorities on continuing breaches: Midland Bank, which recognized continuing breaches accruing daily, and Bell and subsequent cases, which favored a single cause of action accruing at the time of the original breach. The court found that Bell and related cases are binding and that the continuing breach in the present case was not properly characterized as giving rise to fresh causes of action daily.

The court distinguished the continuing duty to maintain a state of affairs (as in tenancy repair clauses) from the obligation to perform specific tasks by specified dates, which do not give rise to successive breaches. The court concluded that the employee’s failure to remedy the original negligence after the Transfer Date was a failure to cure an existing breach, not a fresh breach causing new loss.

However, the court accepted that the employee’s post-Transfer Date misrepresentations, including the production of an updated guidance booklet falsely stating that amendments had been made, did constitute fresh causes of action and concurrent causes of loss.

The court applied the principle from EE Caledonia that indemnities do not cover losses caused concurrently by the claimant’s own negligence or fraud, concluding that losses caused by post-Transfer Date misconduct could not be recovered under the indemnity.

The court therefore held that losses incurred after a certain date (31 December 2004) attributable to post-Transfer Date misrepresentations are not recoverable under the indemnity, while losses before that date remain covered.

The court declined to resolve the full doctrinal conflict between Midland Bank and Bell, instead focusing on the contract’s nature and facts distinguishing the present case from the "one-off" transactions in Bell and related cases.

Holding and Implications

The court’s final decision was to UPHOLD IN PART AND ALLOW IN PART the appeal with the following effect:

• Losses incurred before 1 January 2005 are recoverable under the indemnity clause as they stem from pre-Transfer Date breaches.
• Losses incurred after 31 December 2004 arising from post-Transfer Date negligent or fraudulent misrepresentations are not recoverable under the indemnity.
• The judge’s apportionment of losses requires modest adjustment to reflect this distinction. If the parties cannot agree on the adjustment, the matter will be remitted for reassessment.

The decision clarifies the application of indemnity clauses to continuing breaches and concurrent causes of loss, emphasizing the importance of distinguishing between failure to remedy a past breach and fresh breaches. It confirms that indemnities do not cover losses caused by concurrent negligence or fraud of the claimant post-transfer, and it applies established principles of contract construction and causation without setting new precedent on the continuing breach doctrine.