A compromise too far?

It is standard for a compromise agreement to include a clause reimbursing a former employee for any expenses incurred in having to make him or herself available for and co-operate with any administrative, regulatory, judicial or quasi-judicial proceedings.

But does an indemnity in a compromise agreement cover a former employee's legal expenses associated with a criminal investigation into action alleged to have been taken by the employee during his employment? The high-profile case of Coulson v Newsgroup Newspapers Ltd (NGN) confirmed it did not.

Mr Andy Coulson was employed as Editor of the News of the World between 2003 and 2007. His termination agreement provided for re-imbursement of legal expenses "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 Editor of the News of the World".

Coulson was arrested and interviewed by the Metropolitan Police in connection with the well-documented phone-hacking allegations which were the cause of the eventual demise of the News of the World. Although Coulson was not charged, he attempted to claim payment of his professional costs under the agreement, which was, not surprisingly, refused by NGN.

Consequently, Coulson brought proceedings asking for a declaration that NGN "pay the professional costs and expenses properly incurred" by him "in defending allegations of criminal conduct" during his editorship.

The High Court decided that although the indemnity in the compromise agreement was wide-ranging and sought to protect Coulson from legal professional expenses arising from the "ordinary occupational hazards" of being an Editor, it did not cover criminal allegations made against Coulson personally.

This was decided very much on the facts of the case and, in particular, the drafting of the indemnity. For Coulson to have the indemnity for criminal issues the provision would have needed to be far more detailed. It is therefore a useful reminder that even fairly standard clauses in a compromise agreement have to be carefully drafted.

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