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Stornoway 2011 Ltd v SIV Portfolio Plc (In Receivership) (2011)


The court determined certain issues relating to the interpretation of an indemnity clause in an investment and funding management agreement.


The court was required to determine certain issues relating to the interpretation of an investment and funding management agreement entered into by the defendant structured investment vehicle (D). The claimant (C) was the assignee of a partnership (X) which had acted as manager of the relevant investment portfolio. Clause 21.1 of the agreement provided an indemnity to X in the following terms: "The Issuer undertakes with the Manager that if the Manager incurs any losses, Liabilities..., costs, claims, demands or proceedings (each a Loss) in any way arising from its appointment and the performance of the Manager's duties and obligations..., the Issuer will, by way of indemnity and on demand, pay to the Manager an amount equal to such Loss, subject, in each case, to the Indemnity Cap Excess Payment Rules... ". The Indemnity Cap Excess Payment Rules were defined as part of the series of definitions in another agreement. The "indemnity cap" was set at US$1 million and its definition included the words "within any twelve month period (such twelve-month period to be measured on a rolling basis)". In August 2008, X became aware of an action commenced in the United States in which allegations had been made about management services provided under the portfolio. X went on to incur costs totalling US$3.5 million in connection with the action. Demands for payment were made on June 29, November 4 and December 2, 2010; the amounts claimed were, respectively, US$135,955.21, US$3,427,519 and US$19,517.93. The issues were (i) whether the indemnity was capped in the sum of US$1 million for the relevant periods; (ii) if the indemnity was so capped, the point at which the initial 12-month period commenced for the purposes of the indemnity; (iii) if the indemnity was so capped, whether it covered one or more than one 12-month period.


(1) It would obviously have been clearer if cl.21.1 had simply said that the indemnity was subject to the indemnity cap, rather than to the Indemnity Cap Excess Payment Rules; nevertheless, the indemnity was clearly subject to the indemnity cap of US$1 million. The manager was expressly made subject to the Rules, and thereby, by reference to the definitions contained therein, to the cap (see para.19 of judgment). (2) The 12-month period began, not when notification of a potential claim was made in August 2008, but on June 29, 2010, when the first demand for payment was made. That followed clearly from D's obligation in cl.21.1 that it would "on demand, pay to the Manager an amount equal to such Loss" (para.23). (3) D had been correct to argue that the 12-month period was "rolling", so that no more than US$1 million would be payable in respect of any 12-month period (paras 22, 24).

Judgment for defendant

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14 Nov 2011

Queen's Bench Division
Burton J

‚ÄčLTL 17/11/2011 : [2011] EWHC 2952 (Comm)

Dominic Chambers QC

Practice areas
Commercial Disputes