Legal Costs Indemnity Covered Cost of Defending Criminal Proceedings

A legal costs indemnity provided by an employer under the terms of a compromise agreement covered an employee’s legal costs in defending criminal proceedings, where the alleged offences were committed during employment.

In Coulson v News Group Newspapers Ltd, the former Editor of the News of the World sought a declaration that his legal costs incurred in connection with a criminal investigation into phone hacking whilst Editor were covered by a legal costs indemnity.

The Court of Appeal overturned the High Court decision that the indemnity was limited to the lawful responsibilities of the employee’s post and did not extend to personal misconduct.  It considered that that interpretation deprived the indemnity of all practical use.  It held that the indemnity would apply where the criminal allegations arose out of how the employee had gone about the performance of his job.  It would not apply where the allegations arose out of some act having nothing whatever to do with performing the job.  

An indemnity covering the costs and expenses of defending criminal proceedings included those incurred from the point of arrest, even if charges were not ultimately brought. 

Indemnities of this nature are not uncommon in the compromise agreements of senior employees.  Parties to such agreements should give careful consideration to the circumstances in which the indemnity will apply and ensure this is adequately reflected in the drafting.