The phone hacking saga has produced an extensive cast of victims and villains. Prominent among the key players are Glenn Mulcaire, a private investigator hired by the News of the World and convicted of phone hacking in 2006, and Andy Coulson, Editor of the newspaper between 2003 and 2007. In December 2011 the High Court handed down judgment in two separate claims brought by Mulcaire ([2011] EWHC 3469 (Ch)) and Coulson ([2011] EWHC 3482 (QB)) against News Group Newspapers (“NGN”), owners of the now defunct tabloid.

In each case the claimant argued that NGN was contractually bound to meet his costs of defending legal proceedings connected with alleged phone hacking. In each case NGN refused to pay.

These cases are interesting for several reasons. Despite the superficial similarities between them, Mulcaire’s claim was upheld while Coulson’s was rejected. In the former case, the Chancellor of the High Court held that NGN was bound by an indemnity covering Mr Mulcaire’s legal expenses and any award of damages made against him in civil claims to which he and NGN are joint defendants. By contrast, in the latter case Supperstone J ruled that NGN was not obliged to meet Mr Coulson’s costs of defending criminal allegations of phone hacking and making corrupt payments.

From a legal perspective, the two judgments contain an interesting application of orthodox contractual principles to novel sets of facts. While the reasoning in Mulcaire’s case is difficult to fault, in Coulson’s case some aspects of the judge’s analysis are open to question. On a more general level, the decisions cast an interesting light on News International’s desire to sever all ties with two significant figures in the phone hacking scandal.

Andrew Coulson v News Group Newspapers

 The facts

Andy Coulson was Editor of the News of the World for four years between 2003 and 2007. Shortly before he left the newspaper Mr Coulson entered into an agreement with NGN regarding the termination of his employment. Under clause 4.6 of that agreement NGN promised to pay Mr Coulson any reasonable professional costs

“which arise from [Mr Coulson] 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.”

As is well known, in September 2010 the Home Affairs Select Committee opened an inquiry into unauthorised hacking of mobile communications. In January 2011 the Metropolitan Police then commenced “Operation Weeting”, a fresh investigation into alleged phone hacking.

In July 2011 Mr Coulson was arrested and interviewed under caution in connection with allegations of phone hacking and making unlawful payments to police officers. He denies the allegations and has not been charged with any offence.

For several months in 2011 Mr Coulson’s lawyers had billed NGN for legal advice provided in connection with the ongoing phone hacking investigations.  However in August 2011 Tom Mockridge, Chief Executive Officer of NI Group Limited, wrote to Mr Coulson stating that, while NGN would pay his reasonable expenses in respect of the Leveson Inquiry and the Parliamentary Select Committee investigations into phone hacking, “clause 4.6 does not require [NGN] to reimburse costs that relate to proceedings (including criminal) which relate to alleged conduct outside the scope of your contract of employment”.

In response to this letter Mr Coulson brought proceedings against NGN under CPR Part 8. In particular, he sought a declaration that clause 4.6 required NGN to cover any reasonable professional costs of defending the criminal allegations.

Judgment of Supperstone J

Supperstone J rejected Mr Coulson’s claim. The judge based his conclusion on two particular clauses in Mr Coulson’s contract of employment. The first (clause 3.1) described Mr Coulson’s duties as Editor. The second (clause 19.1) empowered NGN to terminate his employment without compensation “if the Editor is convicted of a criminal offence”. In the light of these provisions Supperstone J held that clause 4.6 of the termination agreement was not intended to cover the costs of defending criminal allegations made against the Editor personally [29]. The judge explained:

“Plainly, as Editor, Mr Coulson was required to act lawfully. That being so the reference to “Editor” in the clause must be to someone performing the lawful duties of Editor. His duties comprised only lawful activities. Accordingly it cannot have been intended that activity outside the scope of an Editor’s lawful responsibilities would be covered by an indemnity; still less that the indemnity should extend to any serious criminal activities for which he was alleged personally to be responsible.” [Emphasis added]

According to the judge, on its proper construction clause 4.6 did not cover “personal wrongdoing”. The term did not cover the Editor’s participation in criminal proceedings brought against him and arising from his own alleged personal misconduct. Instead, clause 4.6 covered situations where the Editor was

“‘drawn’ in to judicial proceedings as a result of his responsibility for content or because of a supervisory, organisational or vicarious responsibility” [30]

The judge also held that, in any event, clause 4.6 was not engaged since no relevant “proceedings” had yet commenced [38]-[39]:

“In my view whether ‘proceedings’ start when the accused is formally charged at the police station or only at the later stage when the accused is brought to court to answer the charge, they have not in the present case yet started… In the present case there are no proceedings; if charges are never preferred there will never be proceedings.”

Analysis

The outcome and reasoning of this judgment are surprising. First, the exclusion of criminal allegations against the Editor from the ambit of the indemnity stands in stark contrast to the broad and unconstrained language of clause 4.6. The range of proceedings referred to – “any administrative, regulatory, judicial or quasi-judicial proceedings” – could hardly be wider. On their ordinary meaning these words were surely capable of covering criminal allegations made against the Editor personally.

Supperstone J rejected the suggestion that his approach necessarily involved the introduction of an implied term. However the effect of his construction is to diminish significantly the scope of protection provided by clause 4.6. A term that on its face reads “any…proceedings” is effectively treated as though it includes the proviso “except proceedings involving criminal allegations levelled against the Editor personally”.

Central to Supperstone J’s reasoning was the fact that the Editor’s duties “comprised only lawful activities” and that therefore “it cannot have been intended that activity outside the scope of an Editor’s lawful responsibilities would be covered by an indemnity”. However this analysis presupposes that the criminal allegations against Mr Coulson are well founded. If Mr Coulson is innocent of any offence then he has obviously not committed any act “outside the scope of an Editor’s lawful responsibilities”.  In that case the judge’s rationale for excluding criminal allegations from the scope of the indemnity – namely that clause 4.6 cannot have been intended to cover unlawful activities – falls away completely.

Secondly, the open-textured expression “to defend, or appear in” suggests that clause 4.6 was not intended to limit the scope of protection by reference to the nature of the case, the evidential or legal issues involved or the persons against whom particular accusations are levelled. Again, these considerations support a broad construction of the clause. A similar point can be made in relation to the causal connection required by clause 4.6 (“as a result of his having been Editor of the News of the World”).  On the face of the contractual language there was no suggestion that NGN’s obligation to pay Mr Coulson’s legal fees was intended to be contingent on Mr Coulson having performed his editorial duties in a particular way.

The judge’s second conclusion – that no relevant “proceedings” were yet on foot – is also open to question. The exceedingly broad contractual language (“any administrative, regulatory, judicial or quasi-judicial proceedings”) militates against a narrow construction of the word “proceedings”. The judge considered that clause 4.6 would not be engaged until (at the earliest) charges were formally laid against Mr Coulson. This analysis presupposes that the operation of clause 4.6 depends upon a certain type of trigger, namely the formal commencement of an adversarial legal process against the Editor. However this is difficult to reconcile with the express inclusion of “administrative” and “regulatory” proceedings within the ambit of the clause. By their very nature, such proceedings often lack any adversarial quality and are inquisitorial or investigative in nature (the Leveson Inquiry, which NGN accepted fell within the scope of clause 4.6, is a paradigm example). In these circumstances, it is difficult to envisage that the parties intended the word “proceedings” to bear the narrow meaning applied by the judge.

Glenn Mulcaire v News Group Newspapers

The facts

Mr Mulcaire was employed by NGN as a private investigator between 2002 and 2007. In January 2007 he was sentenced to six months’ imprisonment after pleading guilty to unlawfully accessing the voicemails of several public figures.

Between 2007 and 2011 various civil claims were brought against Mr Mulcaire and NGN. On 29 June 2010 NGN wrote to Mr Mulcaire stating that it would “agree to indemnify Glenn in respect of his legal costs and disbursements or dealing with and defending proceedings in which he and NGN are joint Defendants, including any costs order made against him” subject to various conditions (“the Indemnity Letter”). The Indemnity Letter also stated that “NGN will pay any damages which are awarded (or it is agreed should be paid) in respect of which NGN and Glenn are jointly and severally liable”. It ended by asking Mr Mulcaire to “sign and date the enclosed copy of this letter as evidence of his consent”.

Mr Mulcaire did not sign the letter. During subsequent exchanges Mr Mulcaire requested payment of £750,000 as compensation for loss of his employment with NGN. In return he offered to provide full co-operation in the civil litigation beyond what he was otherwise required to give. NGN refused to pay this sum; however over the following months the parties co-operated in defending the outstanding claims and Mr Mulcaire’s legal fees were paid by NGN.

On 19 July 2011 Rupert and James Murdoch gave evidence to the House of Commons Culture, Media and Sport Committee. During the course of the hearing Rupert Murdoch indicated that NGN would stop paying Mr Mulcaire’s legal fees if “it is not in breach of a legal contract”.

A week later NGN wrote to Mr Mulcaire confirming that it would no longer pay his legal costs. Mr Mulcaire responded by bringing a claim in which he asserted that NGN were contractually bound to by the Indemnity Letter.

Judgment of the Chancellor of the High Court

NGN conceded that the Indemnity Letter was open to acceptance by conduct but submitted that Mr Mulcaire had by his actions rejected it [12]. After carefully reviewing the evidence the judge rejected this argument. The judge held that Mr Mulcaire had, through his lawyer, accepted NGN’s offer and performed his obligations thereunder. Moreover, NGN had “clearly recognised their contractual liability under the Indemnity Letter on a number of occasions”. This was demonstrated by the fact that NGN paid “no less than 72 invoices” submitted by Mr Mulcaire’s lawyers [34].

The judge rejected the Defendant’s argument that the indemnity was terminable on notice [40]. The judge also rejected NGN’s argument that a conflict of interest had arisen between NGN and Mr Mulcaire as a result of the “general pressures and ongoing reputational damage” caused by press criticism of NGN for indemnifying individuals who had been convicted of crimes. On this point he explained that:

“The phrase ‘conflict of interest’ in relation to proceedings has a well recognised meaning. It relates to issues in proceedings and connotes the situation where one party seeks one answer and the other another, often but not always opposite, conclusion. It has not been suggested that there is any issue in any of the voicemail interception claims to which NGN and Mr Mulcaire are joint defendants where their interests in relation to an issue or issues now diverge so as to conflict. They are, as they always were, in it together.” [42]

Finally, the court had to consider whether the indemnity was contrary to public policy and therefore void. NGN relied on the well-known proposition of law that an indemnity against civil or criminal liability resulting from the deliberate commission of a crime by the person to be indemnified is not enforceable by the criminal party or his representatives (Hardy v Motor Insurers’ Bureau [1864] 2 QB 745 and Churchill Insurance v Charlton [2001] EWCA Civ 112). In Hardy Lord Denning MR explained that the rationale for the rule was that “no person can claim indemnity or reparation for his own wilful and culpable crime. He is under a disability precluding him from imposing a claim”.

The judge rejected NGN’s argument. The mischief to which the rule in Hardy is directed

“does not include agreements conducted after the criminal event in relation to civil proceedings arising out of it so as to preclude one of the two joint tortfeasors agreeing to pay the costs of the other in defending the claim or satisfying the judgment if that defence is unsuccessful” [45].

Analysis

The majority of the judgment in Mr Mulcaire’s claim involves the application of uncontentious legal principles to the detailed evidence before the court. The most contentious issue was NGN’s public policy argument. The correctness of the court’s decision on this point depends on the exact nature of the policy objectives that underpin the Hardy principle. If the rule is intended to prevent offenders from escaping civil liability for their crimes then the judgment is open to criticism, since it allows Mr Mulcaire to enjoy full protection against damages awards arising from illegal phone hacking. However if the rule is designed simply to deter crime by removing the additional incentive to commit an offence that an indemnity may provide, then there can be no objection to the court’s judgment. Since the indemnity agreement was concluded years after the offences were (allegedly) committed, it cannot have played any role in encouraging Mr Mulcaire to break the law.

In any event there can be no public policy objection to the part of the indemnity that covers Mr Mulcaire’s legal costs. An arrangement of this nature is arguably no different in principle to cases where an offender receives pro bono legal representation in civil proceedings following an earlier conviction.

On balance the court’s approach to this issue appears to be a sensible one. Given the close connexion between NGN and Mr Mulcaire, the informed and fully consensual nature of their agreement, and the fact that the indemnity significantly post-dated the (alleged) criminal wrongdoing, it is difficult to view this as an objectionable or unjust result.

Comments and conclusion

The judgments illustrate the interesting issues that arise when civil and criminal liabilities intersect. From a lawyer’s perspective the cases provide food for thought about contractual interpretation and the role of public policy considerations in construing indemnity agreements. While the reasoning in Mulcaire’s claim is difficult to fault, aspects of the reasoning in Coulson’s claim are questionable and may yet be examined by the Court of Appeal.

Both judgments also highlight News International’s clear wish to cut ties with two former employees facing allegations of serious wrongdoing. This is unsurprising, given the toxic fall out from the hacking scandal and NI’s avowed intention to draw a line under past malpractices. Nevertheless, from a non-lawyer’s perspective the overall result may seem slightly unjust: a convicted phone-hacker receives full protection against all costs and damages in scores of civil claims, while an un-convicted former editor must pay his own way in defending serious criminal allegations.

Edward Craven, Barrister, Matrix Chambers