This case involved a mortgage originator/manager who used a network of franchisees to originate mortgages. The franchisees contracted with a subsidiary company of the originator.
There was a bad loan for which AFIG obtained indemnity from the originator/manager. The originator/manager then sought indemnity from the franchisee who had failed to interview the borrower.
The franchisee defended the claim by arguing that while it was obliged to indemnify the subsidiary company for loses it did not have to indemnify the originator/manager. There was, at the time of the loss, no indemnity given by the subsidiary to the originator/manager. Thus the subsidiary had not suffered a loss to trigger the franchisee’s obligation to indemnify.
The judge summarised the position as follows:
The only claim pressed is a claim in contract that the defendant is liable to indemnify CT Franchises under the Indemnity provision of the Franchise Agreement for the loss suffered by CT Money. The defendant contends that CT Money suffered the loss and there is no proper basis upon which CT Money can require CT Franchises to indemnify it for that loss.
The plaintiffs accepted that there is a “gap” in the documentation because there is no written agreement whereby CT Franchises agreed to indemnify CT Money.
The originator manager sought to plug the hole by arguing:
- The indemnity was an implied term of an oral agreement with the franchisee;
- The subsidiary was the agent of the originator manager;
- It was covered by a retrospective indemnity agreement;
- That the subsidiary took the benefit of the deed with AFIG and therefore ought to bear the burden of indemnifying CT Money in respect of any liability caused by CT Franchises or its franchisees (the benefit and burden claim).
None of these arguments succeeded and the claim was dismissed.