England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CAMBRIDGE COUNTY COURT
(HIS HONOUR JUDGE YELTON)

		Royal Courts of Justice Strand, London, WC2A 2LL
		11th April 2008

Lord Justice Lloyd:

1. The claimant had the misfortune to suffer an accident at work on 14 March 2003; the work involved being part of the process of the construction of the Cambridge Crown Court. As a result of this accident he was injured. He was employed at that time by a company called AJM Steel Erecting Limited. That company was a subcontractor in relation to the relevant work. The main contractor was Mowlem Plc and the subcontractor -- intermediate between Mowlem and AJM Steel Erecting Limited -- was called Philip Quantrill (Structural Engineers) Limited.
2. On 8 March 2006 the claimant issued proceedings in the Cambridge County Court joining three defendants. The first defendant is Mowlem; the second defendant is Philip Quantrill Structural Engineers Ltd, and the third defendant is AJM Steel Erecting Limited. At that stage Philip Quantrill Structural Engineers Limited was already in liquidation. On 10 October 2006 it was dissolved and struck off the register of companies. It had, however, been insured for, among other things, public liability, and in due course, on the claimant's application, it was restored to the register so that he could proceed with his claim against it. So far as is known, it has no assets other than its rights, such as they may be, under its insurance policy. The position was much the same as regards the employer AJM Steel Erecting Limited, with this crucial difference: that it was not even insured, as it should have been, for liability to its employees; so, in its case, there is not even the asset, or potential asset, of a claim under the insurance policy. That company plays no further part in the relevant history, although it remains a defendant and has been restored to the register. Mowlem Plc, of course, is in a very different position, but perhaps considers that, as the main contractor, its liability is pretty remote.
3. The second defendant's insurers -- a syndicate of Lloyds -- applied to be joined as a party, making clear that it disputed liability to indemnify the second defendant under the policy, and it sought a decision on a preliminary issue as to whether it was indeed bound to indemnify the second defendant. The reason why it contended, ultimately successfully, that it was not so bound was that the second defendant had not notified it of the claim promptly, in accordance with the conditions of the policy. If the insurers were not so liable then there would be no point in the claimant proceeding against the second defendant on the one hand nor in the insurers defending on behalf of the second defendant on the other hand. As I understand it, the insurers did put in a defence on behalf of the second defendant to the claim and contribution proceedings got under way as between Mowlem and the second defendant.
4. On 5 July 2007 the insurers' application came before District Judge Temple. The order records that he heard counsel for the parties. I am not sure how many parties were represented, but certainly the claimant and the insurers, certainly not separately the second defendant, and I daresay Mowlem was also represented. The district judge ordered that the nominated underwriter, Mr Pratt, be added as a fifth party to the action and that an issue be tried as a preliminary issue as to whether the insurers were obliged to indemnify the second defendant pursuant to their policy of insurance for any damages and costs, and directions were given for standard disclosure by the fifth party and all other parties and for serving witness statements and other appropriate directions prior to the trial of the preliminary issue, which was to come on on the first available date after 30 August 2007. The district judge ordered that costs be costs in the fifth party preliminary issue.
5. The second defendant, as I say, was not separately represented and it took no part in the proceedings at all, except to the extent of such statements of case as may have been served on its behalf on the instructions of the insurers. The preliminary issue came before HHJ Yelton on 18 September 2007 with representation by counsel, as before us, on behalf of the claimant, the first defendant and the insurers. The judge held, following argument, that the insurers were not bound to indemnify the second defendant, and that conclusion is not challenged. He then considered the question of costs. The order that he made was that the claimant should pay the insurers' costs, which he assessed summarily. His judgment on this is short and succinct, consisting of five paragraphs in which the fifth is directed to the question of summary assessment. I will read the first four paragraphs:

"I have now got to decide the issues of costs. I have already given judgment, obviously, on the main part of the application. It is certainly right that this preliminary issue was brought, primarily, by the fifth defendant against the second defendant who has played no active part, or any active part, or any part at all really in the proceedings or in the issue.

That is too simplistic a way of looking at it, in my judgment, because the claimant and the first defendant, and primarily the claimant, had a very clear interest in succeeding on this issue, both for the purposes of negotiation subsequently and, possibly, succeeding against the second defendant and would now, if they had succeeded or if the fifth party had failed they would have known that had they succeeded they were going to get their money which is always a matter of enormous importance in this sort of litigation.

I think Mr Terry [counsel for the insurers] is right in saying that the fifth party should recover their costs and the next issue is whether or not they should recover their costs against the claimant only or against the first defendant. The first defendant equally had some interest in the outcome of the proceedings but much less outcome of the issue, much less than has the claimant and that has been reflected in what has been said on their behalf.

Having considered the issue carefully it seems to me that the proper order is that the claimant pay the fifth party's costs, and I will summarily assess the amount in a moment, and that there should be no order as to the costs of the first defendant. I certainly do not think that the first defendant should recover their costs against the fifth party. As I have said in the course of argument that was a somewhat ambitious application when counsel for the claimant made it on her client's behalf."

6. The claimant challenges that order, seeking either that there should be no order for costs or, nominally, that there should be an order for costs against the second defendant, which cannot pay it, or alternatively as a fallback that both the claimant and the first defendant should be ordered to pay half of the insurer's costs. That appeal, for which permission was granted on paper by Maurice Kay LJ, is resisted separately by the first defendant and by the insurers.
7. On behalf of the claimant Ms Taylor submits that, although the claimant was of course interested and entitled to be heard on the preliminary issue, the issue lay as between the second defendant and the insurers, not as between either of them and the claimant. She submits that the judge gave no weight to the fact that the insurers had taken the initiative to seek the hearing of the preliminary issue. She submits that, the principal guiding line in relation to any question of costs being to identify the unsuccessful party; the unsuccessful party was the second defendant, because it was as against the second defendant that the declaration was obtained that the insurers were not bound or liable to indemnify it. Accordingly, she continues, it is the second defendant that should pay the insurers' costs or, in reality, that there should be no order for costs.
8. In support of that, she showed us the terms of the application by or on behalf of the insurers, which ended up with the making of the preliminary issue order. In the Part C of that application notice, where the insurers' solicitors set out the reasons for the application being made, there are two passages that are of some relevance. First of all there is this paragraph:

"If the Second Defendant is liable to the Claimant and/or the Part 20 claimant [I interpose that is the first defendant] then the proposed Third Defendant [that is to say the insurers] will be obliged to indemnify the Second Defendant in respect of that liability, save for the first £5,000 (the amount of the policy excess), and save insofar as the proposed Third Defendant is entitled to decline indemnity under the policy."

And then a little bit later it says:

"The proposed Third Defendant seeks a declaration from the Court, to be determined as a preliminary issue, that the Second Defendant are in breach of Conditions precedent to liability under the Policy of Insurance and that the proposed Third Defendant is therefore entitled to decline to indemnify the Second Defendant for any damages and costs it may be liable to pay in this action."

9. On that footing Ms Taylor is perfectly entitled to say that, when the remedy was claimed against the second defendant, the issue lay as between the insurers and the second defendant, and she carries on from there to say that the second defendant is the unsuccessful party.
10. At first sight it might seem odd that the costs of an issue as between the second defendant and the insurers should be ordered to be paid by the claimant rather than by the second defendant. It would be odd if the second defendant had taken (or even had been in a position to take) an active part and had asserted itself a claim against the insurers, but the second defendant's presence in the proceedings, and indeed its very existence, was purely nominal. The claimant, considering, no doubt on advice, that he had a possible claim against the second defendant, wanted to be able to establish that claim, but there was no point in doing so unless money could be found to answer the claim if it was made good. Accordingly, the only asset of the second defendant being, apparently, its rights under the insurance policy, the claimant wanted to be able to not only obtain a judgment against the second defendant, but to enforce it against the insurers under the Third Parties (Rights Against Insurers) Act 1930. The second defendant had no separate interest in the matter. It had no assets; it had no representation; it was there simply as a name. It had to be there as a name because it was the insured under the policy and it was the party alleged to be negligent as against the claimant. In reality, the battle lay between the claimant and the insurers (leaving aside, for the moment, the interest of the first defendant, Mowlem).
11. Ms Taylor submitted that, while the judge was entitled to take into account the fact that the claimant had, in his words, "a very clear interest in succeeding on this issue", he erred in principle in ignoring the fact that the issue lay as between the insurers and the second defendant, and that it was the insurers that had taken the imitative by seeking the determination of the preliminary issue. It is true that the insurers had taken that initiative, but it was the claimant that had produced the situation in which the issue arose by restoring to the register a company whose only asset, if any, was its rights under the insurance policy. There were, in effect, at least two live issues. One was whether the claimant had a good claim against the second defendant-- on which plainly the claimant had to succeed if this aspect of its claim was to be of any use -- but the second was whether, in truth, the second defendant did have a valuable asset which could answer the claim, and that depended on whether the insurers were liable to indemnify it. Ms Taylor made submissions to us as to the relevance of the stage at which the insurers had made it plain that there was an issue as to whether the second defendant was bound to be indemnified by the insurers, but it is plain that that issue was live well before the point at which the insurers applied to be joined as parties for the determination of the preliminary issue.
12. As Ms Taylor submitted to us, there would have been a number of different ways in which the resolution of the two issues that I have identified could have been approached as a matter of case management. She pointed out that on behalf of the claimant all that was requested originally was that the insurers should retain all relevant papers and, indeed, that whoever had any papers on the second defendant should retain any relevant papers, in case the issue needed to be resolved once liability, as between the claimant and the second defendant, had been determined. That would have been one way of doing it and, equally, the insurers could have stepped in and defended the claim on behalf of the second defendant without waiving any issue as to its liability to indemnify. But, undoubtedly, an alternative course was that which was followed in this case, and it is quite possible that, in terms of court time and in terms of overall expenditure, the determination of that issue, with a half day hearing in the County Court, was an expedient and economical way of sorting that out.
13. Ms Taylor told us that on the insurers' application the claimant was represented but took a neutral stance as to whether such an order should be made. The claimant, of course, need not have taken part in the determination of the preliminary issue, though one can perfectly well understand why a claimant did seek to enter into the fray of that preliminary issue, because otherwise there was a risk that no one would be arguing against the insurers' contention that they were not liable.
14. Having joined in that fray, however, it seems to me that the claimant cannot fairly criticise the judge's conclusion that, as between claimant, second defendant and insurers, the unsuccessful party to the resolution of the preliminary issue was the claimant. Accordingly, it seems to me that the judge, in his brief and succinct judgment which I have quoted, directed himself correctly on the relevant factors in determining the position as between the claimant and insurers. Ms Taylor's fallback position is that he ought to have made the first defendant bear some part of the insurers' costs as well, because they also resisted the insurance application. Their counsel, Miss Boon, no doubt wisely, largely contented herself with adopting Ms Taylor's submissions on the substance of the issue and on the footing that the claimant had a claim against Mowlem's, which was not one that could be simply disregarded by Mowlem's, the first defendant had a contractual contribution claim and no doubt also a contribution claim under the legislation against the second defendant, which was only worthwhile if the insurance policy was answerable to the claim. I can perfectly well see that the judge could have decided that both the first defendant and the claimant should pay the insurers' costs and, if he had done so, it seems to me that that is an order that could not possibly have been criticised as being wrong in principle or outside the scope of a proper and legitimate order for costs in the circumstances.
15. He addressed the point and he addressed it briefly in the passage that I have read. His decision was that the first defendant should neither get nor be ordered to pay any costs, should, in effect, bear its own costs. He accounted for that in his reasoning by the proposition that the first defendant, though it has an interest in the outcome of the proceedings, has much less of an interest than has the claimant. He does go on to say that that has been reflected in what has been said on their behalf, and Ms Taylor made a point in saying that it is not altogether clear what that means; and if all it means is that Miss Boon had the forensic wisdom to do little more than adopt Ms Taylor's own submissions, that is perhaps not a very relevant factor. But as to the relative interest of the claimant and the first defendant in the outcome of the proceedings, and of the preliminary issue, it seems to me that the judge was entitled to take the view that the first defendant was definitely, at best, second in line for any costs of the insurers, because the first defendant is only there and is only interested in the position as regards the second defendant's insurance by way of its contribution claim to seek an indemnity against any liability of the first defendant to the claimant. Either way, the claimant is the driver of this litigation. It was the claimant whose perfectly understandable, legitimate forensic steps led to the insurers being brought into the case by the resurrection of the second defendant on its restoration to the register, and the first defendant was only there because the claimant had a separate claim against the first defendant and because, if the first defendant as liable to that, it had a claim over against the second defendant.
16. It seems to me that because, in that sense, the first defendant's position was doubly contingent as regards its liability and its interest in claiming against the second defendant's insurers, it was a legitimate course for the judge to take, to say that only the claimant, and not the first defendant, should be answerable for the insurers' costs. It seems to me that the judge directed himself appropriately and correctly with ample succinctness and came to an entirely rational and reasonable exercise of his discretion as to costs. Notwithstanding Ms Taylor's able submissions, both orally this morning and on paper, I would dismiss this appeal.

Lord Justice Wall:

17. I agree. I have some sympathy for the appellant in this sense: he is the innocent party, in that he has suffered an injury, and it now transpires that not only were his own employers neither solvent nor insured, but that the second defendant -- the principal subcontractor on the site -- was not only in liquidation and has no assets, but that the second defendant's insurers were repudiating liability under the insurance policy. However, I am bound to accept that these considerations are quite irrelevant to this appeal. We are in world of adversarial litigation and the simple fact remains that, in the circumstances of this case, the claimant indeed did have to prove liability against the second defendant and had to overcome the hurdle that the second defendant's insurers were repudiating their liability under the contract. The fact does remain that the claimant could have taken a neutral stance before the judge, but having taken up the cudgels against the insurers, the claimant, undoubtedly in my view, made himself open to and liable for an order for costs of the insurers' applications.
18. For the reasons given by my Lord, therefore, in my judgment this appeal thus must be dismissed. The judge plainly exercised a discretion properly open to him and, whilst another judge might have shared the costs between the claimant and the first defendant, both of whom had indeed opposed the application, that, as my Lord has pointed out and my Lord Buxton LJ pointed out during the course of argument, is not the test. In my judgment, therefore, this appeal fails.

Lord Justice Buxton:

19. I also agree. It would not have been open to the judge to make no order in respect of costs against the claimant. It would, for the reasons that Lloyd LJ gives, have been open to him to make an order that Mowlem should pay some part of the costs. But that is not the order which he made. It was entirely within his discretion to make the order that he did make. This appeal must therefore fail.

Order: Appeal dismissed