England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
THE HONOURABLE MR JUSTICE TEARE
2008 FOLIO 309

		Royal Courts of Justice Strand, London, WC2A 2LL
		12th February 2009

Lord Justice Longmore:

1. This litigation is a by-product of the claims brought by miners in respect of chronic obstructive pulmonary disease and vibration white finger. After liability had been established, the Department of Trade and Industry ("the DTI") set up compensation schemes for the miners. Claims under those schemes were advanced with the assistance of the miners' unions. In some cases the unions entered into agreements with their members pursuant to which sums should be, and were, deducted from their compensation, notwithstanding the fact that the DTI had agreed to pay the miners' costs. Solicitors for the miners also made similar agreements and/or made deductions in their own favour. The legality of those arrangements has been challenged and some or all of the solicitors are facing disciplinary proceedings the outcome of which remains to be resolved.
2. The claimant solicitors ("GWM") assumed the conduct of the proceedings on behalf of the miners against the unions and the miners' former solicitors. For reasons that seemed good to them GWM applied to the court to make a Group Litigation Order ("GLO") which would bind at any rate those solicitors and those unions which were named as respondents to the application. That application was rejected by Sir Michael Turner on 18^th May 2006 partly on the basis that such an order would be pointless if some unions and some solicitors were not to be bound by the result, partly on the basis that it was unclear whether the proposed respondents' costs would, if they were successful, be met by After the Event ("ATE") insurance and for many other reasons also. There is no doubt, however, that ATE insurance, written by Templeton Insurance Ltd ("Templeton"), was available for the GLO application itself. These proceedings relate to that ATE insurance which covered not merely the respondents' costs if the claimants lost but also claimants' "own disbursements".
3. The costs of the application for the GLO were considerable and nominally fell to be paid by the miners who were the nominal applicants for the order. Not unnaturally GWM have settled any potential claim which the miners might have against them and have paid to the respondents to the GLO application the costs incurred by those respondents. GWM now assert that they have only paid what Templeton ought to have paid under the ATE insurance in the event of the GLO application failing. GWM have therefore sought to sue the insurers in the current proposed action on the basis (1) that the insurers directly promised GWM that they would meet valid claims under the policy or (2) that GWM themselves were liable to the miners as nominal claimants to pay the costs of the respondents to the GLO application as well as relevant disbursements but Templeton were also liable to pay those costs as ATE insurers. GWM claim that both Templeton and they (GWM) are thus "liable for the same damage" and GWM are entitled to seek a contribution (which they say should be a 100% contribution) from the ATE insurers pursuant to the Civil Liability (Contribution) Act 1978.
4. Since Templeton are incorporated in the Isle of Man, GWM need the permission of the court to serve them out of the jurisdiction. For this purpose they have asserted that the insurers are liable to them under a contract made with them which is governed by English law or, for the purpose of their contribution claim, that the insurers' liability arises in connection with a contract which is governed by English law, namely the ATE policy. It is said that the claim therefore comes within CPR 6.20(5)(c). Templeton say that there is no arguable case of a contract made between GWM and themselves and that it is not sufficient for the purposes of CPR 6.20(5)(c) that relief is sought in connection with a contract other than a contract made between the parties to the proposed litigation, which the ATE policy was not. Templeton also say that it is not arguable that they and GWM are liable for the same damage since a liability under a contract to the nominal applicants for the GLO is different from a liability to those applicants under the ATE policy.
5. The judge upheld Templeton's assertions in relation to the contract allegedly made between them and GWM, but decided that the claim for contribution was within CPR 6.20(5)(c) and that, if there were liability, it was arguably liability for the same damage. He therefore refused to set aside the initial order giving permission to serve the insurers out of the jurisdiction in respect of the contribution claim. He did, however, set aside the claim relying on a direct contract between GWM and the insurers. Both GWM and the insurers now appeal.

GWM's Contract Claim

6. It is convenient to begin with the claim in contract. CPR 6.20(5)(c) provides

"…. a claim form may be served out of the jurisdiction with the permission of the court if

…

(5) a claim is made in respect of a contract where the contract

(a) …

(b) …

(c) is governed by English law."

7. GWM assert that they have a contract directly with Templeton which arose out of the negotiations which took place in June 2005 between Mr Edwards, a partner in GWM and Mr Brunswick, Templeton's managing director. Mr Edwards asked if Templeton would be interested in providing ATE insurance for the coal mining cases in which he was or would be instructed. Mr Brunswick agreed in principle to do so and instructed his underwriting manager Mr Maule to agree terms. Mr Edwards then prepared a document to be used for miners who made conditional fee agreements ("CFAs") with GWM. This document was shown to and discussed with Mr Maule who suggested at least one amendment. It was headed

"MINEWORKERS' Group action

…..

The GWM Guarantee to clients"

and relevantly provided:-

"No win, no fee, no risk, no cost!;

We, Greene Wood & McLean LLP confirm to our clients that we will handle their claims in relation to the above matter on the basis that ….

2) We have obtained a policy of After The Event Litigation Expense Insurance for our clients underwritten by Templeton Insurance Limited a regulated insurer of Douglas Isle of Man;

3) The policy will cover adverse costs, own disbursements and the insurance premium … Below I set out what the costs implications are – win or lose ……

b) Lose…. ii) Disbursements – these are recoverable from the insurance policy … iv) Adverse costs – this is recoverable from the insurance policy."

8. Paragraph 8 of GWM's Particular of Claim then asserts

"The above document was submitted in draft to Mr Maule who approved it subject to an amendment suggested by him (which was at paragraph 3(a)(iii) of the document). Having approved the documentation Mr Maule authorised the claimant, on behalf of the defendant, to enter into agreements with the miners whereby they became parties to the policy to be issued by the defendants."

The judge accepted that this paragraph raised a serious issue to be tried namely whether Mr Maule had entered into a binding and enforceable contract to authorise GWM to enter into agreements with the miners whereby they would become parties to the ATE policy to be issued by Templeton which would then bind Templeton to meet valid claims under the policy. That was sufficient for the jurisdictional gateway of CPR 6.20(5)(c) since such a contract would be governed by English law just like the ATE policy itself.

9. I do not understand Templeton to challenge the claim thus far. What, however, Templeton do say (and the judge found) is that there is no arguable breach of this contract. GWM assert that it was an implied term of the agreement (by which they were authorised to make the miners parties to the ATE policy for the purpose of proceeding with the GLO application) that Templeton would meet valid claims under the policy. They then further assert that Templeton have, in breach of that implied term, failed to meet the miners valid claim for the costs of the respondents to the GLO application and "own disbursements" and that they (GWM) have, therefore, had to meet those costs and expenses themselves which they are now entitled to recover in their own name pursuant to the implied term in the agency contract made with Templeton.
10. The question therefore is: is there a serious issue to be tried whether the suggested term (that Templeton would meet claims under the policy) should be implied into the contract made between Templeton and GWM? The judge held that that was not a seriously arguable proposition. He asked whether it was necessary to imply such a term and decided it was not because

"the Claimant was enabled to give its guarantee to the miners by the defendant's agreement that the miners would have an enforceable claim against the defendant to be indemnified in respect of adverse costs on the terms of the ATE policy to be issued to then."

11. In my view the matter is somewhat more complex than the judge thought. One has what is initially a bi-lateral contract between GWM and Templeton but a contract which is intended to create legal relations in due course between Templeton and the individual miners. Templeton knew that GWM would be guaranteeing to the miners in due course that if they instructed GWM to pursue the GLO application that would be free of risk as to costs and disbursements for the miners if the miners eventually lost the application. In those circumstances a judge at any trial could conclude that it was a necessary part of the arrangement that Templeton had to agree with GWM (as well as with the miners) that they would meet the miners' valid claims. If such a term was not to be implied and, if (for any reason) insurers refused to indemnify the miners in respect of costs and disbursements, the miners would obviously have recourse to their English solicitors under their guarantee rather than embark on proceedings against an Isle of Man insurance company. In these circumstances it is at least arguable that it is necessary to imply a term in the agreement with GWM that Templeton would meet valid claims. Otherwise GWM are left holding the baby with only a possible contribution claim against Templeton, who strenuously deny that any such claim exists.
12. The facts of this case exemplify the difficulty. On 25^th May 2006 Templeton wrote a long letter to one of the miners' solicitors declaring the policy void ab initio in the light of Sir Michael Turner's conclusion on the application for the GLO including his observations that the application was misconceived and doomed from the start. How that justified avoidance ab initio was never explained but the settlement agreements made between GWM and the individual miners on about 22^nd September 2006, whereby each miner was paid £1,000 in respect of distress and inconvenience suffered as a result of the application for the GLO, correctly recorded that Templeton had purported to avoid the policy. That purported avoidance was not withdrawn until the miners instituted arbitration proceedings against Templeton at a later date when Templeton changed tack and argued that GWM had a liability to the miners for their negligent conduct of the application for the GLO and that payments made to the respondents to settle their costs were a discharge of that liability to the miners in negligence which operated to relieve Templeton of any liability for those costs.
13. This exposes a possible "black hole" whereby, if insurers rely on a bad reason to decline liability under the insurance policy, they may (if the miners for any reason choose not to litigate or arbitrate against them) not have to pay proper claims when they should have done. It is only if GWM have themselves a right of suit that liability can be attributed correctly.
14. If it were clear that, on GWM paying costs and disbursements for which the miners were liable, GWM were subrogated to the miners' claim under the policy, it might then be unnecessary to imply any term into GWM's agreement with Templeton that Templeton would meet valid claims. But Mr Sweeting for Templeton said that no such subrogation existed in the present case (because GWM were discharging their own potential liabilities in negligence rather than seeking to discharge the insurers' obligations). If the existence of subrogation rights is doubtful or if they do not exist at all, that in itself must be a pointer to the necessity of the alleged implied term.
15. The judge also considered the officious bystander test for the implication of terms. In the present case the officious bystander would have to be given a considerable amount of information (let alone have some legal knowledge of CFAs and ATE insurance) before he could begin to give an intelligent answer to the question whether the alleged term should be implied. Even then he would be more likely to be bemused than be able to give an immediately intelligible answer, so the judge might be right to say that he would be unlikely to suppress the questioner by saying "of course" whether testily or otherwise. But if the implied term can arguably be said to be necessary, the officious bystander test does not need to be satisfied as well.
16. I would, therefore, say (contrary to the judge) that there is a serious issue to be tried on GWM's claim in contract and would not say, at this stage, that that claim has no reasonable prospects of success.

The claim for contribution

17. The first question is whether the claim for a contribution or indemnity pursuant to the 1978 Act is "a claim in respect of a contract" for the purposes of sub-rule 5(c). The claim is only being made because, as it happens, the insurers do have a contract with the miners whereby they have agreed to indemnify the miners in respect of costs which may be ordered against them in the GLO application and in respect of own disbursements. But can it be said that GWM's claim is a claim in respect of a contract? It is not a contract to which GWM are a party and the paradigm case of a contract pursuant to which permission is given under part 6.20(5)(c) is a contract between the intended claimant and the intended defendant. Indeed the notes to the rule in the White Book (6.21.34) do actually say that the contract has to be a contract between those parties. That is adopted by Mr Sweeting for the insurers who says that is not enough for only one of the parties to the intended action to be a party to a contract. Suppose that there is a contract to which only the intended claimant is a party and the defendant merely has a tortious or fiduciary obligation to the third party, would that be sufficient for the sub-rule to apply? That would be odd because the defendant would be brought before the court under a contractual provision of CPR 6.20 when he was not a party to a contract at all.
18. To say that, for a claim to be "in respect of a contract", it must be "in respect of a contract between the intended claimant and the intended defendant" is to add words to the rule which are not there. The commentary in Dicey, Morris and Collins, Conflict of Laws, 14^th ed (2006) 11-182 to 11-184 does not suggest any such requirement. Moreover since the Contracts (Rights of Third Parties) Act 1999, Parliament has contemplated cases in which a third party can sue on a contract made between two persons for his benefit. If such a contract is governed by English law (or, even, made or broken in England) why should the third party not be able to take advantage of sub-rule (5)(c) of CPR 6.20? It would be odd if he could not and every reason to suppose that he should be able to utilise the sub-rule, always subject to the court being satisfied that England is the "proper place" in which to bring the claim, pursuant to CPR 6.21(2A).
19. The claim in the present case clearly has a connection with a contract governed by English law. To my mind that makes it a claim in respect of that contract even if it is not a claim brought under the contract. No doubt some connections with contracts are more remote than others but the present claim has a very close connection with insurers' contract with the miners to pay their costs and own disbursements if they lose. As the judge said the remoteness from the contract (if any) is something that can be dealt with when the court considers whether England is the proper place for a claim under CPR 6.21(2A).
20. I doubt if it would be any different if it was the intended claimant rather than the intended defendant who was a party to the contract in respect of which the claim was brought but I am content to leave that question to be decided in a case in which it actually arises.

Section 1(1) of the 1978 Act: the "same damage"

21. Section 1(1) provides:-

"Subject to the following provision of this section, any person liable in respect of any damage suffered by another person may recover contribution from any other person liable in respect of the same damage (whether jointly with him or otherwise)"

This has to be read together with the interpretation provision, section 6(1):-

"A person is liable in respect of any damage for the purposes of this Act if the person who suffered it … is entitled to recover compensation from him in respect of that damage (whatever the legal basis of his liability, whether tort, breach of contract, breach of trust or otherwise)."

Thus the basis of the liability does not matter but the damage for which both the claimant and the defendant are liable has to be "the same damage". So the second question, which must be addressed, is whether GWM and Templeton are liable for the same damage.

22. In the present case the damage for which GWM are liable is the liability of the miners to pay the costs of the respondents to the GLO application and the disbursements which the miners have had to pay in respect of their own application. This liability arises as a result of GWM's undertaking to their clients (the miners) that they would not themselves be liable for such costs. The damage for which the insurers are liable is the loss to the miners in consequence of their failure to honour the ATE policy which covered the miners in respect of their liability to pay the costs of the successful respondents to the GLO and disbursements which they were liable to pay. That seems to me to be the same damage as that for which GWM are liable and potential liability under section 1 of the 1978 Act must therefore follow.
23. Templeton submit that this is an incorrect analysis and say that GWM's true liability is a liability in negligence to the miners for having pursued a hopeless application. That, says Mr Sweeting, is supported by the fact that GWM thought it desirable and necessary themselves to pay the respondents' costs in a total sum of £1,060,000 and to settle any potential claim from the miners by paying them each £1,000 as the price of their agreeing not to pursue any claim against GWM. But the reality is that GWM undertook to the miners that they would not have to bear any expense of the litigation. By reason of the insurers' refusal to accept responsibility under the policy (for whatever reason) the miners have been exposed to liability for respondents' costs and their own disbursements. That exposure has, in the simplest terms, arisen because GWM have not kept their promise to the miners that insurers will pay those sums. The fact that GWM may also have, by their negligence, exposed the miners to those claims is nothing to the point if they have promised (whether they were negligent or not) that the miners would not be exposed to liability for those costs. It is by no means clear (and this court could not possibly, on this application, decide) that GWM were in breach of their duty of care to the miners. What is clear is that insurers' failure to pay the respondents' costs and the miners' own disbursements has rendered GWM in breach of their contractual obligation to the miners. The damage suffered by the miners is exactly the same damage as suffered by them as a result of insurers' failure to honour their obligations under the ATE policy.
24. The cases relied on by Mr Sweeting are all distinguishable. In Bovis Construction Ltd v Commercial Union Assurance Co Plc[2001] 1 Lloyds Rep 416 a construction project manager, who was responsible for allowing a building to be susceptible to flood damage as a result of his failure to design the building correctly and properly supervise its construction, claimed contribution from the insurers of the project. David Steel J held that the susceptibility to flood damage was not the same damage as insurers' failure to pay. In the present case, by contrast, it is the insurers' failure to pay which has caused the very damage for which GWM are liable to the miners.
25. In Wallace v Litwiniuk (2001) 92 Alta LR(3d) 249 the plaintiff suffered injury as a result of the negligent driving of the colliding vehicle. Her lawyers allowed the claim to become time barred. She sued her lawyers who sought contribution from the negligent driver. It was held that the damage which she had suffered as a result of her lawyers' negligence was not the same damage as she had suffered as a result of the other driver's negligence. The first was economic while the second was physical. Moreover, any damage suffered by reason of her lawyers' negligence had to be discounted for irrecoverable costs and the risks of litigation. Here both losses are economic and there can be no question of any discount. Although "damage" is not the same as "damages" (see Birse Construction Ltd v Haiste Ltd [1996] 1 WLR 675, 682) in fact the damages will be identical and that is, at least, an indication that the damage is likewise identical.
26. In Royal Brompton Hospital NHS Trust v Hammond [2002] 1 WLR 1397 architects claimed contribution from building contractors on the basis that both of them were liable to the building owners. The House of Lords, after a careful analysis of the differing obligations owed by the architects and the contractors, held that the damage suffered by the hospital trust as a result of the architects having certified that the contractors were entitled to an extension of time (namely the inability to rely on a early date for practical completion) was different from the damage suffered by the contractors' prolongation of the contract. The first damage was damage arising from breach of the architect's duty of care while the second damage arose merely from the contractors' delay. That is a long way from the present case where the damage is exactly the same, namely the loss caused by the insurers' failure to pay what they have agreed to pay.
27. Lord Steyn, with whom the rest of the House agreed, said that the context of the 1978 Act whereby contribution was only available where the same damage had been suffered did not justify

"an expansive interpretation of the words "the same damage" so as to mean "substantially or materially similar damage."

That is now the basis on which section 1 of the 1978 Act must be interpreted. But in the present case for the reasons given, the damage is not just substantially or materially similar. It is, in fact, the same damage.

Conclusion

28. On this aspect of the case I agree with the judge and I would therefore dismiss Templeton's appeal while allowing GWM's appeal in relation to the contractual claim.

Lord Justice Hooper:

29. I agree.

Master of the Rolls:

30. I also agree.