LORD BRIGGS: (with whom
Lady Black and Lord Kitchin agree)
1.
This appeal challenges the making of a non-party costs order under
section 51 of the Senior Courts Act 1981 against the product liability insurer
of one of the defendants in litigation being managed under a Group Litigation
Order (“GLO”).
2.
Although the particular circumstances which led to the making of the non-party
costs order may fairly be described as unusual or even rare, they give rise to
important questions about the principles upon which the exercise of the court’s
broad jurisdiction to make such orders should depend, where the non-party is a
liability insurer, both funding and largely directing the conduct of its
insured defendant’s defence in the relevant litigation. The search for
principle is particularly acute where, as here, some but not all the claims in
the group litigation fall within the confines of the cover provided by the
insurance.
3.
In Aiden Shipping Co Ltd v Interbulk Ltd [1986] AC 965,
975 Lord Goff of Chieveley said that it was for the rule-making authority
making rules of court and for the appellate courts to establish principles upon
which the broad discretionary power to make costs orders against non-parties
should be exercised. As will appear, a series of authorities have sought to lay
down some principles regulating the exercise of this discretion against
non-party insurers. This appeal provides an opportunity to review that
developing jurisprudence.
The Facts
4.
The group litigation which has generated this appeal concerns the supply
of defective silicone implants for use in breast surgery, manufactured by the
French company Poly Implant Prothèse (“PIP”). One of the defendants, Transform
Medical Group (CS) Ltd (“Transform”) operated medical clinics which supplied
and fitted implants manufactured by PIP to customers in England. The appellant
Travelers Insurance Co Ltd (“Travelers”) provided product liability insurance
to Transform which covered liability for bodily injury (or property damage)
occurring during the period of insurance, which ran from 31 March 2007 to 30
March 2011. Many of those implants ruptured, causing bodily injury (as defined),
principally in the form of leakage of their contents. Of the 1,000 or so women
claimants joining in the group litigation, some 623 of their claims were
brought against Transform, which was one of a number of similar clinics joined
as defendants in the litigation. Of the 623 claiming against Transform, some
197 were later identified as having suffered bodily injury from defective PIP
implants during the period covered by Travelers’ insurance. Of the 426
remaining claimants against Transform, all of whose claims fell outside the
cover provided by Travelers’ insurance, some 194 (labelled in the proceedings
the “worried well”) had not yet suffered bodily injury from a rupture of their
implants, but were exposed to a risk that they would do in the future. The
remainder had suffered bodily injury from a rupture of their implants outside
the period covered by Travelers’ insurance. Collectively, the 426 claimants
within those two classes have been labelled the “uninsured claimants”. They are
the respondents to this appeal.
5.
Product liability cover was provided by Travelers to Transform under
standard form policies which, broadly speaking, required Travelers to indemnify
Transform in respect of the costs (and costs liability) incurred or arising in
proceedings where the claims made fell within the cover provided and, in
relation to such claims, conferred upon Travelers the right to control the
conduct thereof on behalf of Transform. Further, Transform was prohibited from
making admissions or offers to settle in relation to claims falling within the
cover provided by the policies, without Travelers’ consent. Transform was
required to give Travelers all information and assistance which it might
require in connection with any such claim.
6.
The 1,000 claimants pursued their claims arising out of allegedly
defective PIP implants pursuant to a GLO made on 17 April 2012 by
Wyn Williams J. The litigation was case managed by Thirlwall J (later LJ) at
all material times after October 2012. As is reflected in para 5 of the GLO, it
was appreciated from the outset that the claims were likely to give rise to
common or related issues of fact and law. Paragraph 12 of the GLO made
provision for sharing of common costs (that is all costs other than those which
are purely personal to each claimant), on the basis of dividing common costs by
the number of claimants pursuing their claims, and for each party’s liability
for, and entitlement to recover, costs to be several and not joint.
7.
By case management orders made in 2013 Thirlwall J identified two common
issues for early determination and selected four test claims to be fast-tracked
for the purposes of their early determination ahead of the remainder, which
were all stayed. In order to preserve the anonymity of the claimants I shall
refer to them as claims A to D. Transform was the defendant clinic in all four
of them. Claims A and B were made by two of the 197 claimants against Transform
whose claims fell within the cover provided by the Travelers’ policies
(“insured claimants”). Claims C and D were by uninsured claimants. Claim C
asserted bodily injury falling outside the period of insurance. Claim D was by
a worried well claimant.
8.
The selection of the test cases was not made by reference to any
understanding on the part of the court, or the claimants, about the extent and
terms of Transform’s product liability insurance from Travelers. It was,
therefore, mere happenstance that two of the test claims were insured, and two
uninsured. Furthermore, the costs liability and entitlement arising from the
litigation of the common issues in the four test claims was itself shared among
all 1,000 claimants and, in particular, all 623 claimants against Transform, on
a several-only basis pursuant to the GLO.
9.
Transform had obtained the PIP breast implants supplied to its customers
from a company called Cloverleaf Products Ltd (“Cloverleaf”), against which
Transform made a Part 20 claim for an indemnity for any liability of its own to
the claimants. Cloverleaf was itself insured by Amlin Corporate Solutions Ltd
(“Amlin”) which provided cover to Cloverleaf in respect of the period 2004 to
2007, for which Transform was itself uninsured.
10.
The claimants’ legal team had from an early stage in the litigation been
understandably concerned to discover, if they could, the nature and extent of
Transform’s insurance cover, all the more so when in about mid-2013 they became
aware that Transform might be in financial difficulties. Inconclusive
discussions took place between the claimants’ legal team, the solicitors
jointly retained by Transform and Travelers to conduct Transform’s defence, and
between Transform, Travelers and those solicitors, about what if any disclosure
might voluntarily be made. Eventually the claimants made an application against
Transform for disclosure of information about its insurance position in July
2013, which was heard by Thirlwall J in late September and dismissed (subject
to one exception) in her reserved judgment on 22 November 2013: [2013] EWHC 3643 (QB). The exception was that she directed Transform to inform her,
confidentially, as to whether it had the resources to fund its own defence up
until trial. In the event however, the relevant limitations upon Transform’s
cover from Travelers, namely the temporal limits and the exclusion of worried well
claims, were voluntarily disclosed to the claimants by June 2014. It was by
then apparent that, without insurance, Transform would be unlikely to have the
resources to pay compensation or costs to successful uninsured claimants.
11.
The judge was later to find that, had the claimants’ solicitors known
from the outset about those limits on Transform’s insurance cover, the
uninsured claimants would not have commenced or at least continued their claims
as registered members of the claimants’ group under the GLO. But by June 2014
they had on a several-only basis participated in the cost of the prosecution of
the common issues in the four test cases, upon which considerable outlay had
been expended, including on the obtaining of vital expert evidence probative of
the deficiencies in the quality of the PIP implants. They had done so on the
basis of no win no fee contingency fee agreements, backed by after the event (“ATE”)
insurance so that, although to that extent protected in their own pockets, the
substantial recoveries (including success fees and ATE premium) which might be
expected to be made after a successful claim against an insured defendant were
threatened with being frustrated if the uninsured claimants’ only recourse lay
against the financially distressed Transform (which, incidentally, went into
insolvent administration a year later).
12.
It might be asked therefore why, after the disclosure of the limitations
on Transform’s insurance cover was made in June 2014, the uninsured claimants
against Transform continued as members of the GLO, or the group as a whole
continued to pursue the uninsured test claims C and D. The answer, as was
expressly confirmed by Mr Hugh Preston QC on behalf of the respondents in
response to an inquiry from the court during the hearing of this appeal, was
that an important (although not sole) reason why they did so was in the hope of
obtaining a non-party costs order against Travelers in due course, if
successful in their claims against Transform.
13.
Travelers was in the meantime funding the whole of Transform’s defence
costs, consisting mainly of the costs of defending all four sample claims in
relation to the common issues, notwithstanding that claims C and D were
uninsured. This is because, in relation to issues common to insured and uninsured
claims, it is settled law that insurers may not seek to apportion their
contractual liability to pay defence costs: see New Zealand Forest Products
Ltd v New Zealand Insurance Co Ltd [1997] 1 WLR 1237 (PC) approved by this
court in International Energy Group Ltd v Zurich Assurance plc UK Branch
[2016] AC 509, paras 36-38. That much is common ground.
14.
In July 2014 Transform sought and obtained Travelers’ consent to the
making of a drop-hands offer to the worried well claimants. It does not appear
that such an offer was made and, when Transform sought consent to do so again
in January 2015, consent was not given. The judge also found (but it is not
clear precisely when this occurred) that Transform sought consent from
Travelers to make an admission of liability to the uninsured claimants, and
that consent for this was not forthcoming either.
15.
Meanwhile, an attempt to settle the litigation against Transform by
mediation was attempted but without success in August 2014, mainly because
Cloverleaf and Amlin declined to participate. In September 2014 the trial of
the sample claims listed for October 2014 was adjourned, so as to enable a
coverage dispute to be resolved between Transform and Travelers. That was
settled in April 2015 and a settlement of all the insured claims against
Transform resolved at a mediation in June 2015 in which Cloverleaf and Amlin
did participate. Transform was by then in administration and, being fully
insured in relation to those claims, the administrators took no active part in
the mediation. Final agreement was reached in August 2015, including sample
cases A and B, leaving only the uninsured claims outstanding. At that point
Travelers’ obligation to fund defence costs ceased. The remaining uninsured
sample claims C and D were eventually determined in May 2016, by an award of
summary judgment. By then, all the other uninsured claimants against Transform
had obtained default judgment, in March 2016.
The section 51 Applications
16.
Notice that a section 51 application would be made against Travelers was
communicated to Travelers before the uninsured claimants obtained summary
judgment against Transform, as described above. It was heard by Thirlwall LJ in
October 2016 and determined in an admirably concise reserved judgment handed
down on 24 February 2017: [2017] EWHC 287 (QB).
17.
The judge reminded herself of the leading general authorities on
non-party costs orders, to which reference will be made below. She referred
only to one first-instance case about non-party cost orders against insurers,
namely Citibank NA v Excess Insurance Co Ltd [1999] 1 Lloyd’s Rep IR
122, although she noted that it had been followed in later cases. But she
distinguished that line of authority on the basis that, uniquely in the case
before her, the insurers had participated in the defence of wholly uninsured
claims. She therefore directed herself by reference to the general principles
relating to non-party costs orders namely: (1) whether the case was exceptional
and (2) whether the making of an order would accord with fairness and justice.
18.
Her decision to make a non-party costs order against Travelers was, in
summary, motivated by the following analysis. First, she took the view that the
uninsured claims were entirely separate and distinct from the insured claims,
so that Travelers had no business involving itself in the uninsured claims at
all, either directly or through jointly retained solicitors.
19.
Secondly, she was powerfully influenced by her conclusion (which is not
open to challenge in this court, having been affirmed by the Court of Appeal)
that if early disclosure of the limitations on Travelers’ insurance had been
made, the uninsured claimants would not have pursued their claims, so that the
costs which they then incurred on a several-only basis under the terms of the
GLO for which they had no effective recourse, outside section 51, against
anyone, would not have been incurred at all. She concluded that the decision
not to make early disclosure had been, at least, influenced by a perception on
the part of the jointly retained solicitors that non-disclosure would serve
Travelers’ rather than Transform’s interests, and that the conflict in that regard
had been overlooked.
20.
Thirdly, the judge was clearly much affected by her perception that
there was an asymmetry or lack of reciprocity in costs risk as between the
uninsured claimants and Travelers. If the uninsured claims were successfully
defended (at Travelers’ expense) then Travelers would have a full costs
recovery against, inter alia, the uninsured claimants for their several shares
of that liability. By contrast, if the uninsured claimants were successful
against Transform, they would have no recourse at all against Travelers for
their costs and, because of Transform’s financial plight, no effective recourse
against Transform either. Looking at it from Travelers’ perspective, the
presence of the uninsured claimants within the GLO reduced their costs exposure
of failure on the common issues by reference to the number of the uninsured
claimants against Transform expressed as a fraction of all the claimants
against Transform, whereas Travelers would suffer no corresponding reduction in
their costs recovery if successful. By contrast, if only insured claimants had
proceeded against Transform, Travelers’ costs risk would have been for the
whole of the common costs, and there would have been reciprocity.
21.
Finally, the judge regarded Travelers’ participation in questions about
whether to make offers of settlement or admissions to the uninsured claimants
as further factors strongly supportive of a conclusion that Travelers had
participated in the uninsured claims to an extent sufficient to incur a
non-party costs liability.
22.
The Court of Appeal (Patten and Lewison LJJ) reached the same conclusion
as the judge, but for slightly different reasons: [2018] EWCA Civ 1099. They
thought that the judge went too far in her conclusion that the uninsured claims
had nothing whatsoever to do with the insured claims, because the same common
issues arose in both, and Travelers were obliged under the policies (and the
general law) to fund the defence of Transform’s position in relation to those
common issues in all four test cases. They were, if anything, even more
powerfully affected by the asymmetry or lack of reciprocity as between the
uninsured claimants and Travelers in relation to costs risk. Having described
that lack of reciprocity as leading to the fortuitous result that Travelers
escaped liability for approximately 68% of the costs of the common issues
Lewison LJ continued, at para 12:
“My instinctive reaction is that
this result accords neither with reason nor justice given the probably unique
circumstances of this case.”
He noted that the editors of Colinvaux and Merkin on
Insurance Contract Law reached a similar conclusion, namely “that
reciprocity was appropriate” (see para 17).
23.
The Court of Appeal broadly upheld the judge’s factual analysis of the
circumstances in which disclosure of Transform’s insurance cover was delayed,
and its consequences, and (not without hesitation) her conclusion that
Travelers should bear responsibility for what she had regarded as the flawed
advice given by the jointly retained solicitors, mindless of the underlying
conflict of interest between Travelers, which stood to gain from the addition
of uninsured claimants, and Transform, which stood to lose from it. But it is
clear that the Court of Appeal regarded the reciprocity point as decisive, both
because it made the present case exceptional and because it pointed the way to
a non-party costs order against Travelers as achieving a just result: see para
45, and its reference back to para 32.
24.
In conclusion, after an analysis of the cases (referred to below) about
non-party costs orders against insurers, the Court of Appeal concluded, at para
46, that the judge had been “entirely correct” to treat the question as
depending upon the twin issues of exceptionality and justice, rather than upon
any particular principles applicable to non-party costs orders against
insurers.
The Law
25.
Section 51 of the Senior Courts Act 1981 (previously known as the
Supreme Court Act) provides as follows:
“(1) Subject to the provisions
of this or any other enactment and to rules of court, the costs of and
incidental to all proceedings in -
(a) the civil division of
the Court of Appeal;
(b) the High Court;
(ba) the family court; and
(c) the county court,
shall be in the discretion of the
court.
(2) Without prejudice to any
general power to make rules of court, such rules may make provision for
regulating matters relating to the costs of those proceedings including, in
particular, prescribing scales of costs to be paid to legal or other
representatives or for securing that the amount awarded to a party in respect
of the costs to be paid by him to such representatives is not limited to what
would have been payable by him to them if he had not been awarded costs.
(3) The court shall have
full power to determine by whom and to what extent the costs are to be paid …”
This formulation amends the original language of section
51(1), which was as follows:
“Subject to the provisions of this
or any other Act and to rules of court, the costs of and incidental to all
proceedings in the civil division of the Court of Appeal and in the High Court,
including the administration of estates and trusts, shall be in the discretion
of the court, and the court shall have full power to determine by whom and to
what extent the costs are to be paid.”
It is not suggested that the change of language affects
the issues arising in this appeal in any way.
26.
It was not initially appreciated that the jurisdiction to determine “by
whom … costs are to be paid” (first conferred in those words by section 5 of
the Supreme Court of Judicature Act 1890) enabled the court to make costs
orders against non-parties at all. That was the issue decided in the
affirmative by the Aidan Shipping case in 1986, reversing long-standing
authority consisting of decisions of the Court of Appeal to the contrary in
1901 and 1958. Lord Goff’s recognition in that case that it was for the Rules
Committee to regulate the exercise of this broad jurisdiction if it thought fit
has not been reflected in any rules or practice directions relevant to this
appeal. Rather the task of formulating principles for the discretionary
exercise of this jurisdiction has fallen to the courts.
27.
It is evident (from p 981B in the Aidan Shipping case), and
obviously right, that it is a pre-requisite for the making of a costs order
against a non-party that the person sought to be made liable has some relevant
connection with the proceedings in question. But the passage of time, and the
endless development of novel ways of funding the ever-increasing cost of civil
litigation, has shown that non-parties may become connected with proceedings in
a wide variety of ways, usually providing funding and/or exercising some degree
of control or providing assistance. They range from the “pure” funder who
contributes to a litigation fund out of sympathy or charity, with no financial
or other interest in the outcome, through the company shareholder who funds the
company’s litigation to preserve the value of his shareholding, or the director
who controls the conduct of the litigation pursuant to a fiduciary duty to the
company, to the speculator who buys into a piece of litigation with a view to
making a profit from a share in the damages recovered. Liability insurers
occupy a particular, well-populated, space on that broad spectrum.
28.
It is therefore not surprising that the appellate courts have struggled
to identify principles applicable across the board to the exercise of the
jurisdiction to make a costs order against a non-party, save at the very
highest level of generality, although some attempt has been made, for example
by Lord Brown of Eaton-under-Heywood giving the opinion of the Judicial
Committee of the Privy Council in Dymocks Franchise Systems (NSW) Pty Ltd v
Todd [2004] 1 WLR 2807, paras 25-29, approved as an authoritative statement
of English law by the Court of Appeal in Deutsche Bank AG v Sebastian
Holdings Inc [2016] 4 WLR 17, para 62. But neither was a case about
insurers, and the conduct of the non-party relied upon in the Dymocks case
for the making against it of a costs order consisted in the main of
self-interested funding rather than, as here, conduct of the relevant
litigation.
29.
An earlier attempt to lay down general principles had been made by the
Court of Appeal in Symphony Group Plc v Hodgson [1994] QB 179, but that
was not an insurance case either. The ratio of that case was that a section 51
non-party costs application should not be used as a substitute for the pursuit
of a related cause of action against the non-party in ordinary proceedings.
Beyond that, the particular statements of principle there enunciated have no
relevance to this appeal.
30.
It is not the purpose of this judgment comprehensively to reassess those
generally applicable principles. It may be (and I am reluctantly prepared to
assume but without deciding) that they really are limited, as the Court of
Appeal thought in the present case, to the twin considerations of
exceptionality and justice. The same general conclusion is to be found in the Deutsche
Bank case. That said, I share all Lord Reed’s concerns as to the lack of
content, principle or precision in the concept of exceptionality as a useful
test. Rather, this is an occasion to consider, in more granular detail,
the principles which ought to apply to that distinct part of the broad spectrum
of non-parties occupied by liability insurers. While doing so it will be
appropriate to make some brief observations about the impact of those general
principles in the liability insurance context, and in particular about the role
played by the presence or absence of a causative link between the conduct of
the non-party relied upon and the costs which the applicants incurred which
they seek to recover against the non-party under section 51.
31.
Liability insurance serves an obvious public interest. It protects those
incurring liability from financial ruin. More importantly, it serves to
minimise the risk that persons injured by the insured will go uncompensated as
a result of the insured’s lack of means. Unlike ATE insurance it is not
primarily aimed at making a profit by assisting in the funding of litigation
but, where liability becomes the subject of litigation, the insurance typically
contains provision under which the insurer is obliged to fund the insured’s
defence and, as an inevitable concomitant, entitled to exercise substantial
(although not always complete) control over the conduct of its insured’s
defence. The liability insurer is therefore typically an involuntary rather
than voluntary funder of litigation, and the control which the insurer
habitually exercises over the conduct of its insured’s defence arises from a
pre-existing contractual entitlement, rather than from a freely made decision
to intermeddle.
32.
Where a liability for which the insurance policy provides cover becomes
the subject of litigation, there are long-settled principles of insurance law
which, in addition to the contractual terms of the policy itself, serve to
regulate the proper participation of the insurer in the funding and, in
particular, conduct and control of the insured’s case. They long pre-date the
recognition of the non-party costs jurisdiction. They were summarised by Sir
Wilfred Greene MR in Groom v Crocker [1939] 1 KB 194, 203, as follows:
“The right given to the insurers
is to have control of proceedings in which they and the assured have a common
interest - the assured because he is the defendant and the insurers because
they are contractually bound to indemnify him. Each is interested in seeing
that any judgment to be recovered against the assured shall be for as small a sum
as possible. It is the assured upon whom the burden of the judgment will fall
if the insurers are insolvent. The effect of the provisions in question is, I
think, to give to the insurers the right to decide upon the proper tactics to
pursue in the conduct of the action, provided that they do so in what they bona
fide consider to be the common interest of themselves and their assured. But
the insurers are in my opinion clearly not entitled to allow their judgment as
to the best tactics to pursue to be influenced by the desire to obtain for
themselves some advantage altogether outside the litigation in question with
which the assured has no concern.”
33.
The combination of the clear public interest in the provision of
liability insurance and the fact that, within the above confines of contractual
propriety, an insurer commits itself to the funding and control of its
insured’s litigation long before the dispute in question is even known about,
provides a firm basis for concluding that (in the absence of engagement by the
Rules Committee) the appellate courts ought to be as clear and detailed as they
properly can in setting out the principles applicable to the incurring of
non-party costs liability by insurers. It would be unsatisfactory if the
insurer’s exposure to that liability, ex hypothesi lying outside the
confines of the policy, were to depend purely upon the uncontrolled perception
of a particular judge about the general justice of the matter, controlled only
by a requirement to show exceptionality, in the general sense that the case in
which the question has arisen is unusual, measured against the general run of
civil litigation.
34.
Cases in which any question of the non-party liability of the liability
insurer under section 51 arises may be said, almost by definition, to be
unusual. This is because, in the vanilla case of a single claim within the
scope of the cover provided by the policy, the insurer will be contractually
liable to the insured to indemnify it in respect of its costs liability to the
successful claimant, who will make a full costs recovery by that indirect
route, if necessary (where the insured is insolvent) with the assistance
provided by the Third Parties (Rights against Insurers) Act 2010, replacing the
earlier Act of the same name in 1930 (“the 1930 Act”). To treat every case as
exceptional where, for any reason, the claimant lacks that indirect means of
costs recovery exposes the liability insurer to the unpredictable outcome of
the judge’s perception of justice in every case where a section 51 application
is likely to need to be made. The court should therefore be disposed to
identify within the requirement for exceptionality something much more focussed
than that the facts of the particular case are unusual.
35.
Prior to the present case, the reported decisions about non-party costs
applications against liability insurers do disclose a sustained attempt to
provide some measure of guiding principle for the exercise of this wide
jurisdiction. In TGA Chapman Ltd v Christopher [1998] 1 WLR 12 the section
51 application was made because the cover was limited under the defendant’s
liability policy and insufficient to pay all the damages, let alone any part of
the costs, and the defendant was not worth powder and shot. Nonetheless the
claim fell squarely within the cover provided by the policy. It was, in the
argot of the present case, an insured claim, and could have been pursued
(subject to the limit of cover) directly against the insurer under the 1930 Act
if the insurer had not put the defendant in funds (up to the policy limit) with
which to settle it.
36.
Drawing upon general principles about the section 51 jurisdiction
Phillips LJ identified two separate bases upon which a liability insurer might
become exposed to non-party costs liability. The first basis (by no means
limited to insurers) may be labelled intermeddling. Repeating dicta of his own
in Murphy v Young & Co’s Brewery Plc [1997] 1 WLR 1591, 1601, he said at p 16:
“In Giles v Thompson [1994] 1 AC 142, 164 Lord Mustill suggested that the current test of maintenance
should ask the question whether: ‘there is wanton and officious intermeddling
with the disputes of others in which the meddler has no interest whatever, and
where the assistance he renders to one or the other party is without
justification or excuse.’ Where such a test is satisfied, I would expect the
court to be receptive to an application under section 51 that the meddler pay
any costs attributable to his intermeddling.”
37.
The second, which may be labelled the real defendant test, arose from
the combination of the insurer’s interest in the outcome of the proceedings,
its contractual obligation to indemnify the defendant for its costs liability
and its exercise of control over the conduct of the defence. In a case where
there was no limit of cover which excluded such a contractual obligation in
relation to costs he regarded a section 51 order as a convenient time and
cost-saving short-cut to recovery against the insurer of an insolvent defendant
under the 1930 Act. He regarded a case where a limit of cover excluded the
insurer’s contractual liability for costs, as it did in that case, as a “more
complex” example of the second type, calling for a more nuanced approach.
38.
The claimant company relied upon five features of the case which
justified a section 51 order, namely that:
“(1) the insurers determined
that the claim would be fought; (2) the insurers funded the defence of the
claim; (3) the insurers had the conduct of the litigation; (4) the insurers
fought the claim exclusively to defend their own interests; (5) the defence
failed in its entirety.”
The Court of Appeal agreed. Much the most important
consideration, for both purposes, was that the claim had been funded and
defended by the insurers purely in their own interests, regardless of the
interests of the assured defendant, who had been entirely without means from
start to finish, and who would have been content to settle the case at the
outset rather than contest it. The insurers were regarded as the real defendants
in all but name. In passing Phillips LJ rejected the submission that
exceptionality was to be measured by comparison with other insurance cases
rather than the generality of cases, and the argument that an insurer who
stayed within the bounds of his rights and obligations under the policy should
never be exposed to liability beyond the limit of cover by means of a section
51 application.
39.
In Citibank NA v Excess Insurance Co Ltd [1999] Lloyd’s Rep IR
122, the section 51 application was prompted by the reporting of the Chapman
case, and decided by Thomas J (as he then was) specifically upon the basis that
the continued defence of the quantum of the claim after judgment on liability
had been conducted by the insurers solely in their own interests, after the
insured’s interest in protecting its reputation had been terminated by the
adverse judgment on liability. It was another case in which the claim fell
within the cover, but the policy limit left the insured’s costs liability
uninsured.
40.
Thomas J said, at p 131:
“The decision in Chapman
has laid down clear principles that a court can apply. If the circumstances are
such that the application for a costs order falls within those principles, then
it should follow that there should be a costs order under section 51; if they
do not, they should not. To my mind, the principles have been formulated in
such a way that the cases that fall within them will be exceptional across the
spectrum of litigation and thus the primary approach of the court should be to
consider whether the principles set out have been satisfied.”
The principles to which Thomas J was particularly
referring are those features of the Chapman case numbered (1), (3) and
(4) in the above summary: namely that the insurers decided that the claim
should be fought, conducted the defence, and did so motivated entirely by their
own interests. They have since come to be known (and were referred to in
submissions during this appeal) as the Chapman principles.
41.
Cormack v Excess Insurance Co Ltd [2002] Lloyd’s Rep IR 398 was
another case in which a limit of cover triggered the section 51 application. It
turned on the proper application of the fourth Chapman principle. The
insurers had conducted the litigation for the defendant under a professional
indemnity policy, without objection from the defendant, and the outcome was an
award of damages and costs which left part of the costs outside the limit of
cover. The judge decided that the insurers had not conducted the litigation
solely in their own interests, and that the defendant had, throughout, an
interest in defending its reputation. Further the insurers’ conduct of the case
had not been the cause of the claimant incurring costs in excess of the limit
of cover. He therefore refused the application, for both those reasons.
42.
Dismissing the appeal, the Court of Appeal endorsed the judge’s analysis
that the question whether a limit of cover case of this type was exceptional
for the purposes of section 51 was likely to depend critically upon the extent
of the insurer’s self-motivation in its conduct of the defence, although this
was not to be regarded as an invariable rule. Giving the leading judgment, Auld
LJ treated the passage in Groom v Crocker (cited above) as setting the
bench-mark. Insurers who strayed beyond an appropriate balance, as identified
by Groom v Crocker, in allowing their interests to predominate over
those of the insured might be found to have acted exceptionally, so as to
attract the section 51 jurisdiction to make a non-party costs order against
them. He said that it followed from the Chapman case that this is what
could turn an insurer for all practical purposes into the real defendant.
43.
In passing the Court of Appeal warned against treating non-disclosure of
cover as exceptional, because there was no duty to do so, and disclosure might
damage the insurer’s legitimate interests. Finally the Court of Appeal firmly
endorsed the need for the applicant to demonstrate that the relevant conduct of
the insurer (or some part of it) caused the claimant to incur the costs sought
to be recovered from the insurer under section 51. Auld LJ said that the
causation question went to the satisfaction (or otherwise) of the
exceptionality requirement.
44.
Palmer v Palmer [2008] Lloyd’s Rep IR 535 was essentially an
application of the fourth Chapman principle, as interpreted in the Cormack
case. The judge had concluded that the insurers’ conduct of an unsuccessful
defence was sufficiently self-motivated to make it the real defendant in all
but name, and the Court of Appeal dismissed the appeal. It adds nothing beyond
repetition to the development of the relevant principles.
45.
Nor does Legg v Sterte Garage Ltd [2016] Lloyd’s Rep IR 390. It
was not a limit of cover case, because the policy required the insurers to
indemnify the insured defendant’s costs liability without monetary limit.
Further the claimants were entitled to pursue their costs claim in full against
the insurers under the 1930 Act. The section 51 issues arose from the fact that
the claimants put their nuisance and Rylands v Fletcher pollution claim
on two alternative grounds, single escape of fuel and (by a later amendment)
long-term leakage, when the relevant policy only provided cover against the
former. The insurers abandoned the defence when they (mistakenly) thought that
the covered basis of claim had been abandoned, but the claimants then secured
default judgment on the basis of both. The judge held, and the Court of Appeal
agreed, that the insurers had defended the claims solely or predominantly in
their own interests, because they were concerned not to defend the insured from
all liability, but only from liability for the head of claim covered by the
policy, and the insured had no commercial or reputational reason to defend the
claim. The Legg case was therefore a conventional application of the
fourth Chapman principle, as interpreted in the Cormack case.
46.
In the present case the judge appears to have been persuaded that the Chapman
principles, which she identified by reference to the Citibank case, were
of limited assistance, because the problem facing her was conceptually
different from a limit of cover case about an otherwise insured claim. Her
approach was rather to examine whether Travelers became involved in the
litigation of the uninsured claims which, in her view, had nothing to do with
the insured claims or, therefore, with Travelers, who therefore had no business
to become involved in them at all. Although she did not say so in terms, she
clearly regarded the question whether Travelers should be liable for the
uninsured claimants’ costs as turning upon whether Travelers intermeddled in
those claims. She therefore concentrated her analysis of what she called the
exceptionality question upon the conduct of the insurers. She was properly
alert to the question of causation, and therefore took the trouble to examine
whether the non-disclosure of the relevant limits of the cover was a cause of
the incurring of costs by the uninsured claimants, concluding that it was.
47.
For its part the Court of Appeal conducted a review of the Chapman line
of cases, concluding that they did not seek to lay down rigid rules, before
concluding that exceptionality was established by the unusual nature of the
circumstances, in particular the asymmetry or lack of reciprocity between
Travelers and the uninsured claimants, rather than by any departure on the part
of the insurers from the normal boundaries of conduct summarised in Groom v
Crocker, and treated as a useful bench-mark in the Cormack case.
Analysis
The Chapman principles
48.
The main thrust of Travelers’ case is that the decisions of the courts
below, for different reasons, wrongly departed from the Chapman
principles, thereby exposing insurers to unexpected and unforeseeable liability
for costs as a non-party in excess of their obligations under the relevant
policies, where their own conduct did not depart from the acceptable norm in a
way that could properly be described as exceptional, and that the supposed
asymmetry or lack of reciprocity as to costs risk between them and the
uninsured claimants was neither exceptional in the relevant sense, nor a good
reason why an order under section 51 was a just solution. More specifically
they say that the reliance of the courts below upon the non-disclosure of the
policy cover was contrary to principle, and that the other respects in which
the judge found that Travelers had overstepped the proper boundaries had no
causative consequences in either causing or increasing the uninsured claimants’
expenditure of costs.
49.
Travelers also sought to mount a detailed attack on the judge’s findings
of fact, although they were confirmed by the Court of Appeal. This court would
not have considered it appropriate to entertain this part of the appeal
(although it was not actively pursued in oral submissions) but, for reasons
which will appear, it has been unnecessary to do so in any event.
50.
For their part the uninsured claimants say that the judge was right to
treat the insured and uninsured claims as completely separate, that the judge
was therefore correct to regard any significant involvement by Travelers in the
conduct of the defence of the uninsured claims as conduct stepping across the
boundary into the exceptional, and that the lack of reciprocity was, on its
own, sufficient to justify an order under section 51.
51.
In my view the courts in the Chapman line of cases were right to
seek to identify clear and reasonably detailed principles, by way of guidelines
rather than rigid rules, sufficient to enable liability insurers to know in
advance what kind of conduct would, and what would not, be likely to attract
non-party liability for the costs of successful claimants against their insured
defendants, in excess of any relevant policy limits. It may be that Thomas J
went a little too far towards elevating the Chapman principles into
rigid conditions rather than guidelines, turning what was designed to be a good
servant into a poor master. But the underlying perception that a loose
requirement for exceptionality was an insufficient protection from exposure to
a particular judge’s after the event perception of the just result was correct,
essentially for the public policy reasons identified in para 32 above.
52.
I also consider that the two bases under which an insurer might become
liable to a non-party costs order identified in the Chapman case, namely
by intermeddling or becoming the real defendant, do represent a principled
approach to the engagement of this jurisdiction against liability insurers,
which is much preferable to the quest for factors which may satisfy an elusive
concept of exceptionality. Where the claim itself falls within the scope of the
insurance, whether or not subject to limits of cover, the real defendant test
will usually be the appropriate one to apply.
53.
Furthermore the underlying purpose of the Chapman principles,
namely to identify in a limit of cover situation the cases where an insurer has
become the real defendant in all but name is also correct. As Lord Reed
demonstrates, this has been the animating principle behind the jurisdiction of
the Scottish courts to make costs orders against non-parties for far longer
than the parallel jurisdiction has been recognised in England and Wales, at
least following the Judicature Acts. The Chapman line of cases make it
clear that this is what the principles which they enunciate are designed to
reveal.
54.
But I am not satisfied that the Chapman principles really assist
in relation to a case, such as the present, where the costs sought to be
recovered against the insurer arise in the successful conduct against the
insured defendant of a claim which lies outside the scope of the cover provided
by the insurer: ie an uninsured claim. In such a case it is the intermeddling
principle which falls to be applied. This is a principle derived from the
English law about maintenance and champerty, as Phillips LJ acknowledged in the
Chapman case, and which has no equivalent in Scotland, as Lord Reed
explains. Its starting assumption is that non-parties usually, although not
invariably, have no legitimate interest in becoming involved in the litigation
of others. It does not render involvement of any kind objectionable, but only
involvement which is (in old-fashioned language) wanton and officious, for
which the non-party cannot demonstrate some justification or excuse.
55.
This basis for the costs liability of the non-party does not necessarily
depend upon showing that it has taken control of the litigation, or done
anything approaching becoming the real defendant in it. Nor is there any fixed
benchmark which will establish whether involvement has become a form of
intermeddling. In every case the nature and extent of the non-party’s
involvement will have to be measured against the alleged justification or
excuse for it. In sharp contrast with the real defendant test, the question
whether the non-party has become involved under a framework of contractual
obligation is likely to be of primary relevance. It may even be decisive
against liability, especially where the relevant contract is of a type which is
recognised and supported by public policy, such as liability insurance. If the
non-party has not gone beyond the confines of those contractual obligations and
attendant rights in framing its involvement, as explained in Groom v Crocker,
liability as an intermeddler may be very hard to establish.
56.
The key feature of the present case is that every one of the successful
claims for which the claimants seek a non-party costs order is wholly
uninsured. The uninsured claimants can have had no real expectation, if
successful, of being paid their costs by the insurers, unless those costs were
incurred as a result of some unjustified intervention in their claims by the
insurers. This is sufficient on its own to take them out of the proper ambit of
the Chapman principles, and to make it necessary to ask whether
Travelers’ involvement in the defence of the uninsured claims amounted to
intermeddling. The question is not whether Travelers became the real defendant
in each of them, but whether its level of involvement in them was justified
and, even if not, whether it caused the incurring by the claimants of the
relevant costs.
57.
The present case is of course further complicated by the facts that the
uninsured claims against Transform were brought in a group action alongside a
smaller number of insured claims by different claimants against Transform,
together with further claims (whether insured or uninsured) by yet further
claimants against other defendants, all raising similar issues to be tried by
reference to test cases, with the claimants contributing to, and liable for,
costs on a several-only basis. It is out of these additional facts (coupled
with Transform’s insolvency) that the asymmetry or lack of reciprocity in costs
risk arose.
Asymmetry - Lack of Reciprocity
58.
This factor, which so deeply affected the courts below, may be summarised
by saying that it describes a situation where one side faces having to pay the
other side’s costs if it loses, but the other side faces no such risk if it
loses. Put the other way round, one side gets its costs if it wins, but not the
other side if it wins. While it may be said that there is usually symmetry or
reciprocity as to costs risk in ordinary civil litigation between solvent
opponents, there are numerous situations where this is not so. The opponent may
be legally aided. The claimant may have the benefit of Qualified One-way Costs
Shifting (“QOCS”). Sometimes the court makes special orders limiting the costs
exposure of one side only, for example under the Aarhus Convention. As in the
present case, one side may be uninsured and be or become insolvent. In the
latter situation there is theoretical reciprocal liability between the parties,
but asymmetry in practicable recovery, and therefore risk.
59.
The risk of asymmetry when claiming against a defendant of unknown means
is aggravated by any uncertainty whether the defendant is adequately insured,
and the law does not generally, and did not in this case, enable the claimants
against Transform to obtain disclosure of the terms of its insurance cover.
Whether that should be the law is not the subject of this appeal.
60.
In the present case every one of the claimants against Transform began
their claims without knowing whether they were covered by insurance, and
continued them in face of increasingly depressing evidence about Transform’s
impending insolvency. They all took the risk of asymmetric costs exposure and,
for a majority of them, namely the respondents, that risk came to pass, as was
revealed when Transform voluntarily disclosed the limits of its insurance cover
in June 2014, followed by Transform going into insolvent administration in
2015. By contrast the lucky minority made a satisfactory costs recovery, funded
by Travelers, when their cases were settled after mediation in August 2015.
61.
In my view the reliance placed by the courts below on asymmetry or lack
of reciprocity as a factor tending to justify a section 51 order against
Travelers was misplaced. My reasons follow. First, leaving aside the incurring
of costs by the uninsured claimants, the asymmetry in risk was not itself in
any sense the result of any aspect of the intervention in, or conduct of, the
defence of the uninsured claims by Travelers. It arose from the combination of
the facts that Transform was insolvent, had insurance for only some of the
claims, excluding those of the respondents, and that the claimants’ liability
for and therefore entitlement to costs was several-only, and extended to the
prosecution of the common issues in the test cases. They chose, no doubt for
good reason, to undertake that several-only costs burden regardless whether
their claims were insured, taking the risk that they would not recover their
outlay if they were not, even if successful.
62.
One consequence of the several-only costs liability of each of the
claimants is that the costs position of each of the claimants needs to be
looked at separately. This is so notwithstanding the fact that, behind the
scenes, the claimants may have used common solicitors, CFAs and ATE insurance
in a way which greatly modified both their personal costs exposure, and the
entitlement of the common solicitors to make a satisfactory costs recovery.
Looked at separately, each claimant had either an insured or an uninsured claim
against a common insolvent defendant, with all the consequences in terms of
reciprocity which that entailed.
Non-disclosure of Cover
63.
The only sense in which anything done or not done by Travelers may be
said to have contributed to that asymmetric outcome for the uninsured claimants
was that the solicitors jointly instructed by Travelers and Transform played an
advisory role in Transform’s decision not to disclose the limits of its
insurance cover earlier, when the uninsured claimants might have abandoned
their claims, and successfully to resist an order for disclosure in 2013. That
advice was given in good faith without a perception by the solicitors that
there might be (as the judge held that there was in fact) a conflict between
the interests of Transform and Travelers in whether to make that disclosure.
Still less was the advice motivated in fact by a desire to dilute Travelers’
costs risk in the defence of the common issues. It was not in any recognisable
sense an inappropriate intervention by Travelers in the defence of the
uninsured claims, as distinct from the insured claims. The advice was given in
relation to the claims against Transform as a whole and was plainly part of the
conduct of the defence to the insured claims which Travelers was entitled to
control (in the Groom v Crocker sense) just as much as it was part of
the conduct of the defence of the uninsured claims. Of course Transform,
Travelers and their jointly instructed solicitors knew that the Worried Well claimants’
claims were not insured, nor were claimants’ claims falling outside the
insurance policy periods, but disclosure could not practicably have been made
to the uninsured claimants alone, since all the claimants were represented by
common solicitors.
64.
Both the judge and (but with less assurance) the Court of Appeal
regarded it as right for Travelers to have to take responsibility for that
advice. Whether or not that is so, it was advice which fairly reflected
Travelers’ rights as insurer, as was in due course confirmed by the judge, and
noted as something not properly contributory to the making of a section 51
order in the Cormack case. It was not conduct which amounted to
unjustified intermeddling in the uninsured claims for the purposes of section
51.
Causation
65.
I have noted above how firmly the Court of Appeal in the Cormack case
endorsed the requirement for an applicant under section 51 to demonstrate a
causative link between the incurring of the costs sought to be recovered from
the non-party and some part of the conduct of the non-party alleged to attract
the section 51 jurisdiction. That requirement is in my view rightly imposed.
Auld LJ regarded it as part of the exceptionality requirement. It could equally
be seen as going to the justice, or otherwise, of making the order. If the
costs would still have been incurred if the non-party had not conducted itself
in the relevant manner, why should it be just to visit the non-party with
liability for them?
66.
The causation requirement was not the subject of challenge on this
appeal. It does not appear to have featured in the other Chapman cases,
but their facts suggest that the relevant costs ordered to be paid would not
have been incurred, but for the exceptional conduct relied upon. In cases such
as the present, where it is the intermeddling test rather than the real
defendant test which falls to be applied, the formulation of that test by
Phillips LJ in the passage in the Chapman case quoted above clearly
incorporates a need to demonstrate causation, since it is the costs
attributable to the intermeddling that the meddler is ordered to pay.
67.
The judge found that there was a causative link between the
non-disclosure of the limits of the cover and the incurring of costs by the
uninsured claimants. But for the reasons already given the non-disclosure was
not itself conduct by Travelers in relation to the uninsured claims which falls
within the necessary requirement for unjustified intermeddling. It remains to
consider whether the other aspects of Travelers’ conduct in relation to the
uninsured claims amounted to unjustified intermeddling and, if so, whether it
had any causative consequence in relation to the incurring of costs by the
uninsured claimants.
The relationship between the insured and uninsured claims
68.
The starting point is that the Court of Appeal was right to depart from
the judge’s view that the uninsured claims were totally separate from the
insured claims, so that they were no business of Travelers at all. On the
contrary, all the claims, insured and uninsured, were being pursued together
within a single group action, by common solicitors. All the claims raised
common issues which were ordered to be tried together by way of sample test
claims. Although there were several defendant clinics, all the test cases were
against Transform and, as already noted, it was mere happenstance that two of
them (A and B) were insured and two (C and D) uninsured. At the time of the
selection of the test claims, the limits of Travelers’ cover had not been
disclosed.
69.
Transform were contractually entitled as against Travelers to have the
defence of the common issues funded, regardless whether they arose in insured
or uninsured claims. Thus Travelers’ participation in the litigation of the
common issues in claims C and D was not unjustified intermeddling in litigation
in which Travelers had no legitimate business, but the involuntary engagement
which arose from their status as insurers under the policies. Mr Hugh Preston
QC for the respondents acknowledged this, up to a point, but submitted that
this legitimate role of Travelers in the uninsured claims did not extend to
funding the whole of their defence (a point not relied on by the judge) still
less to decision-making about admissions or offers of settlement (two matters upon
which she did rely). While those distinctions may be discernable conceptually,
I consider that they are likely to break down in the real world of hostile
group litigation, all the more so when, as here, the main issues in the
litigation are common to the insured and uninsured claims alike. For example
the offer of a drop hands settlement to uninsured claimants might well be taken
as a sign of weakness in relation to the merits of the common issues, and
therefore a sign of weakness in relation also to the insured claims.
Settlement and Admissions
70.
Leaving aside non-disclosure of the limits of cover, the two aspects of
participation by Travelers in the uninsured claims which the judge regarded as
crossing the line were involvement in decision-making about whether Transform
should make a drop hands offer to all the uninsured claimants, or make certain
admissions in relation to their claims, in a context where Transform believed,
rightly or wrongly, that Travelers’ consent was required for both, pursuant to
the terms of the policies.
71.
As noted above, Travelers consented to the making of a drop hands offer
to the uninsured claimants in July 2014, but the offer was not then made.
Travelers withheld consent in early 2015, and its participation in the decision
whether an admission of liability should be made to the uninsured claimants
appears also to have occurred some time in 2015, but before the final
settlement by agreement of the insured claims, ie at a time when the common
liability issues were still live. By 2015 the uninsured claimants knew who they
were and had resolved to continue with their claims, notwithstanding the
impending insolvency of Transform, in part for the specific purpose of
recovering costs already incurred by means of a section 51 application against
Travelers.
72.
Against that background it is striking that there is no analysis by the
judge of the question whether Travelers’ conduct in relation to settlement or
admissions in relation to the uninsured claims had any causative consequence in
terms of the expenditure of costs sought to be recovered under section 51. This
is in sharp contrast with her careful analysis of causation in relation to the
non-disclosure of the limits of cover. It cannot be said that (as perhaps in
some of the Chapman line of cases), causation was too obvious to need to
be mentioned. The Court of Appeal did not appear to place reliance upon this
aspect of Travelers’ conduct, and conducted no causation analysis of its own.
It therefore falls to this court to do so, if satisfied that the relevant
conduct in relation to the uninsured claims amounts to unjustified
intermeddling. That question also needs to be addressed afresh, because of the
judge’s erroneous view that the uninsured claims were entirely separate from
the insured claims, such that Travelers had no business being involved in them
at all.
73.
Had it been necessary to do so I would have concluded that the judge was
wrong to regard Travelers’ involvement in settlement and admissions in relation
to the uninsured claims (while the closely related insured claims were still
live) as a sufficient crossing of the line to attract a section 51 order,
either alone or in combination with any other matters. Contrary to the judge’s
view there were no other relevant matters, because she was (for reasons already
given) wrong about non-disclosure of the limits of cover. The court should be
slow to second guess jointly instructed solicitors where they allow the insurer
a role in decision-making about claims raising common issues, notwithstanding
that some of them, even as here a majority, are uninsured. Although the judge
was far better placed as the manager of this litigation than this court to
identify the relevant boundaries, her analysis was undermined by her over-rigid
separation of the insured and uninsured claims into separate camps.
74.
I am however content to rest my decision on the absence of any relevant
causative link. By 2015 the uninsured claimants were pursuing their claims to a
judgment with costs, in part so that they could seek to recover substantial
expenditure already incurred by mid-2014 (while ignorant that they were
uninsured) by means of a costs order against Travelers under section 51, as Mr
Preston acknowledged during the hearing of this appeal. I cannot see how the
offer of an admission of liability, still less a drop-hands offer (ie with each
side paying their own costs) would have dissuaded the uninsured claimants from
continuing to incur the cost of obtaining (in the event) default judgment, and
summary judgment in relation to test claims C and D, once the insured claims
had been settled and Travelers had withdrawn further funding.
75.
I would add that there is to my mind at least some element of
disingenuity in the respondents stoutly maintaining that, at the relevant time,
the uninsured claims had nothing to do with Travelers when they were by then
being pursued by the uninsured claimants for the purpose of obtaining a costs
order against Travelers in due course. But that reflection was not advanced in
the submissions of the appellant, and my decision is in no sense based upon it.
Conclusions
76.
It may be convenient to draw together the threads of this rather long
analysis into some concluding propositions. First, the underlying question,
whether the non-party has either become the real defendant in relation to an
insured claim, or intermeddled in an uninsured claim, is fundamental to the
exercise of the section 51 jurisdiction, in insurance cases. It is the conduct
of the non-party which matters, rather than the mere rarity of the case.
77.
Secondly, the Chapman principles are useful guidelines for
establishing whether the liability insurer has become the real defendant in all
but name, in a case where some part of the claim (including the claim for
costs) is or may lie outside the limits of cover, so that the insured has at
least a prima facie joint interest with the insurer in the outcome of the
litigation.
78.
Thirdly , the Chapman principles are not likely to be of
assistance where the question is (as here) whether the liability insurers
crossed the line in becoming involved in the funding and conduct of the defence
of wholly uninsured claims, as opposed to claims where there is limited cover.
In such cases the insurer may cross the line by conduct falling well short of
total control, and without becoming the real defendant, if the insurer
intermeddles in the uninsured claim in a manner which it cannot justify.
79.
But, fourthly, where there is a connection between uninsured claims and
claims for which the insurer has provided cover, it may well be that the
legitimate interests of the insurer will justify some involvement by the
insurer in decision-making and even funding of the defence of the uninsured
claims without exposing the insurer to liability to pay the successful
claimant’s costs. This is just such a case because of the very close connection
between insured and uninsured claims, raising common issues to be tried
together in test cases in group litigation, and the limited nature of
Travelers’ involvement in the uninsured claims.
80.
Fifthly, causation remains an important element in what an applicant
under section 51 has to prove, namely a causative link between the particular
conduct of the non-party relied upon and the incurring by the claimant of the
costs sought to be recovered under section 51. If all those costs would have
been incurred in any event, it is unlikely that a section 51 order ought to be
made.
81.
Sixthly, the non-disclosure of limits of cover by the defendant at the
request of the insurer is unlikely to amount to relevant conduct, for as long
as the law continues to make that non-disclosure legitimate.
82.
Seventhly, asymmetry or lack of reciprocity in costs risk, as between
the uninsured claimant and the defendant’s insurer, is unlikely on its own to
be a reason for the making of a non-party costs order against the insurer where,
as here, the asymmetry arises because a claimant sues an uninsured and
insolvent defendant and incurs several-only costs liability in group
litigation.
83.
Applied to this case, those conclusions mean that this appeal should be
allowed. This is because, of the three elements of the conduct of Travelers
which the judge regarded as crossing the line, the first (non-disclosure) was
not unjustified intermeddling, although it did cause those costs to be incurred,
while the second and third (decision-making about offers and admissions), even
if amounting to unjustified intermeddling, which I doubt, plainly had no
relevant causative consequences. The Court of Appeal’s alternative route to the
judge’s conclusion, based essentially upon the asymmetry point, was in my view
wrong for the reasons already given.
LORD REED:
84.
I am respectfully in general agreement with the judgment of Lord Briggs,
and wish only to make some additional observations directed towards three
points. The first is that Lord Briggs’s conclusion that an award of costs
against a non-party may be justified where that person is a meddler in the
proceedings, or is in substance a party to those proceedings, has historical
antecedents in the practice of the English courts. The second is that the “real
party” approach has also been adopted in other comparable jurisdictions. The
third is that “exceptionality” is not in my opinion a necessary pre-condition
of an award of costs against a non-party.
Historical antecedents
85.
It may be worth explaining at the outset the historical background to
the decision of the House of Lords in Aiden Shipping Co Ltd v Interbulk Ltd
[1986] AC 965, where the scope of the discretion conferred by section 51 of the
Senior Courts Act 1981, as it is now known, was held to be sufficiently wide to
allow costs to be awarded against persons who were not party to the proceedings
before the court.
86.
Traditionally, costs were dealt with differently at common law
and in equity, although it was possible in both types of proceedings for an
award to be made against a person who was not a party to the proceedings, as I
shall explain. With the fusion of the administration of law and equity under
the Judicature Acts, section 16 of the Supreme Court of Judicature Act 1875
provided for rules of court, contained in the First Schedule to that Act, to
regulate proceedings in the High Court and the Court of Appeal. Those rules of
court contained, in Order LV, a single general provision regulating the award
of costs. The rules scheduled to the 1875 Act were repealed by
the Statute Law Revision Act 1883, and new rules, referred to as the Rules of
the Supreme Court 1883, were made pursuant to section 19 of the Supreme Court
of Judicature Act 1881. Order 65, rule 1 of those rules provided that, subject
to the provisions of, among other things, the Judicature Acts and the rules of
court, the costs of and incident to all proceedings in the Supreme Court,
including the administration of estates and trusts, were within the discretion
of the court or judge. In In re Mills’ Estate; Ex p Comrs of Works and
Public Buildings (1886) 34 Ch D 24 it was held by the Court of Appeal that
the effect of the Judicature Acts and of Order 65 was not such as to confer any
new jurisdiction to award costs, but was merely to regulate the mode in which
costs were to be dealt with in cases where the court already had such
jurisdiction. Parliament sought to overcome this restrictive interpretation by
enacting section 5 of the Supreme Court of Judicature Act 1890, which was the
statutory predecessor of section 51(1) of the Senior Courts Act 1981. The
language of section 5 of the 1890 Act was, however, itself restrictively
interpreted by the Court of Appeal, notably in Forbes-Smith v Forbes-Smith
(1901) P 258 and John Fairfax & Sons Pty Ltd v E C de Witt &
Co (Australia) Pty Ltd [1958] 1 QB 323, until the
ground-breaking decision in Aiden Shipping.
87.
Prior to the Judicature Acts, as I have mentioned, costs were dealt with
differently at common law and in equity. The general position in common law
proceedings was summarised by Blackburn J in Mobbs v Vandenbrande
(1864) 33 LJ QB 177,180:
“In ordinary cases, where
there has been no abuse of its process, the court has no jurisdiction to
order a person not a party on the record to pay costs.” (Emphasis added)
In this context, it appears that the concept of an abuse
of process was not narrowly confined. That can be seen, for example, in the
judgment of Lord Abinger CB in Hayward v Giffard (1838) 4
M and W 194. In that case, the Court of Exchequer refused to make an order for
costs against a non-party to the action although he was interested in the
outcome of the suit. His Lordship said at p 196:
“If we were at
liberty to consult equity and justice, we should probably make this rule
absolute. But the authority of the courts at Westminster is derived from the
Queen’s writ, directing them to take cognisance of the suits mentioned in the
writs respectively, and thus bringing the parties before them. This being so,
they have no power to order any particular individual to come before them at
their pleasure. In the present case, if it could have been shewn that
Spencer had committed any contempt of Court, or been guilty, in respect of this
suit, of anything in the nature of barratry or maintenance, it would have been another
matter; but we cannot make any order against an individual who is not party
to any suit before us, nor has been guilty of any contempt, but merely because
he has an interest in the event of the suit.” (Emphasis added)
It appears from Lord Abinger’s reference to “anything in
the nature of barratry and maintenance” that the court could have made an award
of costs against a non-party who instigated the prosecution of groundless
litigation or who intermeddled in proceedings contrary to the laws of maintenance
and champerty.
88.
There are also a number of examples of awards of costs against
non-parties which were based on the conclusion that the non-party was the real
plaintiff or defendant. For example, in Doe dem Masters v Gray
(1830) 10 B and C 615, an order for costs was made in
an action of ejectment against a parish council which had put a pauper into
possession of the premises in question. Lord Tenterden CJ said at p 616:
“In ejectment we can
make the real party to the suit pay the costs.”
Actions of ejectment could be regarded at
that time as being in a special position by reason of the fictitious form of
the proceedings, as Lord Abinger explained in Hayward v Giffard at p
197. However, the “real party” approach continued to be adopted in relation to
actions of ejectment even after the fictitious form of action had been
abolished by the Common Law Procedure Act 1852. For example, in Hutchinson v
Greenwood (1854) 4 El and Bl 324 Lord Campbell CJ stated at p 326 that the
court had jurisdiction “to
order the persons, who really conducted the defence in an action of ejectment,
to pay the costs, though they were not parties on the record”. Lord Campbell
explained this on the basis that the real party had engaged in an abuse of
process, stating (ibid):
“The principle is that the
individuals who order an appearance to be entered in ejectment, in the names of
those not really defending the suit, abuse our process, and that, as they
substantially are the suitors, we have jurisdiction to make them pay the
costs.”
89.
The “real party” approach was not confined to
actions of ejectment. For example, in Hearsey v Pechell (1839) 5 Bing
(NC) 466, an action of trespass, the question arose whether the action should
be stayed until a non-party provided security for costs. Tindal CJ said at pp
468-469:
“The real question
is, whether this is the action of the plaintiff, or substantially the action of
Mr Wood [the non-party]. If it were an action which the plaintiff would not
have brought but for the instigation and countenance of Wood, the case would
fall within the principle of Tenant v Brown (1826) 5 B and C 208, and
another case in the Court of King’s Bench, where a master was compelled to pay
costs for his servant, whom he had put forward as a defendant instead of
himself.”
90.
An example of an award of costs against the “real party”,
in a different type of case from ejectment, is In re Jones (1870) LR 6
Ch 497, which decided, in the words of the headnote, that “where a
solicitor engages to indemnify the plaintiff in a suit against the costs of the
suit, and has the control of the suit, he will be ordered to pay to the
defendants their costs of the suit when dismissed”. Lord Hatherley LC stated at
p 499 that the general principles of the court were perfectly well established
upon the point:
“The view of the court is, that
when a solicitor takes upon himself the conduct of a suit by saying that he
will indemnify his client against all costs - where the plaintiff is a mere
puppet, and the real party suing is the solicitor - the court will hold the
solicitor liable for all the expenses to which he has put the other parties by
his conduct.”
It was said by Sir Montague Smith in the
Indian case of Coondoo v Mookerjee (1876) App Cas 186,
212 that the award of costs in In
re Jones was based on the court’s disciplinary jurisdiction over
solicitors, but the next case to be cited suggests that that may be too narrow
a view. It is in any event noteworthy that the Lord Chancellor’s dictum
expressly mentions the need for a causal connection between the conduct of the
non-party and the incurring of the costs for which he was held liable.
91.
Another illustration is R v Greene (1843) 4
QB 646, which concerned relator proceedings brought by an indigent plaintiff
who had been procured to bring them by an attorney. The reasoning does not
however appear to turn upon the fact that the case concerned an attorney. Lord
Denman CJ stated at pp 649-650:
“Nothing, however, is more certain
than that this court has in several instances granted costs against persons who
have made affidavits without being strictly parties, especially against
attorneys, who are considered as being before the court, and, as its officers,
bring cases to its notice … We take the true rule to be that the court may
adjudge from all circumstances who is the party, and give costs against any
party, or against an attorney, if the affidavit of the person sought to be
charged, or any affidavit produced by an attorney, shews good ground
for imposing them upon them respectively.”
A similar approach can also be seen in
cases concerning next friends, such as Palmer v Walesby (1868) LR 3 Ch
App 732.
92.
In proceedings in equity, the award of costs was
discretionary, and was said to be based on conscience and
arbitrium boni viri: Andrews v Barnes (1888) 39 Ch D 133, 138. There are numerous cases concerned with the enforcement of awards
made against non-parties, such as Attorney General v
Skinners’ Co, Ex p Watkins (1837) Coop Pr Cas 1 and Sangar
v Gardiner (1838) Coop Pr Cas 262.
93.
It is unnecessary for present purposes to reach any
definite conclusions as to the circumstances in which, prior to the Judicature
Acts, the courts might have made an order for costs against a non-party. It can
however be seen from the examples cited that such awards were by no means
unknown, even if the circumstances in which they were made were special in one
respect or another. The position was in my respectful opinion aptly summarised
by Mason CJ and Deane J, giving the majority judgment of the High Court of
Australia in Knight v FP Special Assets Ltd [1992] HCA 28; (1992) 174
CLR 178, 190:
“Having regard to the variety and the nature of the circumstances in
which an order for costs was made against a person who was not a party
according to the record, we cannot accept that there was before the Judicature
Acts a general rule that there was no jurisdiction to order costs against a
non-party in the strict sense. It is plain enough that the courts from time to
time awarded costs against a person who, not being a party on the record, was
considered to be the ‘real party’. It may be that these cases are capable of
being explained on various grounds, including the ground that the non-party
ordered to pay costs was guilty of abuse of process, taking a very broad view
of what constitutes an abuse of process, but to say that does not deny that
there was jurisdiction to make an order for costs against a non-party even if
the jurisdiction was exercised in limited circumstances only.”
Other jurisdictions
(1) Scotland
94.
By 1986, when Aiden Shipping was decided and the earlier
decisions of the Court of Appeal were overruled, the general
understanding that costs could not be awarded against non-parties was long
established in England and Wales. In Scotland, on the other hand, where
the courts have always possessed an inherent jurisdiction to award expenses (in
English terminology, costs), the power to make awards against non-parties,
without the necessity of establishing conduct which would merit condemnation as
an abuse of process, has been recognised and exercised continuously since at
least the 18th century (see, for example, Leigh v Rose (1792) Mor 4645),
and the principles governing its proper exercise have been considered in a substantial
number of cases of different kinds.
95.
The power to award expenses can be exercised under Scots law against a
person who, although not a party to an action, has the true interest in its
subject-matter and the control and direction of the case. Such a person is
known in civilian terminology as the verus dominus litis (the real master of
the litigation), or more briefly as the dominus litis. Put briefly and in broad
terms, the court is prepared to look beyond the person who is formally a party
to the action, and to exercise its power to award expenses on the basis that
another person is the real party in all but form: the person, that is to say,
who is in reality conducting the suit and interested in its outcome.
96.
In more precise language, the classic description of a dominus litis was
given by Lord Rutherford in Mathieson v Thomson (1853) 16 D 19, 23:
“There may be some difficulty in
defining exactly what is a dominus litis; but I confess that I very much
agree with what has been laid down by your Lordship [Lord President McNeill,
later Lord Colonsay], and with the definition quoted from the civil law by Lord
Ivory, that he is a party who has an interest in the subject-matter of the
suit, and, through that interest, a proper control over the proceedings in the
action. Now it will not make a person liable in the expenses of an action that
he instigated the suit, or told a man that he had a good cause of action, and
that he would be a fool if he did not prosecute it, or though he promoted it by
more substantial assistance. It will not make him liable in the expenses of the
suit that, while he does both of these things, he shall have some ultimate
consequent benefit in the issue of that suit. But when you go a step further,
and find a party with a direct interest in the subject-matter of the
litigation, and, through that interest, master of the litigation itself, having
the control and direction of the suit, with power to retard it, or push it on,
or put an end to it altogether, then you have a proper character of dominus
litis; and, though another name may be substituted, the party behind is
answerable for the expenses.”
97.
As appears from that passage, the alleged dominus litis must, in the
first place, have “the control and direction of the suit, with power to retard
it, or push it on, or put an end to it altogether”. Lord President Dunedin
observed in McCuaig v McCuaig 1909 SC 355, 357 that
“The true test of whether a party
is or is not dominus litis is probably whether he has or has not the power to
compromise the action.”
98.
Control and direction of the proceedings are not in themselves
sufficient. The alleged dominus litis must also have an interest in the
subject-matter of the action. As Lord Rutherford
explained in the passage cited from his opinion in Mathieson, it is not
sufficient that the non-party have “some ultimate consequent benefit”; rather,
he must have a “direct interest in the subject matter of the litigation”. The
interest must, as Lord President Dunedin stated in McCuaig v McCuaig at
p 357, be:
“… the true interest in the cause,
and by true interest I mean the entire interest, using that term not in the
absolute sense, but as denoting the whole interest for all practical purposes.”
99.
The alleged dominus litis must also, of course, have caused the expense
for which he is sought to be made liable. As Lord President Robertson stated in
Kerr v Employers’ Liability Assurance Co Ltd (1902) 2 F 17, 22:
“The next point is this, what is
the ground upon which a dominus litis is made liable in expenses? As I
take it, it is simply the ground upon which everybody is made liable in
expenses, and it is stated thus by Lord Jeffrey in Irvine v Kilpatrick
(1847) 10 D 367 - ‘If any party is put to expense in vindicating his rights he
is entitled to recover it from the person by whom it was created,’ - that is to
say, by whom the expense was created.”
To the same effect is the opinion of Lord Hunter in Main
v Rankin & Sons 1929 SC 40, 43:
“The principle upon which
liability attaches to a dominus litis is the simple one that he is responsible
for the expenses which have been caused to the other party in the litigation.”
100.
It was established long ago that the requirements of a dominus litis
might be satisfied by a liability insurer conducting the defence of proceedings
in accordance with a policy of insurance. The leading authority on the point is
Kerr v Employers’ Liability Assurance Co Ltd, in which an injured
workman who had obtained an award of damages and expenses against his employer
sought, after the employer became insolvent, to obtain an award of expenses
against the insurer. It was accepted that, under the policy, the insurers had
complete control of the conduct of the defence, that they had exercised such
control, and that they also had the entire interest in the subject-matter of
the action. The court found the insurer liable for the expenses of the action
on the basis that it was the dominus litis.
101.
Lord President Robertson stated at pp 21-22:
“Now,
if anybody other than the person whose name is printed as party in the record
can be the dominus litis, I think this assurance company was. To
begin with, to the person whose name was used it was immaterial whether the
result of the action was success or failure; he was completely covered by his
policy of assurance, and accordingly the assurance company very naturally
stipulated in their contract that they, and not he, should have the control of
the action, and should, of course, incur all liabilities resulting from that
position. There are valuable illustrations, in
the cases, of the relations which might
constitute a man a dominus litis, but I do not cite any of them, for
this reason, that I think that not one of them is clearer than, or, indeed, so
clear as, the
present case, of an assurance company who begin by stipulating that the insured
shall give his name to them in order that they may conduct the action, and
where, from that point onwards, he has nothing whatever to do with the conduct
of the case. Therefore, that the assurance company was the dominus litis in
this matter seems to me to be beyond all doubt.”
Lord Adam reached the same conclusion at p 22 by
reference to the opinion of Lord Rutherfurd in Mathieson v Thomson:
“That the assurance company had an
interest in the subject-matter of this suit is beyond doubt. They were
ultimately liable to the employers for the damages, and a greater interest in
this suit they could not have. And, having that direct interest in the suit,
they had entire control of it. It is not disputed that the defenders claimed
and obtained, as the insuring company, the absolute conduct and control of the
suit. Therefore it appears to me that if ever there was a case where a party
fell within the definition of Lord Rutherfurd it is this assurance company.”
Several other cases of a similar kind can be found in the
law reports. Claims of that nature have however seldom, if ever, been necessary
since the enactment of the Third Parties (Rights against Insurers) Act 1930,
now replaced by the Third Parties (Rights against Insurers) Act 2010.
102.
I have not found in the reports any example of a Scottish case where the
insurer was sought to be made liable beyond its contractual limit of cover or,
as in the present case, was sought to be made liable for the expenses of an
uninsured claim. In such a case, it would remain necessary to establish that
the insurer had control of the conduct of the defence and had the real interest
in its success or failure: requirements which might not readily be satisfied.
103.
Finally, in relation to Scotland, it is relevant to note that there is
no equivalent of the English law of maintenance and champerty. The discussion
of “intermeddling” in the English cases, as the basis of an award of costs, has
no equivalent in the Scottish case law.
(2) Other common law jurisdictions
104.
It is also relevant to note the approach adopted in some other common
law jurisdictions in the aftermath of the decision in Aiden Shipping. The
position in Australia, in relation to jurisdictions conferring a discretionary
power to award costs, analogous to that existing in England and Wales, was
considered by the High Court of Australia in Knight v FP Special Assets Ltd.
The court held that costs should be awarded against a non-party in a general
category of case described by Mason CJ and Deane J at pp 192-193:
“That category of
case consists of circumstances where the party to the litigation is an
insolvent person or man of straw, where the non-party has played an active part
in the conduct of the litigation and where the non-party, or some person on
whose behalf he or she is acting or by whom he or she has been appointed, has
an interest in the subject of the litigation. Where the circumstances of a case
fall within that category, an order for costs should be made against the
non-party if the interests of justice require that it be made.”
Later Australian decisions have identified
a number of other situations in which an award of costs against a non-party may
be appropriate, as for example in Kebaro Pty Ltd v Saunders [2003] FCAFC
5.
105.
The position in New Zealand was considered by the Privy Council in Dymocks
Franchise Systems (NSW) Pty Ltd v Todd (Associated Industrial Finance
Pty Ltd, Third Party) [2004] UKPC 39; [2004] 1 WLR 2807, and was held to be
similar to that in England and Australia.
Exceptionality
106.
In Symphony Group Plc v Hodgson [1994] QB 179, the Court of
Appeal sought to respond to Lord Goff’s observation in Aiden Shipping, at
p 975, that section 51 of the 1981 Act left it to the appellate courts to
establish principles upon which the discretionary power conferred by that
provision might be exercised. Balcombe LJ, with whom Staughton and Waite LJJ
agreed, listed at pp 192-193 a number of considerations to be taken into
account. The first, and the only one which need be considered for present
purposes, was the following:
“An order for the payment of costs
by a non-party will always be exceptional: see per Lord Goff in Aiden
Shipping Co Ltd v Interbulk Ltd [1986] AC 965, 980F.”
107.
This dictum has been treated in some later cases as imposing a
requirement of exceptionality before an award of costs can be made against a
non-party. Such a requirement or pre-condition would not, however, reflect the
true import of the dictum on which Balcombe LJ’s observation was based. What
Lord Goff said was this:
“In the vast majority of cases, it
would no doubt be unjust to make an award of costs against a person who is not
a party to the relevant proceedings. But, as the facts of the present case
show, that is not always so.”
Lord Goff was not suggesting that exceptionality was a
pre-condition. He was merely observing that cases in which it is just to make a
non-party costs order form only a small proportion of the total.
108.
It is obvious that, as a general rule, orders for costs are made only
against a party to the proceedings. That is because, in general, persons who
are not parties do not have a sufficient connection with the proceedings to
provide a proper basis for them to be held liable for the costs of the
litigation. There are, however, circumstances in which considerations of
justice may, in accordance with general principles, justify such an award
against a non-party. Such cases might be described as exceptional in the sense
that their outcome involves a departure from the general rule that orders for
costs are made against a party to the proceedings, but not in the sense that
their determination depends on the identification of some unique or
extraordinary feature.
109.
Indeed, exceptionality can scarcely be in itself an intelligible
criterion for the making of a non-party costs order. A case may be exceptional
in respects which have no bearing on the appropriateness of a non-party costs
order. The case of Donoghue v Stevenson [1932] AC 562, for example, was
exceptional in that it concerned a snail. It was also exceptional in that it
raised a point of law of the greatest importance. Neither of those factors
would have rendered it a suitable case for an award of costs against a
non-party, if such a question had arisen. In order for such an award to be
appropriate, there would have to be some factor present which justified the
making of the award. What is necessary, therefore, is to identify the relevant
factor or factors.
110.
In TGA Chapman Ltd v Christopher [1998] 1 WLR 12, Phillips LJ, in
a judgment with which Waller and Mummery LJJ agreed, sought to reformulate the
relevant principles, refining his earlier analysis in Murphy v Young &
Co’s Brewery [1997] 1 WLR 1591. As Lord Briggs has explained, he identified
two separate bases on which a non-party costs order might be made against a
liability insurer: first, that he had intermeddled in the proceedings, or
secondly, that he had the control and direction of the proceedings, and the
true interest in them, so as to render him the real defendant. He listed at p
20 five factors which were held to make an award of costs against the liability
insurer appropriate:
“(1) the insurers determined
that the claim would be fought; (2) the insurers funded the defence of the
claim; (3) the insurers had the conduct of the litigation; (4) the insurers
fought the claim exclusively to defend their own interests; (5) the defence
failed in its entirety.”
Those factors, which were also present in the Scottish
case of Kerr discussed at paras 100-101 above, established
control of the proceedings, the real interest in the subject-matter of the
proceedings, and causation of the plaintiffs’ costs. Phillips LJ’s observation
at p 21 that “in reality, it is the insurers rather than Mr Christopher who are
the defendants” also expresses in English the idea conveyed in Latin by the
expression “verus dominus litis”. Phillips LJ also clarified the issue of
“exceptionality”. Having listed the features of the case which made it
appropriate to make a non-party costs order, he added at p 20:
“In the context of the insurance
industry, the features to which I have just referred may not be extraordinary.
But that is not the test. The test is whether they are extraordinary in the
context of the entire range of litigation that comes to the courts.”
111.
The later English decisions concerned with liability insurers are mostly
consistent with the approach adopted in Chapman, as Lord Briggs has
explained. In addition to the cases cited by Lord Briggs, I would mention in
addition the case of Globe Equities Ltd v Globe Legal Services Ltd [1999] BLR 232, where Morritt LJ, in a judgment with which Butler-Sloss and Sedley LJJ
agreed, observed that the supposed requirement of exceptionality was based on
what had been said by Lord Goff in Aiden Shipping, and should not be
elevated into a precondition to the exercise of the power conferred by section
51. Echoing Phillips LJ in Chapman, he commented, at para 21, that “the
exceptional case is one to be recognised by comparison with the ordinary run of
cases” where “the party is pursuing or defending the claim for his own benefit
through solicitors acting as such”.
112.
That was also the approach of Lord Brown of Eaton-under-Heywood, giving
the advice of the Judicial Committee of the Privy Council in Dymocks Franchise Systems (NSW) Pty Ltd v Todd (Associated
Industrial Finance Pty Ltd, Third Party).
In a dictum subsequently repeated by the Court of Appeal in Deutsche
Bank AG v Sebastian Holdings Inc [2016] EWCA Civ 23; [2016] 4 WLR 17, para
62, he stated at para 25:
“Although costs orders against
non-parties are to be regarded as ‘exceptional’, exceptional in this context
means no more than outside the ordinary run of cases where parties pursue or
defend claims for their own benefit and at their own expense.”
So understood, “exceptionality” is in reality of little
if any significance, since no judge would contemplate making a non-party costs
order in “the ordinary run of cases where parties pursue or defend claims for
their own benefit and at their own expense”.
LORD SUMPTION:
113.
The common law has an instinctive reluctance to make orders in private
law litigation which affect non-parties, but also a long-standing aversion to
the unjustified interference by non-parties in other people’s litigation. The
first of these instincts is founded on elementary principles of justice.
Non-parties may well have a more or less direct commercial interest in the
outcome but do not thereby assume the risks associated with contested
litigation. Nor are they bound by rules of practice in the way that parties
are. At the same time, there are cases where a person who is not on the record
may nevertheless be the real party. He may, for example, be an equitable
assignee or, arguably, a subrogated insurer, or have some other interest
entitling him to litigate in the name of another. The second instinct depends
for its practical application on what constitutes interference and what is
unjustified, large questions which vary with changing attitudes to litigation.
Historically, it arose from the concern of the law with the implications of
contested litigation for public order, but is now founded mainly on a purely
procedural concern for the fair and efficient conduct of court proceedings. In
the context of costs orders against non-parties, the first instinct is
reflected in Lords Briggs’s “real defendant” test, and the second in what he
has called the “intermeddling” test. I agree with this taxonomy, and more
broadly with Lord Briggs’s analysis of the principles and their application to
this case.
114.
We are concerned on this appeal with the position of a liability insurer
exercising a contractual right to direct the conduct of the defence on behalf
of his assured. The relationship between a liability insurer and his assured
has a number of specific features which are not necessarily common to other
cases in which costs orders are sought against non-parties. In the first place,
although the insurer is potentially liable to meet a third party’s claim
against his assured, that liability is owed only to his insured and not
directly to the third party, subject to special statutory regimes such as that
applicable to insolvent assureds under the Third Parties (Rights against
Insurers) Act 2010. In this respect English law differs from many civil law
systems which allow direct actions against insurers as a matter of course.
Secondly, the insurer is not even liable to his assured during the litigation,
since his liability arises only once the assured’s liability has been
ascertained by judgment, award, admission or agreement. Thirdly, the insurer’s
contractual right to direct the conduct of the litigation, which is an almost
invariable incident of liability policies, is a form of compulsory agency. It is
a right to direct it in his assured’s interest, and not his own, even though
their interests will usually coincide. The solicitor whom he appoints is the
assured’s solicitor, who owes all the usual professional duties to the assured
and is entitled to look to the assured for his fees, notwithstanding that his
instructions come from the insurer.
115.
These features, and particularly the last, mean that the insurer cannot
be regarded as the real defendant. He is simply in a position where (i) by
virtue of his contractual obligations to the assured, he is liable to suffer a
detriment if the assured loses; and (ii) by virtue of his contractual right
against his assured, he is entitled to direct the conduct of litigation in his
assured’s interest. Both are common to other relationships which non-parties
may have with a defendant without necessarily being at risk in costs, for
example his solicitor or other litigation agent in case (i), or a liquidator
bringing a claim in the company’s name in case (ii). Neither factor is any
concern of the claimant, whose concern is only with the defendant. The claimant
may hope or even expect the defendant to be insured. But he has no legally
recognised right to proceed on that basis and must accept the risk, commonplace
in litigation, that he is not.
116.
That leaves unjustifiable intermeddling as the only basis on which a
liability insurer might be at risk of having a costs order made against him. Cases
in which a costs order may be made against a liability insurer on this basis
are likely to be rare. What may make a non-party’s involvement in litigation an
“unjustified intermeddling” is the absence of any interest in the litigation
recognised by the law. That need not necessarily be a legal interest. But a
liability insurer has an obvious legal interest in the performance of his
contractual duties under the policy and the exercise of his contractual rights.
Of course, that interest is limited to the defence of insured claims and
different considerations may arise if he steps outside that role. But, as the
present case illustrates, where insured and uninsured claims are at issue in
the same litigation, the proper defence of insured claims may involve steps
which directly or indirectly affect uninsured claims. This is an area in which
a person conducting or directing the conduct of litigation is entitled to a
large margin of judgment and hindsight is not usually an adequate tool for
assessing how he exercises it. If he acts in good faith in the interest of the
assured qua the defendant to insured claims, he should not incur liability in
costs. As at present advised, I would expect this to be equally true of the
case where the potential liability of the assured is subject to a limit of
cover which is exceeded, but that is not an issue which needs to be examined on
this appeal because it does not arise on the facts.
117.
I too would allow this appeal.
