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You are here: BAILII >> Databases >> United Kingdom Supreme Court >> Travelers Insurance Company Ltd v XYZ [2019] UKSC 48 (30 October 2019) URL: https://www.bailii.org/uk/cases/UKSC/2019/48.html Cite as: (2020) 171 BMLR 1, [2019] UKSC 48, [2019] WLR 6075, [2020] 1 All ER (Comm) 1007, [2020] 2 All ER 239, [2019] WLR(D) 599, [2019] Costs LR 1915, [2019] Lloyd's Rep IR 683, [2019] 1 WLR 6075 |
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THE COURT ORDERED that no one shall publish or reveal the name or address of the Respondents who are the subject of these proceedings or publish or reveal any information which would be likely to lead to the identification of the Respondents or of any member of their families in connection with these proceedings.
[2019] UKSC 48
On appeal from: [2018] EWCA Civ 1099
JUDGMENT
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before
Lord Reed, Deputy President Lady Black Lord Briggs Lord Kitchin Lord Sumption
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JUDGMENT GIVEN ON |
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30 October 2019 |
|
|
Heard on 11 June 2019 |
Appellant |
|
Respondents |
Colin Edelman QC |
|
Hugh Preston QC |
Ben Lynch |
|
Marcus Pilgerstorfer |
(Instructed by DWF LLP (London)) |
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(Instructed by Hugh James (Cardiff)) |
LORD BRIGGS: (with whom Lady Black and Lord Kitchin agree)
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.
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.
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.
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).
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.
The Law
“(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.
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.
“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.”
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.”
“(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.
“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.
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.
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.
Asymmetry - Lack of Reciprocity
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.
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
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
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.
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:
Historical antecedents
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.
“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.”
“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.
“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.”
“… 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.”
“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.”
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.
(2) Other common law jurisdictions
“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
“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.”
“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.
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: