Cormack v Washbourne
| Jurisdiction | England & Wales |
| Judge | Nourse,Auld,Tuckey L JJ. |
| Judgment Date | 16 March 2000 |
| Court | Court of Appeal (Civil Division) |
| Date | 16 March 2000 |
Court of Appeal (Civil Division).
Nourse, Auld and Tuckey L JJ.
Roger Kaye QC and Philip Shepherd (instructed by Merricks) for the appellants.
Antony Edwards-Stuart QC and Leigh-Ann Mulcahy (instructed by Lawrence Graham) for the respondent.
The following cases were referred to in the judgment of Auld LJ:
Aiden Shipping Co Ltd v Interbulk LtdELR [1986] AC 965
Bristol & West plc v Bhadresa (No. 2) [1999] Ll Rep IR 138
Citibank NA v Excess Insurance Co Ltd [1999] CLC 120
Condliffe v HislopWLR [1996] 1 WLR 753
Globe Equities Ltd v Globe Legal Services Ltd [1999] TLR 34
Gloucestershire Health Authority v M A Torpy & Partners Ltd [1999] Ll Rep IR 203
Groom v CrockerELR [1939] 1 KB 194
McFarlane v E E Caledonia Ltd (No. 2)WLR [1995] 1 WLR 366
Murphy v Young & Co's Brewery plc [1997] CLC 469; [1997] 1 WLR 1591
Pendennis Shipyard Ltd v Magrathea (Pendennis) LtdUNK [1998] 1 Ll Rep 315
Roache v News Group Newspapers LtdUNK (unreported, 19 November 1992, CA)
Symphony Group plc v HodgsonELR [1994] QB 179
TGA Chapman Ltd v Christopher [1997] CLC 1306; [1998] 1 WLR 12
TSB Bank plc v Robert Irving & Burns [1999] Ll Rep IR 528
Turner Page Music v Torres Design Associates LtdUNK (unreported, 24 June 1998, CA)
Insurance — Professional indemnity insurance — Costs — Costs against non-party — Claimant obtained judgment and costs in professional negligence action — Judgment and costs exceeded limit of defendant's professional indemnity policy — Whether defendant's professional indemnity insurers should pay costs — Supreme Court Act 1981, s. 51.
This was an appeal by a successful claimant from the deputy judge's refusal to order the unsuccessful defendant's professional indemnity insurers to pay the claimant's unrecovered costs under s. 51 of the Supreme Court Act 1981.
The defendant chartered surveyor prepared a survey report for the claimant house buyers. The house began to show signs of subsidence and the claimants issued proceedings in 1992 alleging negligence and seeking damages of some £100,000 for diminution in value of the property. The defendant had professional indemnity cover limited to £250,000 inclusive of the claimant's costs. The terms of the policy gave insurers control of the conduct of litigation and contained a “QC clause” under which neither insurer nor insured could be required to contest litigation save on the advice of a mutually instructed QC. The Excess Insurance Co Ltd (“Excess”) was the lead primary insurer with a line of 35 per cent. It instructed solicitors to conduct the defence. The solicitors told the defendant that if he lost at trial his liability might exceed the level of cover. The defendant did not accept that he had been negligent. The QC clause was never invoked. Excess made a payment into court and a further payment in just before trial. Leading counsel advised that there was a 50-50 chance of success. The judge found for the claimants on liability and quantum and gave judgment for £218,769 including interest, with costs to be taxed on the standard basis if not agreed. Excess paid the judgment and costs up to the limit of cover of £250,000 leaving the claimants with unpaid costs of some £89,000 which they sought to recover from Excess by way of an order under s. 51 of the Supreme Court Act 1981. The deputy judge refused the application on the basis that there were no exceptional circumstances and that the insurers had pursued the defence reasonably and not with regard purely to their own interests. The claimants appealed.
Held, dismissing the appeal:
1. The undoubted discretion to order a non-party to pay costs should only be exercised where in the view of the judge the circumstances of the case were sufficiently exceptional to warrant it. The ultimate question was what was just and reasonable in an individual case and it was not possible to prescribe exceptional circumstances in advance. ( Aiden Shipping Co Ltd v Interbulk LtdELR [1986] AC 965 and Symphony Group plc v HodgsonELR[1994] QB 179applied.)
2. In considering whether a case was exceptional in relation to the entire range of litigation, it had been held that there were exceptional circumstances where the insurer's overriding self-interest in the conduct of proceedings converted the insurer into the defendant for practical purposes. The insurer did not have to act exclusively in its own self-interest and there could be exceptional circumstances where the insurer's interest predominated to a sufficiently large extent over that of the insured. ( Groom v CrockerELR [1939] 1 KB 194 and TGA Chapman Ltd v Christopher[1997] CLC 1306; [1998] 1 WLR 12Groom v Crockconsidered.)
3. In this case, as the deputy judge, held Excess did not fail to give adequate regard to the defendant's interest in remaining within his limit of insurance. His decision that the case was not exceptional was a correct exercise of discretion.
4. As the deputy judge rightly held non-disclosure of the level of cover was not of itself a ground for making an order under s. 51 of the Supreme Court Act 1981.
5. Had it been just and reasonable to make a s. 51 order the court would have made an order for Excess to pay the whole costs and not only 35 per cent of them. The other insurers had authorised Excess to conduct the defence and would be obliged to indemnify Excess in respect of their proportionate lines of cover.
Auld LJ: The main issue in this appeal is whether the successful claimants can recover costs from the unsuccessful defendant's professional indemnity insurer beyond the financial limit of the indemnity provided.
An insurer funding a subrogated claim can normally expect to pay the other side's costs if it loses since, for practical purposes, the insurer is the claimant. Similarly, an unsuccessful defendant's insurer unprotected by any cover limit always pays the other side's costs because they are included in the cover. But where and to the extent that a successful party's judgment, including costs, exceeds the limit of the unsuccessful party's cover and means to pay them, the latter's insurer's liability to do so depends upon whether the court, in its discretion, orders it, as a non-party, to pay them. See per Phillips LJ in Murphy v Young & Co's Brewery plc[1997] CLC 469 at pp. 477G–478D; [1997] 1 WLR 1591 at pp. 1601–1602 and in TGA Chapman Ltd v Christopher[1997] CLC 1306 at p. 1311E–G; [1998] 1 WLR 12 at p. 19B–C.
Section 51(1) and (3) of the Supreme Court Act 1981 give the court power and discretion to order a non-party to pay such costs:
“(1) Subject to the provisions of this or any other enactment and to rules of court, the costs of and incidental to all proceedings
…
shall be in the discretion of the court…
(3) The court shall have full power to determine by whom and to what extent the costs are to be paid.”
RSC, O. 62, r. 2(4) rehearsed, and CPR, Pt. 48.2 refers to, such power and discretion without purporting to restrict them in any material way, the latter expressly recognising the courts' broad interpretation of s. 51 so as to include, where appropriate, a jurisdiction to order a non-party to pay costs. The House of Lords so held in Aiden Shipping Co Ltd v Interbulk LtdELR[1986] AC 965. Lord Goff of Chieveley, with whom the other Law Lords agreed, said, at p. 975F–H, that it was for the rule-making authority to control the exercise of discretion if it thought it right to do so:
and to the appellate courts to establish principles upon which the discretionary power may, within the framework of the statute and the applicable rules of court, be exercised.
The broad guidance he gave, at pp. 980F–981B, was that the courts should exercise their discretion “in accordance with reason and justice” and that “in the vast majority of cases, it would no doubt be unjust” to make such an order. In Symphony Group plc v HodgsonELR[1994] QB 179, Balcombe LJ, with whom Staughton and Waite L JJ agreed, developed that guidance by setting out a number of principles and/or material considerations. The most important of them is that such an order is always exceptional and that the court should treat an application for it with considerable caution. More recently, the Court of Appeal has considered the particular application of those principles to the liability of an insurer of an unsuccessful party to meet a successful party's costs beyond the level of cover provided. In Murphy the court confirmed its earlier test of exceptionality and held that the provision of limited cover, even though coupled with the control and financing of the unsuccessful party's case, would not normally satisfy the test. In Chapman the court found that the combination of the following and other circumstances met the test so as to justify the making of an order against defendant's insurer, namely: (1) it had determined that the claim would be fought; (2) it had funded the defence of the claim; (3) it had controlled and conducted the defendant's case; (4) it had fought the claim exclusively for its own interest; and (5) the defence had failed in its entirety.
The appeal arises out of the following facts. In May 1986 the claimants bought a house for £270,000 in reliance on a report of survey prepared by the defendant, then a chartered surveyor. In the summer of 1989 the house began to show signs of subsidence. In July 1992 the claimants commenced proceedings against the defendant in negligence for certain uninsured losses, made up principally of £100,666 plus interest for diminution in value. The defendant had cover for this claim under a professional indemnity collective policy limited to £250,000 inclusive of claimant's costs and subject to an excess of £2,500. The policy, typically, gave the insurers control of the conduct of the litigation. The policy also contained the “QC clause”, under which neither party to it could be required to contest any litigation save on...
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