Murphy v Young & Company 's Brewery Plc

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLORD JUSTICE PHILLIPS,LORD JUSTICE BUTLER-SLOSS
Judgment Date08 Jan 1997
Judgment citation (vLex)[1996] EWCA Civ J1120-3
Docket NumberLTA 95/6982/C

[1996] EWCA Civ J1120-3

IN THE SUPREME COURT OF JUDICATURE

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

(MR. GRIFFITHS-WILLIAMS QC)

Royal Courts of Justice

Strand

London WC2

Before:

Lord Justice Butler-Sloss

Lord Justice Phillips

Sir John Balcombe

LTA 95/6982/C

QBENF 95/0823/C

(1) Daniel Joseph Murphy
(2) Christine Anne Murphy
Plaintiffs
and
Young & Co's Brewery Plc
First Defendant/Appellant
Sun Alliance & London Insurance Plc
Second Defendant/Respondent

ANDREW HILLIER (Instructed by Druces & Atlee, London Wall, London, EC2M 5PS) appeared on behalf of the Appellant

STUART ISAACS QC (Instructed by Hopkins & Wood, London, EC4A 1NE) appeared on behalf of the Plaintiffs

LORD JUSTICE PHILLIPS
1

This is the first of two appeals which we heard together. They raise a common point. When an unsuccessful party has had its legal costs funded under legal expenses insurance, should the insurer be held liable to pay the successful party's costs?

2

Section 51(1) of the Supreme Court Act provides:

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.

3

In Aiden Shipping Co. Ltd. v. Interbulk Ltd [1986] A.C. 965 the House of Lords held that the jurisdiction provided by this Section was not subject, as had been believed, to an implied limitation that costs could only be awarded against those who were parties to the litigation. Non-parties could be ordered to pay costs where justice so required. In the present case the successful Defendants ("Youngs") joined the Second Defendants ("Sun Alliance") in order to seek an Order for costs against them. The trial judge, Mr Griffiths-Williams Q.C., sitting as a Deputy High Court Judge, rejected their application for this Order. Against his decision they now appeal.

4

The Facts

5

The Plaintiffs, Mr and Mrs Murphy were employed by Youngs to manage a public house in Kew, called the Orange Tree. Youngs dismissed them, claiming that they had been in breach of their duties. Mr and Mrs Murphy brought this Action, claiming wrongful dismissal. Youngs counterclaimed for 'food rent' payable under the agreement. The Murphys' claim was dismissed and Youngs were awarded some £16,000 on their counterclaim, together with almost all the costs of the Action. Those costs were taxed, on the 11th March 1994, in the sum of £42,806. The Murphys said that they were unable to pay the sums due under the judgment other than by instalments. It was in these circumstances that Youngs sought an Order for costs against Sun Alliance. Ironically, on the eve of the hearing of this appeal, the Murphys paid the last instalment necessary to discharge their liability in respect of the costs of the Action, but it was agreed by the parties, with the approval of the Court, that the appeal should proceed, both because an important issue of principle is involved and because liability for the costs of the proceedings remains to be resolved.

6

The Insurance Cover

7

The Murphys were insured by Sun Alliance under the American Express Legal Expenses Plan. The relevant cover was expressed as follows:

8

Legal Benefits

a) Fees, expenses and other disbursements reasonably and properly incurred by the Appointed Representative (a solicitor, firm of solicitors or appropriately qualified person appointed to act for you) in connection with any claim or legal proceedings including any costs incurred by Us.

b) Costs and expenses of expert witnesses.

c) Any costs payable by You following an Award of Costs by a Court or Tribunal in connection with a claim or proceedings.

9

The limit of cover in respect of any claim arising out of the same original cause was £25,000. Cover was subject to the following conditions:

Our consent to pay Legal Benefits must firstly be obtained in writing. This consent will be given if you can satisfy Us that:

(i) you have reasonable grounds for pursuing or defending the legal proceedings

or

(ii) it is reasonable for Legal Benefits to be provided in a particular case.

The decision to grant consent will take into account the opinion of your appointed representative as well as that of Our own advisers. We may require you to obtain an opinion of Counsel on the merits of the claim or legal proceedings

If We refuse consent, You will be informed of the reasons for Us doing so. If you disagree you may invoke the Arbitration procedure…

10

The Murphys exhausted their right to indemnity in respect of this Action, for their own legal costs exceeded the limit of £25,000. In these circumstances, Sun Alliance denied that they could be under any liability to meet Youngs' costs.

11

Youngs contended that it was just and reasonable that Sun Alliance should pay their costs and that the authorities demonstrated that it was appropriate for the Court so to order on the facts of this case. I shall turn to those authorities shortly, but it is first convenient to identify the particular features of the case upon which Youngs relied. These were:

(1) Sun Alliance funded the Murphys' conduct of the litigation.

(2) Sun Alliance did so pursuant to a commercial agreement.

(3) Sun Alliance exercised a degree of control over the conduct of the litigation.

12

Youngs argued that in these circumstances to seek to rely on the limit of liability in answer to Youngs' claim was objectionable and contrary to public policy.

13

Sun Alliance for their part denied that they had exercised control over the litigation. They argued that legal expense insurance was in the public interest and that limits of cover were a usual and necessary feature of such insurance. Costs should only be ordered against a non-party in exceptional circumstances. There were no such circumstances in the present case and it would be contrary to public policy to hold Sun Alliance liable to pay costs beyond the limit of their cover.

14

The conclusions of the Judge are set out in a short passage at the end of his judgment:

Although I have been assisted by reference to authority, I am satisfied that I need only have regard to the general guidance offered by Lord Goff in Aiden Shipping and to the particular facts of the case. Although I have referred to parts only of the evidence placed before me in the various affidavits of witnesses, I have reminded myself of all the evidence, and on that evidence I am not persuaded that there are grounds for making what it is accepted is an exceptional order for costs against a non-party. There is no evidence of maintenance, of management or control, there are no public policy grounds for overriding a contractual limit of indemnity, the insurers have done nothing to undermine the position of the First Defendants and there is no suggestion of mala fides on the part of the insurers.

16

The starting point for this Court must be to consider what guidance, if any, is afforded by Aiden Shipping itself. Lord Goff said at p. 975:

…it is not surprising to find the jurisdiction conferred under section 51(1), like its predecessors, to be expressed in wide terms. The subsection simply provides that 'the court shall have full power to determine by whom…. the costs are to be paid.' Such a provision is consistent with a policy under which jurisdiction to exercise the relevant discretionary power is expressed in wide terms, thus ensuring that the court has, so far as possible, freedom of action, leaving it to the rule-making authority to control the exercise of discretion (if it thinks it right to do so) by the making of rules of court, 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.

17

He continued at p. 980:

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….. I do not, for my part, foresee any injustice flowing from the abandonment of that implied limitation. Courts of first instance are, I believe, well capable of exercising their discretion under the statute in accordance with reason and justice. I cannot imagine any case arising in which some order for costs is made, in the exercise of the court's discretion, against some person who has no connection with the proceedings in question. If any problem arises, the Court of Appeal can lay down principles for the guidance of judges of first instance; or the Supreme Court Rules Committee can propose amendments to the Rules of the Supreme Court for the purpose of controlling the exercise of the statutory power vested in judges subject to rules of court.

18

No guidance has yet been afforded by the Supreme Court Rules Committee. In these circumstances I think it important that, when dealing with individual cases, this Court should try to formulate appropriate principles governing the exercise of the very wide jurisdiction that is accorded by Section 51. At the same time it must be remembered that the ultimate question is what is reasonable and just on the facts of the individual case, so that principles are guidelines rather than fetters.

19

In Symphony Group PLC v. Hodgson [1994] Q.B.179 Balcombe L.J. made an analysis of the various circumstances in which the Courts have been prepared to order a non- party to pay costs at p. 191:

(1) Where a person has some management of the action, e.g. a director of an insolvent company who causes the...

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