Travelers Insurance Company Ltd v XYZ
| Jurisdiction | England & Wales |
| Judge | Lord Justice Lewison,Lord Justice Patten |
| Judgment Date | 17 May 2018 |
| Neutral Citation | [2018] EWCA Civ 1099 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A2/2017/0780 |
| Date | 17 May 2018 |
[2018] EWCA Civ 1099
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
LADY JUSTICE THIRLWALL DBE
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Patten
and
Lord Justice Lewison
Case No: A2/2017/0780
Mr Guy Philips QC & Mr Ben Lynch (instructed by DWF Solicitors) for the Appellant
Mr Hugh Preston QC & Mr Marcus Pilgerstorfer (instructed by instructed by Hugh James Solicitors) for the Respondent
Hearing dates: 10 th May 2018
Judgment Approved
The issue raised on this appeal is the liability for costs arising out of litigation concerning the supply of defective implants for use in breast surgery, which had been manufactured by PIP. The claims were made in group litigation under a Group Litigation Order (a “GLO”) made on 17 April 2012. About 1,000 claimants joined the GLO. 623 of those claims were brought against Transform Medical Group (CS) Ltd, which was a party to the GLO amongst a number of other defendants. Transform had insurance cover placed with Travelers Insurance Co Ltd in relation to 197 claims; but was uninsured in respect of 426 claims made against it. Many of the claimants in the latter category (“the uninsured claimants”) fell into the category of the “worried well” whose implants had not in fact failed. Others in that category had causes of action which fell outside the period covered by the insurance. The remainder of the 1,000 claims were brought against the other defendants. The litigation was managed by Thirlwall J. In 2013 she made an order for the trial of preliminary issues, all relating to the quality of the implants, in four sample cases. Transform was the defendant in all four sample cases. Two of the four sample cases were uninsured claims, although that was not known to the claimants. Under the terms of the GLO costs incurred in dealing with issues common to all claims were to be shared equally between all claimants on the GLO register. That would have included both insured claimants and uninsured claimants. However, their liability for and entitlement to costs was expressly stated to be several rather than joint. In anticipation of the trial of those issues expert evidence was prepared and served in April 2014. That evidence was likely to lead to the conclusion that the implants were not of satisfactory quality.
In the light of the expert evidence a settlement meeting took place in June 2015; but at the end of that month Transform entered insolvent administration. The insured claims were settled by an agreement made in August 2015. Travelers paid an agreed proportion of the damages and costs attributable to those insured claims. Those costs were the proportion of the common costs attributable to the insured claims calculated by dividing the amount of the costs in question by the number of insured claims relative to the total number of claims on the register. Thus Travelers paid approximately 20 per cent of the common costs. The uninsured claimants have incurred very little by way of their individual costs. The costs for which they are potentially liable under the costs-sharing terms of the GLO are their proportion of the common costs incurred in progressing the four sample cases. In March 2016 the uninsured claimants entered judgment in default against Transform. In principle Transform are liable for approximately 42 per cent of the costs (the ratio of the uninsured claims to the total number of claims on the register). The uninsured claimants have not recovered anything, either by way of damages or costs. Because Transform is insolvent they are unlikely to do so.
In those circumstances the uninsured claimants applied to the court for an order that Travelers pay their costs of the action. It is important to appreciate that the application relates only to costs: the uninsured claimants are not asking for any damages or other compensation. Thirlwall LJ (as she had by then become) made such an order on 24 January 2017 and, with the permission of Kitchin LJ, Travelers now appeals.
The discretion to order a third party to pay costs is given by section 51 of the Senior Courts Act 1981. The jurisdiction to make such an order was first recognised by the House of Lords in Aiden Shipping Co Ltd v Interbulk Ltd [1986] AC 965. That case concerned two related applications for remission of awards made in two separate but related arbitrations. The applications were heard together and the judge made an order (upheld by the House) requiring one of the parties to one of the two applications to pay the costs of a party to the other application. In the course of his speech Lord Goff said at 980:
“If two separate sets of proceedings are heard together, because they have common features, it may be a matter of pure chance whether the expense of presenting an argument or evidence relevant to the common feature falls within one or other of the two sets of proceedings. Sometimes, indeed, it may be very difficult to attribute costs to one set of proceedings rather than the other. It is surely consistent with the interests of justice that, in such a case, the court's jurisdiction to make a global order for costs relating to both sets of proceedings should not be fettered by the imposition of an implied limitation upon that jurisdiction.”
He continued at 981:
“Courts of first instance are, I believe, well capable of exercising their discretion under the statute in accordance with reason and justice.”
In the recent decision of this court in Deutsche Bank AG v Sebastian Holdings Inc [2016] EWCA Civ 23, [2016] 4 WLR 17 it was held that although the courts have given guidance from time to time, none of it is immutable. On an application of this kind the court is not concerned with legal rights and obligations but with a broad discretion which it will seek to exercise in a manner that will do justice. The only immutable principle is that the discretion must be exercised justly. Deutsche Bank AG at [50] and [62]. It also follows that previous cases in which judges have or have not exercised their discretion in different ways cannot be regarded as laying down prescriptive rules: Deutsche Bank AG at [62]. As Millett LJ said in Jaggard v Sawyer [1995] 1 WLR 269, 288 (in a very different context):
“Reported cases are merely illustrations of circumstances in which particular judges have exercised their discretion…Since they are all cases on the exercise of a discretion, none of them is a binding authority on how the discretion should be exercised. The most that any of them can demonstrate is that in similar circumstances it would not be wrong to exercise the discretion in the same way. But it does not follow that it would be wrong to exercise it differently.”
Although, on the face of it, the discretion is a very wide one, Mr Philipps QC on behalf of Travelers says that there are principles established by the case law which regulate the circumstances in which costs may be awarded against an insurer. He says that the judge ought to have applied those principles and that her failure to do so was a fundamental error of principle which vitiated the exercise of her discretion.
These principles, says Mr Philipps, derive from a series of cases. They are: TGA Chapman Ltd v Christopher [1998] 1 WLR 12; Citibank NA v Excess Insurance Co Ltd [1999] 1 Lloyd's Rep IR 122; Cormack v Excess Insurance Co Ltd [2002] Lloyd's Rep IR 398; Palmer v Palmer [2008] EWCA Civ 46, [2008] Lloyd's Rep IR 535 and Legg v Sterte Garage Ltd [2016] EWCA Civ 97, [2016] Lloyd's Rep IR 390.
The principles are, according to Mr Philipps, that a liability insurer who funds an unsuccessful defence by its insured will only be liable under section 51 if the evidence establishes that the insurer controlled the litigation in its own interest, and without paying appropriate regard to any inconsistent or contrary interest of its insured. In such a case it is appropriate to regard the insurer as the real party such that an order under section 51 can properly be made. If this criterion is not established, then no order under section 51 should be made.
In the present case Travelers were bound by the terms of the policy to pay the costs of defending the insured claims in which, as liability insurer, they had an obvious commercial interest. Those costs included the costs of defending all the common issues which affected both the insured and the uninsured claims. It was not open to Travelers to apportion those costs as between the insured and the uninsured claims. In defending the common issues Transform and Travelers gave a joint retainer to BLM as their joint solicitors; and Transform was closely involved in all the decision making. The operation of the joint retainer appropriately balanced the interests of insured and insurer. Thus it cannot be said that Travelers overstepped the mark. They are therefore entitled to insist on their rights under the policy, which do not encompass liability for the uninsured claims. Since the incidence of costs, so far as the uninsured claimants' recovery is concerned, is governed by the terms of the GLO and is a several entitlement, there can be no injustice in leaving their share of the common costs to lie where it falls.
There is, as the judge recognised, an obvious asymmetry in Travelers' position. If Transform had succeeded on the preliminary issues then all claimants (whether insured or uninsured) would have been liable equally to contribute towards Transform's costs which, ultimately, would have been to Travelers' advantage. But failure on those very same issues has the result, if Travelers are correct, that it is ultimately liable for only approximately 32 per cent of the claimants' costs. In addition, as the judge...
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