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England and Wales Court of Appeal (Civil Division) Decisions


You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Murphy & Anor v Young & Co's Brewery Plc & Anor [1996] EWCA Civ 1000 (20 November 1996)
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Cite as: [1997] CLC 469, [1997] 1 WLR 1591, [1997] WLR 1591, [1996] EWCA Civ 1000, [1998] 1 Costs LR 94

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IN THE SUPREME COURT OF JUDICATURE LTA 95/6982/C
IN THE COURT OF APPEAL (CIVIL DIVISION) QBENF 95/0823/C
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
(MR. GRIFFITHS-WILLIAMS QC )


Royal Courts of Justice
Strand
London WC2

Wednesday, 20th November 1996

B e f o r e:

LORD JUSTICE BUTLER-SLOSS
LORD JUSTICE PHILLIPS
SIR JOHN BALCOMBE


(1) DANIEL JOSEPH MURPHY
(2) CHRISTINE ANNE MURPHY
Plaintiffs
- v -
YOUNG & CO'S BREWERY PLC
First Defendant/Appellant
SUN ALLIANCE & LONDON INSURANCE PLC
Second Defendant/Respondent

- - - - - -

(Computer Aided Transcript of the Palantype Notes of
Smith Bernal Reporting Limited, 180 Fleet Street,
London EC4A 2HD
Tel: 0171 831 3183
Official Shorthand Writers to the Court)

- - - - - -

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

J U D G M E N T
(As approved by the Court )

©Crown Copyright

LORD JUSTICE PHILLIPS:

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?

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.

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.

The Facts
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.

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

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.

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...

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.
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.

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.

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.

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.

Aiden Shipping
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.

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.

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.

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 company improperly to prosecute or defend proceedings: see In re Land and Property Trust Co. Plc. [1991] 1 WLR 601; In re Land and Property Trust Co. Plc (No.3) [1991] B.C.L.C. 856; In re Land and Property Trust Co. Plc (No.2) The Times, 16 February 1993; Court of Appeal (Civil Division) Transcript No. 160 of 1993; Taylor v Pace Developments Ltd [1991] B.C.C. 406; In re A Company (No. 004055 of 1991) [1991] 1 WLR 1003 and Framework Exhibitions Ltd v. Matchroom Boxing Ltd. (unreported), 23 September 1992; Court of Appeal (Civil Division) Transcript No. 873 of 1992. It is of interest to note that, while it was not suggested in any of these cases that it would never be a proper exercise of the jurisdiction to order the director to pay the costs, in none of them was it the ultimate result that the director was so ordered.

(2) Where a person has maintained or financed the action. This was undoubtedly considered to be a proper case for the exercise of the discretion by Macpherson of Cluny J. in Singh v Observer Ltd. [1989] 2 All E.R. 751 , where it was alleged that a non-party was maintaining the plaintiff's libel action. However, on appeal the evidence showed that the non-party had not been maintaining the action and the appeal was allowed without going into the legal issues raised by the judge's decision; see Singh v Observer Ltd [1989] 3 All E.R. 777.

(3) In Gupta v Comer [1991] 1 Q.B. 629 this court approached the power of the court to order a solicitor to pay costs under Ord.62,r.11 as an example of the exercise of the jurisdiction under section 51 of the Act of 1981.

(4) Where the person has caused the action. In Pritchard v J.H. Cobden Ltd [1988] Fam. 22 the Plaintiff had suffered brain damage through the defendant's negligence. That resulted in a personality change which precipitated a divorce. This court held that the defendant's agreement to pay the costs of the divorce proceedings could be justified as an application of the Aiden Shipping Co. Ltd. v Interbulk Ltd [1986] A.C. 965 principle: see [1988] Fam.22,51.

(5) Where the person is a party to a closely related action which has been heard at the same time but not consolidated - as was the case in Aiden Shipping itself.

(6) Group litigation where one or two actions are selected as test actions: see Joseph Owen Davies v Eli Lilly & Co. [1987] 1 WLR 1136.

As Sir John Balcombe made clear in the course of argument in the present case, it was not his intention in Symphony to endorse these decisions as identifying circumstances in which it would necessarily be appropriate to order a non-party to pay costs. Those cases do, however, identify a number of factors which are of relevance when considering whether to make such an order. Balcombe L.J. went on to identify a number of applicable principles at p.192:

(1) 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] A.C. 965, 980F . The judge should treat any application for such an order with considerable caution.

(2) It will be even more exceptional for an order for the payment of costs to be made against a non-party, where the applicant has a cause of action against the non-party and could have joined him as a party to the original proceedings. Joinder as a party to the proceedings gives the person concerned all the protection conferred by the rules, as to e.g. the framing of the issues by pleadings; discovery of documents and the opportunity to pay into court or to make a Calderbank offer ( Calderbank v Calderbank [1976] Fam. 93) ; and the knowledge of what the issues are before giving evidence.

(3) Even if the applicant can provide a good reason for not joining the non-party against whom he has a valid cause of action, he should warn the non-party at the earliest opportunity of the possibility that he may seek to apply for costs against him. At the very least this will give the non-party an opportunity to apply to be joined as a party to the action under Ord.15,r.6(2)(b)(i) or (ii).

Principles (2) and (3) require no further justification on my part; they are an obvious application of the basic principles of natural justice.

(4) An application for payment of costs by a non-party should normally be determined by the trial judge: see Bahai v Rashidian [1985] 1 WLR 1337.

(5) The fact that the trial judge may in the course of his judgment in the action have expressed views on the conduct of the non-party constitutes neither bias nor the appearance of bias. Bias is the antithesis of the proper exercise of a judicial function: see Bahai v Rashidian [1985] 1 WLR 1337, 1242H, 1346F.

(6) The procedure for the determination of costs is a summary procedure, not necessarily subject to all the rules that would apply in an action. Thus, subject to any relevant statutory exceptions, judicial findings are inadmissible as evidence of the facts upon which they were based in proceedings between one of the parties to the original proceedings and a stranger: see Hollington v F. Hewthorn & Co. Ltd. [1943] K.B. 587; Cross on Evidence, 7th ed. (1990), pp.100-101. Yet in the summary procedure for the determination of the liability of a solicitor to pay the costs of an action to which he was not a party, the judge's findings of fact may be admissible: see Brendon v Spiro [1938] 1 K.B. 176, 192, cited with approval by this court in Bahai v Rashidian [1985] 1 WLR 1337, 1343D, 1345H. This departure from basic principles can only be justified if the connection of the non-party with the original proceedings was so close that he will not suffer any injustice by allowing this exception to the general rule.

(7) Again, the normal rule is that witnesses in either civil or criminal proceedings enjoy immunity from any form of civil action in respect of evidence given during those proceedings. One reason for this immunity is so that witnesses may give their evidence fearlessly: see Palmer v Durnford Ford [1992] Q.B. 483, 487 . In so far as the evidence of a witness in proceedings may lead to an application for the cots of those proceedings against him or his company, it introduces yet another exception to a valuable general principle.

(8) The fact that an employee, or even a director or the managing director, of a company gives evidence in an action does not normally mean that the company is taking part in that action, in so far as that is an allegation relied upon by the party who applies for an order for costs against a non-party company: see Gleeson v J. Wippell & Co. Ltd [1977] 1 WLR 510, 513 .

(9) The judge should be alert to the possibility that an application against a non-party is motivated by resentment of an inability to obtain an effective order for costs against a legally aided litigant.

These principles relate largely to questions of procedure which may impact upon the question of whether it is fair to order a non-party to pay costs.

Procedure
In the present case Youngs joined Sun Alliance as Second Defendants in order to make an application for costs against them. Sun Alliance objected, unsuccessfully to this joinder. They have applied for leave to appeal against the order permitting the joinder. At the time when it was considered that costs could only be ordered against a party to the action it was objectionable to join a party simply to attempt to establish jurisdiction to make a costs order against him - see 15/4/6 Supreme Court Practice. Now that it is clear that a non-party can be ordered to pay costs, it is plainly necessary for appropriate procedural steps to be taken to bring the non-party before the court so that he can make representations and, where appropriate, adduce evidence. It seems to me that the joinder of Sun Alliance effected in this case was a convenient way of achieving that end, although it may be that an Originating Summons would have been a more appropriate alternative. In the event Sun Alliance did not press their application, without conceding that their joinder had been appropriate, and I propose to say no more about procedure. I now turn to consider the cases in order to see whether they support Youngs' submission that Sun Alliance's involvement in the funding and control of this litigation renders it reasonable and just that Sun Alliance should pay Youngs' costs.

The Authorities
On behalf of Youngs, Mr Hillier, whose submissions were clear, cogent and concise, founded on a line of authority beginning with Hill v. Archbold [1968] 1 Q.B. 686 to support the submission that 'where a person funds or contributes to the funding of litigation pursuant to an agreement for reward it will in general be fair and reasonable to require him to meet the costs of the successful adverse party.'
In Hill v. Archbold the issue was whether it was lawful for a trade union to fund the legal costs of two officials of the union, who had been unsuccessful plaintiffs in a libel action. It was contended that such support constituted the tort of maintenance. Oram v. Hutt [1914] 1 Ch.98 was relied upon in support of this submission. In the leading judgment Lord Denning M.R. rejected this submission at p.694:

I do not think it right to take such a narrow point of distinction. It is now over 50 years since Oram v Hutt was decided. I prefer to say plainly that Oram v Hutt is no longer good law. Much maintenance is considered justifiable today which would in 1914 have been considered obnoxious. Most of the actions in our courts are supported by some association or other, or by the state itself. Comparatively few litigants bring suits, or defend them, at their own expense. Most claims by workmen against their employers are paid for by a trade union. Most defences of motorists are paid for by insurance companies. This is perfectly justifiable and is accepted by everyone as lawful, provided always that the one who supports the litigation, if it fails, pays the costs of the other wide. It is the universal experience in this court that if a trade union or an insurance company supports a case and fails, it pays the costs of the other side. In the light of this experience, I am satisfied that if Oram v Hutt were to come before us today, we should hold that the union had a legitimate interest in the suit and were quite justified in maintaining it: remembering that if the suit had failed, the union would have paid the costs.

In Orme and Durst v. Associated Newspapers Group Ltd (transcript 10th November 1980) Lord Denning again suggested that the question of whether or not the person funding an action accepted liability for the costs of the other party could be critical in deciding whether such support constituted the tort of maintenance.

In Singh v. Observer Ltd [1989] 2 All E.R.751 an application was made for the disclosure of the identity of the person who was believed to be funding a Plaintiff's claim for damages. In acceding to the application, Macpherson J. observed at p. 757:

During argument reference was made to common circumstances in which others pay for the litigation of a party, for example legally aided cases, insurance cases and union-assisted cases which make up much of today's non-jury list. But legal aid is statutory and so are the restrictions on recovery of costs from the fund. The legal aid authorities can control the hardship which may be caused to successful litigants, who may not recover their costs, by requiring counsel to give fearless opinions as to the merits of a case as a condition of continuing legal aid. Insurance companies are subrogated to their insured's rights, and both they and unions invariably pay the costs of unsuccessful litigation. Otherwise, injustice could certainly result and I do not believe that if, for example, unions decided simply to refuse to pay costs in these cases, the court would not step in.

These three decisions were influential in leading Longmore J. to order a non-party to pay the successful Defendant's costs in McFarlane v. E.E.Caledonia Ltd [1995] 1 W.L.R. 366. In that case a commercial company ("Quantum") had funded a Plaintiff's unsuccessful claim for damages for personal injury on a contingency fee basis under which Quantum accepted no responsibility for the Defendant's costs. In these circumstances Longmore J. gave the following reasons for making an Order under Section 51 that Quantum pay the Defendant's costs:

It seems to me, therefore, that a judge sitting at first instance should follow the dicta of Lord Denning M.R. in Hill v Archbold [1968] 1 Q.B. 686 , approved as they have been in subsequent authorities. It may well be that it is not necessary to every case of lawful maintenance that the maintainer should accept a liability for a successful adverse party's costs; for example, a member of a family or a religious fraternity may well have a sufficient interest in maintaining an action to save such maintenance from contractual illegality, even without any acceptance of liability for such costs. But in what one may call a business context (e.g. insurance, trade union activity, or commercial litigation support for remuneration) the acceptance of such liability will always, in my view, be a highly relevant consideration. The fact that Quantum has not accepted and does not accept any such liability seems to me to affect its contract with Mr. McFarlane with illegality as a matter of English law, quite apart from the additional illegality which arises from the champertous nature of the agreement. There is thus a double illegality in the present case.

It is, moreover, the absence of any agreement to pay the adverse party's costs which is, to my mind, the more important illegality in the context of the defendants' summons. I have already said that an agreement with Mr. McFarlane to pay the costs for which he might become liable to the defendants would furnish a cogent reason for making an order that Quantum should pay such costs directly to the defendants. If the absence of any such agreement is one factor which renders illegal the maintenance contract between Quantum and Mr. McFarlane, it seems to me that the illegality also furnishes a cogent reason why, in the exercise of my discretion, an order should be made against Quantum to pay the defendants' costs. The fact that the maintenance contract is also champertous is in any event a further illegality in the present context.

This reasoning falls to be contrasted with that of Vinelott J. in the earlier case of Shah v. Karanjia [1993] 4 All E.R.792, where he said at p.810:

I am not persuaded that the old law of maintenance offers any guide to the exercise of the court's discretion under s.51. It may be that in a case where it is plain or admitted that the action is brought by a nominal plaintiff at the expense and on behalf of another with an interest in the action (as in Hayward v Giffard (1838) 4 M&W 194 ) or where it is funded by a trade union on behalf of a member or by a person liable to indemnify the plaintiff, the court could properly exercise its discretion by ordering the funder to pay the costs of the successful defendant, although the court would have to bear in mind the danger in exercising a summary jurisdiction of relying on a finding which would not be admissible in proceedings against the funder. However, all these cases fell outside the scope of the old law of maintenance and, if the court is to make an order, it much be, in the words of Lord Abinger CB. on the ground of justice and reason and in exercise of the jurisdiction under s.51.

In the present case Mr Hillier did not suggest that the Sun Alliance funding of the Murphys constituted unlawful maintenance. He accepted the observation of Lloyd L.J. in Taylor v. Pace Developments Ltd [1991] BCC 406 at p.410 that the statement of Lord Denning in Hill v. Archbold was "more a statement of universal practice than a binding legal principle, applicable to the exercise of the discretion in every case". He submitted, however, that the Court should not permit a non-party, who has funded an unsuccessful party, to avoid liability for the successful party's costs by purporting to contract out of such liability, either absolutely or, as here, by reason of a cap on the cover provided.

He further supported this submission by citing the following passage in the judgment of Kennedy L.J. in Condliffe v. Hislop [1996] 1 WLR 753 at p. 762:

....the court is entitled to protect its own procedures, and as Sir Thomas Bingham M.R. said in Roache v News Group Newspapers Ltd (unreported), 19 November 1992 ; Court of Appeal (Civil Division) Transcript No.1120 of 1992 the principle that in the ordinary way costs follow the event "is of fundamental importance in deterring plaintiffs from bringing and defendants from defending actions which they are likely to lose." If that principle is threatened, as for example if an insurer or a trade union were known to be giving financial support to a party without accepting liability for the costs of the other side if the supported party were to lose, then, as it seems to me, the court might, at least in some cases, be prepared to order that the action be stayed (cf. Wild v Simpson [1919] 2 K.B. 544,, Broxton v McClelland, 6 November 1992 and Grovewood Holdings Plc v James Capel & Co. Ltd [1995] Ch.80 , a case concerned with champerty, not maintenance). Normally the better course will be to let the action proceed to trial and then, if need be, consider the powers of the court under section 51 of the Supreme Court Act 1981 (as in McFarlane's case [1995] 1 W.L.R. 366)....

The time has come to attempt to formulate some principles in the light of these decisions. My conclusions are as follows:

1. In Giles v. Thompson [1994] 1 AC 142 at p. 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.

2. Where a non-party has supported an unsuccessful party on terms that place the non-party under a clear contractual obligation to indemnify the unsuccessful party against his liability to pay the costs of the successful party, it may well be appropriate to make an Order under Section 51 that the non-party pay those costs directly to the successful party. Such an Order may, for instance, save time and costs in short-circuiting the Third Party (Rights Against Insurers) Act 1930. Bourne v. Coldense [1985] I.C.R. is a case where the Court might well have thought fit to make such an order had it appreciated that it had jurisdiction to do so.

3. Where a Trade Union funds unsuccessful litigation on behalf of a member the following factors, in addition to the funding itself, are likely to be present and, where they are, to make it appropriate to Order the Union to pay the successful party's costs should such an Order be necessary:

(a) an implied obligation owed by the Union to its member to do so - see 2. above.

(b) an interest on the part of the Union in supporting and being seen to support the member's claim.

(c) responsibility both for the decision whether the litigation is to be pursued and for the conduct of the litigation.

(d) expectation based on convention that the Union will bear the costs of the successful party should the member lose.

4. Where an unsuccessful Defendant's costs are funded by insurers who have provided cover against liability, which is not subject to any relevant limit, the same considerations that I have set out under 3. are likely to apply.

5. The position is more complex where a Defendant's costs have been funded by insurers at risk under a policy under which their liability is limited to a sum which is insufficient to cover both liability and costs. This was the position in Chapman Ltd. v Christopher (Transcript 23rd May 1996). In that case the Plaintiffs were awarded damages in excess of £1 million from an impecunious Defendant who had the benefit of cover against liability for damages and costs up to a limit of £1 million under his mother's household policy with Sun Alliance. Judge Zucker, sitting as a Judge of the High Court, made an Order under Section 51 that Sun Alliance pay the Plaintiffs' costs for the following reasons:

(1) The plaintiffs' claim from the outset exceeded and was known by Sun Alliance to exceed the limit of the indemnity, i.e. £1,000,000.

(2) Sun Alliance had the sole conduct and direction of the defence which it pursued in order to protect its own interest, i.e. its liability to pay out £1,000,000 under the insurance policy. I reject any suggestion that Sun Alliance was acting in the interests of Mr. Christopher.

(3) Sun Alliance knew from the outset that Mr. Christopher had no means to meet any judgment or order for costs.

(4) Each and every one of the defences put forward by Sun Alliance were either abandoned or failed.

(5) By putting forward those defences, Sun Alliance and no one else caused the plaintiffs to incur costs of £250,000.

(6) Sun Alliance further prejudiced the plaintiffs by keeping them out of their money for three years and seven months and, in the meantime, had the use of £1,000,000.

Having regard to these reasons it may be hard to fault the manner in which Judge Zucker exercised his discretion, but it is not clear to me why Sun Alliance will not be entitled to take account of the costs that they pay in consequence of his Order when calculating their residual liability under the policy, in which case the Plaintiffs will be no better off at the end of the day.

More generally, I am not persuaded that it will always be appropriate to order liability insurers to pay the Plaintiffs' costs where they have unsuccessfully defended a claim made against their insured if the result of such an Order will be to render them liable beyond their contractual limit of cover. It seems to me that the appropriate Order may well turn on the facts of the particular case.

None of the considerations of principle set out above are directly relevant to the facts of the present case. Sun Alliance have funded the Murphys' litigation under a commercial agreement, but that is, it seems to me, the only ground that can validly be advanced in support of Youngs' contention that Sun Alliance should be ordered to pay their costs. In particular:

1) Sun Alliance have had no interest in the result of this litigation, save insofar as this has affected their liability to pay costs.

2) Sun Alliance did not initiate the litigation. They were contractually bound to fund it up to their limit of liability of £25,000 and would, in consequence, have been better off if the litigation had never been commenced. It has not been suggested, nor could it have been, that Sun Alliance could properly have refused their consent to this litigation. Counsel had advised the Murphys that they had "a strong case".

3) Sun Alliance exercised no control over the conduct of the litigation.

4) Sun Alliance cannot be accused of "wanton and officious intermeddling" in the dispute. Legal expenses insurance is a respectable and well recognised form of insurance and is subject to express regulation under Statutory Instruments pursuant to the Insurance Companies Act 1982.

For these reasons I do not consider that any of the authorities to which I have referred, or the principles that they reflect, answer the question of whether it is appropriate on the facts of this case to order Sun Alliance to pay Young's costs. The critical question is whether the mere fact that Sun Alliance have funded the Murphys' legal expenses under a policy of insurance, up to the limit of the cover under that policy, makes it reasonable and just that Sun Alliance should be ordered to pay Youngs' costs.

Mr Hillier referred us to the case of Thistleton v. Hendricks (1992) 17 BLR 119. That case involved a claim by a builder against a house owner and a counterclaim by the house owner. The latter was successful and recovered damages of some £19,000 on the counterclaim. The builder's costs had been funded by his mother under loans motivated by maternal affection and made in the belief that her son's claim was bona fide. Judge Hicks Q.C., sitting as an Official Referee ordered the mother to contribute £7,000 towards the house owners' costs. In so doing he had particular regard to the following facts:

(i) The Mother knew that her son would be unlikely to be able to pay any costs ordered in favour of the house owner;
(ii) The builder was the plaintiff in the litigation;
(iii) The house owner was a private individual.

Judge Hicks considered that these circumstances justified his reaching a different conclusion from that of the Court of Appeal in Cooper v. Maxwell (Transcript 20th March 1992). In that case the Provisional Liquidators of Bishopsgate Investment Management Limited ("BIM") had succeeded at first instance and on appeal in resisting an application by Mr Kevin Maxwell, a former Director of BIM, that privilege against self-incrimination excused him from the obligation to answer questions put to him by the Liquidators. Mr Maxwell's legal costs had been funded by his mother. The Court of Appeal held that the application made by Mr Maxwell had been made bona fide and on reasonable grounds. This led the Court to the following conclusion, as stated at the end of the leading judgment of Dillon L.J.:

In these circumstances I am unable to see that it is required by justice that Mrs. Maxwell, having elected to provide money for her son's costs and legal expenses, should be required also to pay the costs of the other side which has been successful against her son in the litigation for which the funds were used.

The development of the authorities has not been that there will automatically be an order for costs against a person who is not a party to the proceedings if that person has funded the litigation. More is required. It is not suggested that a bank which funded litigation by providing an overdraft for a party to litigation on commercial terms would automatically be ordered to pay the other side's costs if the litigation was unsuccessful. The position could be different with a trade union which has an interest in funding the litigation of a member in the industrial field and habitually does pay the costs if the litigation fails. I do not see that there is anything in the circumstances of Mrs. Maxwell in the present case which makes it right that the court should make an order against her to pay the costs of Mr. Kevin Maxwell's unsuccessful appeal.

This decision demonstrates a proposition that Mr Hillier has not sought to challenge. Funding alone will not justify an Order against the funder under Section 51. I do not consider that an Order under Section 51 will normally be appropriate where a disinterested relative has, out of natural affection, funded costs of a claim or a defence that is reasonably advanced.

Mr Hillier has urged that the special feature that makes it reasonable and just to make an Order under Section 51 in the present case is that the Sun Alliance has funded the Murphy's costs under a commercial agreement. This, it seems to me, reduces the central issue in this case to the following:
Should a legal expense insurer be permitted to cap its liability, or should the provision of such cover render the insurer liable to pay the costs of a successful adverse party, regardless of any contractual limit of liability?

For Sun Alliance, Mr Stuart Isaacs Q.C. has argued that legal expense insurance is in the public interest. He has referred us to the approval of such insurance in the Final Report of Lord Woolf M.R. on Access to Justice, Overview Section 1 Paragraph 12, in support of that submission. He has submitted that, if insurers are not permitted effectively to limit their liability, they will be less ready to provide such cover.
As did the Judge below, I accept the submission that Legal Expense Insurance is in the public interest, particularly if it is on the terms of the cover in the present case. Such insurance not only provides desirable protection to the assured, it is of benefit to the adverse party in that (i) it is likely to ensure that careful consideration is given to the merits of the litigation at an early stage and (ii) it provides a potential source of funding of the adverse party's costs, should the assured be unsuccessful. The latter has proved illusory in the present case because of the limit of cover, but evidence before the Court suggests that it is unusual for the limit of cover to be exceeded. That very evidence leaves me uncertain what the effect on the availability of such cover would be if legal expense insurers were exposed to costs orders under Section 51, but I do not believe that that question is critical to the answer in this case.

An Order under Section 51 that a non-party pay costs will only be justified when exceptional circumstances make such an Order reasonable and just. In this judgment I have explored some of the categories of exceptional circumstances that may justify such an Order. This case does not fall into any of them. I have reached the conclusion that the existence of legal expenses insurance with a limit of cover that has been exhausted does not make it reasonable or just to order the insurer to pay the costs of the adverse successful party. For these reasons I would dismiss this appeal.

SIR JOHN BALCOMBE:
I have had the advantage of reading the draft Judgment of Phillips L.J. and I agree with him, and for the reasons which he gives, that this appeal should be dismissed. As will usually be the case, the legal expenses insurance with which we are here concerned did not relate to a specific piece of litigation, and this distinguishes this case from one where a third party funds a particular claim and has a direct commercial interest in the outcome of that claim.

LORD JUSTICE BUTLER-SLOSS:
I also agree that this appeal should be dismissed.

Order: appeal dismissed with costs.


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