JOINT LIABILITY OF DEFENDANTS TO PAY COSTS: TRYING TO MAKE A SIMPLE THING MORE COMPLICATED: THE IMPORTANCE OF OBTAINING AFTER THE EVENT INSURANCE FOR EVERY PARTY TO AN ACTION

The judgment of  HHJ Keyser QC in Arag Plc v Jones & Anor [2020] EWHC 3484 (Comm) is, on the face of it, a technical issue about the right of an insurer to claim a contribution.  The key issue here, is, however why the solicitors  did not take out after the event insurance in the name of both parties to an action.  The solicitors obtained insurance only for one of two claimants. The uninsured claimant was held to be liable to contribute 50% to the insurer’s outlay towards the costs of the action.

THE FACTS

The first defendant, Mr Jones,  was a joint tenant of residential property. Together with his fellow tenant, Ms Gibson,  an action was brought against a landlord for disrepair.  The landlord counterclaimed. An insurance policy was taken out by the solicitors acting for them both against potential liability. However the ATE policy was only taken out in the name of Ms Gibson.

At trial Mr Jones and Ms Gibson were ordered to pay the landlord’s costs, of some £40,000.

 

THE POSITION OF THE CLAIMANT ATE INSURANCE

The insurers for Ms Gibson paid the costs claimed a contribution from Mr Jones of one half of the outlay.

THE ACTION

The judge rejected the argument that the insurer’s claim was brought under the Civil Liability (Contribution) Act 1978 or was subject to the limitation period of two years imposed by that Act.

  1. On seeing the papers two days before the commencement of the trial, I notified counsel of my preliminary view that the 1978 Act had nothing to do with the case and that the rights of contribution, if any, arose at common law. In the event, counsel did not seek to dissuade me from that view. In my judgment, the pleaded and agreed facts do give Ms Gibson a cause of action for a contribution from the defendant, but simply on the basis that they were joint debtors in respect of the costs liability and there was accordingly a common law right to contribution to the extent that Ms Gibson paid more than one half of the debt.

THE JUDGMENT ON THE DEFENDANT’S LIABILITY TO PAY THE CLAIMANT

The judge did not accept the argument made on behalf of Mr Jones that the insurance policy did not give the claimant insurer a right to a contribution. Mr Jones was ordered to pay 50% of the insurer’s outlay.

    1. With great respect to Mr Parsons, whose submissions showed much learning and more ingenuity, I regard his arguments on this point as evidencing a grasp of the wrong end of the stick. The correct analysis seems to me to be straightforward, as follows:
41.1 The effect of the Order and of the subsequent agreement as to Mr Francis’s costs was to impose on Ms Gibson and the defendant a joint and several liability to pay to Mr Francis £40,000 for his costs.
41.2 Clause 1(a) of the Policy insured Ms Gibson against liability to pay Mr Francis’s costs of the proceedings. This was an indemnity. In his oral submissions, Mr Parsons described this as an agreement to meet Mr Francis’s losses. That is not correct. A contract for insurance of a third party’s losses is liable to fail for lack of an insurable interest on the part of the insured. The Policy was one of insurance in respect of loss to be sustained by Ms Gibson, namely liability to Mr Francis for his costs.
41.3 The claimant performed its obligation to indemnify Ms Gibson by making payment to Mr Francis. But that payment was not some windfall to Mr Francis. It was a discharge of Ms Gibson’s liability; and that was the relevant benefit for the purpose of the Policy. The payment counts as a payment from her. The fact that it was provided by an insurer is by the by: it is, in the time-honoured expression, res inter alios acta.
41.4 Once this is understood, it can be seen that both of the rationales mentioned in Goff & Jones have a straightforward application.

41.4.1 The first rationale (against accumulating recoveries) applies because of the rule that one joint debtor who has discharged the entire debt has a common law claim for contribution in equal shares from the other joint debtors. Ms Gibson has paid the entire £40,000. She is therefore entitled to recover £20,000 from the defendant. As she made her payment by means of insurance, to permit her to recover and keep £20,000 from the defendant would permit her to accumulate recoveries (that is, both the discharge of her liability and a 50% contribution to the extent of that liability).

41.4.2 The second rationale (escaping the burden and taking the benefit of an insurance for which one has not paid) applies because (a) one is concerned with the enrichment of the defendant not that of Ms Gibson and (b) this entire trial proceeds on the footing that Ms Gibson had insurance but the defendant did not.

41.5 In summary: Ms Gibson discharged the entire costs liability and is therefore entitled to a contribution of one half from the defendant; and, because she discharged the costs liability by means of an indemnity from the claimant under the Policy, the claimant is entitled to be subrogated to her right to claim an indemnity.
Parties
    1. There is one technical matter to be mentioned. The claim has been brought in the name of ARAG plc, not in that of Ms Gibson. That is irregular, because there is no admission or evidence that Ms Gibson has assigned her cause of action to the claimant. The matter is dealt with as follows in MacGillivray on Insurance Law (14th edition) (I insert the references in the footnotes):

“24-003 The cause of action for damages remains in the insured, and the insurer subrogated to the insured’s rights requires the insured to bring the action: Esso Petroleum Co Ltd v Hall Russell & Co Ltd [1989] AC 643 at 663; Central Insurance Co Ltd v Seacalf Shipping Corp [1983] 2 Lloyd’s Rep. 25 at 30; MH Smith (Plant Hire) Ltd v DL Mainwaring [1986] 2 Lloyd’s Rep. 244 at 246, and see the cases cited in fn.25 to para.24-012, above. It remains the insured’s action: Wilson v Raffalovich (1881) 7 QBD 553 at 558; MH Smith (Plant Hire) Ltd v DL Mainwaring [1986] 2 Lloyd’s Rep. 244. By contrast, if the insured has made an express assignment of his rights to the insurer, the cause of action has vested in the insurer who can exercise in his own name the rights originally belonging to the insured: King v Victoria Insurance Co [1896] AC 250Cia Colombiana de Seguros v Pacific Steam Navigation Co [1965] 1 QB 101.”

(Cf. also Lord Napier and Ettrick v Hunter and others [1993] AC 713 at 732.)
    1. Mr Parsons told me that this irregularity had been noted by the defendant’s lawyers but that they had decided to take no point on it. That seems to me a very sensible approach. Nonetheless, it seems to me that it might be preferable if the position were regularised before judgment were entered.
Conclusion
  1. For the reasons set out above, Ms Gibson is entitled to a contribution from the defendant of one-half of the costs she paid to Mr Francis. The claimant as her insurer is entitled to bring that claim by subrogation. Subject to addressing the point raised in paragraphs 42 and 43 above, there will be judgment for £20,000.
NOTE
The original solicitors (who had represented Mr Jones and Ms Gibson) was a third party to the action.   The proceedings against it had been stayed pending the judgment between the claimant insurer and the defendant Mr Jones.