A very important case was decided by the Supreme Court at the tail end of last year, that of Travelers Insurance Company Ltd v XYZ  UKSC 48: Its effects are still being digested.
Its ramifications will apply to many consumer claims, where there is a lack of uniformity in the insurance cover.
In my view the decision represents both a welcome return to the search for principle and also a missed opportunity to deal with the conceptual problems at the heart of the non-party costs jurisdiction.
The essential facts were as follows:
The group litigation which has generated this appeal concerns the supply of defective silicone implants for use in breast surgery, manufactured by the French company Poly Implant Prothèse (“PIP”). One of the defendants, Transform Medical Group (CS) Ltd (“Transform”) operated medical clinics which supplied and fitted implants manufactured by PIP to customers in England. The appellant Travelers Insurance Co Ltd (“Travelers”) provided product liability insurance to Transform which covered liability for bodily injury (or property damage) occurring during the period of insurance, which ran from 31 March 2007 to 30 March 2011. Many of those implants ruptured, causing bodily injury (as defined), principally in the form of leakage of their contents. Of the 1,000 or so women claimants joining in the group litigation, some 623 of their claims were brought against Transform, which was one of a number of similar clinics joined as defendants in the litigation. Of the 623 claiming against Transform, some 197 were later identified as having *1919 suffered bodily injury from defective PIP implants during the period covered by Travelers’ insurance. Of the 426 remaining claimants against Transform, all of whose claims fell outside the cover provided by Travelers’ insurance, some 194 (labelled in the proceedings the “worried well”) had not yet suffered bodily injury from a rupture of their implants, but were exposed to a risk that they would do in the future. The remainder had suffered bodily injury from a rupture of their implants outside the period covered by Travelers’ insurance. Collectively, the 426 claimants within those two classes have been labelled the “uninsured claimants”. They are the respondents to this appeal.
It should be remembered, that unlike some jurisdictions there is no general obligation in England and Wales to confirm whether a defendant is insured in litigation. It will also be noted that inroads into this broad principle have been made over the years. The presence or absence of insurance in motor claims, is often a key consideration, with substantive remedies lying directly against a motor insurer. In the costs jurisdiction, there was and is still in a very limited category of cases, an obligation to provide notice of funding of the existence of an ATE policy. The time has surely come for a general revision of this principle: insurance or the lack of it, is key to the efficient resolution of disputes and not to be open about its existence or non existence, can lead to the misallocation of resources. This was graphically illustrated in this litigation, which proved a waste of time for many of the actors in it.
The significance of a lack of insurance cover, was key to the way the case was conducted:
The claimants’ legal team had from an early stage in the litigation been understandably concerned to discover, if they could, the nature and extent of Transform’s insurance cover, all the more so when in about mid-2013 they became aware that Transform might be in financial difficulties. Inconclusive discussions took place between the claimants’ legal team, the solicitors jointly retained by Transform and Travelers to conduct Transform’s defence, and between Transform, Travelers and those solicitors, about what if any disclosure might voluntarily be made. Eventually the claimants made an application against Transform for disclosure of information about its insurance position in July 2013, which was heard by Thirlwall J in late September and dismissed (subject to one exception) in her reserved judgment on 22 November 2013:  EWHC 3643 (QB). The exception was that she directed Transform to inform her, confidentially, as to whether it had the resources to fund its own defence up until trial. In the event however, the relevant limitations upon Transform’s cover from Travelers, namely the temporal limits and the exclusion of worried well claims, were voluntarily disclosed to the claimants by June 2014. It was by then apparent that, without insurance, Transform would be unlikely to have the resources to pay compensation or costs to successful uninsured claimants.
The judge was later to find that, had the claimants’ solicitors known from the outset about those limits on Transform’s insurance cover, the uninsured claimants would not have commenced or at least continued their claims as registered members of the claimants’ group *1921 under the GLO. But by June 2014 they had on a several-only basis participated in the cost of the prosecution of the common issues in the four test cases, upon which considerable outlay had been expended, including on the obtaining of vital expert evidence probative of the deficiencies in the quality of the PIP implants. They had done so on the basis of no win no fee contingency fee agreements, backed by after the event (“ATE”) insurance so that, although to that extent protected in their own pockets, the substantial recoveries (including success fees and ATE premium) which might be expected to be made after a successful claim against an insured defendant were threatened with being frustrated if the uninsured claimants’ only recourse lay against the financially distressed Transform (which, incidentally, went into insolvent administration a year later).
An interesting point arose, which could be described as the costs tail wagging the litigation dog.
It might be asked therefore why, after the disclosure of the limitations on Transform’s insurance cover was made in June 2014, the uninsured claimants against Transform continued as members of the GLO, or the group as a whole continued to pursue the uninsured test claims C and D. The answer, as was expressly confirmed by Mr Hugh Preston QC on behalf of the respondents in response to an inquiry from the court during the hearing of this appeal, was that an important (although not sole) reason why they did so was in the hope of obtaining a non-party costs order against Travelers in due course, if successful in their claims against Transform.
The insurers may not have had a direct interest in the uninsured claims, in the sense of being on cover for them, but they had a practical and tactical interest, and also a costs obligation
Travelers was in the meantime funding the whole of Transform’s defence costs, consisting mainly of the costs of defending all four sample claims in relation to the common issues, notwithstanding that claims C and D were uninsured. This is because, in relation to issues common to insured and uninsured claims, it is settled law that insurers may not seek to apportion their contractual liability to pay defence costs: see New Zealand Forest Products Ltd v New Zealand Insurance Co Ltd  1 WLR 1237 (PC) approved by this court in International Energy Group Ltd v Zurich Assurance plc UK Branch  AC 509, paras 36–38. That much is common ground.
The judge at first instance had made a non party costs order.
The Supreme Court considered the basis upon which the judge had exercised her discretion:
Her decision to make a non-party costs order against Travelers was, in summary, motivated by the following analysis. First, she took the view that the uninsured claims were entirely separate and distinct from the insured claims, so that Travelers had no business involving itself in the uninsured claims at all, either directly or through jointly retained solicitors.
Secondly, she was powerfully influenced by her conclusion (which is not open to challenge in this court, having been affirmed by the Court of Appeal) that if early disclosure of the limitations on Travelers’ insurance had been made, the uninsured claimants would not have pursued their claims, so that the costs which they then incurred on a several-only basis under the terms of the GLO for which they had no effective recourse, outside s 51, against anyone, would not have been incurred at all. She concluded that the decision not to make early disclosure had been, at least, influenced by a perception on the part of the jointly retained solicitors that non-disclosure would serve Travelers’ rather than Transform’s interests, and that the conflict in that regard had been overlooked.
Thirdly, the judge was clearly much affected by her perception that there was an asymmetry or lack of reciprocity in costs risk as between the uninsured claimants and Travelers. If the uninsured claims were successfully defended (at Travelers’ expense) then Travelers would have a full costs recovery against, inter alia, the uninsured claimants for their several shares of that liability. By contrast, if the uninsured claimants were successful against Transform, they would have no recourse at all against Travelers for their costs and, because of Transform’s financial plight, no effective recourse against Transform either. Looking at it from Travelers’ perspective, the presence of the uninsured claimants within the GLO reduced their costs exposure of failure on the common issues by reference to the number of the uninsured claimants against Transform expressed as a fraction of all the claimants against Transform, whereas Travelers would suffer no corresponding reduction in their costs recovery if successful. By contrast, if only insured claimants had proceeded against Transform, Travelers’ costs risk would have been for the whole of the common costs, and there would have been reciprocity.
Finally, the judge regarded Travelers’ participation in questions about whether to make offers of settlement or admissions to the uninsured claimants as further factors strongly supportive of a *1924 conclusion that Travelers had participated in the uninsured claims to an extent sufficient to incur a non-party costs liability.
It is interesting to note that the analysis by the judge could be seen as a rational exercise of a broad discretion to do what was “just” between the parties; the actions of Travelers had plainly had a direct and tangible effect on the conduct of the litigation. But matters did not prove so simple, if not simplistic, in the Supreme Court.
Against that backdrop, the Supreme Court (Lord Briggs) began its considerations. At the heart of the considerations was the search for principle, with the Supreme Court noting the historical difficulty in establishing clear principles in the context of a wide discretion.
It is evident (from p. 981B in the Aidan Shipping case), and obviously right, that it is a pre-requisite for the making of a costs order against a non-party that the person sought to be made liable has some relevant connection with the proceedings in question. But the passage of time, and the endless development of novel ways of funding the ever-increasing cost of civil litigation, has shown that non-parties may become connected with proceedings in a wide variety of ways, usually providing funding and/or exercising some degree of control or providing assistance. They range from the “pure” funder who contributes to a litigation fund out of sympathy or charity, with no financial or other interest in the outcome, through the company shareholder who funds the company’s litigation to preserve the value of his shareholding, or the director who controls the conduct of the litigation pursuant to a fiduciary duty to the company, to the speculator who buys into a piece of litigation with a view to making a profit from a share in the damages recovered. Liability insurers occupy a particular, well-populated, space on that broad spectrum.
It is therefore not surprising that the appellate courts have struggled to identify principles applicable across the board to the exercise of the jurisdiction to make a costs order against a non-party, save at the very highest level of generality, although some attempt has been made, for example by Lord Brown of Eaton-under-Heywood giving the opinion of the Judicial Committee of the Privy Council in Dymocks Franchise Systems (NSW) Pty Ltd v Todd  1 WLR 2807, paras 25–29, approved as an authoritative statement of English law by the Court of Appeal in Deutsche Bank AG v Sebastian Holdings Inc  4 WLR 17 , para 62. But neither was a case about insurers, and the conduct of the non-party relied upon in the Dymocks case for the making against it of a costs order consisted in the main of self-interested funding rather than, as here, conduct of the relevant litigation.
Lord Briggs emphasised the need for principle, but ducked the really interesting point as to whether the Supreme Court should undertake a comprehensive reassessment of principle, despite also deprecating the notion that exceptionality and justice were all the tools that t he court required in the conceptual armoury:
It is not the purpose of this judgment comprehensively to reassess those generally applicable principles. It may be (and I am reluctantly prepared to assume but without deciding) that they really are limited, as the Court of Appeal thought in the present case, to the twin considerations of exceptionality and justice. The same general conclusion is to be found in the Deutsche Bank case. That said, I share all Lord Reed’s concerns as to the lack of content, principle or precision in the concept of exceptionality as a useful test. Rather, this is an occasion to consider, in more granular detail, the principles which ought to apply to that distinct part of the broad spectrum of non-parties occupied by liability insurers. While doing so it will be appropriate to make some brief observations about the impact of those general principles in the liability insurance context, and in particular about the role played by the presence or absence of a causative link between the conduct of the non-party relied upon and the costs which the applicants incurred which they seek to recover against the non-party under s 51 .
Instead what the Supreme Court embarked upon, was a reassessment of principle, in the particular context of liability insurers and their potential non party costs liabilities.
I shall consider the “granular” analysis of the position of liability insurers below.
But it follows that this case is principally useful for setting general principles in one particular context, that of the liability insurer, whom it is sought to make directly liable for costs, rather than at one remove, through satisfying a judgment against the insured.
Having said that, the same considerations would dictate a similarly principled approach should be taken to other contexts, not least to ensure legal certainty.
Returning to the position of liability insurers, the Supreme Court established the context.
Liability insurance serves an obvious public interest. It protects those incurring liability from financial ruin. More importantly, it serves to minimise the risk that persons injured by the insured will go uncompensated as a result of the insured’s lack of means. Unlike ATE insurance it is not primarily aimed at making a profit by assisting in the funding of litigation but, where liability becomes the subject of litigation, the insurance typically contains provision under which the insurer is obliged to fund the insured’s defence and, as an inevitable concomitant, entitled to exercise substantial (although not always complete) control over the conduct of its insured’s defence. The liability insurer is therefore typically an involuntary rather than voluntary funder of litigation, and the control which the insurer habitually exercises over the conduct of its insured’s defence arises from a pre-existing contractual entitlement, rather than from a freely made decision to intermeddle.
Where a liability for which the insurance policy provides cover becomes the subject of litigation, there are long-settled principles of insurance law which, in addition to the contractual terms of the policy itself, serve to regulate the proper participation of the insurer in the funding and, in particular, conduct and control of the insured’s case. They long pre-date the recognition of the non-party costs jurisdiction. They were summarised by Sir Wilfred Greene MR in Groom v Crocker  1 KB 194 , 203, as follows:
“The right given to the insurers is to have control of proceedings in which they and the assured have a common interest – the assured because he is the defendant and the insurers because they are contractually bound to indemnify him. Each is interested in seeing that any judgment to be recovered against the assured shall be for as small a sum as possible. It is the assured upon whom the burden of the judgment will fall if the insurers are insolvent. The effect of the provisions in question is, I think, to give to the insurers the right to decide upon the proper tactics to pursue in the conduct of the action, provided that they do so in what they bona fide consider to be the common interest of themselves and their assured. But the insurers are in my opinion clearly not entitled to allow their judgment as to the best tactics to pursue to be influenced by the desire to obtain for themselves some advantage altogether outside the litigation in question with which the assured has no concern.”
The combination of the clear public interest in the provision of liability insurance and the fact that, within the above confines of contractual propriety, an insurer commits itself to the funding and control of its insured’s litigation long before the dispute in question is even known about, provides a firm basis for concluding that (in the absence of engagement by the Rules Committee) the appellate courts ought to be as clear and detailed as they properly can in setting out the principles applicable to the incurring of non-party costs liability by insurers. It would be unsatisfactory if the insurer’s exposure to that liability, ex hypothesi lying outside the confines of the policy, were to depend purely upon the uncontrolled perception of a particular judge about the general justice of the matter, controlled only by a requirement to show exceptionality, in the general sense that the case in which the question has arisen is unusual, measured against the general run of civil litigation.
Lord Briggs also observed the limited scope for non party costs orders in an application against liability insurers. It is an interesting passage not least because it is the first time I am aware of in reported authority of a judge describing a claim as “vanilla”:
Cases in which any question of the non-party liability of the liability insurer under s 51 arises may be said, almost by definition, to be unusual. This is because, in the vanilla case of a single claim within the scope of the cover provided by the policy, the insurer will be contractually liable to the insured to indemnify it in respect of its costs liability to the successful claimant, who will make a full costs recovery by that indirect route, if necessary (where the insured is insolvent) with the assistance provided by the Third Parties (Rights against Insurers) Act 2010 , replacing the earlier Act of the same name in 1930 (“the 1930 Act”). To treat every case as exceptional where, for any reason, the claimant lacks that indirect means of costs recovery exposes the liability insurer to the unpredictable outcome of the judge’s perception of justice in every case where a s 51 application is likely to need to be made. The court should therefore be disposed to identify within the requirement for exceptionality something much more focused than that the facts of the particular case are unusual.
An important decision prior to the instant case, was that of Chapman which for many years has been invoked when consideration of making a non party costs order arose. Chapman was decided in concert with another important case that of Murphy which may be the better known of the two decisions. Both can be viewed as early attempts in the 1990s to bring principles together in this area of law:
Prior to the present case, the reported decisions about non-party costs applications against liability insurers do disclose a sustained attempt to provide some measure of guiding principle for the exercise of this wide jurisdiction. In TGA Chapman Ltd v Christopher  1 WLR 12 the s 51 application was made because the cover was limited under the defendant’s liability policy and insufficient to pay all the damages, let alone any part of the costs, and the defendant was not worth powder and shot. Nonetheless the claim fell squarely within the cover provided by the policy. It was, in the argot of the present case, an insured claim, and could have been pursued (subject to the limit of cover) directly against the insurer under the 1930 Act if the insurer had not put the defendant in funds (up to the policy limit) with which to settle it.
Drawing upon general principles about the s 51 jurisdiction Phillips LJ identified two separate bases upon which a liability insurer might become exposed to non-party costs liability. The first basis (by no means limited to insurers) may be labelled intermeddling. Repeating dicta of his own in Murphy v Young & Co’s Brewery plc  1 WLR 1591 , 1601, he said at p. 16:
“In Giles v Thompson  1 AC 142 , 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 *1930 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 s 51 that the meddler pay any costs attributable to his intermeddling.”
The second, which may be labelled the real defendant test, arose from the combination of the insurer’s interest in the outcome of the proceedings, its contractual obligation to indemnify the defendant for its costs liability and its exercise of control over the conduct of the defence. In a case where there was no limit of cover which excluded such a contractual obligation in relation to costs he regarded a s 51 order as a convenient time and cost-saving shortcut to recovery against the insurer of an insolvent defendant under the 1930 Act. He regarded a case where a limit of cover excluded the insurer’s contractual liability for costs, as it did in that case, as a “more complex” example of the second type, calling for a more nuanced approach.
The claimant company relied upon five features of the case which justified a s 51 order, namely that:
“(1) the insurers determined that the claim would be fought; (2) the insurers funded the defence of the claim; (3) the insurers had the conduct of the litigation; (4) the insurers fought the claim exclusively to defend their own interests; (5) the defence failed in its entirety.”
The Court of Appeal agreed. Much the most important consideration, for both purposes, was that the claim had been funded and defended by the insurers purely in their own interests, regardless of the interests of the assured defendant, who had been entirely without means from start to finish, and who would have been content to settle the case at the outset rather than contest it. The insurers were regarded as the real defendants in all but name. In passing Phillips LJ rejected the submission that exceptionality was to be measured by comparison with other insurance cases rather than the generality of cases, and the argument that an insurer who stayed within the bounds of his rights and obligations under the policy should never be exposed to liability beyond the limit of cover by means of a s 51 application.
In Citibank NA v Excess Insurance Co Ltd  Lloyd’s Rep IR 122 , the s 51 application was prompted by the reporting of the Chapman case, and decided by Thomas J (as he then was) specifically *1931 upon the basis that the continued defence of the quantum of the claim after judgment on liability had been conducted by the insurers solely in their own interests, after the insured’s interest in protecting its reputation had been terminated by the adverse judgment on liability. It was another case in which the claim fell within the cover, but the policy limit left the insured’s costs liability uninsured.
Thomas J said, at p. 131:
“The decision in Chapman has laid down clear principles that a court can apply. If the circumstances are such that the application for a costs order falls within those principles, then it should follow that there should be a costs order under s 51 ; if they do not, they should not. To my mind, the principles have been formulated in such a way that the cases that fall within them will be exceptional across the spectrum of litigation and thus the primary approach of the court should be to consider whether the principles set out have been satisfied.”
The principles to which Thomas J was particularly referring are those features of the Chapman case numbered (1), (3) and (4) in the above summary: namely that the insurers decided that the claim should be fought, conducted the defence, and did so motivated entirely by their own interests. They have since come to be known (and were referred to in submissions during this appeal) as the Chapman principles.
The correctness of the decisions in Chapman and Murphy have now received endorsement at the highest level. Lord Briggs noted:
In my view the courts in the Chapman line of cases were right to seek to identify clear and reasonably detailed principles, by way of guidelines rather than rigid rules, sufficient to enable liability insurers to know in advance what kind of conduct would, and what would not, be likely to attract non-party liability for the costs of successful claimants against their insured defendants, in excess of any relevant policy limits. It may be that Thomas J went a little too far towards elevating the Chapman principles into rigid conditions rather than guidelines, turning what was designed to be a good servant into a poor master. But the underlying perception that a loose requirement for exceptionality was an insufficient protection from exposure to a particular judge’s after the event perception of the just result was correct, essentially for the public policy reasons identified in para 32 above.
Interestingly however, the instant case was not caught by the “real party” principle. Instead Lord Briggs channeled the principle of “intermeddling” as the more appropriate juridical base for considering and disposing of the appeal.
I also consider that the two bases under which an insurer might become liable to a non-party costs order identified in the Chapman case, namely by intermeddling or becoming the real defendant, do represent a principled approach to the engagement of this jurisdiction against liability insurers, which is much preferable to the quest for factors which may satisfy an elusive concept of exceptionality. Where the claim itself falls within the scope of the insurance, whether or not subject to limits of cover, the real defendant test will usually be the appropriate one to apply.
Furthermore the underlying purpose of the Chapman principles, namely to identify in a limit of cover situation the cases where an insurer has become the real defendant in all but name is also correct. As Lord Reed demonstrates, this has been the animating principle behind the jurisdiction of the Scottish courts to make costs orders against non-parties for far longer than the parallel jurisdiction has been recognised in England and Wales, at least following the Judicature Acts. The Chapman line of cases make it clear that this is what the principles which they enunciate are designed to reveal.
But I am not satisfied that the Chapman principles really assist in relation to a case, such as the present, where the costs sought to be recovered against the insurer arise in the successful conduct against the insured defendant of a claim which lies outside the scope of the cover provided by the insurer: i.e. an uninsured claim. In such a case it is the intermeddling principle which falls to be applied. This is a principle derived from the English law about maintenance and champerty, as Phillips LJ acknowledged in the Chapman case, and which has no equivalent in Scotland, as Lord Reed explains. Its starting assumption is that non-parties usually, although not invariably, have no legitimate interest in becoming involved in the litigation of others. It does not render involvement of any kind objectionable, but only involvement which is (in old-fashioned language) wanton and officious, for which the non-party cannot demonstrate some justification or excuse.
This basis for the costs liability of the non-party does not necessarily depend upon showing that it has taken control of the litigation, or done anything approaching becoming the real defendant in it. Nor is there any fixed benchmark which will establish whether involvement has become a form of intermeddling. In every case the nature and extent of the non-party’s involvement will have to be measured against the alleged justification or excuse for it. In sharp contrast with the real defendant test, the question whether the non-party has become involved under a framework of contractual obligation is likely to be of primary relevance. It may even be decisive against liability, especially where the relevant contract is of a type which is recognised and supported by public policy, such as liability insurance. If the non-party has not gone beyond the confines of those contractual obligations and attendant rights in framing its involvement, as explained in Groom v Crocker , liability as an intermeddler may be very hard to establish.
Travelers represents a return to principle. In this sense, the non-party costs jurisdiction is moving away from a slippery-slidey, timey-wimey focus on what is “just” in the circumstances of the individual case, to a set of threshold requirements and a structured exercise of discretion. This is to be welcomed because it makes it easier for lawyers to predict the outcome of the case. That in turn will avoid the misallocation of legal and judicial resources, which might otherwise be invoked to “have a go” at obtaining an order.
The danger is that the jurisdiction might become too rigid or formulaic, or indeed too complex. Costs law is not public law after all, with its fine distinctions between void and voidable orders, and the “theory of the second actor”. Nonetheless Travelers can be viewed as yet another instance of the Supreme Court redirecting an area of law away from sweeping propositions and back to the narrower channels of principle.