Costs Orders, discontinuance and credit hire

A recent case I had some involvement in, concerned the interesting scenario where a major insurance company told solicitors representing a claimant with a credit hire claim, that they were not the insurers of the defendant’s vehicle, for the purposes of the Road Traffic Act 1988. They then maintained this stance when the MIB queried their position.

After the issue of proceedings, and well after the expiry of the 3 year limitation period, the insurer then changed its mind, accepted it did have a potential liability under section 151, joined themselves to proceedings as a second defendant, and sought a declaration that they did not have a liability, as no notice of proceedings had been served upon them under section 152 of the Road Traffic Act 1988.

The claimant could be left with the cold comfort of his worthless judgment against the first defendant tortfeasor, devoid of the warmth of an insurer satisfying that judgment under section 151.

There was no answer to the lack of notice: none had been given. The claimants solicitors had accepted what they were told.

However, the claimant sought to discontinue the proceedings, and for leave to institute a second claim under rule 38.7 CPR against the same defendants, this time with the appropriate section 152 notice. The claimant also sought his costs against the insurer.

The principles governing the exercise of the court’s discretion on costs, in a case where a claimant discontinues, are set out in the case of Nelson’s Yard Management Limited and Others v Eziefula [2013] EWCA Civ 235 where Beatson LJ summarised the position as follows:

13. At the core of the submissions before the Recorder and his conclusion was the decision in the seven test cases heard by HHJ Waksman QC, sitting as a deputy High Court Judge, and reported sub nom Teasdale v HSBC Bank PLC [2010] EWHC 612 (QB), 4 Costs LR 543. In those cases the Deputy Judge reviewed a number of authorities including Re Walker Wingsail Systems PLC [2006] 1 WLR 2194, a decision of this court, Official Receiver v Doshi [2007] BPIR 1135, RBG Resources plc v Rastogi http://www.bailii.org/ew/cases/EWHC/Ch/2005/994.html[2005] EWHC 994 (Ch), Maini v Maini [2009] EWHC 3036 (Ch), RTZ Pension Property Trust v ARC Property Developments [1999] 1 All ER 532 and Far Out Productions v Unilever http://www.bailii.org/ew/cases/EWHC/Ch/2009/3484.html[2009] EWHC 3484 (Ch). He derived and stated eight principles from these cases.

14. There were appeals from two of the Teasdale decisions to this court. In the judgment given by Moore-Bick LJ (with whom Ward and Arden LJJ agreed) sub nom Brookes v HSBC Bank [2011] EWCA Civ 354 at [6] – [8] HHJ Waksman’s statement of the principles was approved and his formulation was stated to be a fair summary of the effect of the authorities. Moore-Bick LJ, (at [6]), however, stated that that the eight principles formulated by the Deputy Judge could be reduced to the following six principles:

“(1) when a claimant discontinues the proceedings, there is a presumption by reason of CPR 38.6 that the defendant should recover his costs; the burden is on the claimant to show a good reason for departing from that position;

(2) the fact that the claimant would or might well have succeeded at trial is not itself a sufficient reason for doing so;

(3) however, if it is plain that the claim would have failed, that is an additional factor in favour of applying the presumption;

(4) the mere fact that the claimant’s decision to discontinue may have been motivated by practical, pragmatic or financial reasons as opposed to a lack of confidence in the merits of the case will not suffice to displace the presumption;

(5) if the claimant is to succeed in displacing the presumption he will usually need to show a change of circumstances to which he has not himself contributed;

(6) however, no change in circumstances is likely to suffice unless it has been brought about by some form of unreasonable conduct on the part of the defendant which in all the circumstances provides a good reason for departing from the rule.” The debate before us primarily concerned the sixth principle. There is further guidance from this Court as to the approach to disapplying CPR Part 38.6(1) in Messih v MacMillan Williams [2010] EWCA Civ 844. I refer to this at [31]. But it is common ground between the parties that the principles set out in the Teasdale cases and in Brooks v HSBC constitute the correct approach for the court to adopt when dealing with the issue of costs on discontinuance.

15. It is also necessary to refer to CPR Part 44.3 which sets out the circumstances the court is to consider when making an order about costs, and the relationship between it and CPR 38.6. Moore-Bick LJ’s summary of the principles does not expressly refer to CPR Part 44.3 but his approval of HHJ Waksman’s formulation must have encompassed the Deputy Judge’s eighth principle. That is, that “the context for the Court’s mandatory consideration of all the circumstances under CPR 44.3 is the determination of whether there is a good reason to depart from the presumption imposed by CPR 38.6”.

16. CPR Part 44.3(4) provides that “in deciding what order (if any) to make about costs, the court must have regard to all the circumstances, including (a) the conduct of all the parties … (c) any admissible offer to settle made by a party which is drawn to the court’s attention”.

17. CPR Part 44.3(5) provides that “conduct” includes “(a) conduct before, as well as during, the proceedings, and in particular the extent to which the parties followed the Practice Direction (Pre-Action Conduct) or any relevant pre-action protocol; (b) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue; (c) the manner in which a party has pursued or defended his case or a particular allegation or issue.”

It is of course, right to note as well that since 1st April 2013 the overriding objective has been reformulated and the obligations of a professional litigant, such as a major insurer, were considered in the case of Gentry v Miller and UK Insurance [2016] EWCA Civ 141 where Vos LJ stated:

I should not leave this aspect of the case without commenting on what may seem a harsh decision. In my judgment, Mitchell and Denton represented a turning point in the need for litigation to be undertaken efficiently and at proportionate cost, and for the rules and orders of the court to be obeyed.  Professional litigants are particularly qualified to respect this change and must do so.  Allegations of fraud may in some cases excuse an insurer from taking steps to protect itself, but here this insurer missed every opportunity to do so.  It admitted liability before satisfying itself that the claim was genuine, perhaps because it mistakenly thought the claim was a small one.   That does not excuse the months of delay that then followed.  The insurer must in these circumstances face the consequences of its own actions.

The case fondly brought back memories of litigating in the pre-CPR days, when no quarter was sought or given in internecine interlocutory warfare before the District Judge.

But the District Judge in the instant case, had no doubt that the insurer had engaged in “litigation by ambush”, the change of heart on the section 151 liability was a “change in circumstance” attributable to unreasonable conduct on the part of the insurer, and awarded the claimant the costs of the discontinued action and granted permission to issue a second set of proceedings.

2 comments

  1. Hi Andrew,

    If the insurer was an ‘insurer in contract’ (and therefore presuming there were no indemnity issues), is there any relevance to the 152 notice as the insurer has a contractual obligatalon to indemnify their insured, regardless of RTA 1998?

    1. The insurer had denied their involvement, lock, stock and barrel, contending there was no applicable insurance policy. In any event, a prudent solicitor will always serve a section 152 notice, to avoid any risk of being caught between two stools, a little later on.

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