In 2012, numerous claims were brought under a Group Litigation Order (GLO) in respect of defective breast implants. 623 of these claims were brought against Transform Medical Group (CS) Limited (Transform), a company which operated medical clinics which supplied and fitted the implants.
Transform had product liability insurance cover for the period 31 March 2007 to 30 March 2011 with Travelers Insurance Co Ltd (Travelers), who funded Transform's defence under the GLO. By June 2014, limitations on Travelers' insurance cover had been disclosed to the claimants. As a result of the period of cover, the insurance only covered 197 of the claimants; the remaining 426 claimants were not covered. It was apparent at this stage that without insurance, Transform would be unlikely to be able to pay compensation or costs to successful uninsured claimants. Despite this the uninsured claimants continued under the GLO in the hope of obtaining a non-party costs order against Travelers in due course.
In 2015, Transform went into insolvent liquidation.
By August 2015, the insured claims were fully settled; Travelers paid a proportion of the damages and costs attributable to the insured claimants.
In March 2016, the uninsured claimants obtained a judgment in default against Transform. However, owing to Transform's insolvency, they were unable to make any recoveries.
The uninsured claimants proceeded to make an application under section 51 of the Supreme Court Act 1981 (SCA) for a non-party costs order to seek recovery of "common costs" from Travelers.
Prior to this decision, the test for making a non-party costs order under s.51 SCA was whether the case was exceptional, and whether the granting of a non-party costs order would be just and fair (the 'exceptionality' test).
The Supreme Court used this appeal as "an opportunity to review [the] developing jurisprudence" around the court's power to make costs orders against non-parties.
In his leading judgment, Lord Briggs suggested that the 'exceptionality' test lacked content, principle and precision and was therefore not useful. Instead, he suggested that when determining whether a non-party costs order should be made (especially in the context of liability insurers, and among other considerations including causation and asymmetry between the parties), it would be preferable for the court to apply the 'real defendant' test, and the 'intermeddling' test.
The 'real defendant' test
In circumstances where some part of the claim (including a claim for costs) is or may be outside the limits of insurance cover, Lord Briggs stated that the insured has a prima facie joint interest with the insurer in the outcome of the litigation.
In these cases, Lord Briggs suggested that it would be useful to use the 'real defendant' test – meaning that the court must be satisfied that the actions of the third party demonstrated that they took control of the litigation, thereby becoming "the real defendant".
The 'intermeddling' test
In circumstances where a claim lies outside the scope of cover, Lord Briggs suggested that the appropriate test is the historic 'intermeddling' test.
This requires the court to be satisfied that the third party got involved in the dispute when they had no interest in the matter and their involvement could not be justified.
Lord Briggs commented that the 'intermeddling' test would not be satisfied by showing that an insurer has taken control of the litigation. The insurer would need to go beyond its contractual obligations. Lord Sumption further commented that "cases in which a costs order may be made against a liability insurer on this basis are likely to be rare".
In this case, as the uninsured claimants were wholly uninsured, they could have "no real expectation, if successful, of being paid their costs by [Travelers]". As a result, the Supreme Court found that the 'intermeddling' issue was central.
It was held that Travelers had not engaged in unjustified intermeddling (or, to the extent there was any intermeddling, it had no causative consequences). It therefore allowed Travelers' appeal, meaning that Travelers was not liable for the uninsured claimants' costs.
This decision has provided some guidance in respect of non-party costs orders under s. 51 SCA. This is likely to be of increasing relevance in the future, given what Lord Briggs called the "endless development of novel ways of funding the ever-increasing cost of civil litigation... show[ing] 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".
In particular, it offers clarity on the approach which should be taken as to insurers' liability for non-party costs in cases involving partly insured and uninsured claims.
This case is a reminder to policyholders and insurers alike that, when considering litigation strategy, parties should be aware of the potential for adverse cost orders, and the (relatively high) bar set by the relevant test.