[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Travelers Insurance Company Ltd v XYZ [2018] EWCA Civ 1099 (17 May 2018) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2018/1099.html Cite as: [2018] EWCA Civ 1099

[New search] [Printable RTF version] [Help]

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
LADY JUSTICE THIRLWALL DBE

[2017] EWHC 287 (QB)

		Royal Courts of Justice Strand, London, WC2A 2LL
		17/05/2018

Lord Justice Lewison:

1. The issue raised on this appeal is the liability for costs arising out of litigation concerning the supply of defective implants for use in breast surgery, which had been manufactured by PIP. The claims were made in group litigation under a Group Litigation Order (a "GLO") made on 17 April 2012. About 1,000 claimants joined the GLO. 623 of those claims were brought against Transform Medical Group (CS) Ltd, which was a party to the GLO amongst a number of other defendants. Transform had insurance cover placed with Travelers Insurance Co Ltd in relation to 197 claims; but was uninsured in respect of 426 claims made against it. Many of the claimants in the latter category ("the uninsured claimants") fell into the category of the "worried well" whose implants had not in fact failed. Others in that category had causes of action which fell outside the period covered by the insurance. The remainder of the 1,000 claims were brought against the other defendants. The litigation was managed by Thirlwall J. In 2013 she made an order for the trial of preliminary issues, all relating to the quality of the implants, in four sample cases. Transform was the defendant in all four sample cases. Two of the four sample cases were uninsured claims, although that was not known to the claimants. Under the terms of the GLO costs incurred in dealing with issues common to all claims were to be shared equally between all claimants on the GLO register. That would have included both insured claimants and uninsured claimants. However, their liability for and entitlement to costs was expressly stated to be several rather than joint. In anticipation of the trial of those issues expert evidence was prepared and served in April 2014. That evidence was likely to lead to the conclusion that the implants were not of satisfactory quality.
2. In the light of the expert evidence a settlement meeting took place in June 2015; but at the end of that month Transform entered insolvent administration. The insured claims were settled by an agreement made in August 2015. Travelers paid an agreed proportion of the damages and costs attributable to those insured claims. Those costs were the proportion of the common costs attributable to the insured claims calculated by dividing the amount of the costs in question by the number of insured claims relative to the total number of claims on the register. Thus Travelers paid approximately 20 per cent of the common costs. The uninsured claimants have incurred very little by way of their individual costs. The costs for which they are potentially liable under the costs-sharing terms of the GLO are their proportion of the common costs incurred in progressing the four sample cases. In March 2016 the uninsured claimants entered judgment in default against Transform. In principle Transform are liable for approximately 42 per cent of the costs (the ratio of the uninsured claims to the total number of claims on the register). The uninsured claimants have not recovered anything, either by way of damages or costs. Because Transform is insolvent they are unlikely to do so.
3. In those circumstances the uninsured claimants applied to the court for an order that Travelers pay their costs of the action. It is important to appreciate that the application relates only to costs: the uninsured claimants are not asking for any damages or other compensation. Thirlwall LJ (as she had by then become) made such an order on 24 January 2017 and, with the permission of Kitchin LJ, Travelers now appeals.
4. The discretion to order a third party to pay costs is given by section 51 of the Senior Courts Act 1981. The jurisdiction to make such an order was first recognised by the House of Lords in Aiden Shipping Co Ltd v Interbulk Ltd [1986] AC 965. That case concerned two related applications for remission of awards made in two separate but related arbitrations. The applications were heard together and the judge made an order (upheld by the House) requiring one of the parties to one of the two applications to pay the costs of a party to the other application. In the course of his speech Lord Goff said at 980:

"If two separate sets of proceedings are heard together, because they have common features, it may be a matter of pure chance whether the expense of presenting an argument or evidence relevant to the common feature falls within one or other of the two sets of proceedings. Sometimes, indeed, it may be very difficult to attribute costs to one set of proceedings rather than the other. It is surely consistent with the interests of justice that, in such a case, the court's jurisdiction to make a global order for costs relating to both sets of proceedings should not be fettered by the imposition of an implied limitation upon that jurisdiction."

5. He continued at 981:

"Courts of first instance are, I believe, well capable of exercising their discretion under the statute in accordance with reason and justice."

6. In the recent decision of this court in Deutsche Bank AG v Sebastian Holdings Inc [2016] EWCA Civ 23, [2016] 4 WLR 17 it was held that although the courts have given guidance from time to time, none of it is immutable. On an application of this kind the court is not concerned with legal rights and obligations but with a broad discretion which it will seek to exercise in a manner that will do justice. The only immutable principle is that the discretion must be exercised justly. Deutsche Bank AG at [50] and [62]. It also follows that previous cases in which judges have or have not exercised their discretion in different ways cannot be regarded as laying down prescriptive rules: Deutsche Bank AG at [62]. As Millett LJ said in Jaggard v Sawyer [1995] 1 WLR 269, 288 (in a very different context):

"Reported cases are merely illustrations of circumstances in which particular judges have exercised their discretion…Since they are all cases on the exercise of a discretion, none of them is a binding authority on how the discretion should be exercised. The most that any of them can demonstrate is that in similar circumstances it would not be wrong to exercise the discretion in the same way. But it does not follow that it would be wrong to exercise it differently."

7. Although, on the face of it, the discretion is a very wide one, Mr Philipps QC on behalf of Travelers says that there are principles established by the case law which regulate the circumstances in which costs may be awarded against an insurer. He says that the judge ought to have applied those principles and that her failure to do so was a fundamental error of principle which vitiated the exercise of her discretion.
8. These principles, says Mr Philipps, derive from a series of cases. They are: TGA Chapman Ltd v Christopher [1998] 1 WLR 12; Citibank NA v Excess Insurance Co Ltd [1999] 1 Lloyd's Rep IR 122; Cormack v Excess Insurance Co Ltd [2002] Lloyd's Rep IR 398; Palmer v Palmer [2008] EWCA Civ 46, [2008] Lloyd's Rep IR 535 and Legg v Sterte Garage Ltd [2016] EWCA Civ 97, [2016] Lloyd's Rep IR 390.
9. The principles are, according to Mr Philipps, that a liability insurer who funds an unsuccessful defence by its insured will only be liable under section 51 if the evidence establishes that the insurer controlled the litigation in its own interest, and without paying appropriate regard to any inconsistent or contrary interest of its insured. In such a case it is appropriate to regard the insurer as the real party such that an order under section 51 can properly be made. If this criterion is not established, then no order under section 51 should be made.
10. In the present case Travelers were bound by the terms of the policy to pay the costs of defending the insured claims in which, as liability insurer, they had an obvious commercial interest. Those costs included the costs of defending all the common issues which affected both the insured and the uninsured claims. It was not open to Travelers to apportion those costs as between the insured and the uninsured claims. In defending the common issues Transform and Travelers gave a joint retainer to BLM as their joint solicitors; and Transform was closely involved in all the decision making. The operation of the joint retainer appropriately balanced the interests of insured and insurer. Thus it cannot be said that Travelers overstepped the mark. They are therefore entitled to insist on their rights under the policy, which do not encompass liability for the uninsured claims. Since the incidence of costs, so far as the uninsured claimants' recovery is concerned, is governed by the terms of the GLO and is a several entitlement, there can be no injustice in leaving their share of the common costs to lie where it falls.
11. There is, as the judge recognised, an obvious asymmetry in Travelers' position. If Transform had succeeded on the preliminary issues then all claimants (whether insured or uninsured) would have been liable equally to contribute towards Transform's costs which, ultimately, would have been to Travelers' advantage. But failure on those very same issues has the result, if Travelers are correct, that it is ultimately liable for only approximately 32 per cent of the claimants' costs. In addition, as the judge also recognised, there is a large element of happenstance in Travelers' position. The costs of defending the preliminary issues, for both claimants and defendants, were the same whether there had been 197 claims or 623. Had there only been 197 claims (all insured) Travelers would have been liable to indemnify Transform against all the claimants' costs of the preliminary issues. But because 426 uninsured claimants joined the register, if Travelers are right they have fortuitously escaped liability for approximately 68 per cent of those costs, even though the addition of those uninsured claimants had no effect on the costs at all.
12. My instinctive reaction is that this result accords neither with reason nor justice given the probably unique circumstances of this case. So the question for me is: are we bound by authority to accept Travelers' argument?
13. Chapman was a case of negligence committed by a man with no assets. He was insured up to a limit of £1 million. Insurers conducted his defence. The claimants succeeded in obtaining an award which exceeded the cover limit, and then applied for an order that insurers should pay their costs. At 20 Phillips LJ set out the basis on which the application was made as follows:

"The features relied upon by the plaintiffs to justify seeking a costs order against the insurers include the following: (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."

14. He did not (at least explicitly) hold that these were conditions that had to be fulfilled. They were no more than the factors on which the claimants relied; and Phillips LJ was satisfied that all five were present. The fourth factor had been challenged, but Phillips LJ held that the insurers had fought the claim exclusively in their own interests because they knew that the defendant had no assets. Insurers advanced a number of other arguments, all of which were rejected. Two of them are pertinent in this case. The first was the argument that insurers' contractual liability was capped, and that it would be unjust for them to shoulder a liability in excess of the cap. Rejecting that argument, Phillips LJ said at 22:

"As to the insurer's argument that it is inherently unjust that they should be exposed to a total liability that exceeds the policy limit, I do not agree. Where insurers are contractually liable to indemnify an impecunious defendant in respect of his liability in costs, this can constitute good reason for an order under section 51 that the insurers pay those costs. The effect of the policy limit in this case means that this reason is absent. It does not follow, however, that no costs order should be made against the insurers. To make such an order is not to rewrite the policy. It is to impose on underwriters a liability which is independent of the policy. The grounds advanced by the plaintiffs for imposing such liability do not turn on the terms of the policy, but on the action that underwriters have chosen to take pursuant to those terms."

15. In our case Travelers were contractually liable to indemnify Transform against its costs of the preliminary issues; so that fact can constitute good reason for an order under section 51.
16. The second argument was that insurers who have legitimate reasons for defending a claim should not have to fear additional orders for costs if the defence fails. Rejecting that argument, Phillips LJ said:

"In my judgment this argument turns the relevant principle on its head. That principle is that costs should normally follow the event."

17. In the result insurers were ordered to pay the costs. As Colinvaux and Merkin on Insurance Contract Law observe at para B-0929:

"It was pointed out that, had the defence succeeded, the insurers would have recovered their costs from the third party, so that reciprocity was appropriate."

18. That observation applies equally to this case.
19. Citibank was a decision of Thomas J. It was another case of an insurance policy subject to a limit on cover which was insufficient to meet the costs awarded against the insured. Thomas J decided that it was not appropriate to order the insurers to pay costs up to the date of the judgment on liability, but that it was appropriate to order them to pay costs thereafter. The application was based on the four factors identified in Chapman. Thomas J approached his decision on the basis that where an insurance policy contained no limit on cover, insurers would pay the claimant's costs of an unsuccessful defence. He went on to say at 131:

"The type of case where the question of a costs order under s. 51 arises in the context of liability insurance is likely to be a rare one; it is likely to be confined to cases which (1) involve the class of liability policy which contains a limit and (2) which involve circumstances where, either because the assured has no assets or the claim is thought to be well within the policy limit, the litigation is conducted and controlled by the insurers; in circumstances other than these, the assured will be closely involved in the joint direction of the litigation and the making of the decisions as he will wish to protect his real interests."

20. He concluded:

"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."

21. In my judgment, particularly in the light of Deutsche Bank AG, that observation is too prescriptive. Nor do I consider that Thomas J can have had in mind the highly unusual (if not unique) circumstances of this case. To the contrary: he said in terms that an order under section 51 would be likely to be confined to cases which involve a liability policy which contains a limit. That is not the position in this case.
22. Cormack was a case of professional negligence where again the total award of damages and costs exceeded the limit of cover. The claimants were unaware of the cover limit until very late in the proceedings. The judge exercised his discretion against an award of costs against the insurers; and the claimant appealed. The question for this court, therefore, was whether the judge's exercise of discretion was wrong: not whether it was right. The argument for the claimants was that a maintainer of unsuccessful litigation, particularly one who has an interest in its outcome, should normally pay the costs of the adverse successful party. Commenting on that argument Auld LJ said at 403:

"However, the authorities and passages from the judgments on which Mr Kaye relied for those propositions indicate only that they may, depending on the circumstances, be relevant and justify such an outcome, not that they necessarily do."

23. It is noteworthy that Auld LJ accepted that it might be justified to order costs to be paid by a maintainer of litigation who has an interest in its outcome. All that he was rejecting was the proposition that those facts necessarily justified such an order. In formulating the correct test, Auld LJ said at 404:

"… the undoubted discretion to order a non-party to pay costs should only be exercised where, in the view of the judge, the circumstances of the case are sufficiently exceptional to warrant it."

24. Having considered the authorities Auld LJ said at 405:

"I consider that, in so expressing himself, the deputy judge applied the correct test and, on the material before him, was entitled to exercise his discretion in the way he did."

25. What he did not say was that if the judge had exercised his discretion differently he would have been wrong. As he himself said at 406:

"It must always be remembered that the test of exceptionality is a servant to that of reason and justice and that both guide the exercise of a discretionary function. I should add that the fact that the insurer may have a contractual entitlement, as between itself and the insured, to do what it does, does not necessarily govern the court's attitude as to what it has chosen to do pursuant to that entitlement"

26. Palmer was a personal injury case in which one of the defendants was the manufacturer of a safety device that had failed. It was insured but the policy had a cover limit. The insured told insurers at an early stage that it could not meet the claim. Insurers contested the claim based on advice that there was a good defence. The insured was involved in the decision-making process throughout; and approved of the action taken on its behalf. Judgment was given for the claimant and quantum would exceed the cover limit. The judge awarded costs against the insurer. Insurers appealed on the ground that they had done no more than they were entitled to do under the policy; that the defence was for the joint benefit of themselves and the insured; and that the insured would have had cause for complaint if they had not defended. Rimer LJ said at [26] that the most relevant question was:

"whether [the insurer] was motivated either exclusively, or at least predominantly, by a consideration of its own interest in the manner in which it conducted the defence of the litigation."

27. In considering the facts Rimer LJ concluded that the defendant's desire to defend the case was "commercially irresponsible"; and that if insurers had considered the defendant's commercial interests it would have realised that. On the facts the judge was entitled to answer that question in the affirmative, so the costs order stood.
28. The final case in this line upon which Mr Philipps relied is Legg. That was a case of pollution. The alleged polluter was covered by insurance but only if the contamination was caused by a sudden identifiable incident. The claim initially made that allegation, but it was subsequently amended to include a claim that the pollution had been caused by a gradual seepage of diesel. Insurers defended the claim until the amendment but then withdrew, thinking (wrongly) that the initial way of putting the case had been abandoned. The claimants obtained judgment in default and an order for costs which the insured could not meet. The judge awarded costs against the insurers. In answering the question whether insurers had acted predominantly in their own interest in defending the claim David Richards LJ observed at [52]:

"The only reason for the conduct of the defence by the insurers, and their only interest in it, was to avoid a claim falling within the cover provided by the policy."

29. In this case, too, Travelers' interest in defending the preliminary issues was to avoid a claim falling within the cover provided by the policy. David Richards LJ's ultimate conclusion at [56] was:

"In order to challenge successfully the exercise by the judge of his discretion to make an order for costs against the insurers as a non- party, the insurers must show that the judge had regard to irrelevant considerations or failed to take into account relevant considerations or reached a decision which was not justified on the material before him, having regard to the breadth of the discretion to be exercised by him. In my judgment, the insurers are unable to demonstrate that the judge's exercise of his discretion was flawed in any way."

30. I do not consider that these cases, with the possible exception of Citibank, lay down a series of conditions which must be fulfilled before a costs order can be made against insurers, such that if they are not fulfilled an exercise of discretion against insurers must be wrong. To the extent that Citibank does purport to do so, we are not bound by it and I consider that it was wrong. I do not question the exercise of discretion in that case: but that is what it was – an exercise of discretion.
31. It has, of course, often been said that an order under section 51 is to be regarded as "exceptional". However, all that that means is that the case is outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense. Whether a case is exceptional is not to be judged according to what is or may be usual in the insurance industry, but whether a case is extraordinary in the context of the whole range of litigation that comes before the court: TGA Chapman Ltd v Christopher [1998] 1 WLR 12, 20; Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004] 1 WLR 2807 at [25]. In that same paragraph of the latter case Lord Brown said:

"Where, however, the non-party not merely funds the proceedings but substantially also controls or at any rate is to benefit from them, justice will ordinarily require that, if the proceedings fail, he will pay the successful party's costs. The non-party in these cases is not so much facilitating access to justice by the party funded as himself gaining access to justice for his own purposes."

32. Lord Brown's summary of principle was held in Deutsche Bank AG at [62] to be "an authoritative statement of the modern law". In our case Travelers funded the costs of the preliminary issues and stood to benefit from a successful outcome. They fall squarely within that category of case. In addition, the features I have mentioned at [11] bring this case within the realms of "exceptional". Neither counsel was able to point to a previous case which had these features. I agree with Colinvaux and Merkin that the principle of reciprocity is important. It is that principle which underlies Lord Brown's statement that if a person funds and stands to benefit from proceedings, justice requires that if they fail he should pay the successful party's costs. That is the test that this court applied in Legg. This is no more than a reflection (or perhaps a modest extension) of the long-standing principle that he who takes a benefit must also accept the burden.
33. Mr Philipps suggested that the judge's decision had caused consternation in the insurance industry and among insurance lawyers. He pointed out that Colinvaux and Merkin described the case as "unusual" and that they explained it on the basis that the claimants had been misled about the existence or extent of insurance cover. They do not, however, say that it was wrong. In Chapman Phillips LJ dealt with a similar argument at [21]:

"Nor am I moved by the argument that premium rates for liability cover will go up if insurers are at risk as to costs orders which expose them to liability in excess of their contractual limits. There is no evidence as to the extent to which this is likely to be the case, if at all, but in any event I see no reason why the assured should not be expected to pay a premium which properly reflects the insurer's exposure to costs orders if the interests of justice otherwise require that the insurers should be subject to such exposure."

34. I am equally unmoved for exactly the same reasons. It is, in my judgment, fanciful to suppose that when Travelers entered into the contract of insurance they expected that, if called upon to indemnify Transform against a claim for defective products, such a claim would be brought by a random mix of insured and uninsured claimants. The expectation must have been that, if called upon to indemnify Transform, Travelers would potentially be liable for all the costs of an unsuccessful defence. It is in that sense that I agree with the judge that to require Travelers to pay the costs of the uninsured claimants is no more than Travelers bargained for. That feature in itself distinguishes this case from cases where the combined award of damages and costs exceeds the policy limit. In the present case there was no such limitation.
35. The judge rejected Mr Philipps' reliance on the cases involving liability insurers because in our case each claim was a separate cause of action which had to be proved by reference to its own facts. It was not like a case of an insurer defending a single claim against its insured where (for instance) the claim exceeds the limit of the insurance cover. The judge also noted at [19] that at least until the expert evidence was served it was Transform's case (both on the pleadings and in submissions made to the court) that each claimant would have to prove that the particular implants supplied to her were defective. That stance applied, in particular, to the so-called "worried well" whose implants had not (yet) ruptured or failed. That only reinforced the proposition that each claimant had a separate cause of action which would have to be proved in order to succeed. Transform only changed stance when the expert evidence was exchanged.
36. From this she reasoned at [28] that the uninsured claims "were nothing to do with Travelers". I consider that Mr Philipps was right in suggesting that the judge went too far in this respect. Mr Preston QC on behalf of the uninsured claimants accepted under the terms of the policy of insurance between Transform and Travelers, Travelers was obliged to defend the common issues. He also accepted that both Transform and Travelers had a common interest in the outcome of those issues. It follows that the judge took too absolutist a view in saying that the uninsured claims were nothing to do with Travelers, because defence of the preliminary issues as regards the insured claims inevitably meant that Transform obtained a collateral benefit in relation to the uninsured claims.
37. However, Mr Preston submitted that the joint retainer of solicitors by both Transform and Travelers needed to be kept strictly within the bounds of the preliminary issues, and that it was inappropriate for solicitors acting under that joint retainer to advise Transform on issues such as whether Transform should disclose to the uninsured claimants that it was uninsured as regards those claims; or whether Transform should negotiate a "drop hands" settlement with those claimants.
38. As early as 2012 Mr Rouch of Transform wanted to disclose Transform's lack of insurance to the uninsured claimants. He raised this a number of times during the course of the litigation. The judge recorded her evaluation of the evidence about this at [29]. Mr Rouch's point was that if the uninsured claimants were told that Transform had no insurance covering their claims, those claims would not have been pursued. The judge accepted that assessment of the position and Mr Philipps did not challenge it. He argued that it was in the mutual interest of both Travelers and Transform to minimise the number of claims; and he also submitted that the advice given to Transform not to disclose insurance was expressly given by BLM solely in Transform's interest. BLM's advice was backed by counsel, who as I understand it was acting under the joint retainer.
39. As the judge recognised, it was not merely the fact that the greater the number of claims the greater the eventual potential liability. What mattered was the proportion of claims that were insured as against the proportion of claims that were uninsured. The greater the proportion of the former, the greater the share of the overall potential liability to the claimants (both for damages and costs) would be borne by Travelers, whereas the greater the proportion of the latter, the greater proportion of that overall potential liability to the claimants would be borne by Transform alone. The judge was, therefore, entirely right in seeing that there was a conflict of interest which no one recognised at the time.
40. Mr Philipps took us through a number of documents which showed that the advice given to Transform by BLM was given in Transform's interest and that the decision not to reveal the lack of insurance was Transform's own decision. That seems to me to be correct; but I do not consider that the judge said otherwise. As the judge put it at [29] (x) Travelers' desire not to reveal the details of the insurance policy inevitably affected the advisers' approach to the uninsured claims; and Travelers' interests were in play even when the uninsured claims were being considered. That, in my judgment, is clear from the witness statement of Mr Kidman, the solicitor at BLM. At paragraph 56, for example, he says that when Mr Rouch asked about disclosing the lack of insurance cover, he (Mr Kidman) "said that this was obviously an important issue to both Transform and Travelers and something we had to be very cautious about". In fact, as Mr Preston correctly submitted, what Transform did in relation to the uninsured claims, outside the ambit of the preliminary issues, was of no concern to Travelers. Nevertheless, Mr Rouch continued to be "very keen" to disclose the lack of insurance; and said that he was under pressure to explain why he was holding off releasing the information. In response Mr Kidman telephoned leading counsel who agreed that the information should not be disclosed. At a subsequent consultation with counsel Mr Rouch repeated that he was "happy to share policy information from Transform's point of view" but counsel's advice was to wait until the claimants' solicitors asked for it, and to see what the attitude was of co-defendants. That remained the position.
41. The claimants applied for an order which would enable them to find out whether Transform had sufficient insurance: (1) to fund its participation in litigation to the end of the trial, (2) to meet any order for damages and (3) to meet any order for costs. Underlying the application was a well-founded fear that Transform was or would shortly become insolvent. In November 2013 the judge held that the first question related to case management because it might influence the case management directions that the court would make and made the order sought. However, she refused to order the second and third questions to be answered because they did not relate to case management. She did, however, conclude on the evidence that Transform would not be able to meet any order for damages or costs itself. See XYZ v Various [2013] EWHC 3643 (QB).
42. Following that order the CEO of Transform made a witness statement which satisfied the judge that Transform had adequate insurance to fund its participation in the litigation. The order pursuant to which that witness statement was made did not require it to be disclosed to the claimants' solicitors; and it was not. Only the judge saw it. However, the claimants' advisers incorrectly concluded, partly because Travelers were in fact funding the defence of all the claims, that all the claimants' underlying claims were insured. The judge was satisfied that if the claimants' advisers had known the truth none of the uninsured claims would have been pursued any further. It must have been obvious both to Transform and Travelers that that was the perception of the uninsured claimants. Why else would those claimants have exposed themselves to the risk of contributing to common costs under the GLO if there was no upside for them?
43. Her overall conclusion on this topic was at [33]:

"But for Travelers' interests I am quite satisfied that Transform would have disclosed to the claimants at an early stage (and well before the sample cases were identified) that it was uninsured save for the period 2007-2011 and that there was no insurance for the "worried well". As I have already said, had that happened the applicants would not have brought/continued their claims and incurred the costs which they now seek from Travelers."

44. Mr Philipps relied on an observation of Auld LJ in Cormack at 406 to the effect that since there was no obligation in litigation to disclose the cover limit to a policy of insurance it was hard to see why an insurer should be penalised in costs for not having done so. There are, in my judgment, a number of reasons why that observation does not apply to this case. First, it was not alleged in that case that the failure to disclose the cover limit had any causative effect on costs. In our case, by contrast, the judge was satisfied that if the lack of insurance had been disclosed costs would not have been incurred. Second, the non-disclosure in that case was the cover limit. The non-disclosure in our case was the non-existence of any insurance at all. Third, General Condition 6 (b) of the policy of insurance (consistently with the pre-action protocols) required any response to a letter of claim to include details of the insurance policy. So Travelers must have had the expectation that details of the insurance would be disclosed; and if no insurance policy was disclosed in response to a letter of claim a claimant would draw the obvious conclusion. The litigation in Cormack appears to have taken place before the CPR and before the introduction of the pre-action protocols. Fourth, Auld LJ did not say that a failure to disclose the limit of cover was irrelevant. The furthest that he went was to say that a judge should be "cautious" before regarding a failure to disclose the extent of cover as sufficiently exceptional to justify the making of an order under section 51.
45. What is more difficult, in my judgment, is to decide whether the flawed advice given to Transform in this respect should affect the liability of Travelers. On balance, and after some hesitation, I consider that it does. The advice given, especially by counsel, was given under the joint retainer and not under any separate retainer given on behalf of Transform alone. Although Mr Kidman says that he was careful to avoid conflicts, it is difficult to see how he managed that: at least in relation to the disclosure of the lack of insurance. In addition the extent to which he made it clear to Mr Rouch when he was acting under the joint retainer and the sole retainer is obscure. I do not consider that it is unjust for Travelers to bear some responsibility for advice given under the joint retainer. That said, I do not consider that this point is decisive. In my judgment the overall circumstances which I have described at [32] make this case exceptional.
46. At [34] the judge directed herself that the ultimate issue was whether it was just to make the order under section 51. That self-direction was entirely correct. Whether it was just to make the order was a value judgment for the judge to make. In making her value judgment she had to consider whether the case merited the adjective exceptional. She decided that it did. In my judgment the value judgment that she reached was one that was open to her.
47. I would dismiss the appeal.

Lord Justice Patten:

48. I agree.