Murphy v Young & Co’s Brewery Plc

A non-party costs order requires exceptional circumstances which make the order reasonable and just. Funding litigation alone does not suffice. The commercial nature of a funding agreement does not automatically justify imposing liability for the successful opponent’s costs.

Where a legal expenses insurer merely fulfils its contractual funding obligation, without initiating or controlling the litigation or having an independent interest in its outcome, exhaustion of the policy limit does not itself justify a costs order beyond that limit. Legal expenses insurance serves the public interest. Different considerations may apply to unlawful maintenance, an existing contractual obligation to indemnify adverse costs, or funding accompanied by control and an interest in the litigation. Guidelines governing the discretion must remain responsive to the circumstances of each case.

Mr and Mrs Murphy were employed by Young & Co’s Brewery Plc to manage a public house. Following their dismissal, they claimed damages for wrongful dismissal. Youngs successfully defended the claim and recovered approximately £16,000 on a counterclaim for food rent, together with almost all the costs of the action.

Sun Alliance & London Insurance Plc insured the Murphys under a legal expenses policy covering their own legal expenses and adverse costs, subject to an aggregate limit of £25,000. Their own expenses exhausted that limit. When the Murphys initially could pay the judgment debt only by instalments, Youngs joined Sun Alliance and sought a non-party costs order. Mr Griffiths-Williams QC, sitting as a Deputy High Court Judge, refused the application.

Youngs appealed, arguing that commercial funding and alleged control justified an order notwithstanding the policy limit. The Murphys discharged the original costs liability shortly before the appeal, but the court agreed to determine the issue of principle and the remaining costs dispute. The judgment concerned the first of two appeals heard together. The central question was whether providing legal expenses insurance exposed the insurer to adverse costs beyond its contractual limit.

The appeal was dismissed unanimously. Phillips LJ gave the principal judgment. Sir John Balcombe expressly agreed with his reasons, and Butler-Sloss LJ agreed that the appeal should be dismissed.

1. Per Phillips LJ, section 51 of the Supreme Court Act 1981 conferred a wide discretion to order costs against a non-party. The ultimate question was what was reasonable and just on the individual facts. Principles developed by appellate courts were guidelines rather than fetters. Nevertheless, such an order required exceptional circumstances. Aiden Shipping Co. Ltd. v. Interbulk Ltd, [1986] A.C. 965, supplied the governing approach.

2. Funding alone did not justify an order. The circumstances collected in Symphony Group PLC v. Hodgson, [1994] Q.B.179, identified relevant factors rather than situations in which liability necessarily followed. Cooper v. Maxwell demonstrated that further circumstances were required. The commercial character of the insurance agreement did not supply those circumstances here.

3. Sun Alliance had no interest in the result apart from its liability for costs. It neither initiated nor controlled the litigation. It was contractually obliged to fund a reasonably advanced claim within the policy limit, and counsel had advised that the Murphys had a strong case. Its conduct involved no wanton and officious intermeddling. Exhaustion of the agreed cover therefore did not make an additional costs order reasonable or just.

4. Legal expenses insurance, particularly on the terms in question, served the public interest. It protected insured persons, encouraged early scrutiny of merits and supplied a potential source for payment of adverse costs. The uncertain effect of wider insurer liability on the availability of cover was not critical to the decision.

5. In observations concerning other funding arrangements, Phillips LJ indicated that unjustified intermeddling could justify liability for attributable costs. A clear contractual indemnity against adverse costs could justify direct payment to the successful party. Trade union funding, or unlimited liability insurance, could involve additional considerations of obligation, interest, control and established expectations. Liability insurance with insufficient cover required assessment of the particular facts; an order exceeding the contractual limit was not automatically appropriate.

6. Sir John Balcombe added that the policy did not concern a specific piece of litigation. That distinguished it from funding a particular claim with a direct commercial interest in its outcome. The appeal was dismissed with costs.

• Court of Appeal: Dismissed Youngs’ appeal against refusal of a costs order against Sun Alliance, with costs. The original costs debt had been discharged before the hearing, but the appeal proceeded to determine the principle and remaining costs liability.
• High Court, Queen’s Bench Division: Mr Griffiths-Williams QC, sitting as a Deputy High Court Judge, refused Youngs’ application for costs against Sun Alliance. Youngs had successfully defended the wrongful dismissal claim and obtained judgment on its counterclaim, with almost all the costs of the action.