Palmer v Palmer

Before ordering an insurer to pay the costs of litigation in which its insured was unsuccessful, the court must undertake a two-stage inquiry. It must first find the primary facts showing the respective parts played by insurer and insured. It must then assess whether the insurer acted exclusively in its own interest, or was sufficiently self-motivated to the exclusion of the insured’s interests that a costs order is just. The Court of Appeal may intervene where material errors in those findings affect the second-stage judgment. The proposed appeal had real prospects of showing such errors, so permission was granted.

The appeal arose from a decision of His Honour Judge McKenna in Birmingham District Registry concerning costs against RSA, the insurer of PZ, following litigation in which PZ’s defence continued and an offer of £500,000 was rejected.

The proposed challenge concerned findings about PZ’s financial position, RSA’s knowledge of it, Mr Oxley’s involvement in the litigation, and whether the litigation protected only RSA’s interests. The central question was whether those findings and the treatment of the evidence gave the proposed appeal a real prospect of success.

1. Permission. The application for permission to appeal was granted. The Court did not finally determine whether RSA should pay the costs; it decided that the proposed appeal had real prospects of success.
2. Two-stage inquiry. The approach identified in Cormack v Washbourne [2000] CLC 1039 requires two stages before costs can be ordered against an insurer of an unsuccessful insured. First, the court must make primary factual findings about the respective parts played by the insurer and insured, with a view to assessing the insurer’s motivation. Secondly, in light of those findings, it must decide whether the insurer acted exclusively in its own interest, or was sufficiently self-motivated to the exclusion of the insured’s interests, such that it is just to order the insurer to pay the litigation costs.
3. Arguable factual errors. The judge arguably failed to consider evidence that, in August 2005, Mr Oxley decided to make a small investment after being advised that the litigation was likely to succeed. The judge had correctly found that Mr Oxley was involved in decision-making throughout the litigation and approved the defence. Those matters made it difficult to sustain the findings that rejecting the £500,000 offer could benefit only RSA and that only RSA’s interests were being protected. There was also force in the argument that the evidence did not adequately support the finding that RSA knew PZ’s financial position was so parlous that it must have been acting only for its own benefit.
4. Appellate intervention. Where material errors are made in primary factual findings and those errors affect the evaluative second-stage decision, the Court of Appeal will interfere. The identified matters were sufficient to justify permission.

1. Court of Appeal (Civil Division): On 18 May 2007, Dyson LJ granted permission to appeal under [2007] EWCA Civ 548, holding that the proposed appeal had real prospects of success.
2. Birmingham District Registry: His Honour Judge McKenna made the decision under challenge concerning costs against the insurer. No citation for that decision is stated in the judgment.