Various Claimants v Giambrone & Law (a firm) & Ors

An insurer may be ordered under section 51 of the Senior Courts Act 1981 to pay a successful claimant’s costs even where the insured formally controlled the litigation. The jurisdiction is exceptional and fact-specific, but it turns on whether, in all the circumstances, the order is just. Relevant matters include the insurer’s funding, benefit, control, failure to intervene, and the insured’s prospects of success. An insurer cannot rely on arrangements with the insured to avoid the section 51 discretion where it substantially relinquished control, or failed to exercise available control, while funding a defence with poor prospects. Causation remains necessary: the claimant must show that the insurer’s involvement materially increased the costs incurred. Quantification may be made broadly and impressionistically where precise calculation is impossible.

The claimants succeeded in underlying professional-negligence litigation against Giambrone entities and associated individuals. The first-instance judgments were reported at [2015] EWHC 1946 (QB) and [2015] EWHC 3315 (QB); the defendants’ appeal failed in [2017] EWCA Civ 1193. The defendants were uninsured or inadequately insured in practical terms, but AIG provided professional indemnity insurance and funded their defence.

The claimants applied under section 51 of the Senior Courts Act 1981 for a non-party costs order against AIG. The central issues were whether AIG’s funding and involvement made an order just, whether the defendants’ control of the litigation prevented such an order, whether AIG’s funding caused additional costs, and how any order should be quantified.

1. Jurisdiction. Section 51 of the Senior Courts Act 1981 gives the court a broad discretion to determine by whom and to what extent costs are payable. The jurisdiction is exceptional, but that means outside the ordinary run of litigation, and the ultimate question is whether an order is just in all the circumstances.
2. The court rejected any rigid requirement that an insurer must both fund and control litigation before a costs order can be made. The question is the nature of the non-party’s involvement, viewed in the circumstances as a whole. Funding, control, benefit and the interests of the insured are relevant considerations, not cumulative preconditions.
3. The arrangements between AIG and the insured, including the Heads of Terms, did not protect AIG from section 51 consequences. AIG had substantially relinquished control of the defence, or failed to exercise control when intervention was warranted, while undertaking to fund the litigation after the indemnity limit had been exhausted. The defences had poor prospects and the funding enabled the insured to pursue an extensive defence that was more likely to fail than succeed.
4. The arrangement also conferred a material benefit on AIG because it protected the aggregation position from being tested and enabled AIG to avoid immediate exposure to further claims and costs. This was a cumulative factor supporting an order, although the benefit was not AIG’s sole purpose.
5. Causation was a legitimate issue. The claimants established that AIG’s funding materially increased their costs. Without that funding, the insured would probably have adopted a substantially less extensive course, although the claimants would still have had to prepare their cases and prove them to some extent.
6. Precise quantification was impossible. On a broad impressionistic assessment, the court concluded that the claimants had spent twice as much as they would have spent without AIG’s funding. AIG was therefore ordered to pay one-half of the claimants’ costs, to be assessed on the standard basis if not agreed.

This was a first-instance application. The judgment records that the underlying litigation had been decided for the claimants at first instance in [2015] EWHC 1946 (QB) and [2015] EWHC 3315 (QB), and that the defendants’ appeal failed in [2017] EWCA Civ 1193.