Arag Plc v Jones & Anor

A costs order creates a debt, or something analogous to a debt, rather than liability for damage caused by a wrong. A claim for contribution between co-debtors is therefore governed by the common law and not by section 1 of the Civil Liability (Contribution) Act 1978. The co-debtor who discharges the whole liability may recover an equal contribution. Payment by an indemnity insurer counts as payment by the insured, enabling the insurer to exercise subrogated rights. Such a common-law contribution claim is subject to a six-year limitation period running from payment. The insurer must ordinarily sue in the insured’s name unless the cause of action has been assigned.

ARAG plc paid £40,000 in landlord’s costs pursuant to a costs order against Mr Jones and Ms Gibson, who were jointly and severally liable. The insurance policy had been issued to Ms Gibson alone. ARAG claimed one-half of the payment from Mr Jones, relying initially on section 1 of the Civil Liability (Contribution) Act 1978 and, alternatively, on subrogation. It also claimed one-half of costs incurred in reviewing the costs bill. The issues were whether Ms Gibson had a right of contribution, whether the claim was time-barred, and whether ARAG could bring it.

1. Contribution. The liability for Mr Francis’s costs arose from the court’s power under section 51 of the Senior Courts Act 1981. A costs order created a debt, or something analogous to a debt, and was not a remedy for damage caused by a wrong. Section 1 of the Civil Liability (Contribution) Act 1978 therefore did not apply. Ms Gibson instead had a common-law right to contribution as a joint debtor after paying more than one-half of the debt.
2. Payment under the policy discharged Ms Gibson’s liability. The fact that ARAG made the payment to Mr Francis did not prevent it from counting as payment by Ms Gibson. The policy was one of indemnity insurance, and ARAG was entitled to be subrogated to Ms Gibson’s right to contribution from Mr Jones.
3. The claim for half the costs lawyers’ fee failed. The agreed facts did not establish that the costs lawyers had been instructed jointly on behalf of Ms Gibson and Mr Jones.
4. Section 10 of the Limitation Act 1980 applied only to claims under section 1 of the 1978 Act. The common-law contribution claim was subject to a six-year limitation period, running from the payment in respect of which contribution was sought, and was in time.
5. The proceedings had irregularly been brought in ARAG’s name rather than Ms Gibson’s. Subrogation ordinarily required the insured to sue, absent an assignment. The defendant took no point on the irregularity, but the judge considered that the position should preferably be regularised before judgment.
6. Subject to that procedural matter, judgment was entered for ARAG for £20,000.

First-instance judgment. The Part 20 claim against Newbold & Co. was stayed pending determination of this claim.