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Palmer v Estate of Kevin Palmer (1) Motor Insurers Bureau (2) & PZ Products Ltd (3) & Royal & Sun Alliance Insurance Plc (4), Court of Appeal, 6 February 2008

18 February 2008
The issues

Costs – liability of a non-party for the costs of an action – Supreme Court Act 1981 Section 51.

The facts

The Claimant, then aged 6, was the victim of a road traffic accident when driven in a car by her father, an unmedicated epileptic, who died in the accident. She suffered devastating injuries and sued her father’s estate for damages for negligence. The motor insurers avoided the policy on the ground of non-disclosure. The MIB were joined as Second Defendant under the uninsured driver’s agreement. The MIB required the Claimant to sue PZ Products, the manufacturer of a “clunk-klip” fitted to the Claimant’s seat belt. Allegations were brought by the MIB against PZ Products that the device’s design was unsafe and that, but for its use and the design defect, the Claimant would not have suffered her injuries. The importance of the proceedings as against PZ Products to the MIB was that, since they were only an insurer of last resort, if PZ Products were liable to the Claimant it would have to pay the Judgment against it first and in full and the MIB would be liable to pay out only to the extent that that Judgment remained unsatisfied.

The matter went to Trial on the 30th January 2006. The Estate had already admitted liability and the only issue was whether PZ Products were liable. The Judge found that the device was unsafe and that it was causative of the Claimant’s injuries. The MIB sought to minimise its own exposure by seeking an Order for the payment by the Royal & Sun Alliance personally of the costs incurred by the Claimant, the Estate and the MIB in establishing liability against PZ Products. If such an Order were made it would have meant that the whole of the £500,000.00 would be available to be applied towards the Claimant’s damages and the Royal & Sun Alliance would be liable for costs on top. To the extent that the R&SA were liable in costs, it would reduce the MIB’s exposure. The Judge found that a Part 36 offer from the Estate and the MIB ought to have been accepted on behalf of PZ Products as saving it from further commercial risk. The Royal & Sun Alliance had however rejected that offer without consulting PZ Products. The Judge concluded that the motivation of the R&SA had been, either exclusively or predominantly, its own interest in the manner in which it had conducted the Defence and that was a circumstance that pushed the case into the exceptional type in which it was appropriate to make the Order contended for. In the summary the Judge found, given the parlous state of PZ Product’s finances and the collapse of its clunk-klip business, that the real interest being protected in the litigation from August 2003 onwards was that of the Royal & Sun Alliance, by which time PZ Products was almost insolvent. The R&SA was the true Defendant in all but name. The R&SA appealed.

The decision

The Judge had looked into the reality of what was going on and had come to the conclusion that, to all intents and purposes, the R&SA were the relevant Defendant in all but name. There was evidence that PZ Products had wanted to defend the claim at Trial rather than settle it. However, the reality was that PZ Products had no commercial interest in perusing its Defence to that extent. PZ Product’s apparent wish to defend it was commercially irresponsible. The evidence before the Judge was sufficient for him to have found that the Defence of the claim was throughout conducted on the basis that the real interests being protected was the Royal & Sun Alliance’s and that they were funding, controlling and directing the Defence of the litigation in its own interests. That was the basis on which the Judge could properly make the Costs Order against R&SA that he had done.

Appeal dismissed.

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