Palmer v Palmer

The authority in which the question raised in this case has been considered most comprehensively is Cormack v Washbourne [2000] CLC 1039. The judge quoted parts of the judgment of the court given by Auld LJ at paragraphs 15 and 16 of his judgment. It seems to me that there are two stages to the exercise that has to be performed before an order for costs can be made against the insurer of an unsuccessful insured in litigation. The first is to make findings of primary fact as to the parts played respectively by insurer and insured in the litigation, with a view to reaching a conclusion as to the motivation of the insurer. The second is, in the light of those findings, to decide whether, to use Auld LJ’s language, the insurer acted exclusively in its own interest or whether the conduct of the insurer was sufficiently self-motivated to the exclusion of the interests of the insured for it to be just to order the insurer to pay the costs of the litigation. If the judge errs in making primary findings of fact and those errors are material to the judgment that the court has to make at the second stage, then this court will interfere. In this case, it seems to me that it is arguable that the judge did make findings of fact which were wrong.

In paragraph 38, the judge says that the financial position of PZ had been dire, to RSA’s knowledge, since 2003, that knowledge having been acquired in August 2003. The statement of Mr Oxley of PZ was, I am told, read before the judge on the basis that it was not challenged. He sets out a history in considerable detail. It is true that he says that, at various times, he considered closing the company down, but there is an important paragraph 45 where he says that in early August 2005 he decided to make a small investment on behalf of the company, having established from the solicitors that they were confident of the outcome of the current litigation. The judge makes no reference to that and it seems to me that arguably, at least, that was an important matter that he should have taken into account.

Secondly, the judge correctly found at paragraph 40 that Mr Oxley was involved in the decision-making process throughout the litigation and approved of the action taken on his company’s behalf throughout. This is described in considerable detail by Mr Oxley. He was plainly active in the litigation and appears to have been anxious that his company’s defence should succeed.

In the light of that, it seems to me difficult to see how the judge could find at paragraph 42 that the rejection of the offer of £500,000 was one which on the facts “could only benefit RSA”. It is also difficult, as it seems to me, to see how, in the light of paragraph 45 of Mr Oxley’s statement, that the judge could say that the only real interest being protected in the litigation was that of RSA (see paragraph 43).

I note also that Mr Spence, at paragraph 25 of his statement, which I understand stood as his evidence-in-chief when he gave evidence before the judge, says that Mr Oxley “felt strongly that liability should continue to be defended”. Mr Cory-Wright further submits that the statement made by the judge, that the financial position of the PZ was dire to the knowledge of the insurers, could only have been based upon paragraph 30 of Mr Oxley’s statement because Mr Spence had no recollection of being aware of the financial state of the insured. Mr Cory-Wright submits that paragraph 30 is an insufficient foundation upon which to base a conclusion that, to the knowledge of the insurer, the financial state of the insured was so parlous that the insurer must have appreciated that it was only conducting the defence for its own benefit. It seems to me that there is force in that submission, too.

For these reasons, it seems to me that this is an appeal which has real prospects of success and I give permission accordingly.