Esure Services Ltd v Quarcoo

This is an appeal against the refusal by Mr Recorder Baldwin QC to make an order for indemnity costs against the claimant, Mr Quarcoo, after dismissing his claim against his insurers, judgment being given on 10 June 2008.

The Recorder refused permission to appeal his costs order but permission was granted by a single Lord Justice, Rix LJ. The Recorder in refusing an order for indemnity costs, recognised that he had found Mr Quarcoo dishonest but refused indemnity costs on the basis that the case was not “outside the norm”, that phrase coming from a Court of Appeal decision Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden and Johnson & Ors [2002] EWCA Civ 879, a decision to which I shall return.

It is right to say at the outset that it is only Mr Grant for the appellant insurers who has appeared before us today. Mr Quarcoo has not appeared and is not represented, and thus has not made any submissions.

It seems that Mr Quarcoo was sent correspondence by the solicitors for the insurers informing him that the appeal was to proceed, and those letters were addressed to Mr Quarcoo personally at an address which the solicitors had obtained. It further seems the solicitors for the insurers had no response from Mr Quarcoo and thus it would appear, on the assumption he received those letters, that he never intended to take any part in the appeal.

So far as the fixing of the date of this appeal is concerned, that is something which was notified to the parties by the Civil Appeals Office. The Civil Appeals Office communicated on various aspects of this appeal with the solicitors who acted for Mr Quarcoo in the court below, but the appeals office were told by that firm of solicitors, ultimately, that they no longer acted for Mr Quarcoo. Indeed it seems from the file that those solicitors were not prepared to provide any further information to the Civil Appeals Office as to the residence of Mr Quarcoo.

It seems likely therefore that Mr Quarcoo was never notified of the date when this appeal would be heard. Clearly if someone has not appeared on the appeal and would have wanted to do so and if they have not received a notification of the date of the appeal and if the court proceeds in their absence, they should have an opportunity of returning to the court in order to seek to set aside any order that the court has made. Having consulted my colleagues, what we decided we should do is that we should proceed to give judgment on the basis that Mr Quarcoo has never wished to appear on this appeal, but if that turns out to be a misapprehension, then we recognise that he may be entitled to come back to the court and apply to reopen the appeal. In order to ensure, so far as possible, that Mr Quarcoo has that right, Mr Grant has given an undertaking on behalf of his clients that they will serve a copy of the order that will result from the appeal on which I am about to give judgment and that they will also serve on him a copy of the judgment, which will indicate to him his right to re-open the matter if he has good reason as to why he did not appear today wishing to do so.

But with that preliminary I now turn to the circumstances of this case and how the issue arose. Mr Quarcoo was the owner of a BMW, which he alleged had been stolen, and on the basis of the allegation that the car had been stolen he made a claim under his insurance policy with Esure, the appellants. The claims handler on behalf of Esure, a Mr Harvey, carried out investigations of that claim and Esure ultimately refused to pay under the policy. They refused on a number of bases, including non-disclosure, but primarily on the basis that the claim was a dishonest one, maintaining that this BMW had in fact never been stolen.

One critical factor on which they relied for asserting that the claim was a dishonest one was that after the claim was reported to them by Mr Quarcoo they requested that he send them the four keys of the car which he maintained he still held. Mr Quarcoo forwarded four keys to the insurers and their claims handler. Investigations were carried out by the insurers, and those investigations indicated that one of the four keys came from a different BMW, previously stolen, so they refused to pay under the policy.

Mr Quarcoo then commenced proceedings. In his witness statement in those proceedings he suggested that the claims handler had substituted the rogue key for a genuine key, and although that attack was not maintained in cross-examination of Mr Harvey at the trial, it seems that Mr Quarcoo was prepared to confirm that witness statement when he came to give evidence.

The Recorder found that Mr Quarcoo was dishonest. It is right to say that the insurers were asserting that they could establish dishonesty but, in the alternative, they were in any event saying the burden was on Mr Quarcoo to establish that his car was stolen. It is in that context that the Recorder in the final paragraph of his judgment dealing with the merits of the claim said that he found that Mr Quarcoo had not satisfied the court that his car was in fact stolen. But Mr Leonard, Counsel who represented Mr Quarcoo before the Recorder, had accepted, as the Recorder records at paragraph 3 of his judgment, that although the burden of proof was on the claimant, any finding against Mr Quarcoo would necessarily involve a finding of dishonesty against him. Counsel made that submission to seek to persuade the Recorder that it was unlikely that Mr Quarcoo would make a dishonest claim, but it would seem clear that it also recognised the reality.

Ultimately the Recorder found that Mr Quarcoo had told a number of lies on certain matters which the Recorder relied on as supporting Mr Quarcoo’s lack of credibility generally. He found, for example, that Mr Quarcoo had related different stories when giving an explanation as to why he had not disclosed the previous claim against the insurers. The Recorder summarised the position so far as that was concerned in paragraph 30 of his judgment in these words :

“In giving these three different stories, Mr Quarcoo presented himself as someone who would say anything if he believed it helped him out of a particular predicament.”

He also found that he had told a lie about the mileage on this BMW, and he summarised the position in paragraph  30 of the judgment in this way:

“I am satisfied that Mr Quarcoo knew that he was underestimating the mileage on his car. He conceded that he appreciated that the mileage would have an effect on the value, so he had a motive to underestimate.”

And against those findings of credibility ultimately the Recorder reached this conclusion, recorded at paragraphs 36 and 37 of the judgment:

“36.

Mr Leonard stressed to me that it was very significant for me to find that Mr Quarcoo deliberately misled his insurer and that there was not enough evidence given to reach that conclusion. But I am satisfied that there is no other explanation for the events I have found.

37.

Mr Quarcoo would not admit the possibility that the keys he had sent in were other than the genuine keys. He said there were no other keys which could have been swapped without his knowledge. From his description of his relationship with his wife and his control of the keys to his car, I am satisfied that he was in control of the keys which were dispatched to Mr Harvey and he sent in three keys for his BMW and one other. I infer that he hoped that Mr Harvey would not spot the difference.”

And he then continued:

“38.

That leaves the question of the remaining key and what happened to it. This is a sophisticated car that cannot be driven away without the special BMW key, or so the evidence strongly indicates. There is a possibility that Mr Quarcoo’s [car] was lifted from its parking place in Salisbury Road, without Mr Quarcoo’s consent and was taken by some unknown thief. But the fact that Mr Quarcoo appears to have retained one of the genuine keys, despite asserting that he did not do so, is to my mind highly significant.

39.

In these circumstances Mr Quarcoo has not discharged the burden of proving his car was taken without his consent, accordingly, the claim fails.”

In the judgment in which the Recorder ordered the payment of costs by Mr Quarcoo, but refused to do so on an indemnity basis the Recorder said this:

“40….. Mr Leonard for the claimant concedes that his client has to pay the costs, but the defendant asks for costs on an indemnity basis. It is common ground that the requirement for an indemnity costs order is that the case be out of the norm and Mr Grant for the defendants says that this case is out of the norm because parties and tribunals expect claimants to come forward and present an honest case and a truthful case and this has not happened in this case.

41 Mr Leonard for the claimant says that it is common for the evidence of one or more witnesses not to be preferred and he might also have drawn attention to the fact that, if it were the position that in all cases where a witness has been found to be dishonest, and, in particular , a claimant to be dishonest, then an order for indemnity costs would normally follow, then one might have expected some guidance to this effect from higher courts.

42.

It seems to me that this case has been presented in a fairly normal sort of way as far as I can tell. In particular, allegations of dishonesty made in the claimant’s witness statement were not pursued in cross-examination against Mr Harvey, a senior inspector or person within the defendants. I am not satisfied that this is a case which is really out of the norm…..”

The reference to being “out of the norm” (as I have already indicated) is a reference the language used by Lord Woolf and indeed myself in Excelsior,(supra). In that case the defendant had made a substantial Part 36 offer. The judge had awarded only nominal damages of £2. The judge had ordered the claimant to pay costs on a standard basis up until the date of payment in and then on an indemnity basis from that date onwards. It was significant that he made the order from that date onwards, rather than on a date when the claimant might have taken the payment out, indicating the view that he had taken about the reasonableness or otherwise of the claimant’s conduct.

In the Court of Appeal it was suggested that it was not open to the judge to make an order for indemnity costs. What we said in that case was that the right starting point in considering the power of the court to order indemnity costs was the rules. We indicated that there were many circumstances in which it might be appropriate to order indemnity costs and, in particular, we used the language that it would be appropriate to order indemnity costs as opposed to costs on a standard basis where the case was outside the norm. One sees that in particular from paragraph 19 of the judgment of Lord Woolf where he referred to something that I had said during the argument suggesting that the circumstances where it might be appropriate to award indemnity costs were those that take the case “out of the norm”. Lord Woolf then having cited a number of authorities, in relation to indemnity costs, came back to the question whether the judge was entitled to take the view that the circumstances of that particular case, Excelsior, were outside the norm and found that he was. On that the basis we held that the judge was entitled to make an order for indemnity costs.

That decision, it should be recognised, was made in the context of previous decisions and, in particular, previous decisions where the argument mounted was that under the CPR indemnity costs should only be ordered where there was some sort of lack of probity or conduct deserving of moral condemnation on the part of the paying party. Thus in Reid Minty v Taylor, a Court of Appeal decision, reported at [2002] 2 All ER 150, that was the view of the judge at first instance, as recorded by May LJ at paragraph 10. He recorded that the main ground of appeal in that case was that the judge at first instance misdirected himself in saying that:

“costs should only be awarded on an indemnity basis if there has been some sort of moral lack of probity or conduct deserving of moral condemnation on the part of the paying party.”

May LJ went on to quote in full the relevant rules of the CPR, in particular 44.3(1), (4) and (5) and rule 44.4. He then referred to a number of decisions, and then he summarised the position in this way at paragraph 27:

“27.

In my judgment, the judge here was wrong to constrain himself in the way that he did. He was, I think, implicitly guided by pre-CPR authorities which are no longer apt for the new procedural code in this respect. Under the CPR, it is not, in my view, correct that costs are only awarded on an indemnity basis if there has been some sort of moral lack of probity or conduct deserving moral condemnation on the part of the paying party. The court has a wide discretion under Rule 44.3 which is not constrained, in my judgment, by authorities decided under the rules which preceded the introduction of the CPR. The discretion has to be exercised judicially, in all the circumstances, having regard to the matters referred to in Rule 44.3(4) and Rule 44.3(5). The discretion as to the amount of costs referred to in Rule 44.3(1)(b) includes a discretion to decide whether some or all of the costs awarded should be on a standard or indemnity basis. Rule 44.4 describes the way in which an assessment on each basis is to operate, but does not prescribe the circumstances in which orders on one or the other of the bases is to be made.

28.

As the very word “standard” implies, this will be the normal basis of assessment where the circumstances do not justify an award on an indemnity basis. If costs are awarded on an indemnity basis, in many cases there will be some implicit expression of disapproval of the way in which the litigation has been conducted. But I do not think that this will necessarily be so in every case. What is, however, relevant to the present appeal is that litigation can readily be conducted in a way which is unreasonable and which justifies an award of costs on an indemnity basis, where the conduct could not properly be regarded as lacking moral probity or deserving moral condemnation.”

It is a total misreading of Reid Minty, and Excelsior to suggest they support a view that if there has been some misconduct which is deserving of moral condemnation that an order for indemnity costs is inappropriate because however unfortunate dishonest claims are not “outside the norm”.

What those authorities show is that the starting point is the rules, and the important rule is 44.3, which provides:

“44.3

(1) The court has discretion as to --

(a)

whether costs are payable by one party to another;

(b)

the amount of those costs; and

(c)

when they are to be paid.

…

(4)

In deciding what order (if any) to make about costs, the court must have regard to all the circumstances, including --

(a)

the conduct of all the parties;

(b)

whether a party has succeeded on part of his case, even if he has not been wholly successful; and

(c)

any payment into court or admissible offer to settle made by a party which is drawn to the court's attention (whether or not made in accordance with Part 36).

(5)

The conduct of the parties includes --

(a)

conduct before, as well as during, the proceedings, and in particular the extent to which the parties followed any relevant pre-action protocol;

(b)

whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(c)

the manner in which a party has pursued or defended his case or a particular allegation or issue;

(d)

whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim.”

It is 44.4 which provides the basis of assessment and indicates the difference between an assessment on a standard basis and an assessment on an indemnity basis, and it is well recognised that there is a considerable difference between the two.

Reid Minty and Excelsior, were implicitly recognising as obvious that it would often be appropriate to award indemnity costs where a paying party had been guilty of conduct meriting moral condemnation. The conduct of the parties is one of the very key matters to which 44.3 refers. Indeed if a court has found that a claim is dishonestly brought or has been dishonestly maintained, it seems to me that it will be normal for a court to seek to mark its disapproval by the costs order it makes. If the party is the losing party and thus would be the paying party even if the claim were honest, that disapproval can best be marked by an order for indemnity costs.

In my view the Recorder here misdirected himself in failing to place the words “out of the norm” in Excelsior in their proper context. It was well established prior to the CPR and prior to Excelsior that a court might mark its disapproval of dishonest conduct by making orders for indemnity costs, and 44.3 with its reference to the conduct of the parties was on any view preserving that position. Thus it was to misconstrue the words “out of the norm” to place on them construction which somehow might constrain the ability of the court to mark that disapproval.

The Recorder seems to have construed the word “norm” as indicating that if the situation facing the court was one that quite often occurred that would mean that the situation was within the norm. In my view the word “norm” was not intended to reflect whether what occurred was something that happened often so that in one sense it might be seen as “normal” but was intended to reflect something outside the ordinary and reasonable conduct of proceedings. To bring a dishonest claim and to support a claim by dishonesty cannot be said to be the ordinary and reasonable conduct of proceedings.

In my view the Rules entitle a court to take account of the conduct of the parties whether that conduct occurs on many occasions or whether it is rare. So in my judgment, as I say, the Recorder has misdirected himself. That being so, it is for this court to exercise the discretion anew.

I have already recited the Rules and it is to the Rules that one must first go. Once one sees the type of conduct that the court must have regard to, it seems to me clear that this was a case in which the conduct of the claimant was one where the court should be inclined to mark its disapproval of the bringing of a dishonest claim and the supporting of that claim by lies, including a lie about whether he had produced a key which did not belong to the car, and which included in fact an attack on the integrity of the claims handler although that was not pursued in cross-examination. The best method by which a court can mark its disapproval when, as here, the claimant would be the paying party, is by making an order for indemnity costs. I for my part have no hesitation in saying that, where insurers establish that a claim has been brought dishonestly, they should on the whole be entitled to an order for indemnity costs not just because of the extra cost they may incur in defending such a claim -- though that is considerable -- but so that others are discouraged. It is both in the interests of insurers and indeed any defendants, and in the interests of the court, that persons should be discouraged from bringing dishonest claims and from supporting dishonest claims by lies.

In my view the appropriate order in this case was to order Mr Quarcoo to pay the costs and to pay those on an indemnity basis. I would allow the appeal against the Recorder’s order in this case and make that order.

When giving this judgment ex tempore there was with my papers only a note of the Recorder’s judgments and not the full transcript of the judge’s judgment both on the merits and in relation to the order he made for indemnity costs. That was pointed out to me before my lords delivered their judgments. Since it was confirmed that there was no difference in substance between the transcripts and the note, my lords proceeded to give their judgments and I made clear that I would correct the transcript of my judgment so as to refer to passages in the transcript of the judgments rather than the note, which I have duly done.