Travelers Casualty and Surety Company of Canada & Ors v Sun Life Assurance Company of Canada (UK) & Anor

I now deal with the issues outstanding following the judgment that was handed down on Wednesday 1^st November namely (i) the form of the order; (ii) costs, including reserved costs, interest on costs, the basis upon which costs are to be ordered and interim payment; and (iii) permission to appeal.

I propose (i) to declare that the claimants are not liable to make any payment to the defendants in respect of the Claim under the policy; and (ii) to dismiss the counterclaim.

The claimant insurers have won. They have established that they have no obligation to Sun Life under the policy and have defeated a claim worth of the order of £31,000,000 less $25,000,000.

The starting point, therefore, is the general rule that the unsuccessful party will be ordered to pay the costs of the successful party. The Court may, however, make a different order. Mr Gavin Kealey, Q.C., on behalf of Sun Life, contends that this is a case in which that is exactly what the Court should do. Firstly, as he submits, Sun Life has incurred very large costs in proving its damages. Had I decided in its favour on liability, it would have recovered a very large percentage of its claim, of which the insurers have succeeded in reducing very little. Accordingly the insurers should pay most of the costs of dealing with quantum.

Secondly, although Sun Life has failed on liability, and, in particular on the central issue as to whether any of the warranty identified individuals knew of facts or information which could give rise to a Claim within the scope of the proposed coverage, they have on the way to victory failed on a number of issues. In those circumstances the Court, he submits, should adopt an approach whereby in relation to liability some of the costs of issues on which the insurers have failed are borne by them, so far as their costs are concerned, and paid by the insurers, so far as Sun Life’s costs are concerned.

These proceedings were commenced by the insurers, following earlier communications, on 9^th March 2004. On 10^th March 2004 Robin Simon LLP, the insurers’ solicitors, wrote a letter to Sun Life’s then solicitors giving Sun Life the opportunity to withdraw its claim, on the footing that the insurers would bear their own investigation and litigation costs to date. Over a year later, following an unsuccessful mediation, on 25^th September 2005 Robin Simon wrote a letter indicating preparedness on the insurers’ part to enter into a settlement whereby some part of the insurers’ costs entitlement would be foregone.

Neither of these offers was such that the insurers are entitled to rely upon the provisions of Part 36 to obtain indemnity costs and an increased rate of interest as a result of Sun Life’s failure to accept them. This is for a number of reasons, of which the principal is that in Mitchell v James [2004] 1 WLR 156 the Court of Appeal held that, in determining the applicability of Part 36, no account is to be taken as to any terms as to costs included in what purports to be a Part 36 offer. Under Part 36 the trial judge is to look to see whether, so far as presently relevant, the judgment against the defendant in relation to the substantive issues is more advantageous to the claimant than the proposal contained in the claimant’s Part 36 offer. The proposal contained in the insurers’ offer was, so far as the substance of the matter is concerned, that Sun Life should abandon its claim. The insurers’ judgment against Sun Life is not more advantageous than that. The offer required Sun Life to capitulate and the insurers have not, and indeed could not, achieve a result more advantageous than capitulation. The rationale behind Part 36 is that of encouraging compromise. The Part 36 regime does not envisage the award of indemnity costs because the successful party had offered to “drop hands” and the unsuccessful party failed to agree.

But under Rule 44.3 (4)(c) it is legitimate and mandatory for the Court to take into account the insurers’ offer of settlement in determining how to exercise its discretion. However, the refusal of a settlement offer will only rarely attract, under Part 44, not merely an adverse order for costs but an order for costs on an indemnity rather than a standard basis: Kiam v MGN Ltd (No 2) [2002] EWCA Civ 66; [2002] 2 AER 242. That, so the Court of Appeal has held, requires unreasonableness to a high degree.

The willingness of the Court to order a party, even a successful party, to be deprived of his costs of a particular issue on which he has lost, and to pay those of his opponent, is not, however, dependent on establishing that that party has acted improperly or unreasonably: Summit Property Ltd v Pitmans [2001] EWCA Civ 2020. If a party has acted improperly or unreasonably the Court will more readily make such an order. But, even if he has not, the Courts are now much more ready to make separate orders reflecting success on different issues than once they were: see Lord Woolf in AEI Rediffusion Music Ltd v PPL [1999] 1 WLR 1507.

In Fleming v The Chief Constable of the Sussex Police Force [2004] EWCA Civ 643 Potter, LJ, as he then was, described the rationale of the “issues” approach as being the necessity to “discourage litigation in respect of inessential issues, which are either bound to fail, or are irrelevant to the central and essential issues necessary to be decided between the parties in the resolution of the dispute”. I do not, however, regard Potter, LJ, as having intended to state that it is only in respect of issues of that description that such an approach can be taken; particularly since, in the immediately succeeding paragraph, he referred to the AEI Rediffusion case as an exposition of principles too well known to require to be set out in detail.

The Court is thus given a wide discretion and enjoined to take into account a number of factors including those specified in CPR 44.3. (4). The aim must always be to make an order that reflects the overall justice of the case.

The cases illustrate how this may work out in practice (Footnote: ¹ ) . If the successful claimant has lost out on a number of issues it may be inappropriate to make separate orders for costs in respect of issues upon which he has failed, unless the points were unreasonably taken. It is a fortunate litigant who wins on every point.

On the other hand, if a party raises a discrete issue which involves very substantial costs, and upon which he fails, justice may require that he should bear his costs and pay those of his opponent on the issue. CPR 44.3 (4) specifically provides that:

In this respect there is the practical problem that it may be very difficult for the costs judge to work out what costs are properly attributable to an issue. Such difficulty may well mean that the appropriate order is one under CPR 44.3. (6)(a) – (c). CPR 44 .3. (7) enjoins a court which considers making an order for payment of the costs of an issue to make an order under one of sub-paragraphs (a) – (c) of 44.3. (6) if practicable.

Even if, in relation to a particular issue, it is appropriate to order the overall winning party to bear some of its costs or pay the overall loser some of his, the issue in question, such as quantum, may itself have contained a number of sub issues, in respect of which the proper incidence of costs is not straightforward. One sub issue on which the overall winner lost may have had significant monetary value but taken little time to determine; another may be one which was of much lesser value but took more time. Another sub issue may be one on which the overall winner won.

So far as the issues of liability are concerned, the insurers won the central issue of whether any warranty defined individual had knowledge or information of circumstances which could result in a Claim within the scope of the proposed coverage. But they lost on the following issues:

whether the applicable law was that of England & Wales or Ontario;

whether, as a matter of construction the words “within the scope of the proposed coverage” mean that the Claim must exceed the $25,000,000 retention;

whether the upshot of the Farquharson/Holmes conversations was that the parties agreed that the words were to have that effect or the effect contended for by the insurers. I call that, somewhat inaccurately, “the estoppel issue”;

whether in order for there to be a breach of warranty, it was sufficient that at the time of the warranty facts existed which could give rise to a Claim exceeding $25,000,000;

whether, if some sort of knowledge had to be established in order to prove a breach of warranty, the requisite knowledge was knowledge of facts which a reasonable person in the position of the warranty identified personnel would realise could give rise to a Claim “within the scope of the proposed coverage” , i.e. an objective, not a purely subjective, test;

who were the individuals identified by the warranty;

whether Master General Condition 7 was a condition precedent;

whether, if it was, relief should be given under Ontario law.

With one exception I do not think that justice requires me to deprive the insurers of any part of their costs in relation to liability, or to order them to pay those of Sun Life. The exception is in relation to the estoppel issue. That was a distinct issue on which the insurers lost. It involved two witnesses giving evidence about the disputed conversations over the course of two days, much of which would have been unnecessary and inadmissible if the question was one purely of construction.

In my judgment the appropriate order to make is firstly that the insurers:

I appreciate that the evidence of Mr Farquharson and Mrs Holmes did not occupy the entirety of Days 3 and 6 and was not wholly directed to the disputed conversations; and also that there were other costs, such as the preparation and delivery of final speeches, on the estoppel point. It is necessary, however, particularly having regard to CPR 44.3. (7) , to make an order that can readily be worked out. I regard the order that I propose to make as one that reflects the justice of the matter.

I do not regard it as appropriate to order the insurers to pay Sun Life’s costs of preparing the witness statements of Mr Lockyer, Mr Davies, Mr Hill, Ms Perrin and Mrs Mackiw on the footing that they were persons who were said by the insurers to have been, but were not eventually held to be, warranty identified individuals. The issue does not seem to me the sort of issue failure on which by the insurers should lead to a special order. It is quite likely that Sun Life would have taken statements from these individuals anyway, and their evidence relates to issues other than their own knowledge. Mr Lockyer, for instance, attended the August debrief. Mr Davies was involved in Sun Life’s response to the FSA. Mrs Mackiw was until a relatively late stage treated by Sun Life as a warranty identified individual. She also gave evidence of her communications with Mr Stewart.

I also do not regard it as right to make any special order in relation to adducing evidence of Ontario law, the bulk of which was in the end not seriously in dispute. Further, Sun Life’s expert originally expressed an opinion that the test for breach of warranty involved not only an awareness of facts but also a subjective appreciation of their significance. Finally, I do not regard it as appropriate to make a special order in relation to the late notification issue, where the facts and the law were within a relatively narrow compass.

In respect of quantum the position is more complicated. Sun Life have, in effect succeeded on all the issues in play at the commencement of the hearing with the exception of:

It is necessary to examine the history of the quantum issue. The insurers faced a very large claim on quantum, the bulk of which related not to redress payments but to the costs of accountants, contractors and Marlborough Sterling. The facts and documents which underpinned that claim were with Sun Life, or under their control, and the onus of proof was on them. The discovery given on 30^th November 2004 was not such as to enable the insurers to take an adequately informed view of the quantum of the claim in at least the respects set out in Robin Simon’s letter of 28^th January 2005.

In response to Robin Simon’s letter Clifford Chance observed, inter alia, that a number of Robin Simon’s criticisms would be dealt with in witness statements in due course. On 1^st June 2005 Mr Lewis’s first witness statement was served with about 40 files as attachments, many of the documents in which had not been disclosed before. His witness statement was an essential document for the purpose of fully understanding the claim. The prior despatch of invoices of all consultants to the insurers was not an adequate substitute. I was not surprised at Mr Kealey’s submission that it was absolutely necessary to adduce Mr Lewis’ statement in order to prove the claim. Over the summer and early autumn the insurers studied this material. On 7^th October 2005 they produced a Statement of Case on quantum. On 14^th October 2005 Robin Simon suggested that Mr Edward Maddison, the loss adjuster whom insurers had instructed and who had examined the redress calculations, should meet with Mr Lewis. This suggestion was roundly rebuffed on the basis that Mr Maddison had been to Sun Life’s offices two years before and nothing more had been heard of him; and that the suggestion came too late. Thereafter Sun Life produced some additional statements of Messrs Power, Jackson and Duff on quantum to deal with the insurers’ points.

On 11^th November 2005 (the trial having commenced on 2^nd November) Clifford Chance wrote to Robin Simon a letter which included the following:

Against that background I do not regard it as just to require the insurers to pay the costs of proving quantum incurred by Sun Life up to that date. Those costs are very heavy. Mr Lewis’ work is said to have cost no less a figure than £460,000 out of a total of Clifford Chance’s costs of their fee earners’ time spent on quantum of £656,283. As Clifford Chance’s letter indicated, it was by the production of material through Mr Lewis (and others) that the insurers were in a proper position to take a view on quantum.

I should also record a number of other features of the case on quantum. Firstly the redress payments and PWC costs totalling £9,607,419 were accepted by the insurers, but only on 7^th October 2005. Secondly the disallowed claim for the application of a mark up to external contractors and associated overheads was worth what appears to be over £3,000,000 or more since to the base recoverable figure of £5,473,104 there fell to be added the irrecoverable figures of (a) mark up (probably 10%); (b) an overhead figure of 10% on the amount marked up; and (c) the marked up revenue then went into the total revenue attributable to the PBR for the purpose of allocating Marlborough Stirling’s overheads. There was a dispute before me as to what the size of the irrecoverable figure was. But, taking the figures in paragraph 391 (d) of my judgment and extracting the “Other costs” of £625,840, the total cost of mark ups and overheads as a proportion of direct costs appears to me to be in the region of 58%. This is consistent with the evidence of Mr Power at Day 11 pages 105/6. Thirdly, although I did not accept the insurers’ contention that Sun Life’s sterling loss should be converted into dollars at the date of loss exchange rate, (the dollar having fallen in value against the pound meanwhile), I also indicated that, if account is to be taken of Sun Life’s exchange loss because of the fall in value of the dollar, account must also be taken of the fact that if the insurers had paid when they should have done, they would have enjoyed the benefit of a deductible denominated in dollars worth more when the deductible fell to be applied. With a deductible of $25,000,000 and a reduction in the value of the $ from about 1.4 to about 1.8 to the £ the point is to be valued in millions. Fourthly, although I did not accept the insurers’ contention that all or some of the pre April 2002 costs were irrecoverable because of the change in methodology or that any of D & T’s costs for the period April – July 2002 were irrecoverable, there were undoubtedly, in the light of Sun Life’s own concerns at the time, matters that justified exploration.

I take the view that the justice of the case requires that, in determining the incidence of costs, some account should be taken of the fact that the insurers lost on major issues of quantum. I propose, therefore, to order that the insurers should bear their own, and should pay Sun Life’s costs of the attendance of counsel and solicitors in court on Days 10, 11 and 12 on which quantum evidence was given. I must not be taken as implying that I think that the cross examination of the quantum witnesses was unreasonable or that I have ignored the fact that, after the commencement of the trial other costs will have been incurred in dealing with quantum and that there was some quantum evidence on Day 13. I take this as a practical measure of reflecting the extent to which Sun Life succeeded on quantum whilst having regard to the facts (a) that the insurers had an appreciable measure of success and (b) that they offered at an early stage to settle on the terms to which I have referred.

In March 2004 Sun Life issued proceedings in Ontario. On 15^th April 2004 the insurers issued a motion for a stay of these English proceedings on the grounds of forum non conveniens. On 16^th July 2004 following a three day hearing Mr Jonathan Hirst Q.C. gave judgment refusing to stay these proceedings or to set aside the permission granted to the insurers on 16^th March 2004 to serve the claim form out of the jurisdiction on Sun Life of Canada. He held that England was the most convenient forum for the resolution of the dispute. Sun Life never sought to appeal that judgment.

On 12^th August 2004 Sun Life served a motion for an anti-suit injunction in Ontario. Various interlocutory skirmishes took place thereafter. The stay and anti- suit injunctions were ultimately adjourned so as to come on on 28^th June 2005. On 19^th May 2005 the insurers’ solicitors asked Sun Life to undertake to stay the Canadian proceedings until after the conclusion of the English proceedings. Sun Life refused to provide such an undertaking. In consequence the insurers’ solicitors indicated on 20^th May 2005 that they would be issuing an application before the English court on Monday 23^rd May 2005 for an anti-suit injunction, i.e. an injunction restraining Sun Life from commencing or continuing proceedings against the insurers in any court other than the courts of England & Wales, returnable on 26^th or 27^th May 2005. On 23^rd May 2005 the insurers duly issued such an application returnable on 25^th May.

On 24^th May Sun Life applied ex parte in Canada for an anti-anti-suit injunction i.e. an injunction restraining the insurers from applying to this Court to restrain proceedings in Ontario. The Court in Ontario made such an order on an interim basis. Mr Kealey informed me that the judge was told of the existence of Mr Hirst’s judgment; but it seems plain from the reasons given by Campbell, J, for his decision of 26^th May 2005 that he was not provided with a copy of it on 24^th May. The result of the anti-anti-suit injunction was that the insurers could not proceed with their anti-suit injunction before me on 25^th May 2005. On that date I made an order adjourning the insurers’ application until the first available date after 6^th June and reserved the question of costs.

On 26^th May 2005 the Canadian court discharged Sun Life’s interim injunction on the ground (i) that this Court had held almost a year ago that it was the most convenient forum and there had been no appeal; (ii) that the English Court had operated more expeditiously and Sun Life had acquiesced in a trial date which was less than 4 months away; (iii) that the procedure undertaken by Sun Life in Ontario did not seek the expedition that the commercial court in Ontario could provide; (iv) that there was no ground for injunctive relief given that Sun Life could argue in the UK as to why it should be permitted to argue its forum conveniens motion in Ontario; and (v) that the balance of convenience was against granting relief because the UK court could appraise and protect the juridical advantage sought by Sun Life for claims in Ontario not available in the UK proceedings. Sun Life’s counsel told Mr Justice Campbell that the purpose of seeking the anti-anti-suit injunction was to “develop an evidentiary record to enable argument of a forum conveniens motion on June 28 ^th 2005 in Ontario which record will be different from that which would be permitted in the U.K. “.

On 29^th May 2005 Sun Life agreed to a stay of the Canadian proceedings pending judgment in the present proceedings, and on 1^st June 2005 Sun Life agreed to the insurers’ suggestion that all costs in respect of the outstanding motions be reserved. I was told that Sun Life agreed to this stay because it anticipated that I was likely to accede to the insurers’ application for an anti-suit injunction that the insurers were now free to progress.

In my judgment Sun Life must pay to the insurers the insurers’ costs of preparing their application for an anti-suit injunction including their costs of attendance before me on 25^th May 2005 and their costs in considering the impact on their application for an anti-suit injunction of Sun Life’s anti-anti-suit injunction. Sun Life must bear their own costs of the insurers’ application and of their attendance before me on 25^th May 2005.

The insurers were justified in seeking such an injunction because of Sun Life’s decision to continue parallel proceedings in Canada. Sun Life failed in the exercise of which the anti-anti-suit injunction was part, namely to secure trial only in Ontario and, when their application for an anti-anti-suit injunction failed, then agreed to a stay which rendered the insurers’ anti-suit injunction moot. Sun Life must pay for this exercise.

I am further of the view that these costs should be on an indemnity basis. Sun Life never appealed Mr Hirst’s judgment and, in particular, its finding that England was, looking at the matter in the round, the most convenient forum. They participated thereafter, in these proceedings which were set to be tried in November 2005. Sun Life had invoked Ontario jurisdiction, which was not only a less convenient forum, but also one in which, as must have become increasingly apparent, progress was, because of the nature of Sun Life’s claims in Ontario, going to be markedly slower than the English proceedings. When the insurers not surprisingly sought to resolve the problems created by this approach, Sun Life responded by resort to an anti-anti-suit injunction, of which according to the judgment of Campbell J no previous Canadian example was to be found, and whose purpose was to prevent the only court that had ruled on the question of forum conveniens following a full hearing from deciding whether or not to restrain continuance of proceedings in another court.

As Sun Life’s subsequent actions show, they realised that the English court was likely to restrain continuance of proceedings in Ontario unless prevented by the Ontario Court from doing so. Not surprisingly the Ontario court declined to do so for the reasons given by Campbell, J. As soon as it did Sun Life gave up on any attempt to prevent these proceedings from continuing. In my judgment justice requires that the insurers should be compensated for their costs of this exercise in litigious hardball to the fullest extent that the rules permit. It was not reasonable to allow a situation to develop where Sun Life neither appealed Mr Hirst’s judgment nor accelerated its application in the Toronto proceedings, and instead, when a few months from trial, initiated an anti-anti-suit injunction which was highly likely to, and in the event did fail.

Save as aforesaid the insurers should have their costs of the claim and counterclaim on the standard basis. Each party should receive interest on the costs awarded to it at 1% above base rate pursuant to CPR 44.3. (6) (g) from the date when the costs were paid. All costs will be the subject of detailed assessment, if not agreed.

The insurers are entitled to an order for interim payment on account of their costs. I take account of the fact that some costs are to be paid by the insurers and that the cost judge may assess the insurers’ solicitors’ costs at less than their full amount (although I note that the figures for the insurers’ solicitors’ hourly rates are well below those charged by some City firms). In my judgment Sun Life should within 14 days make an interim payment of £1,750,000 on account of costs.

Sun Life asks for permission to appeal my judgment. The question is whether an appeal would have a real prospect of success: CPR 52. 3 (6). That has been interpreted by the Court of Appeal as meaning that the prospect must be realistic rather than fanciful. At this stage that involves a consideration as to whether or not Sun Life has any realistic prospect of upsetting my findings of fact relating to liability, and, if not, whether they have, on those findings, a realistic prospect of persuading the Court of Appeal that a person acting with the prudence and foresight of a reasonable person in the position of Mr Blackburn (and Mr Melcher) would think it impossible that the Claim could exceed $25,000,000. After careful consideration I have reached the conclusion that there is no realistic prospect of overturning my findings of fact or of disturbing the conclusion that I have reached on those facts. I therefore decline to grant permission to appeal.