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A recent case involved negligent advice by an architect who had standard
professional indemnity cover with a limit of £2m. The claimant was
awarded just over £2m in damages plus costs of £1m. Accordingly, the
architect’s insurers paid £2m towards the damages but refused to pay
any more because the limit of their indemnity had been met.
Interestingly, the claimant’s solicitors showed enterprise by then arguing
that a costs order should be made against the insurers directly (ie as a
third party), and surprisingly, they succeeded.
The High Court judge took the view that the insurers alone had
determined that the claim would be defended, and they funded the
entirety of the defence, with full conduct of the claim. The reality was
that the architect was no more than a shell and he was not involved in
the litigation other than providing information and assistance to the
insurers. That being so, the judge found that the circumstances were
exceptional and therefore justified a third-party costs order against the
insurers. The end result, therefore, was that the claimant was able to
recover an amount exceeding the insurers’ indemnity limit.
The case is a general reminder of the court’s power to make a costs order
against someone who is not a party to the proceedings. If that third party is
funding the claim (or defence) and ‘calling the shots’, with the party to the
action actually having little commercial interest in the outcome, then there is always the scope for costs to be ordered against that third party.
Typically, this will be when an action is bought by a non-trading shell
company, with the action being funded by a parent company; the power to
make a third-party costs order is a useful weapon against such a ploy. But,
as this county court case shows, it can also be used against an insurer
when the insured has no money (and little interest in the outcome of the
proceedings). See note on Plymouth and South West Co-op v Architecture
[2006] EWHC 3252 (TCC) in [2007] SJ 596. © Practical Lawyer
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June 2007 |
