Palmer v Estate of Palmer and Others [2008]

FACTS:-

On the 6th January 1996, the Claimant a child of six, was being driven by her father as a front seat passenger in a Nissan Micra car. Whilst driving, the father suffered an epileptic seizure and was killed. His daughter suffered a severe head injury. The father’s estate conceded liability on the grounds that he was driving when he knew that he should not have been, as a diagnosed epileptic who was both not taking medication and was still subject to fits.

The father’s policy had been taken out by his wife, but was avoided by his insurers on the grounds that she had not disclosed her own epilepsy. Consequently the Motor Insurers Bureau was joined as Second Defendant.

At the time of the accident, the Claimant was wearing a seatbelt, which had a device known as Klunk Klip attached. This device was manufactured by the Third Defendant, PZ Products Limited (PZP), who were insured by Royal and Sun Alliance (RSA).

The MIB was liable to pay damages but they also had the right to require (as a condition of meeting any liability) a person making the claim against the fund to take all reasonable steps to secure judgment against a third party, PZP.  The limit of RSA’s liability under PZP’s policy was £500,000 and the MIB would be liable for the excess.

The estate of the First Defendant (the father) admitted liability and at first instance Judge McKenna held that PZP were also liable. At the time the matter came before the Court of Appeal, the case was proceeding to assessment of damages, which were estimated as likely to exceed £2 million.

Judge McKenna also ordered RSA to pay the claimed costs from the 1st September 2003 under section 51 of the Supreme Court Act 1981.

The claim had first been notified to PZP in July 1998. A Part 20 claim had been served on PZP in March 2003 and PZP was also told by the Claimant’s solicitors that they were required to join PZP into the action. RSA then instructed solicitors act on PZP’s behalf. In August 2003, a director of PZP told RSA’s solicitors that his company was running out of money and in May 2004 he said that he was considering closing PZP down. By March 2005 sales of the Klunk Klip device had almost died away. At that point, RSA’s solicitors felt that the claim could be defended and they gave the same opinion (subject to counsel’s advice) in August 2005 and November 2005. In January 2006, the MIB’s solicitors made an offer to the effect that if RSA paid the MIB £300,000, the MIB would meet the rest of the Claimant’s claim. If this was not accepted, the MIB reserved the right to make an application for a costs order against RSA personally.

The offer was rejected by RSA but without consultation with PZP. PZP was then closed down.

The trial judge found that throughout the material time, PZP was in a difficult financial position, and that due to falling sales of the Klunk Klip device, there was no ongoing reputation to defend. RSA knew that was the case. The claim was fought on the basis of the lawyer’s advice that the case could be won. The real interest in being protected in the litigation from August 2003 was that of RSA. By then PZP was almost insolvent and RSA should have known that. RSA was the true Defendant in all but name.

JUDGMENT:-

Lord Justice Rimer went over the facts of the case and the judgment of the trial judge. He considered the applicable law, in particular section 51 of the Supreme Court Act 1981 and TGA Chapman Limited and Another v Christopher and Another [1998] 1 WLR 12 and Alan Cormack and Another v The Excess Insurance Company Limited 16th March 2000.

The authority showed that in the present case, the trial judge approached the task by asking himself the question most relevant to the exercise of his discretion, namely whether RSA was motivated either exclusively, or at least predominantly by a consideration of its own interest in the manner in which it conducted the defence of the litigation.

The crucial issue was therefore whether the judge was entitled to find, as he did, that from the outset the interests of PZP were an immaterial consideration in RSA’s decision making and that the only real interest was that RSA was defending its own.

RSA had actually rejected the offer of £300,000 without consulting PZP. The duty of PZP was towards its employees and creditors, and the director concerned at the time should have considered the offer carefully. If the offer had  been accepted, PZP might have survived. It was impossible to reconcile the assertion that the defence was being conducted in the mutual interests of PZP and RSA with the admission of RSA’s solicitor to the effect that he did not make enquiry about PZP’s financial position. RSA was funding, controlling and directing the defence of the litigation in its own interests. Consequently the trial judge’s finding would be upheld.

Sedley LJ and Pill LJ agreed.

Related posts:

1. Palmer v Estate Of Palmer And Others [2006]