The Pitfalls of Medway Oil

This blog is written by Andrew Roy who is head of 12 King’s Bench Walk’s Costs Team. He also sits as a Deputy Costs Judge. He appeared for Mr Kimmins (D2) in Green (below).

Introduction

Green v Generali FA and Kimmins [2021] EWHC B25 (Costs) per Costs Judge Rowley at [41]:

“raises a novel point about the interaction between the Medway Oil approach to claim and counterclaim with the traditional splitting of work done between more than one claim where the work has benefitted both proceedings. I have not found this point easy and I am unaware of any direct authority upon it.”

More generally, the case provides an important illustration of: (1) the perils of the bear trap that is Medway Oil and Storage Co Ltd v Continental Contractors Ltd [1929] AC 88; (2) the consequential need to be exceptionally careful as to what orders are obtained or agreed in any multi-party action.

Facts

The claim arose out of a catastrophic road traffic accident in France in which D2’s passenger tragically died and in which D2 suffered severe injuries. C (the passenger’s estate) brought a claim against D1 (the insurer of the other driver). D1 issued contribution proceedings against D2. D2 had already brought his own claim against D1. The actions were ordered to be tried and managed together.

D1 and D2 sensibly agreed to each meet 50% of C’s claim, to be adjusted as necessary in light of the resolution of liability between each other. C’s claim settled on this basis. D2’s contribution claim against D1 and D1’s claim against D2 were subsequently compromised 75:25 in D1’s favour.

The liability agreement in respect of D2’s claim against D1 was embodied in a consent order which provided that “[D1] shall pay [D2’s] costs of liability”. Quantum of D2’s claim was subsequently agreed. This agreement was also embodied in a consent order which provided that: “[D1] shall pay [D2’s] costs of the action”. The liability agreement in respect of D1’s contribution claim against D2 was later embodied in a third consent order which provided that “[D2] shall meet [D1’s] costs of the Part 20 Claim”.

The Costs Proceedings

D1 subsequently served a bill on D2 claiming costs of dealing with liability, etc in respect of C’s claim and D1’s concurrent claim against D2, applying a 50% moiety.

D2 contested D1’s entitlement to any such liability costs. He did so primarily on the basis of the Medway Oil principle that a claimant who successfully defends a counterclaim is “only entitled to such extra costs as were occasioned by the counterclaim”. D2’s argument was that this principle applied to any additional claim (Cinema Press Ltd v Pictures and Pleasures Ltd [1945] KB 35, Parkes v Martin [2009] EWCA Civ 883) so as to preclude recovery, D2 having not obtained a wider or more tailored costs order. He also argued that the same result was arrived at by conventional construction of the third consent order against the background of the previous orders. D1 in reply argued that this was incorrect and unfair given that, between D1and D2, D1 won 75:25.

The Judgment

Cost Judge Rowley found for D2, holding that D1 could not recover any liability costs.

He held that Medway Oil and the previously reported cases following it did not by themselves necessarily provide a complete answer. This was because in Medway Oil there was no possibility of the work done in relation to liability being attributable to any claim other than the claim and counterclaim brought in those proceedings. The scenario here, where the benefit of the liability investigations might be spread across two different proceedings, was not considered.

He nevertheless held that, whilst division of the work between the two sets of proceedings might be a natural approach, it would lead to an absurd result. Medway Oil precluded recovery against D2 of a proportion of liability work done. These costs could only have been recovered if D1 had successfully defended C’s claim.

It was not open to D1 to circumvent this by seeking a proportion of the liability costs in the proceedings against D1. The judge recognised that D2 had succeeded in its claim against D1 and that viewed in isolation the third consent order would justify D2 recovering liability costs. However, the third order had to be interpreted in the context of preceding orders. Doing so lead to the conclusion that D1’s part 20 contribution claim against D2 fell to be treated as counterclaim to D1’s claim against D2. It followed that D2 claim for liability costs fell foul of Medway Oil.

Practice Points

There are three important points to take away from this case, one specific and two general.

  • The specific point is that litigators always need to keep Medway Oil firmly in mind in cases where it might apply (potentially any case where there is more than one claim). The very fact that Medway Oil is liable to produce unfair and counterintuitive results is what makes it such a nasty bear trap. It is in one sense easy to understand why D1 in Green assumed that it would be able to recover some of its liability costs. That was obviously the fair outcome. Indeed, this very point was explicitly recognised in Medway Oil itself. The House of Lords therefore emphasised the need for a party who would be adversely affected to obtain a more tailored costs order.
  • The first general point is that later orders will be construed against the background of earlier ones. It is thus vital to ensure insofar as possible that the terms of any order are not liable to foreclose any later order a party might wish to seek. If they do then the only way to avoid the type of result that D1 suffered in Green would be to try and ensure that the later order explicitly qualified the earlier one. However, that would almost inevitably be an uphill struggle. A later order which is inconsistent with a previous one is likely to be deemed to entail a variation of the earlier order. The test for variation is a demanding one; Tibbles v SIG Plc (t/a Asphaltic Roofing Supplies) [2012] EWCA Civ 518; [2012] 1 W.L.R. 2591.
  • The second even more general point that follows from this is that litigators always need to think very carefully about what cost orders they seek or agree. It is vital to look around the corners and consider all potential costs implications. Cases where Medway Oil could come into play are a paradigm example of this. However it is a point which applies generally.
  • Whilst this point may seem trite, it nevertheless bears emphasis. That the very experienced lawyers acting for D1 in Green failed to heed it with serious adverse consequences is eloquent testimony to this.

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