Supreme Court: Insurers counting the costs of negligent will drafting

Insurers beware: where limited funds are available in an estate and there has been a dispute caused by solicitor negligence over a will then the usual 'loser pays' rule may not apply...

Yesterday the Supreme Court handed down a costs judgment in Marley (Appellant) v Rawlings and another (Respondents) (Costs), [2014] UKSC 51.

Background

The decision related to a wills dispute arising from the estates of Mr and Mrs Rawlings. They had each intended to leave their respective estates to each other and, if the other had died, to Mr Marley. However, due to a mistake by their solicitor they each signed the wrong will. Nonetheless, the Supreme Court upheld the wills (contrary to the decisions of both the High Court and Court of Appeal) and as a result, Mr Marley (the appellant) inherited the estate which was worth around £70,000.

The question to be decided was who should pay the costs of the dispute in all three courts, which exceeded the value of the estate. The solicitor's professional indemnity insurers had supported the appellant's case and both they and the appellant argued the respondents should pay the costs under the usual rule of 'loser pays'. The respondents argued that all parties' costs should either come out of the estate or, in the alternative, should be paid by the solicitor's insurers. Both the respondents' solicitors and counsel had acted on a conditional fee agreement (CFA) in relation to the Supreme Court hearing.

Judgment

The Supreme Court unanimously held that the insurers should pay the costs of all parties in the High Court and Court of Appeal. In relation to the Supreme Court costs, the insurers should pay the appellant's costs and the respondents' disbursements, including the respondents' counsels' fees as long as they disclaimed any entitlement to success fees under their CFAs.

RPC says…

Where there is an unsuccessful challenge to a will and that challenge was reasonable and caused by an error in the execution formalities then a court will often order the parties' costs to be paid from the estate. In this case, such an order would deprive Mr Marley of any benefit from the litigation given the small size of the estate.

The Court focussed on the solicitor's error as being the cause of the dispute and the fact that the insurers had required Mr Marley to bring proceedings to determine the will. That was the basis for the court's finding that the solicitor's insurers should bear almost all of the costs.

It might be seen as quite unusual making such an order against a third party who owed no duty to the respondents. In this case, the court found that the third party was funding (essentially, underwriting Mr Marley's costs of the two appeals) and responsible for the litigation.

So, what does this mean for solicitors who "underwrite" the costs of rectification applications by their client?  If the client wins the rectification claim, ordinarily, the loser would pay.  But now, the door appears to be open to suggest that the usual "inter partes" costs order should be modified and the (negligent) solicitor should bear the costs.