McGraddie v McGraddie & Anor (Scotland : Costs)

Factual and Procedural Background

A dispute arose after the Plaintiff gave the Defendant a cheque for £285,000 in 2007. Approximately £85,000 was spent on miscellaneous items and the remaining £200,000 was used, together with a mortgage, to buy a house in The City in the names of the Defendant and his partner. When relations deteriorated, the Plaintiff commenced proceedings, alleging the money was provided to acquire property on his behalf rather than as a gift.

At first instance, Judge Brodie accepted the Plaintiff’s account and ordered conveyance of the house to him. The Inner House (Extra Division) reversed that decision, holding the payment to be a gift. On further appeal, the Supreme Court (per Judge Reed) restored Judge Brodie’s judgment.

The present judgment concerns post-appeal expenses. The Defendant had received legal aid; the Plaintiff had not. The Plaintiff therefore sought an award of expenses against Entity A (the legal aid authority) under section 19 of the Legal Aid (Scotland) Act 1986. A dispute then arose about whether the Plaintiff could also recover the £40,000 premium he had paid for After-the-Event (“ATE”) insurance taken out to protect himself against an adverse costs order in the Supreme Court.

Legal Issues Presented

1. Whether the Court should order Entity A to pay the Plaintiff’s expenses for the appeals before the Inner House and the Supreme Court under section 19 of the Legal Aid (Scotland) Act 1986.
2. Whether, as a matter of law, the £40,000 ATE insurance premium forms part of “expenses” recoverable from Entity A.

Arguments of the Parties

Plaintiff’s Arguments

• Entity A should indemnify him for all appeal expenses because its funding of the legally-aided Defendant made the appeals necessary.
• The ATE premium was reasonably and sensibly incurred to protect against potential adverse costs, and therefore should be included in the recoverable expenses.

Entity A’s Arguments

• It accepted liability for the ordinary appeal expenses but maintained that, as a matter of principle, an ATE premium is not a recoverable item of expenses.
• The court rules and existing authority distinguish between costs of conducting litigation and insurance taken out to guard against the risk of losing; only the former are recoverable.
• No statutory or rule-based provision expressly authorises recovery of an ATE premium.

Table of Precedents Cited

Court’s Reasoning and Analysis

1. Statutory Framework – Section 19(1) and (3) of the Legal Aid (Scotland) Act 1986 empowers the Court to order Entity A to pay expenses where it is “just and equitable.” Given the Defendant’s legal aid status and inability to pay, the Court found this threshold satisfied.

2. Recoverability of ATE Premium – The Court examined rule 46(1) of the Supreme Court Rules, rule 51, Practice Direction 13, and Scottish rule 42.10. The words “costs of any appeal” and “expenses … for conducting the cause” were held, as a matter of ordinary language, not to encompass an insurance premium taken to guard against potential liability.

3. Policy Considerations – Allowing recovery would make an unsuccessful party’s liability dependent on the successful party’s financial appetite for risk, an outcome not contemplated by the rules.

4. Consistent Authority – The Court relied on Judge Carloway’s Outer House decision in McNair’s Executrix and the English appellate and House of Lords decisions in Callery v Gray, all confirming that, absent express statutory provision, ATE premiums are not recoverable.

5. Comparative Statutory Position – Although English legislation once made such premiums recoverable, that regime did not apply at the relevant time and, in any event, Scottish law governed.

6. Equitable Concern – Judge Neuberger expressed regret that the Plaintiff would remain £40,000 out of pocket, but concluded that legal principle must prevail over perceived unfairness.

Holding and Implications

ORDER: Entity A is to pay the Plaintiff’s expenses of the appeals before the Inner House and the Supreme Court, but those expenses shall not include the £40,000 ATE insurance premium.

Implications: The decision confirms that, under both Scottish rules and persuasive English authority, ATE premiums are irrecoverable absent express statutory authorization. Litigants in Scotland seeking similar protection must therefore expect to bear the insurance cost themselves unless legislative change intervenes.