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LORD BINGHAM OF CORNHILL
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My Lords,
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For nearly half a century, legal aid provided out of public funds was the
main source of funding for those of modest means who sought to make or (less
frequently) defend claims in the civil courts and who needed professional
help to do so. By this means access to the courts was made available to
many who would otherwise, for want of means, have been denied it. But as
time passed the defects of the legal aid regime established under the Legal
Aid and Advice Act 1949 and later statutes became more and more apparent.
While the scheme served the poorest well, it left many with means above a
low ceiling in an unsatisfactory position, too well off to qualify for legal
aid but too badly off to contemplate incurring the costs of contested
litigation. There was no access to the courts for them. Moreover, the
effective immunity against adverse costs orders enjoyed by legally-aided
claimants was always recognised to place an unfair burden on a
privately-funded defendant resisting a legally-aided claim, since he would
be liable for both sides' costs if he lost and his own even if he won. Most
seriously of all, the cost to the public purse of providing civil legal aid
had risen sharply, without however showing an increase in the number of
cases funded or evidence that legal aid was directed to cases which most
clearly justified the expenditure of public money.
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| 2. |
Recognition of these defects underpinned the Access to Justice Act 1999
which, building on the Courts and Legal Services Act 1990Acts, introduced a new
regime for funding litigation, and in particular personal injury litigation
with which alone this opinion is concerned. My noble and learned friend
Lord Scott of Foscote makes full reference to these Acts and the relevant
subordinate legislation made under them in his opinion, which I have been
privileged to read in draft, and I gratefully adopt his account which I need
not repeat. The 1999 Act and the accompanying regulations had (so far as
relevant for present purposes) three aims. One aim was to contain the
rising cost of legal aid to public funds and enable existing expenditure to
be refocused on causes with the greatest need to be funded at public
expense, whether because of their intrinsic importance or because of the
difficulty of funding them otherwise than out of public funds or for both
those reasons. A second aim was to improve access to the courts for members
of the public with meritorious claims. It was appreciated that the risk of
incurring substantial liabilities in costs is a powerful disincentive to all
but the very rich from becoming involved in litigation, and it was therefore
hoped that the new arrangements would enable claimants to protect themselves
against liability for paying costs either to those acting for them or (if
they chose) to those on the other side. A third aim was to discourage weak
claims and enable successful defendants to recover their costs in actions
brought against them by indigent claimants. Pursuant to the first of these
aims publicly-funded assistance was withdrawn from run-of-the-mill personal
injury claimants. The main instruments upon which it was intended that
claimants should rely to achieve the second and third of the aims are
described by my noble and learned friend: they are conditional fee
agreements and insurance cover obtained after the event giving rise to the
claim.
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At the time when the 1999 Act was enacted and brought into effect, new
Civil Procedure Rules were also in the course of being implemented. The
objects underlying these rules were not new, but the rules gave a sharply
increased emphasis to the need for expedition in the conduct of legal
proceedings, to the need for simplicity and to the need to avoid unnecessary
and disproportionate costs. To achieve these ends new and detailed
procedures were devised to moderate the traditional adversarial approach to
the making and defending of claims. There was inevitably a bedding-down
period during which both judges and practitioners adjusted to the practical
implications of the new procedural regime to which they were required to
give effect.
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If the objects underlying the new procedural regime were not new, those
underlying the new funding regime were. Arrangements which had until
relatively recently been professionally improper were to become the norm.
It was however evident that the success of the new funding regime was
threatened by two contingencies which, had they occurred, could have proved
fatal. One was that lawyers, in particular solicitors, would decline to act
on a conditional fee basis. To counter that risk the maximum permissible
uplift, on the first introduction of conditional fees in 1995, had been
fixed, despite very strong opposition, at 100% and this high level of
permissible uplift was retained. It was no doubt felt, rightly as events
have proved, that if solicitors were permitted in some cases to earn, as the
reward for success, double the fee otherwise receivable, they would be
tempted into the market. The other contingency was that no accessible
market would develop in after the event insurance. There was at the outset
very little knowledge and experience of whether or how such a market would
develop.
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Even if these contingencies did not occur, the new funding regime was
obviously open to abuse in a number of ways. One possible abuse was that
lawyers would be willing to act for claimants on a conditional fee basis but
would charge excessive fees for their basic costs, knowing that their own
client would not have to pay them and that the burden would in all
probability fall on the defendant or his liability insurers. With this
expectation the claimant's lawyers would have no incentive to moderate their
charges. Another possible abuse was that lawyers would be willing to act
for claimants on a conditional fee basis but would contract for a success
uplift grossly disproportionate to any fair assessment of the risks of
failure in the litigation, again knowing that the burden of paying this
uplifted fee would never fall on their client but would be borne by the
defendant or his insurers. A third possible abuse was that claimants,
although able to obtain after the event insurance, would be able to do so
only at an unreasonably high price, the after the event insurers having no
incentive to moderate a premium which would be paid by the defendant or his
insurers and which might be grossly disproportionate to the risk which the
insurer was underwriting. Under the new regime, a claimant who makes
appropriate arrangements can litigate without any risk of ever having
personally to pay costs either to those acting for him or to the other side
and without any risk of ever having to pay an after the event insurance
premium whatever the outcome: the practical result is to transfer the entire
cost of funding this kind of litigation to the liability insurers of
unsuccessful defendants (and defendants who settle the claims made against
them) and thus, indirectly, to the wider public who pay premiums to insure
themselves against liability to pay compensation for causing personal
injury.
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The front-line responsibility for making the new funding regime work fairly
and effectively and in accordance with the objects both of the 1999 Act and
the new Civil Procedure Rules lay with lawyers agreeing to act under
conditional fee agreements and insurers offering after the event insurance
cover. The role of watchdog would be exercised, in the first instance, by
district judges and costs judges, on whose judgment and insight in assessing
recoverable costs much would depend. If they were too restrictive in the
level of success fees or after the event insurance premiums which they
allowed, lawyers and clients might be deterred from acting or proceeding on
this basis and the objects of the new regime would be defeated. If they
were too generous and too uncritical, excessive fees and premiums might be
allowed and an unfair and disproportionate burden placed on defendants and
their liability insurers, thereby undermining one of the key objects of the
Civil Procedure Rules. The difficult task entrusted to district judges and
costs judges called for a clear understanding of the object of both the 1999
Act and the Civil Procedure Rules, an understanding how the new funding
regime was developing in practice and an alert willingness to make
appropriate orders if and when signs of abuse appeared. However carefully
and attentively district judges and costs judges applied themselves to their
task, it was inevitable that occasions would arise when judges misdirected
themselves and made erroneous orders, and given the number of orders made by
different judges in different parts of the country disparities in practice
would be likely to arise. The responsibility for curbing errors and giving
guidance to district judges and costs judges on the exercise of their powers
in this context, of correcting erroneous orders and of seeking to harmonise
practice between various courts rests with circuit judges and then,
importantly, with the Court of Appeal.
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There is obvious force in the appellant's contention that even a 20%
success uplift provided a generous level of reward for Mr Callery's
solicitors given the minuscule risk of failure which his claim apparently
presented, that it would have been reasonable to await a reply from Mr Gray
or his liability insurers before obtaining after the event insurance cover
and that the premium charged for such cover, on the facts of the case as
they then appeared, was unreasonable and disproportionate. There are
nonetheless two reasons which lead me to the conclusion that the House
should not intervene.
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The first is that the responsibility for monitoring and controlling the
developing practice in a field such as this lies with the Court of Appeal
and not the House, which should ordinarily be slow to intervene. The House
cannot respond to changes in practice with the speed and sensitivity of the
Court of Appeal, before which a number of cases are likely over time to
come. Although this is a final and not an interlocutory appeal, there is in
my view some analogy between appeals on matters of practice and
interlocutory appeals, of which Lord Diplock in Birkett v James[
[1978] AC 297 at 317] observed that only very
exceptionally are appeals upon such matters allowed to come before the
House.
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Even if this were one of those exceptional cases, however, I would decline
to intervene because, as the Court of Appeal repeatedly stressed, the
present issues arise at a very early stage in the practical development of
the new funding regime, when reliable factual material is sparse, market
experience is meagre and trends are hard to discern. I would draw
attention, in the first judgment of the Court of Appeal reported at [2001] 1
WLR 2112, to passages in paragraphs 64, 99(v), 103, 105 and 116. In the
second judgment of the Court of Appeal reported at [2001] 1 WLR 2142 similar
points are made in paragraphs 14, 15, 17 and 69. In the report of Master
O'Hare annexed to the second judgment of the Court of Appeal, relevant
passages appear in paragraphs 19 and 23. The Court of Appeal made plain
that it was not purporting to lay down rules applicable for all time but was
giving provisional guidance to be reviewed in the light of increased
knowledge and developing experience.
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For these reasons (and those given by my noble and learned friends Lord
Nicholls of Birkenhead and Lord Hope of Craighead) I would dismiss this
appeal. In doing so I would not wish to discount either the risk of abuse
or the need to check any practices which may undermine the fairness of the
new funding regime. This should operate so as to promote access to justice
but not so as to confer disproportionate benefits on legal practitioners or
after the event insurers or impose unfair burdens on defendants or their
insurers. I feel sure that district and costs judges, circuit judges and in
the last resort the Court of Appeal can be relied on to maintain a fair and
publicly beneficial balance between competing interests.
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LORD
NICHOLLS OF BIRKENHEAD
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My Lords,
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I have had the advantage of reading in draft the speeches of my noble and
learned friends Lord Bingham of Cornhill and Lord Hope of Craighead. For
the reasons they give I too would dismiss this appeal. I wish to emphasise
only one point.
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All legal procedures are open to abuse. A theme running through much of
the appellant's case in your Lordships' House was that the new funding
arrangements for personal injuries claims in road traffic cases are unduly
open to abuse and are being abused. Costs are being incurred unnecessarily
and at an excessive level. The underlying problem, it was said, is that
claimants now operate in a costs-free and risk-free zone.
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In short, this result comes about as follows. By entering into a
conditional fee agreement at the outset, a claimant achieves the position
that his solicitor's charges will never be payable by him or at his expense.
If his claim is successful the fees, including the amount of the uplift,
will be payable by the defendant's liability insurers. If his claim is
unsuccessful, nothing will be due from him to his solicitor under the
agreement. Likewise with the premium payable for after the event insurance:
if the claim is successful, the premium will be payable by the other side's
liability insurers. If the claim is unsuccessful, nothing will be payable
by the claimant when, as frequently happens, the policy provides that no
premium will be payable in that event.
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The consequence, it was said, of these arrangements, hugely attractive to
claimants, is that claimants are entering into conditional fee agreements,
and after the event insurance, at an inappropriately early stage. They have
every incentive to do so, and no financial interest in doing otherwise.
Moreover, in entering into conditional fee agreements and insurance
arrangements they have no financial interest in keeping down their
solicitors' fees or the amount of the uplift or the amount of the policy
premiums. Further, they have no financial incentive to accept reasonable
offers or payments into court: come what may, their solicitors' bills will
be met by others. So will the other side's legal costs.
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As a result, it was said, the new arrangements, as they are currently
working, are unbalanced and unfairly prejudicial to liability insurers and
the general body of motorists whose insurance policy premiums provide the
money with which liability insurers meet these personal injuries claims and
costs. The appellant urged your Lordships to promulgate guidelines to
reduce the scope for abuse in this situation.
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My Lords, I agree that for the two reasons given by Lord Bingham your
Lordships should decline this invitation. Plainly, however, the criticisms
outlined above give cause for serious concern. It is imperative that these
aspects of the new funding system should be watched closely as the system
develops and matures.
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LORD HOFFMANN
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My Lords,
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The Court of Appeal is traditionally and rightly responsible for
supervising the administration of civil procedure. This is an area in which
your Lordships have in the past seldom intervened and, it must be said, the
few exceptions to this policy of self-restraint have usually tended to
confirm the wisdom of the general practice. In addition, the issues in this
case arise out of an interaction between the new Civil Procedure Rules and
the new conditional fee system for funding personal injury litigation. Both
are in a relatively early stage of development. So I would be very
reluctant to differ from a Court of Appeal which included Lord Woolf CJ, the
architect of the new system, Lord Phillips MR, the Head of Civil Justice and
Brooke LJ, one of the foremost experts on civil procedure. I am not
satisfied that their decisions were wrong and therefore would dismiss the
appeals.
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That said, I am bound to add that I feel considerable unease about the
present state of the law. In this respect I do not think that I am alone.
There seems to be widespread recognition among those involved in personal
injury litigation that costs, particularly in relation to small claims, are
getting out of hand. They are excessive in relation to the amounts at stake
(contrary to the principle of proportionality), some elements (such as after
the event insurance premiums) lack transparency and, perhaps in consequence,
too much time, money and court resources are spent in disputes over costs.
The view of the Court of Appeal, at any rate as expressed in the judgments
under appeal, is that things will settle down when costs judges acquire
greater experience of applying the new rules to the new system of litigation
funding. But I must express some doubt as to whether the questions which
arise in these appeals are capable of solution by the traditional method of
adjudication by costs judges, subject to guidance from the Court of Appeal.
It may be that they are not justiciable and require a legislative
solution.
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Callery v Gray was a
typical straightforward personal injury claim. On 2 April 2000 Mr Callery
was a passenger in a car driven by Mr Wilson, which was involved in a
collision in Ormskirk with a car driven by Mr Gray, insured by the Norwich
Union. He instructed Messrs Amelans, solicitors who specialise entirely in
personal injury litigation and process such claims on an industrial scale.
On 28 April 2000 he signed a conditional fee agreement (CFA) which provided
for a success fee of 60%. On 4 May 2000 he took out an after the event
(ATE) insurance policy with Temple Legal Protection Ltd ("Temple") for a
premium of £367.50 inclusive of VAT. On the same day Amelans wrote a
standard letter of claim to Mr Gray, which he passed on to his insurers. On
19 May 2000 Norwich Union wrote back admitting liability. A medical report
were obtained and on 12 July 2000 Amelans made a Part 36 offer to accept
£3,010 and costs. On 24 July 2000 the Norwich Union made a
counter-offer of £1,200. On instructions from Mr Callery, Amelans
telephoned Norwich Union and agreed to accept £1,500 and reasonable
costs. This was confirmed on 7 August 2000.
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There followed a dispute over costs. Amelans submitted a bill for
£4,709.35. In proceedings commenced by Amelans under CPR 44.12A,
District Judge Wallace summarily assessed their costs at £1,941
(including VAT) and ordered them to pay £285 as costs of the
assessment. The assessment included a 40% success fee and allowed the
Temple insurance premium as a disbursement. Norwich Union obtained
permission to appeal on the question of whether it was reasonable to incur
the cost of ATE insurance before sending the letter before action. At the
hearing before Judge Edwards QC it also argued that a 40% success fee was
far too high. The judge dismissed the appeal on both points. The Court of
Appeal upheld the judge on the insurance point but reduced the success fee
to 20%.
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There are two points in relation to the success fee. The first is whether
it was reasonable to fix it without waiting to find out whether the claim
would be admitted. The second is whether in any event a 20% fee was too
high for a claim which was as certain of success as anything in litigation
can be (the Court of Appeal described as a "very, very low risk
case":([2001] 1 WLR 2112, 2140).
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Three arguments were given for fixing the success fee at once. The first
was that it was a necessary part of a conditional fee agreement and that it
was natural for client and solicitors to want to agree at the first
opportunity upon the terms of engagement. The client wants to be sure from
the beginning that whatever happened he will not have to pay any costs and
the solicitor wants to be sure that any work he did will be covered by the
agreement and recoverable (in the event of success) from the defendant. The
Court of Appeal recorded (at p 2132, para 90) the claimants' argument:
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"The claimant will be concerned [when he first instructs a solicitor]
that, by giving instructions...he is not exposing himself to liability for
costs. The solicitor for his part will be anxious to offer the claimant
services on terms that, whatever the outcome, he will not find himself
liable for costs."
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I am sure that giving such an assurance is an important selling point (it
is stressed on the Amelans web site) and perhaps under the present rules an
immediate conditional fee agreement is the only practical way of achieving
it. In a large-scale study undertaken in 1998 on behalf of the Legal Aid
Board Research Unit (Report of the Case Profiling Study Personal Injury
Litigation in Practice) Mr Pascoe Pleasence noted (at p. 19) that "it
was common for clients to have their initial advice in a free consultation
with a solicitor. Often firms used free first consultations as a marketing
tool..." It may therefore be that if a solicitor had to wait until he
received an answer to his letter before action before fixing the success
fee, he would be willing for marketing purposes to take the risk of not
being able to recover from anyone the relatively trivial costs already
incurred. On the other hand, it may need a change to the indemnity
principle to provide him with the additional incentive of being able to
recover those costs from the defendant if the claim succeeds. These are
empirical questions on which it is difficult for judges to form a view.
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The second argument was that by agreeing to a success fee at the first
meeting, the client so to speak insures himself against having to pay a
higher one later if his case turns out to be more difficult than at first
appeared. (This is very similar to the argument for an early ATE insurance,
which I shall come to later). At first sight, therefore, one could say that
agreeing an immediate success fee is no more than economically rational
behaviour on the part of any client and that the fee should therefore be
recoverable as an expense reasonably incurred.
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The difficulty is that while, in principle, it may be rational to agree a
success fee at the earliest moment, it is extremely difficult to say whether
the actual "premium" paid by the client was reasonable or not. This is
because the client does not pay the "premium", whether the success fee is
agreed at an earlier or later stage. The transaction therefore lacks the
features of a normal insurance, in which the transaction takes place against
the background of an insurance market in which the economically rational
client or his broker will choose the cheapest insurance suited to his needs.
Since the client will in no event be paying the success fee out of his
pocket or his damages, he is not concerned with economic rationality. He
has no interest in what the fee is. The only persons who have such an
interest are the solicitor on the one hand and the liability insurer who
will be called upon to pay it on the other. And their interest centres
entirely upon whether the agreed success fee will or will not exceed what
the costs judge is willing to allow.
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Amelans in fact assessed the success fee by reference to a "matrix" under
which points were allocated between 0 (no success fee) and 20 (100%). The
effect of the matrix was that virtually no personal injury cases could score
less than 7 (35%) and Mr Callery's scored another six because there were no
witnesses (2) Amelans were funding the case (2) and it was expected to take
over 6 months to settle (1). No doubt some kind of point system like this
is essential in a firm in which large numbers of claims are processed. But
it can hardly be regarded as a rational calculation and I do not think that
the judge took much notice. What in fact determines the success fee
solicitors charge is what costs judges have been willing to allow in more or
less comparable cases, the fee being set at the level regarded as optimistic
but hopefully not so optimistic as to provoke the liability insurers into
contesting the amount. I shall in due course come back to the question of
whether this is a sensible system.
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The third argument is that assessing risk at the earliest stage is logical
because the success fee should be related, not to the prospects of success
in a particular case, on which it might be reasonable first to find out more
before making the assessment, but on the prospective success rate over the
whole range of cases which the solicitor undertakes. The argument for the
Norwich Union, on the other hand, was that the success fee should reflect
the risk in the particular case. If it was thought to be 90%, the success
fee should be 11%. If it was evenly balanced, it should be 100%. If the
prospects were less than even, an economically rational solicitor, faced
with a statutory maximum success fee of 100%, should not undertake the case
at all.
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The respondents on the other hand said that lawyers needed to be
compensated for undertaking risks at all. If they undertook two cases with
even prospects of success, they might statistically be expected to win one
and lose one. But there was a 25% chance they might lose both and they were
entitled to compensate for this by charging a higher success fee on cases
almost certain to win. If they could not do so, they would have to decline
cases which appeared less than sure fire winners and this would reduce
access to justice.
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The Court of Appeal accepted this argument, which it described as a
"global" approach to fixing success fees. It said, at p 2132, para 93:
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"Including success fees in recoverable costs has the general effect
of shifting from the legal aid fund to defendants, or their insurers, the
costs incurred by litigants whose claims fail. In the first instance the
claimants' solicitors shoulder the risks in relation to these costs, in
exchange for uplift. But the fact that the uplift in successful cases is
transferred to unsuccessful defendants results, if one takes a global view,
in the burden of unsuccessful claimants' costs being [borne] by unsuccessful
defendants."
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It was therefore, said the Court of Appeal, an "inevitable consequence of
Government policy that unsuccessful defendants should be subjected to an
additional costs burden": p 2133, para 95. As between the individual
parties, it might appear unjust to saddle defendants with the cost of (high)
success fees without giving them a fair chance to identify cases in which
success is assured, but the alternative would be to impose liability for the
same overall costs in the form of higher success fees payable by defendants
who (perhaps reasonably) contested liability and lost. Turning to the
question of what success fee could be regarded as reasonable in a simple
road accident claim, the court said in its view 20% was the maximum which a
costs judge should allow in a "modest and straightforward claim" which had
no special features to suggest that the claim might not be sound: see
p 2135, paras 102-104. It acknowledged that this view was based on very
limited data and might have to be revised in the light of experience.
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| 31. |
My Lords, the Court of Appeal gave this question the most anxious
consideration and, as I have said, it has unrivalled knowledge of the
problem. But I rather doubt whether, at any rate in their judicial
capacities, they had the material on which to make a decision. The
liability insurers who supported these appeals accept that the policy of the
Access to Justice Act 1999 was to transfer the burden of funding
unsuccessful motor accident claims from public funds to the motor liability
insurers and thence to the motoring public by way of increased premiums.
That is a perfectly rational social and economic policy and is not
contested. The real questions are, first, whether the level of success fees
chargeable by lawyers gives the motoring public reasonable value for the
money it has to spend on funding litigation and, secondly, whether
assessment by costs judges (with guidance from the Court of Appeal) is the
best way to ensure that such value for money is obtained.
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| 32. |
The reasoning of the Court of Appeal in para 93 of its judgment, which I
have quoted above, assumes that the present cost of motor accident
litigation is a fixed sum which must be paid by liability insurers one way
or the other. But that is the very question in issue. And the reason why it
is disputed is that, in the circumstances in which such litigation is
funded, market forces are insufficient to keep costs within reasonable
limits. As I have already said, solicitors offering motor accident personal
injury CFAs have no incentive to compete on the success fees they charge.
So the next question is whether a decision of a costs judge, or the Court of
Appeal on appeal from a costs judge, is the best way of compensating for the
absence of price competition in the market. The traditional function of the
costs judge, or taxing master, as he used to be called, was to decide what
fees were reasonable by reference to his experience of the general level of
fees being charged for comparable work. But this approach only makes sense
if the general level of fees is itself directly or indirectly determined by
market forces. Otherwise the exercise becomes circular and costs judges
will be deciding what is reasonable according to general levels which costs
judges themselves have determined. In such circumstances there is no
restraint upon a ratchet effect whereby the highest success fees obtainable
from a costs judge are relied upon in subsequent assessments.
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| 33. |
The matter becomes even more difficult when a solicitor "carrying on
litigation business on a large scale" is entitled, as the Court of Appeal
have said (at p 2131, para 83) to fix success fees to ensure "that the
uplifts agreed result in a reasonable return overall, having regard to his
experience of the work done and the likelihood of success or failure of the
particular class of litigation." The costs judge has simply no way of
knowing whether the solicitor is carrying on business on a large enough
scale to justify such an approach, still less what level of success fees
would give him a "reasonable return overall." Such matters are
traditionally outside the consideration of costs judges. As your Lordships'
Appellate Committee said in The Clerk of the Parliaments' Reference
Regarding Criminal Legal Aid Taxation (1st Report Session 1997-1998) at
para 30:
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"As to fixing fees by reference to a reasonable annual
income, quite apart from the difficulties of making the necessary
adjustments, to ask what is a reasonable annual income merely forces the
question one stage back: what is a reasonable income for a barrister?
£20,000 per annum, £100,000 per annum, £500,000 per annum? As
to using remuneration paid out of public funds to, for example, doctors, Mr
Lawrence Collins QC for The Law Society submitted that target incomes for
barristers could be set in much the same way as they are for medical and
dental practitioners. But in our view it is not the function of a taxing
officer to fix target incomes for barristers by reference to the earnings of
other professions. He is concerned to allow the barrister a fee which is
reasonable in relation to fees which are generally allowed to barristers for
comparable work and the earnings of other professions are irrelevant to this
calculation. They would be proper to be taken into account (although the
practical difficulties of doing so are considerable) by someone charged with
fixing levels of fees for the profession as a whole, such as the Lord
Chancellor when he determines levels of graduated fees. But a taxing
officer, in deciding what is a reasonable fee in a particular case, must
take the general levels of fees as given and use them as the basis of his
taxation."
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I rather doubt whether difficulty is likely to be removed merely by the
passage of time. All that costs judges will learn is what other costs
judges are allowing. Solicitors will charge whatever is currently allowed
and exert upward pressure to be able to charge more. But that will not tell
anyone whether the fees paid to the solicitors represent reasonable value
for money.
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| 35. |
As my noble and learned friend Lord Scott of Foscote has observed, the
criteria prescribed by the Civil Procedure Rules for determining whether
costs are reasonable are framed entirely by reference to the facts of the
particular case. Once one invokes a global approach designed to produce a
reasonable overall return for solicitors, one moves away from the judicial
function of the costs judge and into the territory of legislative or
administrative decision.
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| 36. |
It seems to me likely (although reliable statistical evidence is not
presently available) that the costs which can reasonably be expended in a
small personal injury claim conducted in accordance with the protocol and
which settles within the protocol period are unlikely in the great majority
of cases to vary much from the statistical mean. The present case - letter
before action, acknowledgement of liability, medical report and a relatively
brief negotiation - must be fairly typical. It involves standardised legal
services at a fairly low level. This would suggest that these costs - both
the basic costs and the success fee - should be fixed by the rules which
apply in all but exceptional circumstances. I understand that such a system
is under consideration by the Civil Justice Council. A legislative decision
to fix costs at levels calculated to provide adequate access to justice in
the most economical way seems to me a more rational approach than to leave
the matter to individual costs judges. If it is considered the most
appropriate way to secure value for money when the expenditure is borne by
the public as a whole (as for example, in the fixing of graduated fees for
criminal legal aid) it should be no less appropriate when the expenditure is
borne by a section of the public, namely the motorists. Not only would this
be more likely to keep the actual costs within reasonable levels but it
would also greatly reduce the cost of disputes over costs. We were told
that no less than 150,000 cases awaited the outcome of your Lordships'
decision in this case.
|
| 37. |
In their submissions to the Court of Appeal, the liability insurers said
that what they wanted most was certainty. If the consequence of your
Lordships' decision was that motor insurance premiums had to be raised, so
be it. But they wanted to be able to make the calculations with reasonable
certainty about what the motoring public would have to pay. This would not
be the case if everything turned upon a case by case assessment by the costs
judge.
|
| 38. |
My Lords, the arguments for legislative determination of allowable costs
apply even more strongly to the other two questions in these appeals, namely
whether it was reasonable to take out ATE insurance before it was known
whether the claim would be resisted and whether £375 was a reasonable
premium in the circumstances.
|
| 39. |
The arguments put forward to justify taking out an ATE insurance policy
before sending the letter before action are much the same as those for
fixing the success fee at the same time. The client is immediately assured
that in no circumstances will he be liable for the defendant's costs. He
may pay a higher premium than would be individually justifiable if it was
known that the claim was admitted, but he insures himself against the
possibility that a later premium might be much higher or even unobtainable.
And ATE insurers say that they cannot obtain a reasonable premium income
unless everyone takes out insurance when they first instruct solicitors.
This was the principle upon which insurers such as Temple, in this case,
delegated to solicitors the authority to issue policies.
|
| 40. |
Again, as it seems to me, the Court of Appeal accepted these arguments.
They said (at p 2128, para 67) that -
|
| |
| |
"It is hardly surprising
that delegated authority arrangements will only work successfully if the
solicitor does not 'cherry-pick' by taking out ATE insurance only in risky
cases."
|
|
| 41. |
Perhaps that is true. I am certainly not in a position to say that it was
wrong. But neither, in my respectful opinion, was the Court of Appeal. Of
course it is true that, other things being equal, premiums will rise if
fewer people take out ATE insurance. And it is true that when ATE insurance
made its first appearance, at a time when it could not be recovered from the
defendant and claimants would take out policies only if they were seriously
concerned about losing the case, underwriters burnt their fingers. But
premiums were then also very low compared to current rates. Now, premiums
are much higher and ATE insurers insist upon all claimants taking out
policies. Whether the latter is necessary to keep ATE insurers in business
at current premium rates is an open question.
|
| 42. |
Furthermore, it is a question which costs judges are quite unable to
answer. When the Court of Appeal asked for the report of Master O'Hare on
the question of whether the Temple premium in this case was reasonable, he
said [2001] 1 WLR 2142, 2163, para 20:
|
| |
| |
"I am not
convinced...market forces impinge upon the premium levied to the ultimate
consumer and claimed by him from his unsuccessful opponent."
|
|
| 43. |
That seems to me obviously right. ATE insurers do not compete for
claimants, still less do they compete on premiums charged. They compete for
solicitors who will sell or recommend their product. And they compete by
offering solicitors the most profitable arrangements to enable them to
attract profitable work. There is only one restraining force on the premium
charged and that is how much the costs judge will allow on an assessment
against the liability insurer.
|
| 44. |
Again, the costs judge has absolutely no criteria to enable him to decide
whether any given premium is reasonable. On the contrary, the likelihood is
that whatever costs judges are prepared to allow will constitute the
benchmark around which ATE insurers will tacitly collude in fixing their
premiums. In its submissions to Master O'Hare, Temple said that the court
"should not arrogate to itself the functions of a financial regulator of the
insurance industry": see [2001] 1 WLR 2142, 2164, para 22. I am sure that
is right, because the costs judge is wholly unequipped to perform that
function. But that does not mean that some form of financial regulation is
not necessary. Such regulation is normally considered necessary in those
parts of the economy in which market forces are insufficient to produce an
efficient use of resources. And that seems to me to be the position in ATE
insurance, in which the premiums are not paid either by the claimants who
take out the insurance or by the solicitors who advise or require them to do
so.
|
| 45. |
My Lords, these are my reservations about the exercise which your Lordships
are asked to undertake. But, given that your Lordships have to say whether,
on the materials before you, the Court of Appeal were right or wrong, I
would dismiss the appeals.
|
| |
LORD HOPE OF CRAIGHEAD
|
| |
My
Lords,
|
| 46. |
This appeal raises important questions about the operation of a new costs
regime to assist members of the public who wish to claim damages for
personal injury. The facts have been fully described by my noble and
learned friend Lord Scott of Foscote, and I gratefully adopt his account of
them.
|
| 47. |
The previous scheme was based on the provision of legal aid out of public
funds. But it had become clear that it was no longer possible for the
government to fund legal aid in civil cases in England and Wales across the
board at the required level. So the government decided to withdraw legal
aid from certain categories of proceedings including actions of damages for
personal injury, and to replace it with a new system based on conditional
fee and litigation funding agreements. The legislation which was required
to give effect to this was enacted as Part II of the Access to Justice Act
1999. An essential part of the new arrangement was the government's
decision that claimants should not be at risk of being left out of pocket by
reason of the additional liabilities which they would have to incur under
this scheme. These included the cost of taking out an insurance policy
against the risk of incurring a liability to the other party in the
proceedings for costs.
|
| 48. |
The new scheme was the subject of a consultation paper entitled
Conditional Fees: Sharing the Risks of Litigation which was issued by
the Lord Chancellor's Department in September 1999. It was based upon two
recent developments in the private funding of litigation. The first was the
introduction of conditional fee agreements ("CFAs") under section 58 of the Courts and Legal Services Act 1990Acts. Initially there had been concerns that
these agreements would be abused and that this part of the new system would
be unworkable. But experience of its operation showed that this was not so.
In Thai Trading Co (A Firm) v Taylor[ [1998] QB 781,
790F] Millett LJ said that fears that lawyers might be
tempted by such an arrangement to act improperly were exaggerated, and that
there was a countervailing public policy in making justice readily
accessible to persons of modest means. The second was the concept of after
the event insurance ("ATE"). This was a new kind of insurance policy which
had been developed by the Law Society in conjunction with insurance brokers
as a means of protecting claimants against their liability for the other
side's costs.
|
| 49. |
These developments had gone a long way towards removing the barrier to
justice for prospective litigants. But they still left one problem
untouched. In its response to consultation the government said that it
recognised that a major barrier to justice had always been the risk that
litigants would have to pay the other side's costs as well as their own if
they lost the case. The policy which it decided to pursue was to ensure
that the expense of shifting the claimant's liability in costs, whether to
the solicitor under a CFA or to the insurer for the premium payable under
the ATE insurance policy, was met by the losing party where damages were
claimed for personal injury. As the consultation paper pointed out, the
purpose of the legislation was to provide the framework within which the new
system was to operate. The detail was to be informed by rules of court and
by practice directions. There was to be a division of responsibility
between the courts and the legislature.
|
| 50. |
The appellant seeks to challenge the operation of two powers which have
been given by the legislature under the new scheme to the courts. The first
is the power to include in an award of costs in favour of the claimant an
order for payment by the losing party of the amount of the success fee
payable by the claimant under a CFA entered into with his legal
representative. Section 58A(7) of the Courts and Legal Services Act 1990Acts,
inserted by section 27(1) of the Access to Justice Act 1999, provides:
|
| |
| |
"Rules of court may make provision with respect to the assessment of
any costs which include fees payable under a conditional fee agreement
(including one which provides for a success fee)."
|
|
| |
The second
is the power of the court to include in a costs order the amount of the
insurance premium for a claimant's ATE insurance policy against the risk of
incurring a liability to pay the other parties' costs in the event of his
having to raise proceedings to recover damages. Section 29 of the Access to
Justice Act 1999 provides:
|
| |
| |
"Where in any proceedings a costs
order is made in favour of any party who has taken out an insurance policy
against the risk of incurring a liability in those proceedings, the costs
payable to him may, subject in the case of court proceedings to rules of
court, include costs in respect of the premium of the policy."
|
|
| 51. |
Three broad questions are raised by these new powers. The first is whether
it is right in principle that a claimant's liability for his legal
representative's success fee and the cost of his insurance premium should be
recoverable from the losing party. The second is whether it should
ordinarily be considered to be reasonable for the purposes of any costs
order for the claimant to enter into the CFA, and to take out the ATE policy
at the same time, on the occasion when he first consults his legal
representative. The third is whether the cost of insuring against a cost
liability that cannot be passed on to the opposing party should be included
in the recoverable amount of the insurance premium. In addition the
appellant has challenged the decision of the Court of Appeal not to
interfere with the judge's conclusion that a success fee of 20% was
appropriate in this case.
|
| 52. |
Answers to these questions were provided by the Court of Appeal in the two
judgments which are before your Lordships in this appeal. In Callery v Gray[ [2001] 1 WLR 2112] (Lord Woolf CJ, Lord Phillips of Worth Matravers
MR and Brooke LJ) the court held that, where a reasonable uplift is agreed
at the outset as part of a CFA and an ATE insurance is taken out at that
stage at a reasonable premium, the costs of both the uplift and the premium
are recoverable from the defendant in the event that the claim succeeds or
is settled on terms that the defendant pay the claimant's costs: p 2134F,
para 100. The court said that it had reached this conclusion after taking
account of the legislative policy and various practical considerations which
were established by the evidence: p 2133F, para 99. Its conclusion on the
issue as to the reasonableness of the uplift by way of a success fee was
that, where a CFA is agreed at the outset in straightforward cases such as
this one, 20% is the maximum uplift that can reasonably be agreed.
|
| 53. |
The Court of Appeal dealt in a separate judgment with the reasonableness of
the ATE insurance premium: Callery v Gray (No 2)[ [2001] 1 WLR 2142]
(Lord Phillips of Worth Matravers MR and Brooke LJ). It held that the
jurisdiction which has been given to the courts by section 29 of the 1999
Act to order the defendant to pay the cost of the insurance premium extends
to the cost of insurance against the risk of incurring a costs liability
that cannot be passed on to the opposing party: p 2157B-D; paras 59-60. The
court said that it believed that this interpretation of section 29 gave the
words the meaning that would be attributed to them by the reasonable
litigant, and that it also gave them a meaning that accorded with the
legislative intention and with the overall scheme for the funding of legal
costs.
|
| 54. |
I accept that the new regime is not beyond criticism. It is plain that it
has transferred the burden of meeting the cost of access to justice in these
cases from the taxpayer through the medium of the legal aid fund. Instead a
different kind of taxation is involved. The burden of meeting the cost of
access to justice now falls on liability insurers. It thus falls indirectly
on their policy holders, who are likely to have to face increased premiums.
Furthermore, unless the new regime is controlled very carefully, its effect
may be to benefit ATE insurance providers unreasonably and to place a burden
on liability insurers which is disproportionate. It may lead to a culture
of incurring additional costs which lacks any incentive on claimants to keep
costs down. The circumstances of the present case add force to these
criticisms. It must have been obvious from the outset that this was a claim
which was almost certain to succeed on liability and that there was almost
nothing to discuss on the quantum of damages. The claimant's exposure to
risk was, at the worst, minimal. And, as my noble and learned friend Lord
Scott has pointed out, the premium which Temple charged for the insurance
cover was not based on an individual assessment of the risk but was a
uniform premium. The costs incurred in this case by way of the success fee
and the ATE premium do indeed appear at first sight to be wholly out of line
with what the case required.
|
| 55. |
But it would be hard to imagine judges who were better qualified to examine
these issues than the Lord Chief Justice, the Master of Rolls - who has
particular responsibilities in this field as the Head of Civil Justice in
England and Wales - and Brooke LJ. They are in close and regular contact
with all relevant aspects of civil practice. They heard representations
from a number of bodies who have a direct interest in these issues. They
also had the advantage in this case of having a report on the reasonableness
of the premiums charged for ATE insurance from Master O'Hare. He has an
unrivalled expertise in the matter of costs. The Court of Appeal could not
have been better informed. I think that their judgment is entitled to the
greatest respect in a matter of this kind. I would be very slow to differ
from the conclusions which they have reached.
|
| 56. |
In Girvan v Inverness Farmers Dairy[ 1998 SC (HL) 1, 21D-G] I said
that the Court of Session is far better placed that this House can ever be
to assess what changes could appropriately be made in procedure and practice
relating to the conduct of civil jury trials in that court. I drew
attention to the process of consultation that is available to it through its
statutory rules council, to its ability to keep its rules under regular
review and to the advantages which it can bring to bear of speed and
flexibility. I suggested that the proper approach for this House to take
was to leave it to the Court of Session to decide what changes, if any,
should be made to its own rules. This case is concerned with the role of
the court in administering the new regime in a way that seeks to do justice
between the parties within the limits that have been set by the legislative
policy. For similar reasons to those which I gave in Girvan I
consider that the responsibility for dealing with these issues lies
pre-eminently with the Court of Appeal and not with this House.
|
| 57. |
Two other factors seem to me to favour the decisions which the Court of
Appeal reached in this case. The first is the fact that it was common
ground that not enough is yet known about the likely effect on CFAs of
different levels of success fees: Callery v Gray[ [2001] 1 WLR 2112,
2128A, para 64]. The appellant did not suggest to your Lordships that the
position was otherwise. The second is the state of the evidence about the
effect on the market for ATE insurance if your Lordships were to uphold the
appellant's argument that the taking out of these policies should be delayed
until proceedings have been issued. The Court of Appeal held that there was
overwhelming evidence from those engaged in the provision of ATE insurance
that unless the policy is taken out before it is known whether a defendant
is going to contest liability, the premium is going to rise substantially
and cover may indeed not be available at all in such circumstances: p
2134E-F, para 99(ix).
|
| 58. |
Ample support for the finding about the effect on ATE insurance is to be
found in witness statements provided by Christopher Ward and Christopher
Wait. Mr Ward is the managing director of Abbey Legal Protection Ltd, a
specialist legal expenses underwriting agency providing both before the
event and after the event legal expenses insurance. Mr Wait is an
underwriting director of Temple Legal Protection Ltd, which specialises in
the same field. Mr Temple QC for the appellant said that these statements
were self-serving and that little weight should be attached to them. But
there was no contrary evidence.
|
| 59. |
I note also that in para 27 of his report to the Court of Appeal Master
O'Hare acknowledged the risks to which ATE providers would be exposed if
increasing premiums and the need to make inquiries were to encourage more
claimants to dispense with insurance altogether: Callery v Gray (No 2)[ [2001] 1 WLR 2142, 2165D]. In preparing his report he considered
written and oral submissions from many parties: see para 2. He also drew
attention in para 16 to the advantages which flow from the insurers'
practice of giving delegated authority to solicitors to offer ATE cover to
their clients. As he explained, it is characteristic of these policies that
they do not differentiate between cases which are strong and those which are
borderline. This all-in approach reduces the administrative cost of risk
assessment, and there is the further point that risk assessment at the
outset of proceedings may well be imprecise or unreliable. His findings
support the Court of Appeal's observation in Callery v Gray[ [2001] 1
WLR 2112, 2128H] that it was hardly surprising that delegated authority
arrangements would only work successfully if the solicitor did not
"cherry-pick" by taking out ATE insurance only in risky cases. It is plain
that a finding that the cost of taking out ATE insurance at the outset was
in principle irrecoverable from the losing party would have a profound
effect on the cost and availability of this form of insurance cover.
|
| 60. |
These and the other practical considerations relied on by the Court of
Appeal seem to me to point clearly in favour of allowing the ATE insurance
policy to be taken out at the outset when the claimant first consults his
legal representative. The extent to which the cost of doing so will be
recoverable from the losing party will require to be watched very carefully.
But a sufficient safeguard lies in the fact that it will continue to be
subject to the supervision of the court on the basis described in Callery v Gray (No 2)[ [2001] 1 WLR 2142, 2157D, para 61]:
|
| |
| |
"The
circumstances in which and the terms on which own costs insurance will be
reasonable, so that the whole premium can be recovered as costs, will have
to be determined by the courts, when dealing with individual cases,
assisted, if appropriate, by the Rule Committee."
|
|
| 61. |
I think that it is also worth recording that the appellant's counsel did
not challenge the conclusions of the Court of Appeal in Callery v Gray (No 2)[ [2001] 1 WLR 2142, 2157C-D, para 60] as to how section 29 of the
1999 Act ought to be interpreted. This was an issue of law which would have
been open for further consideration by your Lordships if it had been
suggested that the section was not capable of bearing the meaning which the
Court of Appeal said could and should be given to it. But Mr Birts QC
accepted that it had reached a sound conclusion on this point, and for my
part I think that he was right to do so. The remaining issues seem to me to
be essentially issues of practice. They are best dealt with by penalising
unreasonable behaviour on a case by case basis as the circumstances
require.
|
| 62. |
For these reasons, and for those given by my noble and learned friend Lord
Bingham of Cornhill whose speech I have had the advantage of reading in
draft and with which I am in entire agreement, I would dismiss the
appeal.
|
| |
LORD SCOTT OF FOSCOTE
|
| |
My Lords,
|
| |
Introduction
|
| 63. |
The civil courts of this country have power to order a party to litigation
to pay to the other party his (the latter's) costs of the litigation. This
power presumably owes its origin to the inherent power of the court to
regulate the proceedings before it, but in modern times the power has been a
statutory one, embodied in rules of court made under rule-making powers
conferred by statute. The power to make costs orders has always been, and
remains, a discretionary one. But the discretion is circumscribed by
guidance laid down under rules of court and by principles established by
judicial precedent.
|
| 64. |
At the risk of some over-simplification, the issues that may arise in
relation to costs orders fall into three groups. First, there are issues as
to which, if any, of the litigants should have a costs order made in his
favour and against whom the order should be made. Secondly, there may be
issues as to the extent of the receiving party's costs that the paying party
should be ordered to pay. And, thirdly, there may be issues of
quantification. The sum that, under the order, the paying party must pay to
the receiving party will have to be quantified. A process of assessment
must be carried out.
|
| 65. |
For example, a successful claimant in a road traffic accident case would
expect to have an order for costs made in his favour against the negligent
defendant. But if the engagement by the claimant of a particular expert
witness appeared to have been unnecessary, the court might exclude the fee
paid to the expert witness from the costs payable under the order. And if
the engagement of the expert witness appeared reasonable but the fee paid to
the expert appeared to be excessive, the court might reduce to a reasonable
amount the sum in respect of the fee payable under the costs order. These
basic principles are very well known and understood and hardly need
repeating, but, in my opinion, need to be kept in mind in considering some
of the issues before the House on this appeal.
|
| 66. |
The appeal relates to costs issues arising out of a very simple and
commonplace type of claim. The difficulties that have led to this appeal
are attributable to recent changes in the costs regime, which reflect
changes in the means by which the bringing of actions can be funded. In
order to deal with these issues it is necessary to set out the facts which
have given rise to them and the statutory provisions that bear upon
them.
|
| |
The accident
|
| 67. |
On 2 April 2000 Mr Callery, respondent before your Lordships, was a
passenger in a car which was struck side-on by a vehicle driven by the
appellant, Mr Gray. Mr Callery sustained minor injuries. He instructed
solicitors, Messrs Amelans, to pursue a claim for damages against Mr Gray.
Amelans are a firm who deal with a large number of road traffic accident
claims. They are specialists in this field. I have described Mr Callery's
claim as commonplace. It was. There are thousands of such claims every
year. They rarely reach the courts.
|
| |
The funding
arrangements
|
| 68. |
Under the Access to Justice Act 1999, legal aid to support road traffic
accident claims such as Mr Callery's was no longer available. Instead the
use of conditional fee agreements (CFAs) was authorised. A feature of a CFA
is that, if the claim fails, the lawyer, whether solicitor or barrister, who
has given his services under the CFA, receives no remuneration but, if the
claim succeeds, the lawyer becomes entitled not only to the normal fee for
his services but also to a success fee, calculated as a percentage of the
normal fee. (see the Conditional Fee Agreements Order 1998 (SI 1998/1860).
The percentage uplift is required by the 1998 order to be specified in the
CFA and must not exceed 100 per cent of the normal fee.
|
| 69. |
The logic of the success fee is that its size will reflect the risk the
lawyer is incurring in taking on the case. The more difficult the case and
the less clear that the outcome will be a successful one, the higher the
percentage uplift that can be justified; and, of course, vice versa. A CFA
protects the claimant who enters into it from having to remunerate his
lawyers if the claim fails. A typical CFA does not, however, protect the
claimant from having to reimburse his lawyers for their disbursements in
pursuing the claim. These disbursements might, for example, include the
fees of experts whose opinion on some issue or other had been sought. If
the claim succeeds the claimant will have the expectation that the burden of
paying for his solicitor's reasonable disbursements will fall on the
defendant. If the claim fails, he will have to meet the disbursements
himself.
|
| 70. |
Nor does a CFA protect the claimant from the risk that if litigation is
commenced he may find himself ordered to pay the costs, or some part of the
costs, of the defendant. But it is important to notice that this risk
cannot arise unless litigation is commenced.
|
| 71. |
In order to protect himself against the risk that he may find himself
liable to pay the costs, or some of the costs, of the defendant, a claimant
can take out after-the-event ("ATE") insurance.
|
| 72. |
In the present case Mr Callery entered into a CFA with Amelans at the same
time as instructing them to pursue his damages claim. The CFA was dated 28
April 2000. It said that if Mr Callery succeeded in his claim for damages
he would pay Amelans' basic charges and a success fee. It said that, win or
lose, Mr Callery would have to pay their disbursements. It set the success
fee at 60 per cent of Amelans' basic charges but provided also that in the
event of an assessment of costs by the court
|
| |
| |
"and the court
disallows any amount of the success fee percentage on the ground that it is
unreasonable in view of what we [the solicitors] knew or should have known
at the time, that amount ceases to be payable under this agreement unless
the court is satisfied that it should continue to be payable."
|
|
| 73. |
The effect of a provision in these terms would be, in practice, and save in
exceptional circumstances, to relieve the claimant of his contractual
liability to pay any excess of the success fee above the amount that, on the
assessment of costs, the court had decided the defendant should pay.
|
| 74. |
On 4 May 2000 Mr Callery took out an ATE insurance policy with Temple Legal
Protection Ltd ("Temple"). This was the date on which Amelans' first letter
to Mr Gray, informing him of the claim, was sent. The policy was taken out
before Mr Callery or his legal advisers, Amelans, could have come to the
conclusion that litigation to pursue the claim would be necessary or even
likely. The premium for the policy was £350 plus £17.50 tax, a
total of £367.50. Under the policy Temple agreed to indemnify Mr
Callery, up to a limit of £100,000,
|
| |
| (i) |
for any sum in respect of Mr
Gray's costs that might be ordered by the court to be paid by Mr Callery;
and
| | (ii) |
for disbursements paid
out by Amelans in the event that the litigation came to an end without the
disbursements becoming payable by Mr Gray.
|
|
| |
In this description of the insurance cover
provided under the policy I have attempted to describe the broad scope of
the cover rather than set out its exact details. The exact details are not
relevant to any issue before the House.
|
| 75. |
A noteworthy feature of the policy is that the premium of £350.00
would not become payable until the conclusion of the legal proceedings in
respect of which the policy had been taken out and, if the amount of the
premium were challenged by Mr Gray in any cost assessment process, the
recoverable amount of the premium would be reduced to the amount payable by
Mr Gray under the assessment.
|
| |
The progress of Mr Callery's
claim
|
| 76. |
On 4 May 2000 (the day on which the ATE policy was taken out) Amelans wrote
to Mr Gray giving notice of their client's damages claim and enclosing a
copy of the letter for his insurers. The letter asked for an
acknowledgement within 21 days from Mr Gray or his insurers.
|
| 77. |
On 19 May 2000, Mr Gray's insurers, CGU Insurance, replied. Their reply
said that they were able "to admit liability as to negligence but not to
causation". Following an exchange of offer and counter-offer, the parties
reached agreement on 2 August 2000 that Mr Callery should receive damages of
£1500. Amelans wrote on 7 August 2000 to CGU confirming "acceptance of
your offer in the sum of £1500 in respect of our client's damages" and
that "acceptance of the offer is subject to payment of our client's
reasonable costs and disbursements …. ". However, the parties were
unable to agree the amount of the "reasonable costs and disbursements".
There were two main issues.
|
| 78. |
First, CGU took the view that a 60 per cent success fee for Amelans was
unreasonably high. It was always certain, they thought, that Mr Callery
would succeed in recovering damages. He had been a passenger in a vehicle
struck side-on by Mr Gray's vehicle. He had been injured in the accident.
He was bound to recover something. So this was not a case in which there
was any risk that Amelans, in pursuing the claim on Mr Callery's behalf,
would be working for nothing. It followed that any success fee should be
very low.
|
| 79. |
Second, CGU contended that the £350.00 premium was an item of
expenditure that had not been reasonably incurred. The likelihood of
litigation being necessary was always very remote. At the least Mr Callery
should have waited until a response to Amelans' letter of 4 May 2000 had
been received before taking out a policy to protect himself against the
costs consequences of litigation that was unlikely ever to materialise.
|
| 80. |
In these circumstances, there being agreement as to the amount of the
damages and agreement that Mr Callery would be paid his reasonable costs and
disbursements but no agreement as to the amount of a reasonable success fee
or whether the £350.00 premium represented a reasonable disbursement,
Mr Callery commenced "costs only" proceedings (see CPR 44.12A) in order to
have the reasonable costs and disbursements to which he was entitled under
the settlement agreement quantified by the court.
|
| |
The relevant
statutory provisions
|
| 81. |
The statutory provisions relevant to the recovery under a costs order of a
CFA success fee or of the premium payable for ATE insurance cover have been
comprehensively set out in paragraphs 24 to 39 of the judgment of the Court
of Appeal handed down by Lord Woolf CJ, sitting with Lord Phillips of Worth
Matravers MR and Brooke LJ, on 17 July 2001: [2001] 1 WLR 2112, 2118-2123.
This was the first of the two Court of Appeal judgments from which the
appeal to the House is brought. It is unnecessary for me to do more than
refer to the critical provisions.
|
| 82. |
Section 58(A)(6) of the Courts and Legal Services Act 1990Acts, as substituted
by section 27 of the Access to Justice Act 1999 provides that:
|
| |
| |
"A costs order made in any proceedings may, subject in the case of
court proceedings to rules of court, include provision requiring the payment
of any fees payable under a conditional fee agreement which provides for a
success fee."
|
|
| |
Section 29 of the 1999 Act provides:
|
| |
| |
"Where in any proceedings a costs order is made in favour of any
party who has taken out an insurance policy against the risk of incurring a
liability in those proceedings, the costs payable to him may, subject in the
case of court proceedings to rules of court, include costs in respect of the
premium of the policy."
|
|
| 83. |
There is, therefore, no doubt but that a costs order can require the paying
party to pay a sum in respect of a success fee for which the receiving party
has become contractually liable and to pay a sum in respect of the premium
payable for an ATE insurance policy that the receiving party has taken
out.
|
| 84. |
In the Civil Procedure Rules, Rule 43.2 provides that:
|
| |
| |
"'Costs'
. . . includes any additional liability incurred under a funding arrangement
…. "
|
|
| |
and that "additional liability" includes the success
fee under a CFA and the premium payable for an ATE insurance policy.
|
| 85. |
Rule 44.4 sets out the basis upon which costs are to be assessed:
|
| |
| "44.4(1) |
Where the court is to assess the amounts of
costs (whether by summary or detailed assessment) it will assess those
costs—
| | |
| (a) |
on the standard basis;
or
| | (b) |
on the indemnity basis, but the court
will not in either case allow costs which have been unreasonably incurred or
are unreasonable in amount. ….
|
| | (2) |
Where the amount of the costs is to be assessed on the standard basis, the court
will—
| | |
| (a) |
only allow costs which are
proportionate to the matters in issue; and
| | (b) |
resolve any doubt which it may have as to whether
costs were reasonably incurred or reasonable and proportionate in amount in
favour of the paying party."
|
|
|
| 86. |
Rule 44.5 sets out the factors the court must take into account in
assessing costs:
|
| |
| "(1) |
The court is to have regard to
all the circumstances in deciding whether costs were—
| | |
| (a) |
if it is assessing costs on the standard
basis—
| | |
| (i) |
proportionately and reasonably
incurred; or
| | (ii) |
were proportionate and
reasonable in amount; ….
|
| | (3) |
The court
must also have regard to—
| | |
| (a) |
the conduct
of all the parties, including in particular—
| | |
| (i) |
conduct before, as well as during, the proceedings;
and
| | (ii) |
the efforts made, if any, before and
during the proceedings in order to try to resolve the dispute;
|
| | (b) |
the amount or value of any money or property
involved;
| | (c) |
the importance of the matter to
all the parties;
| | (d) |
the particular complexity
of the matter or the difficulty or novelty of the questions
raised;
| | (e) |
the skill, effort, specialised
knowledge and responsibility involved;
| | (f) |
the
time spent on the case; and
| | (g) |
the place where
and the circumstances in which work or any part of it was done."
|
|
|
|
| 87. |
These factors, as one would expect, concentrate on the circumstances and
conduct of the parties in relation to the claim in question and on the
nature of the particular claim. They are case specific factors.
|
| 88. |
The Costs Practice Directionpdp-43 that supplements the Rules relating to costs contains further guidance on the assessment, for costs purposes, of an additional liability. Section 11 of the Costs Practice Directionpdp-43 contains the following relevant provisions:
|
| |
| "11.2 |
In any proceedings there will be costs which will inevitably be incurred and which are necessary for the successful conduct of the case. Solicitors are not required to conduct litigation at rates which are uneconomic. Thus in a modest claim the proportion of costs is likely to be higher than in a large claim, and may even equal or possibly exceed the amount in dispute.
….
| | 11.5 |
In deciding whether the costs claimed are reasonable and (on a standard basis assessment) proportionate, the court will consider the amount of any additional liability separately from the base costs.
| | 11.6 |
In deciding whether the base costs are reasonable and (if relevant) proportionate the court will consider the factors set out in rule 44.5.
| | 11.7 |
Subject to paragraph 17.8(2), when the court is considering the factors to be taken into account in assessing an additional liability, it will have regard to the facts and circumstances as they reasonably appeared to the solicitor or counsel when the funding arrangement was entered into and at the time of any variation of the arrangement.
| | 11.8 |
| | |
| (1) |
In deciding whether a percentage increase is reasonable relevant factors to be taken into account may include:
| | |
| (a) |
the risk that the circumstances in which the costs, fees or expenses would be payable might or might not occur;
| | (b) |
the legal representative's liability for any disbursements;
| | (c) |
what other methods of financing the costs were available to the receiving party.
|
| | (2) |
….
|
| | 11.9 |
A percentage increase will not be reduced simply on the ground that, when added to base costs which are reasonable and (where relevant) proportionate, the total appears disproportionate.
….
| | 11.10 |
In deciding whether the cost of insurance cover is reasonable, relevant factors to be taken into account include:
| | |
| (1) |
….
| | (2) |
the level and extent of the cover provided;
| | (3) |
the availability of any pre-existing insurance cover;
| | (4) |
whether any part of the premium would be rebated in the event of early settlement;
| | (5) |
…. "
|
|
|
| 89. |
Rule 44.12A and Section 17 of the Costs Practice Directionpdp-43 relate to "costs
only" proceedings. "Costs only" proceedings may be commenced where the
parties, before the commencement of litigation, have agreed in writing on
all issues in the case, including which party is to pay the costs, but have
been unable to agree the amount of the costs (see CPR 44.12A). In effect,
the court is allowing its costs quantification procedures to be used to
support an out-of-court settlement under which one party is to pay the
reasonable costs and disbursements of another party. It is implicit in such
a settlement agreement (unless the contrary is expressly stated) that the
costs to be paid should be quantified on the standard basis in accordance
with the Rules and Practice Directions that would have been applicable if
there had been a court order for the payment of the costs.
|
| 90. |
Paragraph 17.8(2) of the Costs Practice Directionpdp-43 makes clear that in
assessing the reasonableness of an additional liability, whether a success
fee or an ATE premium, the likelihood of litigation having to be commenced
is an important factor. The paragraph provides that:
|
| |
| |
"In cases
in which an additional liability is claimed, the costs judge or district
judge should have regard to the time when and the extent to which the claim
has been settled and to the fact that the claim has been settled without the
need to commence proceedings."
|
|
| |
The course taken by the
"costs only" proceedings
|
| 91. |
On 12 September 2000 Mr Callery commenced proceedings under CPR Part 8
asking the court to assess his reasonable costs of and occasioned by his
damages claim against Mr Gray. The particulars of claim pleaded the
agreement that had been reached that Mr Gray would pay £1500 damages
and Mr Callery's reasonable costs.
|
| 92. |
On 14 September an ex parte order was made in the Macclesfield
County Court ordering, inter alia, that Mr Callery's costs be
assessed.
|
| 93. |
The assessment hearing took place before District Judge Wallace on 7
November 2000. The District Judge assessed Amelans' basic charges, reduced
the success fee from 60 per cent to 40 per cent of the basic charges and
allowed the ATE insurance premium of £350 plus tax as a disbursement.
The assessment allowed a total of £1008, plus VAT, for fees and
£617.50 for disbursements.
|
| 94. |
Mr Gray (prompted by CGU) appealed to the circuit judge. The appeal was
heard by Judge Edwards in the Chester County Court on 29 January 2001. Two
points were taken on the appeal, one relating to Amelans' success fee under
the CFA, the other relating to the ATE insurance premium. They are the two
points to which I have already referred. The appeal was dismissed on both
points.
|
| 95. |
CGU took the view that important points of principle were at stake, with
implications for personal injury litigants and their insurers generally, and
prompted Mr Gray to apply to the Court of Appeal for permission to bring a
second appeal to that court. On 16 March 2001 Lady Justice Hale granted
permission on condition that Mr Gray, if successful, would not seeks costs
from Mr Callery unless his liability to pay were covered in full by the
terms of the ATE policy.
|
| 96. |
Further evidence was, with the permission of the Court of Appeal,
introduced at the hearing of the appeal and written and oral intervention by
the Law Society, the Association of British Insurers, the After Event
Insurers Group Forum, the Association of Personal Injury Lawyers and the
Forum of Insurance Lawyers was authorised. The hearing of the appeal was
directed to be conjoined with the hearing of the appeal in Russell v Pal Pak Corrugated Ltd under which similar success fee issues arose.
|
| 97. |
The Court of Appeal heard the appeal on 5, 6 and 7 June 2001. On 17 July
2001 the court handed down the judgment of the court on the success fee
issue, reducing Amelans' success fee from the 40 per cent fixed by the
district judge to 20 per cent (and dismissing the appeal in Russell v Pal Pak[ [2001] 1 WLR 2112]. In addition the court ruled that an ATE
insurance premium could in principle be recovered as part of a claimant's
costs in "costs only" proceedings. But the court formed the view that, on
the evidence available, it was not possible to come to a conclusion as to
the reasonableness in amount of the £350.00 premium. So the court
postponed judgment on the issue relating to the amount of the ATE insurance
premium pending an inquiry by a costs judge, Master O'Hare. A separate
judgment on that issue would await Master O'Hare's report.
|
| 98. |
It is important to be clear that the court's further reservation of
judgment regarding the ATE insurance premium related only to the
reasonableness of the amount of the premium. In principle the premium was
held to be recoverable notwithstanding that the policy had been taken out
before the commencement of litigation for the purpose of recovering damages
had become necessary, or even likely. As it was put at p 2134, para 100 of
the judgment:
|
| |
| |
"we have concluded that where, at the outset, a
reasonable uplift is agreed and ATE insurance at a reasonable premium is
taken out, the costs of each are recoverable from the defendant in the event
that the claim succeeds, or is settled on terms that the defendant pay the
claimant's costs."
|
|
| 99. |
I will return later to examine the reasons why, in relation to the ATE
insurance premium, the court came to this conclusion.
|
| 100. |
Master O'Hare's report was dated 23 July 2001. The purpose of his report
was expressed to be
|
| |
| |
"to enable the Court of Appeal to give
guidance in its judgment as to the practice to be adopted in future in
taking out [ATE] insurance." (para 1).
|
|
| 101. |
Master O'Hare had received written submissions from a number of interested
parties but nonetheless concluded that:
|
| |
| |
"For several reasons it
is not possible to state standard or average premiums for different classes
or categories of ATE insurance. The industry is still immature …."
(para 19).
|
|
| |
And, at para 23:
|
| |
| |
"now is not the time to
publish guideline figures for ATE premiums …."
|
|
| 102. |
On 31 July 2001 Lord Phillips of Worth Matravers, sitting with Brooke LJ,
handed down the judgment of the court dealing with the reasonableness of the
amount of Mr Callery's ATE premium [2001] 1 WLR 2142. The Court concluded
that "the amount of the premium does not strike us as manifestly
disproportionate to the risk" (p 2159, para 70).
|
| 103. |
So the appeal on the insurance premium point was dismissed. The appeal on
the success fee point had been allowed by the reduction of the percentage
uplift from 40 per cent to 20 per cent.
|
| |
The section 29
jurisdiction issue
|
| 104. |
One of the contentions argued on behalf of Mr Gray, the appellant, before
the Court of Appeal was that section 29 of the 1999 Act was not applicable
to a case where a settlement out of court had been reached and all that was
left was the quantification of the claimant's costs and disbursements to be
paid by the defendant. The point was based on the language of section 29.
The "proceedings" referred to in the section were the substantive
proceedings for recovery of damages. Absent the section, ATE insurance
premiums would not have been recoverable under a costs order. So, in the
absence of any substantive proceedings for the recovery of damages, or any
order for costs made in such proceedings, the court, it was said, had no
jurisdiction to include an ATE insurance premium in the recoverable costs.
This argument was advanced in the Court of Appeal but was rejected. The
argument has not been raised again before your Lordships and I mention it
only in order to express my respectful agreement with the Court of Appeal's
rejection of it. It was a term of the settlement agreement that Mr Callery
would be paid his reasonable costs and expenses. It was plainly implicit
that these would be standard basis costs and that the amount, unless agreed,
would be assessed by a costs judge in accordance with the relevant rules and
practice directions. These rules and practice directions allow for a sum in
respect of an ATE premium that has been reasonably incurred to be included
in the recoverable costs. So in quantifying Mr Callery's recoverable costs
on that basis the district judge was acting in accordance with the agreement
the parties had made. There is no jurisdictional reason why a costs judge
should not assess the costs to which a party has become contractually
entitled (see Gomba Holdings (UK) Ltd v Minories Finance Ltd (No. 2)[
[1993] Ch 171, 188]). No issue of jurisdiction, in my opinion arises.
|
| |
The issues before the House
|
| 105. |
The appellant's written case identifies ten issues—
|
| |
| "(1) |
Was the insurance premium recoverable given the stage when the policy was taken out? (prematurity).
| | (2) |
Was the amount of the premium reasonable having regard to the characteristics of the instant case?
| | (3) |
Was the amount of the premium reasonable having regard to prematurity?
| | (4) |
Was the Court of Appeal wrong not to resolve doubt - if any - as to the
amount of the recoverable premium in favour of the paying party?
| | (5) |
Should the defendant be liable for any part of the premium which covers adverse costs orders and all aspects of own costs, however incurred?
| | (6) |
The success fee ("uplift"): is the full uplift recoverable given the stage when the CFA was effected?
| | (7) |
Was the 20 per cent uplift a reasonable maximum for simple accident cases?
| | (8) |
Was the Court of Appeal's assessment of 20 per cent uplift for the instant case wrong?
| | (9) |
Should an uplift be assessed by reference to the risk in the particular case, or on a more general, and if so what, basis?
| | (10) |
Should uplift levels be conditioned, and if so how, by public interest considerations?"
|
|
| |
Issues (1) to (5) relate to the ATE premium; issues (6) to (10) relate to the success fee.
|
| |
The ATE premium
|
| |
Issue (1) - The ATE policy and prematurity
|
| 106. |
The prematurity issue was dealt with at [2001] 1 WLR 2112, 2130-2134, in
paragraphs 80 to 100 of the first Court of Appeal judgment in relation both
to the time at which a claimant could reasonably enter into a CFA and to the
time at which he could reasonably take out ATE insurance. The Court of
Appeal's approach to the prematurity issue is expressed at p 2132, para 91
of the judgment:
|
| |
| |
"we consider that, from the viewpoint of both the claimant and his
solicitor, it will normally be reasonable for a CFA to be concluded and ATE
cover taken out on the occasion that the claimant first instructs his
solicitors. What we have to decide is whether, having regard to the
statutory provisions, (i) The cost of the success fee and (ii) the ATE
premium, when incurred at that early stage, can be recovered."
|
|
| 107. |
I agree with the Court of Appeal's proposition that it is reasonable for a
claimant to enter into a CFA with his solicitor at their first meeting and
before the defendant's reaction to the claim is known. It was not
contended before your Lordships that Mr Callery instructed Amelans
prematurely. It was plainly reasonable for him to instruct solicitors to
pursue his claim and for them then to notify Mr Gray of his claim. And it
was reasonable for him, having instructed Amelans, immediately to enter into
a CFA with regard to their fees. After all, the fees clock begins ticking
as soon as a solicitor is instructed. The issues for your Lordships
regarding the success fee relate, in my opinion, not to the time when the
CFA was entered into but to the size of the success fee and the manner in
which its reasonableness should be assessed.
|
| 108. |
It is otherwise with an ATE policy. The main issue, indeed I think the
only real issue before the House, is whether it is reasonable, in a cost
assessment context, for a claimant to take out an ATE policy at a time when
litigation is highly unlikely. The purpose of an ATE policy is to protect
the claimant against adverse costs orders. But the risk of such orders
cannot arise unless and until the claimant commences litigation to pursue
his damages claim. The CFA is needed as soon as he instructs his
solicitors. But the ATE policy is not needed unless there is going to be
litigation.
|
| 109. |
The circuit judge, Judge Edwards, interpreted CGU's reply of 19 May 2000 to
Amelans' letter of 4 May as a denial of liability. This led him to conclude
that it had been reasonable for Mr Callery to take out ATE insurance cover
at an early stage "because a contest was looming". The Court of Appeal,
rightly in my opinion, did not accept that view of the letter of 19 May.
They commented, at [2001] 1 WLR 2112, 2139-2140,in para 131 of the first
judgment:
|
| |
| |
"In view of that letter, the claimant's solicitors would not be justified in
continuing to investigate and prepare the case on liability. Their sole
concern after the letter was to establish the extent of the damages.
Thereafter all that was required of the claimant's solicitors was that they
should proceed in accordance with the protocol to obtain a medical report
and investigate the question of damages. From a practical point of view,
this was, as Mr Birts contends on behalf of the defendant, a very, very low
risk case."
|
|
| 110. |
I would respectfully agree with this analysis of the letter of 19 May and
how matters stood after it had been received. But the content of the letter
was not the reason why the ATE policy was taken out. The policy had been
taken out well before Amelans' receipt of the 19 May letter. Indeed, it was
taken out before either Mr Gray or CGU could have received the letter of 4
May notifying them of the claim.
|
| 111. |
It is apparent, therefore, that the Court of Appeal's conclusion that it
had been reasonable for Mr Callery to take out the ATE insurance policy on 4
May immediately on instructing Amelans was not based on any perception that,
on what was then known, the policy was a reasonable precaution to be put in
place in order to protect Mr Callery against the possibility of an adverse
costs order in litigation. No one in Amelans was contemplating that
litigation might be needed in order to obtain the payment of a satisfactory
sum of damages for Mr Callery; it was not completely impossible that
litigation might be needed, but it was very unlikely indeed. On what then
was the Court of Appeal's conclusion based? It seems to me to have been
based on the evidence placed before the court about the ATE insurance market
and the Court of Appeal's concern that unless premium recovery under costs
orders were allowed in such commonplace, minimal risk cases as Mr Callery's,
the market in ATE insurance policies might wither. The Court of Appeal was
told that if claimants in road traffic accident cases postponed taking out
cover until a litigation contest seemed likely, the premiums charged would
rise steeply, putting at risk the ability of those who needed the cover in
risky or speculative litigation to obtain it and thereby impeding their
access to justice. The Court referred, in particular, to evidence from Mr
Ward, managing director of Abbey Legal Protection, whose firm ran the Law
Society's Accident Line Protect conditional fee insurance scheme. Under
this scheme, nominated solicitors were given delegated authority to offer
clients ATE insurance cover once agreement on a CFA had been reached. But,
in order to ensure that the principle of "the many paying for the few" was
observed, solicitors who wished to offer the Accident Line Protect cover to
their clients had to do so at the time the CFA was entered into and before
notifying the proposed defendant, or his insurers, of the claim (see p 2129,
para 70 of the first Court of Appeal judgment commenting on Mr Ward's
evidence). As to the policy of Temple, Mr Callery's insurers, paragraph 74
of the first judgment said this:
|
| |
| | "Mr Wait
[underwriting director of Temple] told us that most of the ATE insurance
schemes available on the market today can only provide insurance if cover is
in place before the initial letter of claim is sent. Again, the practice
follows the basic insurance principle that 'the many pay for the
few.'"
|
|
| 112. |
It may be noticed how, in the ATE insurance context, the "many pay for the
few" insurance principle has become distorted. The principle means that the
"many", all those who take out policies and pay premiums but many of whom do
not suffer an insured risk, build up a premium fund by means of which the
"few", who likewise take out policies and pay premiums but who do suffer an
insured risk, can have their insured losses met. In the ATE insurance
field, however, the "many", ie the defendants who are to be called upon to
meet the premiums that build up the premium fund from which the insured
losses of the few can be met, do not take out policies at all. The premium
fund is not built up for their benefit or protection. It has been suggested
that defendants, as well as claimants, benefit from ATE insurance because,
in the event of costs orders in favour of a defendant being made, the
claimant's insurance cover will provide a means by which this liability can
be met. In view of the number of exclusions likely to be found in a typical
ATE policy (see paragraphs 1, 2, 7 and 8 of the exclusions clause in Mr
Callery's policy), I doubt whether this will be of much practical comfort to
defendants. More importantly, the policy will come into play only in the
event of litigation and in a case, such as the present, where the prospect
of litigation was always highly remote, the suggested benefit to the
defendant seems to me theoretical and illusory.
|
| 113. |
Your Lordships cannot know what will be the consequence for the ATE
insurance market if premiums payable under ATE policies that have been taken
out where there is no real risk of litigation, and therefore no real risk of
the occurrence of the event insured against, are ruled to be irrecoverable
from defendants. I would for my part be prepared to accept that, if
recovery of premiums is restricted to those premiums paid in respect of
policies taken out where there is at least a fair likelihood that litigation
in pursuit of the damages claim will be needed, the size of premiums will
rise. But I would certainly not be prepared to accept that cover will be
unavailable. In any event, however, it is, in my opinion, contrary to
principle for the reasonableness of the premature taking out of ATE
insurance to be judged by reference to arguments about the impact on the ATE
insurance market if recovery of premiums in commonplace cases such as Mr
Callery's is not allowed.
|
| 114. |
The correct approach for costs assessment purposes to the question whether
an item of expenditure by the receiving party has been reasonably incurred
is to look at the circumstances of the particular case. The question
whether the paying party should be required to meet a particular item of
expenditure is a case specific question. It is not a question to which the
macro economics of the ATE insurance market has any relevance. If the
expenditure was not reasonably required for the purposes of the claim, it
would, in my opinion, be contrary to long-established costs recovery
principles to require the paying party to pay it.
|
| 115. |
Section 29 of the 1999 Act allows recovery of ATE insurance premiums:
"…. the costs payable to him may ... include costs in respect of the
premium …." (my emphasis). The section does not mandate the inclusion
of costs in respect of the premium. And whether a particular ATE insurance
premium, or part of it, should be included in the costs ordered to be paid
in a particular case should be tested and answered by reference to the same
principles of reasonableness that apply under the rules and practice
directions to all other items of expenditure.
|
| 116. |
There is, I think, no dispute that the likelihood of litigation being
necessary in order to pursue Mr Callery's damages claim was always very
remote. Amelans, with their experience in the field, knew this. They
offered ATE insurance to their client on 4 May, before notifying the
defendant of the claim and obtaining his reaction to it, not on the footing
that their client would be likely to need it, but because it had become
their practice to do so. The offer was no doubt made on the footing that it
would not be he who would have to pay the premium.
|
| 117. |
The argument advanced by the respondent, both in the Court of Appeal and
before your Lordships, is, in effect, that defendants to claims which are
bound to succeed and where litigation to pursue the claims is highly
unlikely, must bear the cost of ATE insurance cover that is not needed in
order to enable ATE insurance cover in cases where it is needed to be
offered by insurers at lower rates than would otherwise be commercially
possible. The clear principles on which costs recovery is based, both
before and after the 1999 Act, are in my opinion hostile to this argument.
In my opinion, the Court of Appeal fell into error in accepting it and in
adopting an approach to the ATE premium that was not case specific but was
based on the evidence about the ATE insurance market to which I have
referred.
|
| 118. |
Submissions made to the House on behalf of the Lord Chancellor's Department
have contended that "access to justice would be restricted if claimants
could not insure against liability for costs from the point they instructed
a solicitor" (para 13 of the written case). This, in my opinion, misses the
point. There is nothing to prevent claimants from taking out ATE policies
as soon as they instruct a solicitor. The question is whether this is a
reasonable step to take vis-à-vis the defendant who they expect to bear
the burden of paying the premium. If there is no real risk of litigation or
of adverse costs orders, the absence of an ATE policy will not discourage
access to justice for the claimant in question. If, despite the absence of
any such real risk, the claimant wants to take out the policy, he can do so
but cannot then reasonably expect the defendant to pay for it. To describe
this state of affairs as restricting access to justice seems to me
unwarranted.
|
| 119. |
Paragraph 13 of the Lord Chancellor's case continues by referring to:
|
| |
| |
"the Department's policy objective … that successful claimants
would ordinarily be able to recover the cost of ATE premiums from
unsuccessful defendants even though the policy was entered into before the
defendant's response to the claim was known."
|
|
| 120. |
The paragraph does not say that it is the Department's policy objective
that claimants would ordinarily be able to recover ATE premiums even though
there was never any likelihood that litigation in which adverse costs orders
might be made would be necessary. If that is or was the Department's
policy, I would expect your Lordships to be unimpressed by it. In any
event, it is Parliament's policy underlying section 29, not the Department's
policy, that the House should take account of and, as to that, there is
nothing to lead one to suppose that expenditure on ATE premiums was, for
costs purposes, to be approached differently from any other item of
potentially recoverable expenditure.
|
| 121. |
Moreover, if general policy considerations are to be brought into account,
they tend strongly, in my opinion, against allowing recovery of this ATE
premium. One of the main purposes of Lord Woolf's civil justice reforms was
to reduce the cost and the complexity of pursuing legal remedies and an
important step in that direction was the introduction of pre-action
protocols. These set out steps which parties are intended to take before
the commencement of litigation so as to confine litigation, as a means of
dispute resolution, to cases where the dispute cannot be resolved without
it. Under pre-action protocols the claimant must write a letter to the
proposed defendant giving the outline of the claim and an opportunity to the
defendant to respond. Various key documents, eg a medical report in
accident cases, should be supplied to the defendant. This correspondence
enables the parties to ascertain what, if anything, is in issue between them
and whether, or on what issues, litigation will be necessary. If litigation
is shown to be unnecessary, because the defendant admits the claim and the
parties can agree terms of settlement, the expense of unnecessary litigation
is, by the parties' observance of the pre-action protocol requirements,
avoided. And if a claimant fails to observe the requirements of the
relevant pre-action protocol and commences litigation prematurely, the court
may, even if his claim succeeds, deprive him of costs or order him to pay
the defendant's costs (see paras 2.2 and 2.3 of the Protocol Practice
Direction: Civil Procedure, 2000, vol 1, C1-002, p 1303).
|
| 122. |
In the present case, Amelans' letter of 4 May 2000 corresponded with the
relevant pre-action protocol requirements. So did CGU's response on 19 May.
So did their ensuing correspondence which led, by early August, to a
settlement agreement. Litigation was not necessary to pursue Mr Callery's
claim. The pre-action protocol had served its purpose. In these
circumstances the proposition that the defendant should have to pay by way
of costs for an item of Mr Callery's expenditure that related exclusively to
the litigation that the parties had succeeded in avoiding seems to me
inconsistent with the purpose of the pre-action protocol. If during the
pre-action protocol period the claimant incurs expenditure for the purpose
of litigation that, in the event, never happens, there are, in my opinion,
very sound policy reasons, consistent with those that underlie the civil
justice reforms, for leaving the claimant to bear the cost of what, in the
event, is useless expenditure.
|
| 123. |
For all these reasons I would give the answer "No" to the question posed in
issue (1) and allow the appeal to that extent.
|
| |
Issues (2), (3) and (4)
|
| 124. |
Issues (2) and (3) are fact dependent reasonableness issues. Your
Lordships should not, in my opinion, second guess the courts below on issues
such as these unless their decisions are plainly unreasonable or unless some
evident error has been made. In the present case, the Court of Appeal, in
the second judgment, [2001] 1 WLR 2142, 2159, para 70, concluded that the
amount of the premium was not manifestly disproportionate to the risk being
under taken and was reasonable. But in reaching this conclusion the Court
of Appeal was proceeding under a misapprehension as to the basis on which
the premium had been calculated. The court thought that Temple had fixed
the amount of the premium, £350, having regard to the facts of this
particular case. Counsel are agreed that this was an error. The £350
premium was in fact a uniform premium charged by Temple for ATE insurance
cover in respect of every claim which carried a prospect of success of
better than 50 per cent (see para 22 of the second judgment). This was |