1 IN THE LIVERPOOL COUNTY COURT THE LIVERPOOL ATE PREMIUM TEST CASES (the cases included in this judgment are identified in the Schedule) Before: District Judge Smedley (sitting as a Regional Costs Judge) Mr. Nicholas Bacon QC for the First to Sixth Claimants in the Schedule Mr. Tom Walsh, Costs Lawyer for the Seventh Claimant Mr. Tom Asquith of Counsel for the Defendants in all cases. APPROVED JUDGMENT
2 2 J U D G M E N T Background 1. In mid-2011 a number of Part 44.12A cases were received in Liverpool and from the Claim Forms it was apparent that the profit costs were agreed under either Section II or Section VI of Part 45 and disbursements were agreed save for the claimed ATE premium, either in whole or in part (and in a handful of cases the medical report fee as well). By early September the number of such cases had become substantial and I was receiving standard form letters from two defendants solicitors indicating that either a) they had similar cases pending in the SCCO (without identifying such cases); or b) saying they had over one hundred such cases pending and requesting a stay. I took the decision to stay all such claims with a view to setting up a number of cases to be dealt with as test cases. On 9 th September I prepared a note setting out my intention, which was sent to parties with the order staying each claim. I invited interested parties to nominate cases for the test cases. Unhappily, only one firm of solicitors responded with a request to be included. In early December I selected fourteen cases from those before me. Although I had little information about the policies involved, I selected a number of both Claimants and Defendants representatives with a view to securing as wide a representation of the parties interests as possible. 2. On 12 th December I gave directions to bring those cases to a hearing. Those directions included the following provisions: 6. Receiving Party s solicitors shall if so advised serve witness statements setting out their reasons for their choice of ATE policy and exhibiting the policy terms and conditions and schedule, and their understanding of the policy options available to them by 3 rd February Paying Party s solicitors/insurers shall if so advised serve witness statements setting out details of any policies they consider appropriate and their terms and conditions by 3 rd February Any party is at liberty to apply in writing for reconsideration of the above directions by 6 th January At the same time I issued a further note in which I said:... I am also anxious that as many issues as possible can be dealt with at the same time. As far as I am aware the principal potential issues are a) whether it is reasonable for a Receiving Party to use a block rated policy when cheaper individually rated policies are available; b) whether the use of staged premium policies is reasonable or necessary; and c) whether in Protocol cases there is a need for an ATE policy before Stage 3 given the minimal risk of the Claimant not recovering costs.
3 3 3. In their skeleton argument sent to me three working days before the hearing the Defendants solicitors (by then limited to Keoghs and Taylor Rose acting together) sought to refine those issues by summarising them as: a whether it is reasonable to incur an ATE premium before Stage Three or exit from the Process in a claim commencing in the RTA Process; B C if it is reasonable, whether it is reasonable for the claimant not to choose a policy tailored for the RTA Process; and if the claimant has made an unreasonable choice, what is a reasonable amount to allow. Whilst Mr. Bacon protested that he had prepared his case only on the issues I had identified, I do not consider these variations really go beyond the detail of the issues originally identified save for the Defendants item c) my intention was to deal at this hearing with the principle of reasonableness, not to include consideration of quantum. 4. I should also note that of the original fourteen cases selected, four fell by the wayside and I authorised the inclusion of another four cases in their place in January. Even then, some cases have again settled and I have only eight cases now before me. Unintentionally, those are all cases that had proceeded by way of the Protocol. 5. Notwithstanding these set-backs, I acknowledge with gratitude that I have been greatly assisted by Counsel in these cases. The evidence 6. Regrettably, only one Claimant s solicitor has produced a statement, and that has been diminished to some extent by the Defendant s acceptance of the information contained in it. I had hoped for more detailed information from those recommending the relevant policies and from the then policy providers. In the event, I have statements from the costs draftsmen/lawyers and the costs solicitors acting in these cases, who of course have no knowledge of the circumstances prevailing and the thought processes of their instructing solicitors when the policies were taken out, together with four more statements from others more involved in this type of litigation. The statements do provide useful information. In setting out premiums identified I give the net premium in each case, to which of course IPT will be added. 7. Chronologically, the first witness statement I have is from Matthew David Hoe, head of costs strategy and a trainee solicitor with Taylor Rose. His evidence is based on a consideration of defendants files and available documents. Mr. Hoe drew my attention to articles in various publications between April and June 2010 in connection with the Accident Line policies then newly introduced by Abbey. Some of the articles are either written by, or include comments from, Abbey s Director of ATE policies. They cannot, therefore, be treated as independent and must be approached with caution. Nevertheless, they do include the detail that those policies involve no premium at Stages 1 and 2 of the Protocol, a premium at Stage 3 and a premium of where cases do not proceed through the Protocol process. I suspect, although it is not expressly stated, that there will be further staged premium(s) if a case goes to trial.
4 4 8. Mr. Hoe then exhibited specimen redacted certificates of insurance from DAS, Allianz and Financial & Legal. All these examples are policies taken out between July 2010 and April Whilst slightly different in their terms, the first and third certificates relate to staged policies; the second on the face of it appears to be a single premium policy. The limit of indemnity for the first and second is 100,000; for the third, 25, The DAS policy has an initial (stage A) premium of 375, with a supplementary term that if the case settles within the Protocol the stage A premium will reduce to 75. Stage B involves a second premium of 425 from the date of issue of proceedings. Stage C applies 14 days before trial and involves an additional premium that will be individually rated. Mr. Hoe presumes that settlement in the Protocol means settlement at Stage 2 of the Protocol since Stage 3 involves the issue of proceedings, which would engage a stage B premium. Whilst the policy document relating to this policy is not produced by Mr. Hoe, it does appear as an exhibit to the witness statements of Mr. Dean (see below). The policy schedule sets out the details given above, but does not define issue of proceedings. Regrettably, neither does the policy. That refers in the third paragraph under the heading Insurance premium to the premium being staged and defines the stages as a) Before court proceedings are commenced ; b) From the issue of court proceedings up to stage c) ; and c) From 14 days before the trial date or the trial period if applicable. There is therefore an inconsistency between the policy schedule and the policy itself, because Stage 3 of the Protocol is an integral part of the Protocol. I believe the expression issue of proceedings relates to issue of any Part 7 claim after the Protocol has failed. If that is correct, the overall effect would be that a DAS stage A premium of 375 (rebated to 75 if settled at any Stage of the Protocol) continues until a Part 7 claim is issued. On such issue, stage B becomes engaged, giving a then overall premium of 800, and if the claim reaches 14 days before trial an additional premium is to be assessed and added. However, the interpretation of this policy is not within my remit in these cases and I do not in any event have any proper evidence upon which the point could be determined. 10. The Allianz certificate shows a premium of This relates to a policy with an indemnity limit of 100,000 for an RTA Fast Track claim. There is nothing in the certificate to show any additional premiums being payable. The policy document is not provided but I would be very surprised if there are no terms for an increase in premium, particularly having regard to exhibit MH3 of Mr. Hoe s statement. That exhibit appears to be a print-out of a website in respect of Benchmark Insurance. That, Mr. Hoe confirms and as appears on the second page, is a policy also provided by Allianz. The page helpfully sets out the premium structure for both RTA and non-rta cases. For RTA cases valued at 1,000 to 10,000 occurring after 30 th April 2010 the premium whilst the case is within the Protocol is 92.00; outside the Protocol the premium is It is a term of this policy that the reduced in- Protocol premium is only available if the policy is incepted prior to sending the Claim Notification Form ( CNF ) to the defendant. For RTA cases from 10,001 to 24,999 there is a discounted premium of if the policy is incepted prior to the sending of the Letter of Claim, otherwise a full premium of For comparison it is worth noting that for any RTA claim for accidents before 30 th April 2010 there is a discounted premium of subject to conditions including an admission of liability within 6 months of issue of the policy but if not applicable the full premium is Clearly if a post-april 2010 case leaves the Protocol it attracts a higher premium than a full premium case before May I do not think it helpful to refer to the non-rta premiums save to note that they are either higher in amount or individually rated.
5 5 11. The Financial & Legal (Magnus) certificate has an indemnity limit for opponent s costs and own disbursements of 25,000. and with admirable simplicity sets out an initial premium of where the claim settles at Stages 1, 2 or 3 of the Protocol; a premium of where the claim settles before court proceedings are issued (and this must refer to post-protocol proceedings); and a premium of where the claim settles (or, presumably, is adjudicated upon) after court proceedings are issued. 12. Mr. Hoe next exhibits a print-out of a webpage for Temple, apparently obtained on 13 th October 2011, which he says confirms Temple s RTA premium is He believes, without having obtained a sample certificate, that Temple rates all RTA claims with this premium, whether within the Protocol or not. I would be surprised if that were so. The webpage includes under the heading Key features a comment that, Our RTA premium of 90 is the lowest in the market but that section also contains the comment, Our premiums are stepped and include a reduced premium in the event that liability is admitted during the protocol period and the matter settles pre-issue. I suspect 90 is the reduced premium. No other details are given of non-reduced premiums or the extent of the stepping. (In fact that suspicion is confirmed later in this judgment from the evidence of both Mr. Finn and Mr. Dean, whose witness statements exhibit the Temple documentation showing a final stage premium of 2,700). 13. Mr. Hoe also provides some evidence in support of the proposition that single stage premiums have not reduced as a result of the Protocol, a proposition I do not take time on because Mr. Bacon effectively accepted it. 14. Mr. Hoe then drew my attention to selected extracts from Case track limits and the claims process for personal injury claims CP8/07, paragraphs 91 and 93. This was a consultation document issued by, I believe, the Ministry of Justice on the development, amongst other things, of the Protocol. Those paragraphs read: 91 Under our proposals we do not consider it appropriate for the premium for any ATE taken out at the commencement of the claim to be recoverable. During the initial stage of the claim there will be no risk as to costs so there would be no risk to insure. As indicated above, if the claim falls at the admission/denial of liability stage, there will be no liability for costs between the parties. The solicitor s costs will be covered by the success fee element of the fixed cost and the cost to the defendant/insurer should be more than offset by not having to pay an ATE premium. Once the defendant has admitted liability then costs should follow the event so again there should be no risk to the claimant. 93 If the value of the claim is over 2500 and the parties cannot reach an agreement over quantum it is suggested that it might then be appropriate to arrange for ATE insurance. This will cover the application for a hearing on quantum by the court. However, it is suggested that in this situation the premium should be considerably reduced to reflect the fact that the initial stage of the claim has already been completed and liability has been admitted. The claimant solicitor will be entitled to the fixed costs for the work they have carried out up to this stage in the claim. Consequently, the ATE premium will only cover the costs relating to the application to the
6 6 court and the risk that the claimant s offer might not have been beaten. I ignore Mr. Hoe s subsequent spin or opinion as to the position following that consultation it is not legitimate evidence. However, he did properly refer me to what is probably a selective extract from Case track limits and the claims process for personal injury claims: Response CP (R) 8/07, paragraph 13, which reads: The Government has considered the various points made by respondents to the consultation and has concluded that it will not take forward these proposals. This will ensure that the introduction of the new claims process will not damage the ATE market, but will allow it to adapt to the new process. 15. The second witness statement, dated 12 th February 2012, comes from Miss Tara Hardacre, a Legal Executive employed by Jones Law Partnership, the solicitors for the Claimant in the case of Finch v. Hull. Miss Hardacre explains that this claim was the result of a road traffic accident on 6 th February 2011 and her firm was instructed on 14 th March 2011 after there was a conflict of interest difficulty with the firm initially instructed by the Claimant. On receiving the papers Miss Hardacre appreciated that the previous firm had already entered into an ATE policy and a CNF had been completed with the Defendant s insurers having paid Stage 1 fixed costs. It follows from this, as a result of the operation of paragraphs 6.15 and 6.18 of the Protocol, that liability had been accepted. Miss Hardacre considered funding with the Claimant and it was agreed to cancel the original ATE policy and enter into a new policy with Financial & Legal (a Magnus policy) with a limit of indemnity of 25,000 and a single premium of 395. She indicates that this premium was the same as that payable under the original ATE policy. I note that this Magnus policy allows for transfer in the event of change of solicitor and have to assume that whilst the premium was the same the first policy was with a different provider. Mr. Hoe has of course already exhibited a Magnus certificate showing staged premiums. The certificate produced by Miss Hardacre does not, and it therefore appears that Financial & Legal offer policies on both single and staged premium models. 16. Miss Hardacre tells me that the reason for recommending this policy was that from her consideration of the policies available this was one that offered full protection for a reasonable fee, there was no obligation to pay the premium upfront or enter into any sort of consumer credit arrangement. In the event that the premium is reduced on assessment the policy provides that the premium to the client will be correspondingly reduced. She did consider staged policies but was concerned that should the matter fall out of the Protocol and proceed to final hearing the premium would rise dramatically. In her opinion recommendation of the policy chosen was the best advice the Claimant could be given. 17. The third witness statement, dated 21 st February 2012 but apparently disclosed later, comes from Mr. Howard Michael Dean, a partner with and member of Keoghs. Mr. Dean was involved in the cases of Pemberton v. Abbott Laboratories Ltd, Young v. Pollard and Webster v. Safety and Electrical Products. He sets out the factual basis to that case, the working of the Protocol, his interpretation of the intentions behind the Protocol (not legitimate evidence) and details of a number of staged policies. Almost all of this is duplication of the details Mr. Hoe gave (including the policy details, although Mr. Dean refers to products from two additional providers who offer cover in similar terms and at similar premiums to those already mentioned). He provides no evidence in respect of single premium policies and does
7 7 not address the risk that a claim may leave the Protocol, save to refer to an undocumented assertion that the original consultation document envisaged the possibility of ATE cover in such a case. 18. The fourth witness statement, dated 9 th March 2012, is that of Mr. Dominic Finn, an employee of Costs Consultants Ltd who act for the Claimants solicitors in the First to Sixth Claimants. Mr. Finn asserts that many cases are exiting the Protocol process for one reason or another. He exhibits two extracts from the Law Society s Gazette, the first being an article dated 21 st October 2010 which indicates concerns by both bodies and individuals concerned with small RTA cases and where there is expressed, by one respondent (MASS), to be a diversity amongst members as to the Protocol exit rate for failure to respond to the CNF. Views put that number as between 10% and 90%; the Chairman of MASS (Mr. John Spencer) estimated the figure more likely to be 30%. The second article, dated 10 th March 2011 and by the same author, indicates the setting up of a special committee to police abuses of the Protocol procedure. I have no evidence of the working or any findings of this committee and this does not take the matter much further. 19. Mr. Finn comments on the Accident Line policy referred to in Mr. Hoe s statement (see paragraph 7 above) and exhibits a copy of Insurance Times for 2-8 September 2011 reporting that Abbey is to place half its ATE business into run-off and the Accident Line policy will close. The report indicates that this is in anticipation of the implementation of Lord Justice Jackson s reforms it does not suggest any difficulty with the policy itself. 20. He next refers to a First Assist insurance schedule in respect of a policy taken out on 6 th January This is also a staged policy, with an indemnity limit of 125,000. The premiums chargeable are a) settlement within Stage 1, 50; b) settlement within Stage 2, 75; c) settlement within Stage 3, 145; d) settlement outside the Protocol before proceedings, 345; e) settlement outside the Protocol after issue but more than 30 days before trial, 695; and f) settlement outside the Protocol within 30 days of trial or at trial, 1, Mr. Finn then referred to the Temple policy (which I have already noted in Mr. Hoe s evidence at paragraph 12 above). Mr. Finn was able to exhibit the whole of the Temple documentation, not just the certificate of insurance. Included in that, in the section headed Temple Litigation Advantage Coverholder Agreement at paragraph 11 are details of the stages and premiums. Restricting those details to RTA cases, a premium of 90 is payable if a full admission of liability is made within the Protocol (i.e. Stage 1) and the substantive claim is settled before issue of proceedings; a premium of 350 if the opponent does not give a full admission within Stage 1 (which, necessarily, would result in exit from the Protocol by reason of paragraph 6.15) but the substantive claim settles before issue of proceedings; a premium of 750 on settlement after issue of proceedings but more than 45 days before trial; and a premium of 2,700 if the case settles within 45 days of trial or is heard at trial. This policy cannot be incepted if the prospects of success are less than 51% or if liability has been denied. I note that this is the policy that Mr. Hoe believed carried a 90 premium throughout. 22. Mr. Finn then exhibited sample letters (all written during February 2012) showing defendant s solicitors seeking to dispute final stage premiums on the basis that a single premium policy should have been used in the only example in which figures are given the defendant offered 450.
8 8 23. He referred to certain information extracted from Litigation Funding, whilst recognising (as I do) the limited value of that publication as expressed in Rogers v. Merthyr Tydfil County Borough Council  1 WLR 808. In these cases, however, I agree with him that I can reasonably note the information given both in August 2011 and February 2012 that the present ATE market contains ten companies offering staged premium policies and twelve companies offering single premium cases (although two companies appear to have changed during that period the 10/12 split remains). 24. The fifth, and possibly most telling, statement dated 9 th March 2012 came from Colin Manning on behalf of the Claimants. Mr. Manning has over 40 year s experience of underwriting insurance policies and is the Underwriting Director of Templeton Insurance. He limits his statement to his recent experience of premiums in the RTA ATE market. His evidence is that following implementation of the Protocol he issued an endorsement for all his company s policies for cases proceeding under the Protocol reducing the premium from 495 to 75 for cases settling within Stages 1 or 2. Having made that change, it quickly became apparent from the volume of cases concluding in the Protocol that the 75 premium was not sufficient to fund losses in cases dropping out of the Protocol and proceeding to trial. It is to be implied from this, although not expressly stated, that the policies offered by Mr. Manning s company were single stage premiums. 25. Sixthly, I had a witness statement dated 12 th March 2012 from Roisin Melanie McCay, a legal assistant with Taylor Rose, in connection with Kimble v. Flinn. That statement raises issues as to the existence of BTE insurance which may be relevant on final assessment but which has nothing to do with the issues I am considering in this judgment. The Defendants submissions 26. From the skeleton argument, the primary submission was that in cases started under the Protocol it was unreasonable for the claimant to incur the liability for an ATE premium at all; and in the alternative that each claimant made an unreasonable choice of ATE policy by failing to purchase a policy specifically designed for this type of RTA claim. Accordingly, any premium found payable should be restricted to a sum similar to those charged under such policies. 27. As put by Mr. Asquith the principal submission was that in each case the policy chosen was inappropriate as it was a policy suited to larger, higher value, litigation and therefore not a policy tailored to a low value RTA claim. The claimant should not be entitled to recover the costs of a policy not tailored to such a case. Further, the claimant did not always need ATE cover, at least in the early stages of a claim. The relevant issues, he asserted, were those set out at paragraph 7 of the Defendants skeleton, i.e. the matters I have already set out at paragraph 3 above. 28. Mr. Asquith submitted that there were distinctions in the risk involved in different classes of litigation and asserted that RTA claims proceeding through the Protocol were a different class of claims to RTA cases proceeding otherwise than through the Protocol. He asked me to consider eight points by way of submission. First, the Court s role in litigation of this kind. There were two ways in which the Court could refuse a claim for an ATE premium; a) by hearing expert actuarial evidence; or b) as a matter of principle, whether the ATE premium had been unreasonably incurred or was unreasonable in amount. The Defendants in
9 9 these cases did not rely on expert evidence but asserted that the claimants solicitors conduct in choosing the policy was wrong. He accepted that the policies chosen may be perfectly good policies generally but said they were inappropriate for cases of the type under consideration here. He referred to paragraphs 43 and 44 in Callery v Gray (Nos. 1 & 2) (HL(E))  1 WLR 2000 at pp and 2013 (and I include part of paragraphs 41 and 42 to show the context): 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 only take out policies 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  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 to be 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  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. 29. He then referred to Rogers and asserted that the Court could assess the premiums in broad brush terms and should not feel constrained by that authority because the Defendants
10 10 were not challenging the actuarial basis of the premiums. The Court was entitled to differentiate between different types of cases and the different types of risk they pose. These cases were a prime example of a situation where the Court could act as regulator and an opportunity to regulate the market without imperilling access to justice, without imperilling the ATE market and without having to act as actuary. In support of this he referred me to the comments of Lord Bingham of Cornhill at paragraph 9 of Callery v. Gray (Nos. 1 & 2): 9 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  1 WLR 2112, to passages in paras 64, 99(v), 103, 105 and 116. In the second judgment of the Court of Appeal [ WLR 2142 similar points are made in paras 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 paras 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. and indicated that although the Claimants would assert that these points were already decided these comments showed otherwise. Decisions in previous and future cases must be considered in the light of changing regimes and an evolving and maturing ATE market. 30. Secondly, the extent to which the Court was familiar with the Low Value RTA Protocol. I take this no further as the District Judges in both Liverpool and Birkenhead County Courts have been dealing with such cases regularly over the past twelve months, and are familiar with the process. 31. In developing this point Mr. Asquith attempted to make a comparison between Fast Track trial costs (and later standard basis Disposal costs) on the one hand and fixed costs allowable under Part on the other. These comparisons refer to profit costs only and have nothing to do with disbursements generally or insurance premiums in particular. This submission is untenable. 32. On the question of risk, Counsel asserted that the Protocol introduced a greater level of predictability as to the handling of cases; that the litigation process was divided into stages and as such dovetailed with staged success fees as considered in Callery v. Gray and with stepped ATE policies; that at Stages 1 and 2 there was no risk of adverse costs consequences; and that at Stage 3 only modest fixed costs may be payable by an unsuccessful claimant. At first sight these points have some merit, and would have more if all claims settled under the Protocol. Unhappily, they do not. 33. Mr. Asquith then referred me to the Government consultation described at paragraph 14 above and Mr. Hoe s expressed view that these extracts show a concern for the viability of the ATE market, not the existence of risk, and by implication that the Government was giving the market an opportunity to move to lower, staged, premiums. He also referred to the assertion in Mr. Hoe s statement that over the past ten years the courts had been concerned that reducing ATE premiums on assessment would imperil the ATE market and that such
11 11 concerns were no longer valid in view of Lord Justice Jackson s recent Review of Civil Costs. For the purposes of this judgment I maintain an entirely neutral stance on the Review since its implementation is a matter for the future. I have to deal with these cases on the basis of the law as it is now. 34. Thirdly, the statutory framework. These disbursements were to be assessed on the standard basis (Part 44.4) and any doubt must be resolved in favour of the paying party. Counsel referred to Mr. Walsh s reference to Kris v. Fox Williams LLP  EWHC 1008 (QB), a decision of Simon J. sitting with assessors. He referred specifically to paragraphs 35, 40 and 41, but the latter two paragraphs cannot be viewed in isolation. I therefore include paragraph 39. Those paragraphs read as follows: 35 There is no presumption that the premium is reasonable, unless the contrary is shown. Master O Hare, who had investigated premiums for different classes of business, concluded that it was reasonable to presume as a starting point that a premium was reasonable unless the contrary was shown. The Court of Appeal in Callery v. Gray No. 2 rejected this approach at . We do not think it correct to start with Master O Hare s presumption. When considering whether a premium is reasonable the court must have regard to such evidence as there is, or knowledge that experience has provided, of the relationship between the premium and the risk and also the cost of alternative cover available. As time progresses this task should become easier. 39 This paradox: that the cost of premiums is only confined by the amount decided as reasonable by judges who are not in a position to decide what is reasonable, was picked up by the Court of Appeal in Rogers... at [ ], under the heading Evidence justifying the ATE premium claimed District judges and costs judges do not, as Lord Hoffman observed in Callery v. Gray (Nos. 1 & 2)... have the expertise to judge the reasonableness of a premium except in very broad brush terms, and the viability of the ATE market will be imperilled if they regard themselves (without the assistance of expert evidence) as better qualified than the underwriter to rate the financial risk the underwriter faces. Although the claimant very often does not have to pay the premium himself, this does not mean that there are no competitive or other pressures at all in the market. As the evidence before this court shows, it is not in an insurer s interest to fix a premium at a level which will attract frequent challenges. 40 The Court provided some assistance as to the evidence required in a passage at  shortly before the passage just recited. If an issue arises about the size of a second or third stage premium, it will ordinarily be sufficient for a claimant s solicitor to write a brief note for the purposes of the costs assessment explaining how he came to choose the particular ATE product for his client, and the basis on which the premium is rated whether block rated or individually
12 12 rated. 41 Turning then to the first question raised on this issue: whether it was reasonable to take out insurance? I can see no basis for concluding that Fox Williams should not have taken out any insurance, or (more importantly) that they should not be able to recover the ATE insurance premium because they insured at a late stage. The timing of the policy may (in some cases) indicate that a contractual premium was an unreasonable cost; but there is no principle that the premium on a late incepting policy is irrecoverable as an unreasonable cost, and each case is likely to depend on its facts. In the present case, it was reasonable for Fox Williams to take the view that it would be imprudent to continue to self-insure, particularly in the light of the fact that KMS had instructed Leading Counsel, and the possibility that their chances of success might be reduced and exposure to costs increased. I accept that the burden of proof has not altered when the paying party has raised some material to show the premium is unreasonable. This case is, however, more concerned with questions as to the reasonableness of the amount of the premium rather than the reasonableness of entering into an ATE policy. I also note specifically the comment in paragraph 35 that... in considering whether a premium is reasonable the court must have regard to such evidence as there is, or knowledge that experience has provided..., from which it is inherent that fact-specific evidence is not necessarily required. In my view this is sufficient to overcome the defendants argument that the Claimants have not provided proper evidence. 35. Mr. Asquith further referred me to paragraphs 11.7, (2) and (4) of the Costs Practice Direction. Those read: 11.7 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 In deciding whether the cost of insurance cover is reasonable, relevant factors to be taken into account include: (2) the level and extent of the cover provided; (4) whether any part of the premium would be rebated in the event of early settlement; Mr. Asquith expressed the view that this produced a carrot and stick element, such that if a defendant s choice to fight on he would face higher premiums. That, he said, was consistent with paying higher fixed costs as the case progressed. In that sense a stand-alone ATE premium was anomalous. The premium remained the same without regard to the difficulty of the case or the defendant s conduct.
13 Fourthly, what the claimants solicitors should have known or should have done. Mr. Asquith asserted, with examples, that the claimants solicitors should have been aware of the existence of policies with low cost initial premiums from at least April Mr. Bacon conceded that the Claimants, solicitors were not saying they did not know of such policies. Mr. Asquith then asserted that the solicitors were aware of the purpose behind the Protocol, which he said was essentially to reduce costs, and referred me to an article in the Solicitors Journal for June That article was written by David Hartley in his capacity as Director of ATE Services at Abbey Legal Protection, which had two months earlier launched a premium model for road traffic claims using the new portal system which means it will not charge a premium for cases that settle within Stages 1 and 2 of the process. Mr. Hartley does not appear to me to be a disinterested commentator. No witness statement from him was available (understandably) and I can give little weight to this article, or consider it as giving impartial guidance to the readership to which it was directed. 37. Mr. Asquith next commented that solicitors were aware that the Court of Appeal in Rogers had approved staged premiums and possibly could be said to have encouraged them. He relied on paragraph , which reads: 107 Nobody has suggested that a staged premium model is in itself an illegitimate way of rating the risk. Although this court has never previously had to address this issue, there is in principle no difference between a two-staged success fee (whose merits this court has consistently endorsed) and a staged ATE premium. The financial risk to which the ATE provider is exposed inevitably rises as a case proceeds towards trial. Whilst the defendants may be liable to pay a higher premium if they take a case to trial and lose, the situation is no different from that facing them in relation to their liability to pay a higher success fee when claims are resolved against them 14 days or less before the date fixed for the commencement of a trial in the cases covered by the new arrangements for fixed recoverable success fees in CPR Part 45. Exposure to this greater liability requires a defendant to think very seriously about the merits of his position before a trial takes place. This obligation, too, runs with the grain of the philosophy of the CPR. I have to say I do not read this paragraph as supporting counsel s assertion. Undoubtedly the passage refers to the Court of Appeal s support for two-staged success fees, which I accept has been expressed on a number of occasions. But this comparison with success fees ignores the Court of Appeal s decision in KU v. Liverpool City Council  EWCA Civ 475, in which the District Judge had found that a two-stage success fee should have been negotiated after liability was admitted. On appeal, the Judge disagreed. The Court of Appeal agreed with the Judge, saying that the solicitor did not have the contractual power or professional duty to reduce the success fee. The Court had no power to direct that a success fee was recoverable at different rates for different periods (see para. 49). Equally, I accept that it is as legitimate to use a staged success fee as a single success fee and the same applies to ATE policies. 38. In this context, Counsel again referred to paragraph (4) of the Costs Practice Direction.
14 As to what the solicitors should have done, the claimants solicitors should have provided evidence by way of a note as to their reasons for choosing the policy they did, as recommended in para 107 of Rogers. That had not been done. 40. Finch v. Hull (one of these cases) was a separate case because a witness statement had been served by the Claimant s solicitor. Mr. Asquith invited me to draw adverse consequences from the fact that no such evidence had been served in the other test cases. 41. I have already set out details of Miss Hardacre s evidence. Mr. Asquith suggested this was the high point of the Claimants case. 42. The policy was with Financial & Legal, and he referred me to an exhibit to Mr. Dean s statement that showed that the same company offered a staged policy, with the same indemnity limit with a premium of if the claim settled within Stages 1, 2 or 3 of the Protocol, increasing to if the claim settled outside the Protocol but before proceedings were issued and in the event of settlement after issue. Curiously, the schedule does not indicate a specific premium if the claim proceeds to trial but it is inherent in the definitions of Successful and Unsuccessful that the cover, and presumably the premium, remains the same whether the claim is settled or adjudicated upon after issue. The evidence, he said, did not show that Miss Hardacre had relied on any particular conditions for choosing a fixed premium and the increased premium at the final premium stage was not dramatic. The prospects of the claimant reaching this point and having a liability were more remote. This should not be a material factor in the choice of policy. If he were wrong on this point, it was not a factor that should override the fundamental criteria of reasonableness, which required the claimant to obtain a policy suitable for the risk. 43. Counsel then referred me to the witness statement of Mr. Manning. He accepted that it did not make business sense to reduce the premium at stages 1 and 2 (of the policy) without imposing a higher premium at the third stage. He accepted that staged premiums were going to be higher at the final stage. 44. He complained that the Claimants had produced no evidence from their ATE providers, and asserted that Mr. Finn s witness statement supported the Defendants case in that specific excerpts from Litigation Funding showed the same providers now providing insurance on a staged basis. It was not open to the Claimants to say the Court should not endorse tailored policies. Both the adaptation and the viability of the market were important. There was a presumption that the correct policy would be used. 45. It is known, he said, that policies designed for the Protocol were suitable. Nontailored policies are broader and by definition there is excess insurance. There was no indication that the single-premium policies used were limited even to Fast Track cases. It was clear that premiums in Multi Track cases were higher, so such policies were not tailored to the risk. On the other hand there were policies such as the Benchmark policy, referred to in Mr. Dean s witness statement. This led Counsel to infer that Protocol cases are cheaper and that what had been one class of risk had now been split into two, with different premiums. He sought a specific finding that the Protocol had led to two classes of risk and that Protocol cases were cheaper. This appears to be a reversion to his initial submission. 46. As a further distinct argument he asserted that these policies had been taken out prematurely (again reverting to his first submission). The Claimants would say I was bound
15 15 by Callery v. Gray as to the reasonableness of taking out ATE cover early. He compared paragraphs 91 and 98 of that judgment: 91 In these circumstances, 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. 98 The Appellants contend, however, that it is unjust to saddle defendants with the costs of the ATE insurance premiums and success fees without giving them a fair chance to identify those cases where liability and quantum is not disputed so that success is assured. The criteria were set out at para 99 of Callery v. Gray (No. 1), sub-paragraph (iv). This was effectively one way cost shifting and there was no benefit to the Defendant. In that respect he could distinguish Callery v. Gray. Better no premium than a low premium. It was therefore reasonable that the Claimants should wait. Even if that were wrong, there was still good reason to choose the Accident Line policy or a policy with a low premium at the outset. I have to say that it seems to me that if this is right it is likely to result in just one or two providers with a monopoly. How would they cope with the cases that exit the Protocol? 47. Did the claimant incur liability as soon as he instructed solicitors? Yes, but that was not reflected in the success fee. He asserted that there was evidence that if an ATE policy were taken out before liability was accepted the premium would be higher. I have not seen such evidence, unless he was seeking to compare single premium policies with staged policies. The Claimants submissions 48. The purpose of the Protocol is purely procedural. It is a mechanism to speed up resolution of low value RTA claims, but nothing to do with alteration of risk in such a case. Mr. Bacon wholly disagreed with the Defendants assertion that the Protocol introduced a greater level of predictability and therefore less risk in cases that go through the Protocol. That was totally wrong. The chance of proving the claim was no different and it was not a new class of claim. The insurance market was insuring the same risks before as after the Protocol. The Protocol included fixed costs but that has nothing to do with the risks facing the solicitor in his office. 49. These cases were no different to Callery and Rogers. All carry the same risks individually of settling or of going to trial. The only difference is that cases that were always going to settle do so more quickly. All of these claims, whether in the Protocol or not, involve a crash and the question, Who pays? There is no difference in the advice given now from that given in March Secondly, the Protocol recognises that solicitors are entitled to be compensated for risk in cases. Hence, the Protocol provides for payment of success fees throughout the different stages. That is inconsistent with there being no risk. The starting point is that solicitors are as much at risk as they were before the Protocol. If his solicitors are at risk, so
16 16 is the client in the risk of adverse costs orders. He takes that risk as soon as he instructs his solicitors and starts his claim. 51. At the outset, there are risks of not settling; of failure to beat a Part 36 offer; or of the Defendant through non-compliance taking the claim out of the Protocol and into the Fast Track. The law is clear. Both the Court of Appeal and the House of Lords have said that it was reasonable for additional liabilities to be taken out at the outset. It needs more reasoning than the Defendants have produced to overcome that starting point. 52. Thirdly, the only difference is a procedural mechanism. If the Defendants are right, that mechanism unravels what the Courts have said before, a prospect that may well destabilise the ATE market. 53. Fourthly, the Protocol itself is at odds with the Defendants submission. Consider Part (2)(b), introduced as part of Section VI of Part 45 in conjunction with the introduction of the Protocol which provides that the Court may allow amongst other disbursements the amount of the insurance premium... [the remainder of this subparagraph refers to the allowable additional charges recoverable under s. 30 of the Access to Justice Act 1999 by membership organisations without further qualifying an insurance premium]. The Rules do not impose any restriction as to the timing of inception of the policy. Nor do they impose any restriction on the type of policy that may be used, whether single premium or staged. The rule-makers were well aware of the existence of those different types of policy. This position should be compared with cases of Defamation, which are regulated by Part 44.12B (1)(d). That rule reads: 44.12B (1) (a) (b) (c) If in proceedings to which rule 44.12A applies it appears to the court that if proceedings had been started, they would have been publication proceedings; one party admitted liability and made an offer of settlement on the basis of that admission; agreement was reached after that admission of liability and offer of settlement; and (d) either (i) (ii) the party making the admission of liability and offer of settlement was not provided by the other party with the information about an insurance policy as required by the Practice Direction (Pre-Action Conduct); or that party made the admission of liability and offer of settlement before, or within 42 days of, being provided by the other party with that information, no costs may be recovered by the other party in respect of the insurance premium.
17 17 This is the only provision in the Rules where a premium is not recoverable. The position there is miles away from Part The rule-makers made these new rules having in mind the existing authorities of Callery and Rogers. In Callery (No. 1) the defendants argued that the then RTA protocol period (which required a defendant to acknowledge the letter of claim within 21 days) should pass before the claimant took out either a conditional fee agreement or an ATE policy. To do so earlier was unreasonable. The Court of Appeal rejected that argument, saying that access to justice required costs protection at the outset. 54. Fifthly, the likelihood that one policy or the other is going to be cheaper. In principle overall there is no difference. The Protocol has not changed anything. Mr. Bacon referred to paragraphs 80 to 82 of Callery (No. 1) which read: 80 The information placed before us shows that, in cases such as those with which these appeals are concerned, many solicitors adopt a similar approach to insurers when deciding on what terms to act for clients under CFAs. The uplift in their fees which they demand in respect of this category of business is set at a level designed to produce additional income on the cases which succeed which is adequate to compensate them for the cases which lose and thus earn them no fee. The cases which win have to subsidise the cases which lose. However, while this may be true of many, it is not clear how many. Lawyers are accustomed to assessing a risk without the need to carry out the actuarial calculations which insurers would consider appropriate. 81 A different approach was adopted in the submissions made by FOIL. FOIL did not consider that the need to provide a fund to compensate a Claimant s lawyer for the cases he/she lost on a CFA should play any part in the process of setting a success fee in any given case. It robustly argued that: To be consistent with the public interest in reducing the cost of dispute resolution and with the objectives of the CPR, the level of success fee recoverable against the Defendant in any particular case should be assessed by reference to the risks of losing that case. 82 Different circumstances will call for different approaches. Insurers set premium rates designed to balance their books and achieve a reasonable profit. There are some classes of risk that are so remote that a uniform approach may be adapted to the assessment of premium e.g. household insurance. In other classes, premiums may vary according to specific features of the risk e.g. age of driver or power of car in the case of motor insurance but again the premiums will reflect claims experience and be designed to produce a positive return overall. In some cases risks will have peculiar features which require individual assessment, but again the approach is the same: to achieve a balanced book and a reasonable return overall This is not a separate class of risk. These cases all involve low value motor claims. Further, premiums are designed to have a positive effect overall. The insurer can have staged or block premiums. Either way, the insurer balances his books. Neither approach is unacceptable. There is nothing unreasonable in either.
18 Mr. Bacon commented that it was helpful that it was conceded that it was not the Defendants case that block premiums required actuarial consideration. All of these cases involved premiums between 375 and 425. The Claimants did not contend that the premiums for staged policies were too low, although the Temple policy premium was excessive at the later stages. The two types of premium assessment were incomparable. He moved on to consider paragraphs 83, 87, 91 and 93 to 96 of Callery (No. 1), which I do not set out but which reflect the Court of Appeal s reasons for determining that it would normally be reasonable for a CFA to be concluded and ATE cover to be taken out on the occasion that the claimant first instructs his solicitors. 56. The risk, he said, arose right at the beginning and it was nonsense to suggest that a non-admission or a drop-out from the Protocol was necessary to trigger risk. This was the same class of business considered in Callery (No. 1). It was right to say that, unlike the situation in Callery (No. 1), there is a short period of no risk of paying the defendants costs, but there is a risk if the claim drops out of the Protocol or goes to Stage 3. He referred to the reasons set out in paragraph 99 of Callery (No. 1). Overall it could be said that a solicitor would possibly be negligent if he failed to advise taking out an ATE policy. There were no other grounds on which it could be said that these cases were distinguishable from any other Road Traffic cases. 57. Sixthly, Rogers remained good law. Mr. Bacon referred me to a number of passages from that judgment which, whilst helpful in considering the wider picture, were a record of the views expressed by various witnesses in that case. The important references were to paragraphs 96, 105, 106, 111, 114 and 117. Those read: 96 This is the first occasion on which the reasonableness of an ATE premium has been considered authoritatively by this court since its landmark decisions in [Callery (No. 1) and Callery (No. 2)]. In those two judgments the court was principally concerned to decide whether an ATE premium was reasonable when ATE cover was taken out by a claimant before the first letter of claim was made, and when the defendant s reaction to the claim was still unknown. On the present appeal, three main issues arise for decision. (i) What is the proper approach to proportionality in a small personal injury case where the ATE premium may appear large in comparison with the amount of damages reasonably claimed? (ii) What is the proper approach to evidence of reasonableness of the choice and of the amount of the ATE premium in such cases? (iii) Are both staged (or stepped) premiums and single premiums for ATE insurance legitimate for the purpose of recoverability of an ATE premium by a successful claimant, and is it reasonable that such premiums should be wholly or partially block-rated? In this case it might be thought that all the considerations urged on the court by Mr. Bartlett which favour the course taken by Mr. Cater, the claimant s solicitor, might go to demonstrate the reasonableness of his bill of costs specifically, the ATE insurance staged premium but not its proportionality: precisely because they have nothing to do with the quantum of the claim. But we do not think that is right. If the court concludes that it was necessary to incur the staged premium, then as this
19 19 court s judgment in Lowndes case... shows, it should be adjudged a proportionate expense. Necessity here is, we think, not some absolute litmus test. It may be demonstrated by the application of strategic considerations which travel beyond the dictates of the particular case. Thus it may include, as we are persuaded it does, the unavoidable characteristics of the market in insurance of this kind. It does so because this very market is integral to the means of providing access to justice in civil disputes in what may be called the post-legal aid world. 106 It is important to recognise that this conclusion runs with, not across, the grain of the procedural reforms expressed in the CPR. The very recognition that justice requires a use of resources that is proportionate to what is at stake implies the rightness of a strategic approach. There can be no touchstone of a proportionate use of resources so understood, without an eye to the context in which any such resources are expended. Once it is concluded that the ATE staged premium here was necessarily incurred, principle and pragmatism together compel the conclusion that it was a proportionate expense. We turn therefore to the question whether the staged ATE premium was necessarily incurred On the evidence now before the court the judge s reliance on Litigation Funding as a source of dependable evidence was not well founded. We would endorse what Master Hurst said about this material in his judgment in In re RSA Pursuit Test Cases 27 May It is not legitimate to compare the total premium payable at the third stage of a three-stage premium model with the single under a single premium model that is payable throughout the progress of a claim to trial. As the evidence in this case shows, DAS s first stage premium was significantly lower than Temple s single premium. This discrepancy would benefit defendants in 63% of the cases covered by a DAS 80e policy. Many might think that this demonstrated a preferable approach to the rating of risk Mr. Williams, who appeared for the defendant, boldly asserted that in tying himself to DAS in the way he did, Mr. Carter was in breach of section 4 (1) of the Solicitors Introduction and Referral Code 1990, which reads: If a solicitor recommends that a client use a particular firm, agency or business, the solicitor must do so in good faith, judging what is in the client s best interest. A solicitor should not enter into any agreement or association which would restrict the solicitor s freedom to recommend any particular firm, agency or business. 114 This was a surprising submission, given that the success of ATE insurance has been dependant from the outset on arrangements like these. They are designed to prevent cherry-picking and to ensure that very many low risk cases are available as a counterweight to the few high risk cases. Mr. Cooksley immediately disavowed this proposition on behalf of the Law
20 20 Society. He told us that solicitors had been advised by the Law Society that they would not act in breach of the Code if they made reasonable contractual arrangements of this kind with ATE insurers. The use of the milder should, as opposed to the more prescriptive word must, shows that this approach by the Law Society to the construction of this part of its own Code was not an unreasonable one If an issue arises about the size of a second or third stage premium, it will ordinarily be sufficient for a claimant s solicitor to write a brief note for then purposes of the costs assessment explaining how he came to choose the particular ATE product for his client, and the basis on which the premium is rated whether block rated or individually rated. District judges and costs judges do not, as Lord Hoffman observed in Callery v Gray (Nos. 1 & 2)... para 44, have the expertise to judge the reasonableness of a premium except in very broad brush terms, and the viability of the ATE market will be imperilled if they regard themselves (without the assistance of expert evidence) as better qualified than the underwriter to rate the financial risk the insurer faces. Although the claimant very often does not have to pay the premium himself, this does not mean that there are no competitive or other pressures at all in the market. As the evidence before this court shows, it is not in an insurer s interest to fix a premium at a level which will attract frequent challenges. 58. Mr. Walsh largely adopted Mr. Bacon s submissions and added certain comments that I have already taken into account. Both Mr. Asquith and Mr. Bacon made additional submissions that I have not considered it necessary to set out but I have considered them. Discussion 59. The Defendants case is founded in essence on two principal arguments. First, the introduction of the Protocol brought into being an entirely new class of case in relation to Road Traffic claims, so different from all other RTA claims that the decisions of the higher courts over the twelve years or so since the introduction of the CPR, and CFA and ATE funding, do not apply. Secondly, as a result of the discussions and consultation leading to the introduction of the Protocol, there is a presumption that all claimants (with the assistance of their solicitors) should either a) not take out ATE insurance until it is clear that the claim will be disputed to some extent, or in the alternative b) not enter into an ATE policy other than one specifically designed for use in Protocol cases. Both of these possibilities featured in argument although the first is more related to the argument that Protocol cases are an entirely different class of case. Are Protocol cases an entirely different class of case? 60. This argument is predicated upon the proposition that after 30 th April 2010 all RTA cases involving personal injury and valued by the claimant s solicitor as exceeding the Small Claims limit (presently 1,000) but not exceeding 10,000 must be started by using the Protocol. Use of the Protocol means there is no risk as to costs in Stages 1 and 2 and has a
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