Brown-Quinn v Equity Syndicate Management Ltd

Hearing dates: 7 & 8 October 2011

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

There have been before me three Part 8 claims, which are effectively sample or test proceedings. The claims are ostensibly by or in respect of three clients of Webster Dixon ("WD"), a firm of solicitors, against an insurance company, Equity Syndicate Management Limited ("the Insurer"), who offered Before The Event ("BTE") legal expenses insurance (and in two of the claims also against an Administrator).

The three clients, Mrs Christine Brown-Quinn ("CBQ"), Ms Christine Jones ("CJ") and Ms Janine Baxter ("JB") had various claims against other parties (in this case all employment and discrimination claims), for which they wished to bring or continue proceedings with the benefit of the BTE insurance, using the services of WD, in respect of whom the following description is given in the Agreed Statement of Facts:

"1. [WD] is a London-based firm of solicitors, established in 1998. Amongst other areas, [WD] specialises in employment law. It is situated in the City of London …

2. [WD] is rated at Band Three (employment) in Chambers and Partners and is noted therein as being "tailored to suit the needs of City professionals, bankers, accountants, traders, lawyers, IT specialists and directors". It is also rated at Band Three in Legal 500 as a Claimant firm acting in the field of employment law; in the recent past it was described therein as having "a focus on acting for executives and professionals, tailoring advice to their needs"; it is currently described as being a firm that "takes on complex cases involving multiple strands of discrimination, unfair dismissal and TUPE"."

The Insurer, in circumstances which I shall describe, was not prepared to accept that the clients were covered for WD's fees.

In the event, CBQ's costs were paid by the other side, her former employers, as part of a settlement, but WD, who were joined as Claimants in her action, have nevertheless continued the proceedings, and CJ, who entered into a confidential compromise agreement in August 2008 with her former employer, has never been a claimant in "her" proceedings, in which WD were and remain the sole Claimants. Although objection was made as to WD's locus by Dr Mark Friston of Counsel on behalf of the Insurer, particularly once it was clear that the relief sought in these proceedings was limited to declaratory relief he did not pursue any such objection: plainly WD have a significant interest in the decision in this case (and I understand there are at least 17 others pending) as to whether their clients are entitled to recover under their BTE insurance the fees which they are liable to pay WD.

The issues that arise in respect of the entitlement of those insured under BTE insurance to instruct solicitors of their own choice and expect that their reasonable fees will be covered under that BTE insurance apply more generally than to these three cases, and there was a submission made by the Law Society to the Jackson Review of Civil Litigation Costs, which was recited by Jackson LJ at paragraph 6.2 and described at 6.3 as forming part of an argument which had "considerable force", that "Claimants wishing to take advantage of [their] BTE policy either instruct their own solicitors and are refused funding unless they agree to instruct a panel solicitor, often in a different part of the country, or are referred direct [there] by their insurer." Similar concerns were expressed by the Court of Appeal in Sarwar v Alam [2002] 1 WLR 125 at para 44. BTE insurers traditionally, as did this Insurer, retain a panel of solicitors, with whom they have been able to negotiate reasonable, and no doubt discounted or reduced, fees for acting for their insured, in return for an expectation of receiving a quantity of such work, through clients being referred to them on a regular basis. I have not seen evidence of what these rates are, but I shall call them 'panel rates'.

In the case of CJ, she instructed a non-panel solicitor, WD, from the beginning. CBQ and JB were both referred to panel solicitors by the Insurer from the outset, but in each case the case-handler left the panel solicitor, and joined WD, and the clients wished to 'follow' the case-handler to WD, and thus to transfer their instructions to WD. Different arguments were addressed before me with regard to cases where, as with CJ, there is a wish by the insured at the outset to instruct a non-panel solicitor ('outset cases') and those cases where, as with CBQ and JB, there is a transfer of instructions ('transfer cases').

The position taken by the Insurer was that, so far as outset and transfer cases were concerned, it was entitled to insist that if an insured did not wish to instruct a panel solicitor, any other solicitor of the insured's choice must not charge more than the rates prescribed by its "Terms of Appointment for Non … Panel Solicitors". These included the following provision:

"Your entitlement to recover reasonable costs in cases will be subject to:

(a) an hourly rate of £125 plus VAT which is expected to be fully inclusive of any relevant mark up;

(b) letters out and in at one tenth and one twentieth of the hourly rate respectively;

(c) travelling and waiting time to be charged at two thirds of the agreed hourly rate."

In the case of CBQ and JB, this rate of £125 was increased to £139. I shall call them "non-panel costs".

There were two significant constituents:

i) There was a fixed hourly rate, irrespective of the importance or complexity of the matter.

ii) It was a flat rate chargeable in respect of whoever should carry out the work on behalf of the firm, be it partner, associate, assistant or trainee. The rates which WD have sought to charge are very much more than that, in respect respectively of a claim against a very substantial global investment bank for redundancy, unfair dismissal and sex discrimination (CBQ), race discrimination, constructive unfair dismissal, victimisation, breach of Part Time Workers Regulations and breach of Flexible Working Regulations against a very large foreign investment bank (CJ) and unfair dismissal and disability discrimination against her former employer, an educational establishment (JB). WD put forward hourly rates for a partner or associate (Grades A/B) of £274, for a solicitor £210 and for a trainee solicitor £105.

In each case the dispute about these rates became apparent at the outset. It is part of the Agreed Statement of Facts (paragraphs 27 and 29) that the Insurer informed WD that they would not agree to their acting for JB or CBQ, and similarly so (paragraph 45) in respect of CJ. In the event, WD continued to act for the three clients and, at any rate in the case of CBQ and CJ, achieved satisfactory settlements on their behalf. I have not been told what occurred in relation to JB.

Colin Wynter QC and Thomas Cordrey on behalf of the Claimants rest their case on the effect of the Insurance Companies (Legal Expenses Insurance) Regulations 1990 SI 1990 No 1159, which brought into effect, in materially identical terms, the provisions of Article 4 of EC Council Directive 87/344/EEC of 22 June 1987, which has itself now been re-enacted, without material difference, as Article 201 of EU Directive 2009/138/EC. Regulation 6 reads as follows:

"Freedom to choose lawyer.

6.—(1) Where under a legal expenses insurance contract recourse is had to a lawyer (or other person having such qualifications as may be necessary) to defend, represent or serve the interests of the insured in any inquiry or proceedings, the insured shall be free to choose that lawyer (or other person).

(2) The insured shall also be free to choose a lawyer (or other person having such qualifications as may be necessary) to serve his interests whenever a conflict of interests arises.

(3) The above rights shall be expressly recognised in the policy."

The Regulations were considered in Erhard Eschig v UNIQA Sachversicherung AG [2009] KC-119/08 (" Eschig"), a case in which the legal expenses insurers refused to cover a litigant who wanted to use his own lawyer rather than join a group action, whose lawyers would inevitably charge at a lesser rate, and the decision of the court was:

"Article 4(1)(a) of [the] Council Directive … on the co-ordination of laws, regulations and administrative provisions relating to legal expenses insurance must be interpreted as not permitting the legal expenses insurer to reserve the right, where a large number of insured persons suffer loss as a result of the same event, itself to select the legal representative of all the insured persons concerned."

The particular passages of the European Court's judgment relied upon by Mr Wynter were as follows:

"45. As is apparent from the entirety of Articles 4, 6 and 7 of [the] Directive … the rights of insured persons recognised by those...