Callery v Gray
| Jurisdiction | England & Wales |
| Judgment Date | 17 July 2001 |
| Neutral Citation | [2001] EWCA Civ 1117 |
| Docket Number | Case No: B3/2001/0540 |
| Court | Court of Appeal (Civil Division) |
| Date | 17 July 2001 |
[2001] EWCA Civ 1117
Lord Woolf, Lord Chief Justice of England and Wales
Lord Phillips, Master of the Rolls and
Lord Justice Brooke
Case No: B3/2001/0540
B3/2001/0674
Case No: B3/2001/0540
Case No. B3/2001/0674
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHESTER COUNTY COURT
His Honour Judge Edwards
District Judge Wallace
AND ON APPEAL FROM LIVERPOOL COUNTY COURT
His Honour Judge Marshall Evans QC
Royal Courts of Justice
Strand, London, WC2A 2LL
Representations: (i) The parties to the appeals
Peter Birts, QC and David Holland (instructed by Beachcroft Wansbroughs for Stephen Gray)
Geoffrey Nice, QC and Nicholas Bacon (instructed by Amelans for Charles Callery)
Timothy King, QC and Louis Browne (instructed by Davies Wallis Foyster for Pal Pak Corrugated Ltd)
Mr John Gruffydd (instructed by E Rex Makin & Co for Gregory Charles Russell)
Representations: (ii) Other interested parties
Allan Gore (instructed by Pattinson & Brewer for the Association of Personal Injury Lawyers)
Anna Guggenheim QC (instructed by AE Wyeth & Co for the Forum of Insurance Lawyers)
John Leighton Williams QC (instructed by Barlow, Lyde and Gilbert for the Association of British Insurers)
Richard Drabble QC (instructed by the Law Society on its behalf)
Timothy Dutton QC (instructed by Rowe Cohen on behalf of the After Event Insurers' Group Forum)
The Motor Accident Solicitors' Society submitted written representations
SUMMARY
(This Summary forms no part of the judgment of the court)
These two appeals were concerned with the new arrangements for financing the cost of personal injuries litigation which came into effect last year. Legal aid is now no longer available for most litigation of this type. Instead, it is possible for a claimant to enter into a conditional fee agreement ("CFA") with his solicitor under which his solicitor will be entitled to no fees at all if the claim fails, but an agreed uplift on his fees (a "success fee") if the claim succeeds. "After the event" ("ATE") insurance is also now available, which covers the claimant's liability to pay the defendant's costs if his claim fails, and the claimant is now able to include the cost of the ATE premium in the costs he is entitled to recover from the defendant if his claim succeeds.
Ever since the changes were introduced there has been disagreement between claimants' solicitors and ATE insurers on the one hand and defendants' solicitors and accident liability insurers on the other hand on four main questions. The first of these questions relates to the time at which it is appropriate to enter into a CFA and take out an ATE policy. The second is the reasonableness of the success fees charged, particularly when a claim is quickly resolved without the need for court proceedings. The third is whether claimants are entitled to recover an ATE premium at all in these circumstances. The fourth relates to the reasonableness of the ATE premiums for which claimants are seeking reimbursement by defendants when their claims succeed. The Court of Appeal was told that there are now about 100,000 cases in which the parties, or the lower courts, are waiting for an authoritative decision by the Court of Appeal on these issues.
These two appeals were concerned with claims for personal injuries suffered in road traffic accidents which were settled quite quickly without any need to bring court proceedings. In one case a circuit judge had upheld a decision of a district judge allowing a success fee of 40%. In the other a circuit judge had reduced a claimed success fee of 30% to 20%. The Court of Appeal reduced the allowable success fee to 20% in the first case and dismissed the second appeal. A further issue in the first appeal related to the amount of the ATE premium. The Court of Appeal directed an inquiry by a costs judge on the reasonableness of premiums charged for this type of insurance, and will deliver a separate judgment on this question when it has received his report.
In the present judgment the Court of Appeal now gives the reasons for its decision, announced during the hearing last month, to the effect that ATE premiums are in principle recoverable as part of a claimant's costs even though his claim is quickly resolved without the need for proceedings (see paras 42-55). It also gives its reasons for holding that it is in principle permissible for a claimant to enter a CFA with a success fee and to take out ATE insurance when he first consults his solicitor, and before the solicitor writes a letter of claim and receives the prospective defendant's response (see paras 101-116).
On the reasonableness of success fees the Court of Appeal gives some general guidance in relation to modest and straightforward claims for compensation resulting from road traffic accidents. It suggests that where a CFA is agreed at the outset in such cases, 20% is the maximum uplift that can reasonably be agreed in such a case. It stresses that it will be desirable to review this conclusion once sufficient data becomes available to enable a fully informed assessment of the position to take place (see paras 101-105).
The court also considers that it is open to a solicitor and his client to agree a two-stage success fee at the outset of proceedings. By way of example, an uplift might be agreed at 100%, subject to a reduction to a maximum of 5% should the claim settle before the end of the period fixed by a pre-action protocol. Such an uplift would more nearly reflect the risks of the individual case. The court suggests that once the necessary data becomes available, consideration will need to be given to the question whether the requirement to act reasonably mandates the agreement of a two-stage success fee in a case where a CFA with a success fee is agreed at the outset (see paras 106-115).
INDEX
| Part 1 | Background | para 1 |
| Part 2 | Developments between 1988 and 2000 in outline | para 8 |
| Part 3 | The early years of ATE insurance | para 14 |
| Part 4 | The legislative framework | para 24 |
| Part 5 | The three main issues | para 41 |
| Part 6 | The jurisdiction issue | para 42 |
| Part 7 | The CFAs in these two cases | para 57 |
| Part 8 | The development of success fees in CFAs | para 60 |
| Part 9 | ATE insurance | para 65 |
| Part 10 | The prematurity issue | para 80 |
| Part 11 | The reasonableness issue | para 101 |
| Part 12 | The Callery appeal: (i) The facts | para 118 |
| Part 13 | The Callery appeal: (ii) The judgment appealed | para 125 |
| Part 14 | The Callery appeal: (iii) Our conclusions | para 131 |
| Part 15 | The Russell appeal: (i) The facts | para 134 |
| Part 16 | The Russell appeal: (ii) The decision of the Judge and our conclusion | para 138 |
LORD WOOLF C.J.:
This is the judgment of the court to which all the members of the Court have contributed.
1. Background
The judgment relates to two appeals which are confined to issues of costs. The Claimant in one appeal is Stephen Callery and we will refer to the appeal in his case as the "Callery appeal". The Claimant in the other appeal is Gregory Charles Russell and we will refer to the appeal in his case as the "Russell appeal". Both appeals are by the Defendants and arise out of modest claims for personal injuries due to minor traffic accidents. The amounts of costs in issue are small. However, the appeals are of very considerable importance to those members of the public who are involved in civil disputes, the legal profession and the insurance industry.
The appeals deal with two new powers of the courts. The first is the power to make an award of costs against a party to legal proceedings ("the paying party") in favour of a party ("the receiving party") which includes a sum paid by the receiving party for an insurance premium obtained to cover costs which the receiving party would have been liable to pay had he lost. This type of insurance is called after-the-event insurance ("ATE"). The second is the power of the court to make a costs order against the paying party which includes the amount of a success fee payable by the receiving party under a conditional fee agreement ("CFA").
ATE is to be distinguished from "before-the-event" ("BTE") legal expenses insurance (often provided as part of a broad range of indemnity e.g. for house owners) which is taken out prior to the event which gives rise to a possible claim.
Because of the importance of the issues, we agreed to hear representations from a number of bodies who have a direct interest in the matters we consider in this judgment. We received written and oral submissions from the Law Society, the Association of Personal Injury Lawyers ("APIL"), the Association of British Insurers ("ABI"), the Forum of Insurance Lawyers ("FOIL") and a Group (the "ATE Grouping") which consists of a large number of firms, organisations and insurers engaged in ATE. We received written representations only from the Motor Accident Solicitors Society ("MASS"). We were grateful for the assistance of these bodies. We also had the great advantage of having the Chief Costs Judge as our assessor. His advice was extremely helpful. Following the hearing, we received further written representations from the parties, which we have taken into account insofar as it was appropriate to do so.
Until Parliament intervened by legislation, it was always considered to be contrary to public policy, and therefore unlawful, in this jurisdiction for the financial reward which a lawyer received for his services in connection with...
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