Re Claims Direct Test Cases
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE POTTER,the Master of the Rolls,Lady Justice Arden,LADY JUSTICE ARDEN,Lord Justice Brooke,Lord Justice Laws,Sir Anthony Evans |
| Judgment Date | 12 February 2003 |
| Neutral Citation | [2002] EWCA Civ 428,[2003] EWCA Civ 136 |
| Docket Number | Case No: A2/2002/1842 QBENF |
| Court | Court of Appeal (Civil Division) |
| Date | 12 February 2003 |
[2002] EWCA Civ 428
The Master of the Rolls
(Lord Phillips)
Lord Justice Potter
Lady Justice Arden
IN THE SUPREME COURT OF JUDICATURE A2/02/0114
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN'S BENCH DIVISION
(SUPREME COURT COSTS OFFICE)
(SENIOR COSTS JUDGE HURST)
MR WILLIAM NORRIS QC and MR NICHOLAS BACON (Instructed by Messrs Colman Coyle, London, N1 0NU) appeared on behalf of the Appellant
MR JOHN LEIGHTON-WILLIAMS QC and MR ALEXANDER HUTTON (Instructed by Messrs Carters, Peterborough PE1 1JN) appeared on behalf of the 1st and 3rd Respondents
MR ANTHONY TEMPLE QC and MR ANDREW NEISH (Instructed by Messrs Beachcroft Wansbroughs, London, EC4A 1BN) appeared on behalf of the 2nd Respondents
LORD PHILLIPS, MR:
Introduction
This is an appeal against part of an order of Master Hurst, the Senior Costs Judge, made on 3 January 2002. The order was made in response to applications by the Claimants and the Second Defendants in a number of test cases which have been selected because they raised issues of principle. Those issues arise in many other cases that are awaiting determination. They relate to the recovery, as an element of legal costs, of what are alleged to be after the event ("ATE") insurance premiums.
In Callery v Gray (No 2) [2001] EWCA Civ 1246; [2001] I WLR 2142 this Court considered a number of issues of principle in relation to the right of a successful claimant to recover, as costs, an ATE insurance premium.
The jurisdiction to include in an award of costs an ATE insurance premium is conferred by section 29 of the Access to Justice Act 1999, which provides:
"Recovery of insurance premiums by way of costs. 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 the court, include costs in respect of the premium of the policy'."
The Court observed at p.2146:
"The phrase 'a liability in those proceedings' is imprecise. It does not define the nature of the liability. That the liability is restricted to liability in respect of legal costs is not, however, in issue or in doubt."
The Court went on to refer to the following definition in CPR 43.2(1):
"(m) 'insurance premium' means a sum of money paid or payable for insurance against the risk of incurring a costs liability in the proceedings, taken out after the event that is the subject matter of the claim…."
At p.2147 the Court considered some of the qualities that a payment would have to enjoy if it was to qualify as an insurance premium under section 29.
"11. It was common ground, and rightly so, that the court, when considering whether to award an insurance premium by way of costs, has to consider whether the premium is reasonable. It was also common ground that, in so far as the court finds that the premium is not reasonable, it can and should reduce it. There was debate as to the appropriate approach to the application of the test of what is reasonable.
12. It is important in this context to draw a distinction between two separate matters. The first is the nature of the benefits to which the litigant is contractually entitled in exchange for the payment of the premium. This falls to be determined from the terms of the contract under which the premium is paid. Section 29 permits the recovery of a premium where this is payment for insurance against the risk of liability for costs. If payment of a so-called premium buys a contractual entitlement to other benefits it is, to say the least, arguable that the premium cannot, to that extent, be recovered under section 29. Thus the court has to consider the terms of the contract under which the premium is paid to see whether it is simply a contract of insurance against liability for costs or whether it is something other than, or additional to, that.
13. The contractual benefits purchased by the premium must be distinguished from the use made by the insurer of the premium. An insurer will necessarily look to premium income to meet the costs of the business. The primary costs are likely to be those of meeting claims, but the costs will also include matters such as commissions, advertising and, indeed, refurbishing the insurer's premises. The court will not be directly concerned with how, or on what, the insurer spends the premium income. The court will, however, be concerned with the question of whether the premium is a reasonable price to pay for the benefits that it purchases. Ultimately, this should be a question to be considered having regard to experience, or evidence, of the market. If an insurer is conducting his business in a manner which incurs extravagant, extraneous or otherwise unnecessary expenditure, which has to be covered by the premiums, those premiums are likely to be uncompetitive. To pay such a premium where other more reasonable premiums are available may disentitle the litigant from making a full recovery of the costs of the premium."
In Callery v Gray the court had the assistance of a report from Master O'Hare, which provided data about some of the different types of agreement concluded by claimants, which consisted of or included insurance against the liability to pay legal costs. At p.2153 the Court observed:
"Collateral benefits
The benefits purchased by Mr Callery for his £350 premium were restricted to insurance against the risk of paying legal costs of one kind or another. The contract did not entitle him to any collateral benefits. This position contrasts with that of a litigant who engages the services of an organisation such as Claims Direct. Master O'Hare received evidence of:
'work done handling and negotiating the claim (whether or not it duplicates what the solicitors may do) and the work done to comfort and reassure the insured and/or his family, eg practical help in the home, counselling, helping in the arrangement of business matters and accompanying the insured on hospital appointments and other appointments.'
If a payment described as a 'premium' entitles the insured to benefits such as these it is, as we have already observed, at least arguable that—to that extent—the 'premium' does not fall within the ambit of section 29. Mr Norris, who appeared with our permission to protect the interests of Claims Direct, was concerned that we might, in this judgment, purport to determine this issue. We do not do so, but express the hope that it will rapidly be brought before this court in a case where it is raised on the facts."
The test cases before Master Hurst all involve claims by successful claimants who engaged the services of Claims Direct Plc ('Claims Direct'). The claims are supported by Claims Direct, which has an obvious personal interest in establishing that the claims are valid. The claims to recover costs have been challenged by the defendants in a number of different respects. In carrying out case management, Master Hurst divided the various issues into tranches. This appeal relates only to the first tranche. That tranche embraces issues arising in relation to claims to recover ATE insurance premiums. The First and Second Defendants and the Third Defendant are protected by different insurers. It is these insurers, rather than the nominal defendants, who are challenging the costs claimed in these proceedings.
The Claims Direct service and the claim to recover premium
It is not necessary for present purposes to do more than outline the nature of the services provided to a claimant by Claims Direct. Those services can generically be described as 'claims management'. Claims Direct attracts the custom of potential claimants by advertising. The clients that Claims Direct seek are those who have sustained personal injuries in circumstances where a good claim is likely to lie against a defendant protected by insurance. The services that Claims Direct offer such claimants include:
(1) Obtaining a loan from a bank to fund the litigation;
(2) Arranging legal representation;
(3) Arranging for a medical expert witness;
(4) Arranging for the provision of a policy of insurance which will indemnify the claimant against liability to pay his own and the defendant's legal costs. The most significant circumstance in which this cover will be required will be if the claim fails, so that no order for costs is made against the defendant but the defendant obtains an order that he recover his cash from the claimant.
Claims Direct arrange for the policy of insurance to be provided through the services of an insurance intermediary called Litigation Protection Limited ('LPL'). This company is totally independent of Claims Direct. It acts as an agent for a number of underwriters who write this class of business, and who issue LPL with binding authority to write insurance on their behalf. The terms of the cover notes which grant LPL this authority make similar provision for the premium. This is a typical example: £1,250 in each case, less £1,100 Underwriters' contribution to costs; subject to review at 31 March 2000, or as may be agreed by Underwriters hereon.
In such a case, in the first instance £150 would be paid to the underwriters by way of consideration for the risk that they were writing. The balance of £1,100 would be paid to Claims Direct to defray the various expenses incurred by Claims Direct in providing its services and to provide a residual profit. Part of this sum would, however, be retained in a trust account to fund an additional payment to underwriters should the...
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