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Claims Direct Test Cases, Court of Appeal, 12 February 2003

18 February 2003
The issues

Costs – recoverable premium – reasonableness.

The facts

This was an Appeal from the Judgment of Master Hurst in respect of the first tranche of issues to be heard in the test cases concerned with the Claims Direct Protect Scheme. The issues that Master Hurst had had to decide were:-

(i) Whether the money a Claimant paid for the right to be included with the Scheme was a premium within the meaning of Section 29 of the Access to Justice Act 1999;

(ii) If it was such a premium, whether or not it was reasonable in amount – i.e were any of the benefits purchased by insurance forming part of the Claims Direct Scheme collateral and to what extent should the costs of collateral benefits be recoverable?

The decision

1. Master Hurst had come to the view that the proper sum allowable in respect of the premium was £621.13. This, the Defendant did not appeal.

2. The issue to be determined was whether the Master was correct in refusing to Accept that the premium of £1,250.00 must be automatically equated with the premium referred to in Section 29 of the 1999 Act. The Court had been told that if it were to allow the “deconstruction” of a premium liability in the way in which the Defendants argued, Insurers would raise endless arguments on the appropriateness of different elements of a premium, which would turn the assessment of costs into a nightmare.

3. In any event, a Court should always apply a proportionality check whenever costs were assessed on the standard basis.

4. However, this was not the answer to this issue. A Costs Judge ought to be put on notice that enquiries should be made in a situation such as this, where the services provided for the Claimants were in most respects identical under the Contingency Fee Agreement Scheme provided under the Portfolio Scheme and the Claims Direct Protect Scheme. How could it be that all the claims handling services, previously remunerated out of Claims Directs 30% share of the awards and successful cases, suddenly became insurance services when an ATE insurance element was added onto the package?

5. The use of the word “premium” in the Agreement was not the end of the question. The effect of an agreement between parties could not be conclusively determined by the label which was given to it – see Street -v- Mountford. The Master was entitled to “lift the veil” and be influenced by what was actually being provided in return for the premium allocation paid to MLSS (Medical Legal Support Services Limited, the wholly owned subsidiary of Claims Direct). It was not Parliament’s intention to overload the recoverable premium by adding to those costs, which a Company like MLSS had to incur if Insurers were to accept the risk at all. The obligation which the Insurer took on was to provide an indemnity if the Claimant’s claim was dismissed or was discontinued. It was not an obligation to provide “continuing insurance services”. Insofar as the work done by a Claims Manager as part of those services represented an appropriate disbursement for work a Solicitor would otherwise have to perform himself, then the cost of that work would be properly recoverable as part of the Solicitor’s bill.

6. The Master’s conclusion was correct therefore – although the Court of Appeal indicated that it would not have been as generous as he had been in attributing expenses to the insurance element of the arrangements – but since there was no cross Appeal, this point was not pursued.

7. It was not strictly necessary therefore, to deal with the final part in the Master’s Judgment, namely his conclusions as to whether or not the premium of £621.13 to which he had arrived was reasonable and proportionate. He concluded that his figure was reasonable and proportionate, on the basis of applying the 20% success fee put forward in Callery -v- Gray to the known base costs claimed in 11 of the cases before him. Those costs average £2,097.00 per case and therefore the success fee would yield £419.00. At 5% – the Court of Appeal’s preferred alternative figure in Callery – the figure would be £105.00. Adding to that £350.00 plus IPT for an ATE insurance premium, his range of figures was between £472.50 and £786.50. He concluded therefore that his award of £621.13 fell within the middle of the range and was reasonable and proportionate.

8. The Master had assumed that the cases he examined were cases as simple as Callery -v- Gray and that they all settled pre-issue. Two of the cases were not simple and two did not settle pre-issue. The Court of Appeal concluded that in fact different success fees would have been reasonable in the cases before them – ranging from a success fee of 40% in case 12 (Adegbite -v- MacDonalds – an assault at work case) to 20% in cases 6, 10, 18 and 20 – 6, 10 and 18 being RTA’s – 20 being accident at work claims and 30% for the remainder. However, the reliance on Costs Practice Direction paragraph 11.10 as the sole determiner of the reasonableness of a both sides cover premium was likely to produce more uncertainty for a Claimant than the possibility of deconstructing a premium – particularly if a two-step success fee became the norm for both cases (see CPR Costs Direction 11.10 provides that a relevant fact to be taken into account when deciding whether the cost of insurance cover was reasonable was how its cost compared with the likely cost of funding the case with a Conditional Fee Agreement with a success fee and supporting insurance cover).

9. When concluding, Lord Justice Brook noted that he had failed to express himself with sufficient clarify in giving Judgment in Halloran -v- Delaney. He had in mind a case where the prospects of success were virtually 100%. The two-step fee, which the Court had suggested in Callery -v- Gray was appropriate to allow a Solicitor in such a case to cater for the unexpected risk “lurking below the limped waters of the simplest of claims”. However, it was clear in retrospect that the Court needed no further research evidence or submissions from other parties to be persuaded that in this type of extremely simple claim, a success fee of over 5% was no longer tenable. The guidance given in that Judgment was intended to have no wider Application.

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