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Kris Motor Spares Ltd v Fox Williams LLP, High Court, 12 May 2010

18 May 2010
The issues

Costs – After The Event policy – Conditional Fee Agreement – level of premium – time at which premium could be taken out.

The facts

Fox Williams, a firm of solicitors, had acted in commercial litigation for Kris Motor Spares Ltd in an action which was settled. They had acted under a Conditional Fee Agreement. Shortly before the settlement agreement the CFA was terminated by the solicitors, entitling them to their fees. They rendered a bill of costs which KMS said was excessive. It therefore sought an assessment of the Bill under the provisions of the Solicitors Act.

The Solicitors Act proceedings were commenced in August 2007 and in September 2007 the Master ordered the determination of the preliminary issue as to whether there were special circumstances within the meaning of Section 70 of the Act.

The preliminary issue was heard over four days, on the 16th December 2008. On the 16th December 2008 a Notice of Funding was served by the solicitors referring to an ATE policy in respect of the Trial of the preliminary issue. The premium was £95,550.00 against an insured sum of £130,000.00 – a rate of 73.5% (as against premium ranges for large commercial cases described in Lord Justice Jackson’s preliminary report as being within the range of 35% – 45%). Kris Motor Spares challenged the premium, both as to amount and as to the time when the policy was taken out.

The decision

An ATE premium is recoverable from the paying party under Section 29 of the Access to Justice Act 1999.

There was no presumption that a premium was reasonable, unless the contrary were shown. (Callery v Gray no. 2). In Callery the House of Lords expressed concern that the new funding regime should not confer disproportionate benefits on after the event insurers. Lord Hoffman clearly expressed the paradox that the cost of premiums was only confined by the amount decided as reasonable by Judges who were not in a position to decide what was reasonable.

This point was taken up by the Court of Appeal in Rogers v Merthyr Tydfil. In that case, the Court of Appeal noted that Judges did not have the expertise to judge the reasonableness of a premium, except in very broad brush terms and that the viability of the ATE market would be imperilled if Judges regarded themselves (without the assistance of expert evidence) as better qualified than the underwriter to rate the financial risk the insurer faced. There was no basis for concluding that the solicitors should not have taken out any insurance or that they should not be able to recover the premium because they insured at a late stage. There was no principle that the premium on a late incepting policy was irrecoverable as an unreasonable cost. Each case was likely to depend on its own facts.

As to the quantum of the premium, there was no material before the Master which showed that the premium was either reasonable or unreasonable in amount and there was no such material before the incident at Court. Although the issue of the reasonableness of the premiums had been identified in Points of Dispute and reply, it had not led to either party advancing reasoned arguments, supported by evidence, either as to the reasonableness or the unreasonableness of the amount of the premium. In Rogers v Merthyr Tydfil, the Court of Appeal envisaged a note from the solicitor explaining how a particular ATE product came to be chosen and whether it was block rated or individually rated. That was in the context of an issue about the size of a second or third stage payment. There was no obligation on the solicitors in this case to provide such a note for a single stage premium.

Where an issue was raised as to the size of the premium there was an evidential burden on the paying party to advance at least some material in support of the contention that the premium was unreasonable. If an issue arose, it had to be raised by the paying party. If, having heard the evidence and the argument there was still a doubt about the reasonableness of the charge, the doubt must be resolved in favour of the paying party. In this case where no evidence has been deployed which might assist the Master, it could not be said that the Master’s conclusion on the level of premium was wrong. The recoverability of premiums under a Costs Order was the subject of vigorous debate and had been notably canvassed in Lord Justice Jackson’s final report at 4.4. This Judgment should not been seen as discouraging challenges to ATE premiums on the basis of unreasonableness for such time as such premiums might be recoverable in principle. Such challenges had to be resolved on the basis of evidence and analysis rather than by assertion and counter assertion. Issues should be identified promptly and, where necessary, there should be directions for the proper determination of specific issues. This might involve the costs Judge looking at the Proposal and the receiving party providing a note for a one-off ATE premium and not just for a staged premium.

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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

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