Defective ATE insurance certificates

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When After-the-Event insurance premiums became recoverable back in 2000, the Costs Practice Direction introduced the following rule as to what should be provided when serving a bill of costs:

32.5(2) – If the additional liability is an insurance premium: a copy of the insurance certificate showing whether the policy covers the receiving party’s own costs; his opponent’s costs; or his own costs and his opponent’s costs; and the maximum extent of that cover; and the amount of the premium paid or payable.

Other than some subtle changes to the wording, to make this gender neutral, the rule remains the same today.

So why is it that 10 years after this rule was introduced I still routinely see certificates served with bills of costs that do not comply?

The most common defect is a certificate that fails to identify what it covers.

Almost as common is a failure to serve any certificate at all but instead serve a consumer credit agreement in relation to the ATE policy that doesn’t itself come close to complying with the requirements of 32.5(2).

Given the consequences of failing to serve a compliant certificate (see CPR 44.3B(1)(e)) you would think ATE insurers would make a bit more effort. How hard can it be?

A working alternative to recoverable success fees?

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As the tension mounts as to what might be going through the mind of Lord Justice Jackson as he prepares his final report on his civil costs review, might he be influenced by the litigation landscape north of the boarder?  The recently published Report of the Scottish Civil Courts Review states that the majority of damages claims in Scotland are pursued on the basis of "speculative fee arrangements" (no win, no fee agreements).  This is despite the fact that: "Unlike in England and Wales, success fees and ‘after the event’ insurance premiums are not recoverable and will have to be paid by a successful [claimant] from the damages recovered, unless they are waived or absorbed by the [claimant’s] solicitor".  Jackson LJ’s Preliminary Report raises a number of concerns about the English system of recoverable success fees and ATE premiums.  If non-recovery seems to work in Scotland, why not here?

And while Jackson LJ may be looking north of the boarder, they are looking back.  The Scottish report concludes: "We have given careful consideration to the use made of speculative fee arrangements in this country and the experience of conditional fee agreements in England and Wales. We consider that it would be premature to recommend any changes to speculative fee agreements as they are presently constituted in Scotland. The civil costs review in England and Wales chaired by Lord Justice Jackson should be monitored for its research findings and its conclusions"

Deep-fried Mars Bar anyone?

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14 7 98

Notification of funding – The New Rules

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In a previous posting (read here) I discussed the old rules relating to providing information about the funding of a claim.  The latest update to the Civil Procedure Rules has made important amendments which came into force on 1st October 2009.
The old CPR 44.3B read:
“(1) A party may not recover as an additional liability –
(c) any additional liability for any period in the proceedings during which he failed to provide information about a funding arrangement in accordance with a rule, practice direction or court order”
The new wording of CPR 44.3B is:
“(1) Unless the court orders otherwise, a party may not recover as an additional liability –
(c) any additional liability for any period during which that party failed to provide information about a funding arrangement in accordance with a rule, practice direction or court order;
(e) any insurance premium where that party has failed to provide information about the insurance policy in question by the time required by a rule, practice direction or court order.
(Paragraph 9.3 of the Practice Direction (Pre-Action Conduct) provides that a party must inform any other party as soon as possible about a funding arrangement entered into before the start of proceedings.)”
These changes fall into four categories:
1.      The wording “in the proceedings” is deleted and the reference to the new wording of the Practice Direction (Pre Action Conduct) makes it clear that notice must now be given pre-proceedings.
2.      The insurance premium provision deals with the consequence of not giving the information discussed below.
3.      The addition of the new wording “unless the court orders otherwise” is perhaps surprising. It was previously clear that failure to comply with the notification provision produced an automatic sanction in that the additional liability was not recoverable (in the absence of a successful application for relief from sanctions).  It now appears to be in the general discretion of the court as to whether to allow the additional liability despite the breach, although the starting point is obviously non-recoverability.  What is strange is that the new wording is followed by the same note that previously appeared: “Rule 3.9 sets out the circumstances the court will consider on an application for relief from a sanction for failure to comply with any rule, practice direction or court order”.  If the court now has a general discretion there would be no need to formally make an application for relief from sanctions.  Or, is the wording “unless the court orders otherwise” meant to refer to the situation where a successful application has indeed been made, but not otherwise?  We’ll no doubt have to wait for the first decisions on the correct interpretation.
4.      The word “he” is replaced by the non-sexist “that party” (so as not to upset any chicks reading).
Paragraph 9.3 of the Practice Direction (Pre-Action Conduct) now reads (amendments underlined):
“Where a party enters into a funding arrangement within the meaning of rule 43.2(1)(k), that party must inform the other parties about this arrangement as soon as possible and in any event either within 7 days of entering into the funding arrangement concerned or, where a claimant enters into a funding arrangement before sending a letter before claim, in the letter before claim.”
For the reasons I gave in the previous posting on this subject, I am of the view that these changes clarify, rather than change, the requirements concerning pre-proceedings notification (although the corresponding transitional provisions might suggest the contrary).
An important change has been made to the Costs Practice Direction in respect of staged After-the-Event (ATE) premiums.  CPD 19.4(3) now reads:
“Where the funding arrangement is an insurance policy, the party must –
(a) state the name and address of the insurer, the policy number and the date of the policy and identify the claim or claims to which it relates (including Part 20 claims if any);
(b) state the level of cover provided by the insurance; and
(c) state whether the insurance premiums are staged and, if so, the points at which an increased premium is payable.”
This finally formalises the guidance given by the Court of Appeal in Rogers v Merthyr Tydfil CBC [2006] EWCA Civ 1134.
What is not 100% clear is what the consequence would be of failing to give notification of the fact the policy is staged or to give the trigger points.  Would the receiving party lose all premiums or would they still be able to recover the first stage premium (on the basis that the paying party can be no worse off in respect of this first premium even if they were not notified of the staging; the prejudice comes from not having the opportunity to settle the claim before the subsequent premiums become payable)?  More test litigation ahead for costs draftsmen and other costs professionals.
It should be pointed out that none of these changes affect those acting under discounted CFAs\CCFAs without a success fee (usually defendants).  There is no need to provide notice of funding in this situation because the full hourly rate payable in the event of a win is not treated as being an additional liability (see Gloucestershire CC v Evans [2008] EWCA Civ 21).
There are also important changes to the rules concerning ATE premiums in publication proceedings although, frankly, if you work in that niche area you should already be more than aware of those changes.

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qc sept 16 97



Notification of funding – The Old Rules

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The old Practice Direction – Protocols (PDP), at paragraph 4, stated:

“A.1 Where a person enters into a funding arrangement within the meaning of rule 43.2(1)(k) he should inform other potential parties to the claim that he has done so.
A.2 Paragraph 4A.1 applies to all proceedings whether proceedings to which a pre action protocol applies or otherwise.
(CPR rule 44.3B(1)(c) provides that a party may not recover any additional liability for any period in the proceedings during which he failed to provide information about a funding arrangement in accordance with a rule, practice direction or court order.)”
On 9th April 2009 this was replaced with the Practice Direction – Pre-Action Protocols.  The relevant section, at 9.3, is substantially the same:
“Where a party enters into a funding arrangement within the meaning of rule 43.2(1)(k), that party should inform the other parties about this arrangement as soon as possible.
(CPR rule 44.3B(1)(c) provides that a party may not recover certain additional costs where information about a funding arrangement was not provided.)”
These sections have, surprisingly, caused problems. This has been due to a conflicting interpretation as to how the word “should” ought to be understood. Is it meant to be a mandatory provision or simply a “recommendation”?
Master Campbell, in Metcalfe v Clipston [2004] EWHC 9005 (Costs), adopted the latter interpretation:
“For [the paying party] to succeed, I consider the obligation on the receiving party to give notification of funding pre issue must be absolute but in my judgment, the word ‘should’ in the PDP does not impose such an obligation. On the contrary, I would construe ‘should’ as meaning ‘ought to’ which is not the same as ‘has to’ or ‘must’. Likewise I consider that a step that is ‘recommended’ under the CPD does not involve any element of compulsion but instead means ‘favoured’. It follows that I find against [the paying party]. In my judgment, pre issue, all the CPD does is to recommend that information is provided and although Section 19.2(5) states that notification may be required by a pre-action protocol, there is nothing in the clinical dispute protocol requiring service of any information. The PDP at paragraph 4.A.1 is of no assistance either because the requirement to provide information is optional not compulsory. Nor does paragraph 4A.2 PDP assist because ‘proceedings’ means the issue of court process and not prospective proceedings.”
Master Campbell reached the same decision again in Cullen v Chopra [2007] EWHC 90093 (Costs).
I have never found this reasoning remotely persuasive for a number of reasons:
  1. The word “must” is hardly ever used in the Pre-Action Protocols. The word “should” is usually used. For example: “Some solicitors choose to obtain medical reports through medical agencies, rather than directly from a specific doctor or hospital. The defendant’s prior consent to the action should be sought and, if the defendant so requests, the agency should be asked to provide in advance the names of the doctor(s) whom they are considering instructing”; “The parties should consider whether some form of alternative dispute resolution procedure would be more suitable than litigation”; “The defendant should reply within 21 calendar days of the date of posting of the letter identifying the insurer”. I would suggest that it would be absurd if a party failed to comply with any of these steps but could then claim to have complied 100% with the relevant Protocol on the basis that these were meant to be no more than “recommended” steps.
  1. In the case of Crosbie v Munroe [2003] EWCA Civ 350 the Court of Appeal went out of there way to explain their interpretation of the PDP and whether the notification requirement applied pre-proceedings:
“After completing this judgment, it came to my attention that lower courts are encountering similar difficulties over the meaning of the word ‘proceedings’ as used in paragraph 4A.2 of the Practice Direction: Protocols. Although we have of course not heard argument on this point, it appears to me that this word clearly needs to be interpreted along the lines indicated in paragraph 34 of this judgment. In other words, for instance, the dealings between the parties which lead up to the disposal of a clinical negligence claim are to be treated as ‘proceedings’ for the purposes of that paragraph even if the dispute is settled without the need to issue a claim form.”
Although these comments were clearly obiter, it would be extremely strange for the Court of Appeal to go out of its way to comment on the interpretation of a Practice Direction if failure to follow that Practice Direction had no consequences.  If there were no consequences, what were the “difficulties” that the Court of Appeal was referring to?
3.     Immediately after 4A.2 PDP is the following wording: “CPR rule 44.3B(1)(c) provides that a party may not recover any additional liability for any period in the proceedings during which he failed to provide information about a funding arrangement in accordance with a rule, practice direction or court order” (similar wording appears after 9.3 of Practice Direction – Pre-Action Protocols). The Court of Appeal, in Garbutt v Edwards [2005] EWCA Civ 1206, had this to say when trying to interpret the word “shall”:
“In particular, Rule 15 begins by providing that a solicitor ‘shall’ provide costs information. But, while the word ‘shall’ is often mandatory, particularly when used in legislation, it has, depending on the context, been interpreted on occasion as directory or exhortatory only: see for example R v Secretary of State for the Home Department ex parte Jeyeanthan [2000] 1 WLR 354. In Rule 15, for the reasons given below, the word ‘shall’ is not in my judgment mandatory in the sense that non-compliance with the Code will always result in a breach of Rule 15. Rule 15 must be interpreted with the Notes that appear immediately following it.”
Applying this reasoning, the note immediately following the section details a specific sanction and the word “should” is therefore surely intended to be mandatory on this occasion with the consequences of non-compliance being spelt out. The alternative interpretation produces the bizarre outcome that the PDP details a sanction that only applies to a breach of a totally different rule and not anything contained within the PDP itself. If this were correct, it would be unique within the PDP or Pre Action Protocols for a sanction to be listed totally detached from the relevant rule.
Any confusion that existed under the previous rules has now been removed by the latest update to the Civil Procedure Rules.  I’ll be posting details of these changes in the next few days on the Legal Costs Blog.

Jackson Costs Review – Part 4 – Legal Expense Insurance and Success Fees

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Lord Justice Jackson’s Preliminary Report on Civil Litigation Costs reaches a “tentative conclusion” that: “It seems to me to be in the public interest to promote a substantial extension of BTE insurance, especially insurance in the category BTE1 [Before-the-Event legal expense insurance where insurers pay solicitors to act for the insured when a claim arises]. The cost of litigation in any year by the few insured who need to bring or defend claims will then be born by the many who do not”. The Report records the Bar’s CLAF Group proposal that BTE insurance should be compulsory for motorists (to cover themselves and anyone they may injure), employers and occupiers of buildings (again to cover themselves, employees, visitors or customers). Jackson LJ states that this proposal “merits serious consideration”. The impact of such a proposal if implemented would be, by implication, to largely kill off CFAs and ATE insurers.

In a previous posting I wrote on the subject of Jackson LJ’s proposals for ending two-way costs shifting and moving to one-way costs shifting, at least for personal injury work. The Report comments: “It is, however, worth noting that if cost shifting against claimants were to be abolished, the main purpose of ATE insurance premiums would also disappear”.

Jackson LJ’s expresses the view: “If any layer of activity can be removed from the process (and insurance against adverse costs liability is one layer of activity), it may be thought that this will serve the public interest”. ATE insurers have previously been very successful in lobbying to protect their place in the current costs system. They may well have their work cut out now to maintain the status quo.

Even if costs shifting were to remain unaltered, Jackson LJ nevertheless is considering: “whether success fees and ATE premiums should continue to be recoverable under costs orders”. This would potentially return the position to the pre-April 2000 one where any success fee or ATE premium was payable out of the claimant’s damages. One option that Jackson LJ seems to be considering, and for which he asked for further assistance at the Sweet and Maxwell Conditional Fee Agreement Conference in May, is whether to increase damages to a level that enables a return to the 25% cap on the amount of damages that solicitors can take from their client’s damages, so that claimants would be no worse off than under the current system.

Jackson Costs Review – Part 3 – Cost Shifting

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Lord Justice Jackson’s Preliminary Report on Civil Litigation Costs (see previous post) seriously considers whether the current two-way costs shifting rules should continue. He writes: “The first possible modification would be to introduce one-way cost shifting. One-way cost shifting means that when the defendant loses, he pays the claimant’s costs; when the claimant loses, each side bears its own costs. Such a system would self-evidently benefit claimants. Ironically, such a system would also benefit defendants in certain areas. A one-way cost shifting regime would be cheaper for defendants than a regime under which they recover costs when they win, but pay ATE premiums (as well as all the other costs) when they lose. A crucial consideration, however, would be the need to provide incentives for claimants to accept reasonable offers”.

The Report goes on: “On looking at the data which has come in during Phase 1 of the Costs Review, it seems to me that a one-way costs shifting rule would (a) be cheaper for defendants than the present two-way rule and (b) reduce the burden on claimants. It is therefore necessary to look at this proposal and its implications in further detail. The proposal which I raise for consideration during Phase 2 is whether it would be more cost effective to remove the claimant’s liability for costs in respect of unsuccessful cases. … Whilst there are different arguments for cost shifting for and against claimants, it is appears that in most categories of litigation the case for retaining cost shifting in favour of successful claimants is a strong one. My working assumption is, therefore, that cost shifting in favour of claimants, in the sense that successful claimants should generally expect to recover their costs, should continue”.

Michael Zander QC, writing in the New Law Journal, stated: “If I were a betting man I would put some money on there being a recommendation in the final report that in personal injury litigation we should move to one-way fee shifting (as existed under legal aid) so that the claimant would no longer need, and losing defendants would no longer have to, pay for the claimant’s ATE insurance cover”.These suggestions would have a major impact on two groups if they find their way into the rules. Firstly there would be a significant reduction in work for costs draftsmen, both defendant and claimant. If one-way costs shifting removed recoverability of defendants’ costs this would remove the need for defendants’ bills of costs to be drafted or opposed. Of course, defendants do not win a high proportion of cases but this loss of work would not be insignificant. The second group who would be affected is ATE insurers. I will deal with them in a future post.

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qc march 4 97

ATE premiums – What impact market forces?

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The heart of the problem concerning ATE premium levels was identified recently by Paul Ashurst writing in the New Law Journal: "one party buys insurance cover without handing over any cash and then hands the bill to the other party, who has no say in selecting either the cost or provider". The self-insuring deferred premium, which has become the norm, is central to this problem. Although this is a wonderful product from a claimant’s perspective, it removes any real market force from the system.

Lord Justice Jackson’s Preliminary Report on Civil Litigation Costs recognised this problem: "An issue which is sometimes raised is whether ATE premiums generally are unduly generous to insurers. In any given case, the insured demonstrates to the court the reasonableness of the premium paid by producing a statement as contemplated by the Court of Appeal in Rogers v Merthyr Tydfil CBC [2006] EWCA Civ 1134. That, however, is separate from the wider question of whether ATE premiums generally are too high or about right. In relation to this issue, insurers make the point that there are now 36 ATE providers (insurers and agents/intermediaries) active in the field. They contend that market forces bring premiums down to a proper level. This argument may have more force in relation to personal injury and clinical negligence litigation (where many insurers offer cover) than in relation to niche areas (where fewer insurers are competing for business). On the other hand, it has been suggested that the decision in Callery v Gray approving a figure as a reasonable premium in road traffic cases at the time has set that figure as a base-line and has resulted in the eradication of downward pressure in the market; and that the requirement for a Rogers v Merthyr Tydfil statement does not in practice ensure that premiums are competitive".

Later the Report observes: "In Callery v Gray (Nos 1 and 2) [2002] UKHL 28 Lord Hoffmann expressed the view that no market forces restrain the levels of ATE premiums. At paragraphs 43-44 he said this: ‘ATE insurers do not compete for claimants, still less do they compete on premiums charged. They compete for solicitors who will sell or recommend their product. And they compete by offering solicitors the most profitable arrangements to enable them to attract profitable work. There is only one restraining force on the premium charged and that is how much the costs judge will allow on an assessment against the liability insurer. Again, the costs judge has absolutely no criteria to enable him to decide whether any given premium is reasonable. On the contrary, the likelihood is that whatever costs judges are prepared to allow will constitute the benchmark around which ATE insurers will tacitly collude in fixing their premiums.’ Seven years have elapsed since Lord Hoffmann delivered that speech. There appears to have been a substantial growth in ATE insurance during that period. Whether or not market forces now exert any effective control over premium levels is very much a live issue, which I have touched upon in chapter 14 above. It is a fair point made by defendants that claimants have no interest in the level of ATE insurance premiums, because – win or lose – the claimants are never going to have to pay those premiums".

A recent edition of Litigation Funding reported Temple Legal Protection as recently providing ATE insurance for a case with a premium of £2.5 million with another case rumoured to have attracted an even larger premium. The sums at stake are significant.

The Rogers decision has been interpreted in many quarters as giving ATE insurers a blank cheque to set their premiums at whatever level they choose in the knowledge that the courts will not interfere with those premiums. Is that view correct?

Gibbs Wyatt Stone
recently appeared for the Defendant in the case of Priest v CMT Engineering Insulation Ltd (17/3/09) in the Supreme Court Costs Office. The case concerned an asbestos related disease and an ATE policy with DAS 80e had been entered into by the Claimant with a three stage premium. The matter settled pre-trial and therefore only the first two elements of the staged premium were payable. These were calculated at £6,500. A third and final premium would have been payable 21 days pre-trial and that premium would have been individually calculated to reflect the risks of the case. Principal Costs Office Lambert agreed with the Defendant’s submissions that the first two premiums claimed were excessive. Using his own experience of other comparable ATE policies available on the market he reduced the amount to £2,750. The Claimant is appealing. It will be interesting whether the Court on appeal upholds the decision or decides, in effect, that an experienced costs officer or judge no longer has the power to interfere with an ATE premium following Rogers.

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qc oct 14 97