ATE Premiums and the Pre-action Protocol for Low Value Claims in RTAs

This post is a newsletter published in August 2011. A sequel dealing with the Liverpool ATE Test cases (May 2012) and whether the decision of District Judge Smedley was correct or not, may follow in due course.

Cases are starting to reach the assessment process on the single point, as to what ATE premiums incurred for cases disposed of either at a Stage Three hearing or more commonly through settlement at Stage One or Stage Two of the Pre-action protocol for low value personal injury claims in road traffic accidents are properly recoverable.

A significant body of ATE providers are utilising staged or stepped premiums which can be as little of 20% of the £400 or £500 that other ATE providers are charging.

The simple question that has to be posed is how a District Judge is meant to apply the test of reasonableness and proportionality in an individual case in order to determine whether a ATE premium should be recoverable in sums of £400 plus or a much lesser sum, sometimes as little as £100 or less?

The issue has arisen because a significant body of respectable ATE providers utilise stepped premiums which apply very low levels of premium to cases which are dealt with within the RTA claims process: whereas a significant body of other ATE providers has not seen fit to revisit their premium structure since the advent of the new claims process.

A significant body of Solicitors continue to use tried and tested policies, as they have done for many years, which appear now to be quite expensive at £400 or £500 at a time against that backdrop.

The District Judge when assessing costs under Rule 44.5 of the Civil Procedure Rules 1998 on a normal standard basis assessment will be looking at the proportionality and reasonableness of the costs incurred and claimed.

The starting point for any consideration of reasonableness remains the classical authority of Wraith -v- Sheffield Forge Masters (1997) which is a decision which should be treated with some caution given that it predates the Civil Procedure Rules and the introduction of the principle of proportionality and indeed was decided on facts from 20 years ago, when the legal market place was very different from the market place that currently exists for personal injury claims.

In that judgment the Court of Appeal approved the formulation of the test of reasonableness made by Mr. Justice Potter which, although made in the context of a client’s choice of Solicitor, is equally apt to be applied in the context of a choice between ATE providers.

In relation to the first question, were the costs reasonably incurred, it is in principle open to the paying party on the taxation of costs on the standard basis to contend that the successful party’s costs have not been reasonably incurred to the extent that they have been augmented by employment of a Solicitor who, by reason of his calibre, normal area of practice, status or location, amounts to an unsuitable or luxury choice, made on grounds other than grounds which would be taken into account by an ordinary reasonable litigant concerned to obtain skilful, competent and efficient representation in the type of litigation concerned…  However, in deciding whether such an objection is sustainable in practice the focus is primarily upon the reasonable interest of the Plaintiff in the litigation so that, in relation to broad categories of costs, such as those generated by the decision of a Plaintiff to employ a particular status or type of Solicitor or Counsel, or one located in a particular area, one looks to see whether, having regard to the extent and important of the litigation to a reasonably minded Plaintiff a reasonable choice or decision has been made.  If satisfied that the choice or decision was reasonable, it is the second question what is the reasonable amount to be allowed?  Which imports consideration of the appropriate rate or fee for a Solicitor or Counsel of the status and type retained.  If not satisfied the choice or decision was reasonable, then the question of reasonable amount will fall to be assessed on the notional basis of the costs reasonably to be allowed in respect of her Solicitor or Counsel of the status or type which should have been retained. In either case, Solicitors hourly rates will be assessed, not on the basis of the Solicitors actual charging rates, but (in the case where the decision to retain was reasonable) on the basis of the broad costs of litigation and the area of the Solicitor retained or (in the case were the choice made is not reasonable) of the type of or class of Solicitor who ought to have been retained.

The starting point thus reads promisingly for Claimants seeking to recover ATE premiums in the sense that it clearly encapsulates the notion that there will be a spectrum of reasonableness within which a choice can be made. There is no obligation per se on classical Wraith principles to make the election for the cheapest of a number of alternatives.

As noted above, in many ways the Wraith judgment must be treated with caution these days and a case decided some years later after the introduction of the Civil Procedure Rules, that of Sarwar -v- Alam (2002) 1WLR 125, again deals with the reasonableness of choice but also the constraints under which such reasonableness may have to be exercised again in the context of a choice of solicitors.

At paragraph 57 of the Judgment of the Court of Appeal the Court said this:

In R -v- Legal Aid Board, ex parte Duncan (2000) COD 159 the Divisional Court rejected the Applicant’s Solicitors contention that their clients had a common law right to representation by the Solicitor of their choice not with outstanding that they were unable to pay for the Solicitors services themselves and limitation from the choice of a publicly funded Solicitor would be prescribed by Parliament.  We do not consider that it is necessary to repeat here the powerful dictum of Neuberj in Maltez -v- Lewis (2000) 19CONS TLJ 65 quoted in the Judgment.  It is sufficient to record that he observed that the right of any citizen to be represented by advocates and/or Solicitors of his or her choice may be cut down by circumstances.  One of the circumstances that which may cut it down is the consideration that the cost of instructing a Solicitor of the client’s choice, and protecting the client from the risk of paying the other side’s costs, is disproportionate to the value of the proposed claim when an alternative, reasonable, method will advance in the client’s interest with the help of an appropriately qualified lawyer is available.

In the later case of Rogers -v- Merthyr Tydfil County Borough Council (2007) 1WL 808, the Court of Appeal dealt with the recoverability of ATE premiums by reference to the principle of proportionality expressed in the case of Lownds -v- Home Office (2002) 1WLR 2450, where the Court applied the concept of proportionality in this way at paragraph 105:

…… but we do not think that is right.  If the Court concludes that it was necessary to incur the stage premium, then if this Court’s judgment in the Lownds’ case (2002) 1WLR 2450 shows, it should be judged a proportionate expense.  The necessity here is, with think not some absolute litmus test.  It may be demonstrated by the application of strategic considerations which travel beyond the dictates of the particular case.  Thus it may include, as we are persuaded it does, the unavoidable characteristics of the market and insurance of this kind.  It does so because this very market is integral to the means of providing access to justice in civil disputes in what may be called the post legal aid world.

They concluded at paragraph 106:

It is important to recognise that this conclusion runs with, not across, the grain of the procedure reforms expressed in the CPR.   The very recognition that justice requires a use of resources that is proportionate to what is at stake implies the rightness of the strategic approach.  There can be no touch tone of a proportionate use of resources so under sub, with out and eye to the context in which any such resources are expended.  Once it is concluded that ATE stage premium here was necessarily incurred, principle and pragmatism together compelled in conclusion that it was a proportionate expense.

Finally it should be noted that all decisions made under 44.5 must also be made by reference to Rule 1.1, the so called overriding objective.  One limb of which requires that the parties act to save expense where appropriate in a particular case. 

In this respect it should be noted that the pre-action protocol for low value personal injury claims and road traffic accidents has been in force since 2010. It applies to road traffic accident claims which proceed where liability including contributory negligence is not in dispute and damages for personal injury are valued at no more than £10,000.

It could be argued with force that the protocol will apply for the vast bulk of road traffic litigation and in terms of costs cases which proceed under the protocol have the following consequences. The first is to note that the Claimant may very well incur a liability for disbursements of varying amounts. Second, under Stage One liability will be admitted or it will not but if it is payment of fixed costs become due to the claimant’s solicitor. Next, if the case at Stage Two settles, the claimant’s fixed costs success fee and reasonable disbursements will be paid.

Thus it is only at Stage 3, if, and only if, a claim is issued under practice direction part 8B, and if, and only if, a defendant’s offer is not beaten that the claimant will become liable to pay the defendant’s fixed costs which are £500 or potentially £500 uplifted by 100% whether the defendant’s be litigating under a no win no fee.

A solicitor considering matters reasonably, in summary would note: the vast majority of claims will settle within this process where the claimant’s risk as to costs is not existent, a minority of cases will proceed to a Stage Three hearing where the claimant’s risk as to costs is at most  £1,000 and an even smaller number will not be caught by the process or drop out of it and the claimant’s potential to be at risk for costs is accordingly increased only at that point. A solicitor’s advice should be tailored to these facts, accordingly.

A District Judge also cannot be ignorant of Lord Justice Jackson’s final report which says this at paragraph 4.4:

The reasons which will be set out in Chapter 10 below, my conclusion below that ATE insurance premiums ought not to be recoverable under a Costs Order.  The regime of recoverable ATE insurance premiums is based upon the premise that certain claimants need to be protected against the risk of having to pay adverse costs.  In order words, for policy reasons these claimants should be allowed to benefit from the costs shifting rule when they win, but be protected against this adverse affect when they lose.  The flaw in the present regime is that it is not targeted upon those who merit such protection.  Any person who finds a willing insurer can take out ATE insurance, whether that person is rich or poor, human or corporate, deserving or undeserving.  Furthermore the protection which the claimant derives from ATE insurance is total.  The claimant is not required to make a modest contribution towards adverse costs (which was the case under the legal aid regime, which the recoverability regime replaced in April 2000) even if he can afford to do so. 

He continued at paragraph 4.5:

Professor Willem Van Boon has delivered a forceful attack on the regime of recoverable ATE insurance premiums in its article juxtaposing BTE and ATE on the role of the European insurance industry in funding civil litigation.  He concludes:

“So, the upshot of all this is that a prevailing claimant can fully shift the costs of his Solicitor and his ATE premium on to the Defendant and a defeated claimant does not pay anything.  The CFA plus ATE industries justifies this on the basis that the policy itself insured, which actually implies that the insurers pools all risks and funds all the unsuccessful cases from premiums charged to the Defendant’s in successful.  So what self insured really means is allowing claimants and insurers to design an aleatory contract through which the costs of both parties can be fully externalised on third parties.”

Defendants will undoubtedly argue that the factors noted above, indicate that a solicitor offering advice to his client on the inception of an ATE insurance premium would consider carefully how economically the need for insurance could be met and be aware that since the inception of the protocol numerous well known respectable ATE insurance providers offer staged premiums which provide for modest premiums the cases which settles in the claims process.

They will then contend that a reasonable solicitor would offer advice to incept such a policy from one of a number of providers and it would be unreasonable to take out a single stage premium or a staged policy with the stages taking place at the issue of proceeding or allocation to the multi-track when the same would be most unlikely to be needed and it would be unreasonable and disproportionate to invite the defendant to pay such a premium.

Conversely those acting for claimants would wish to explore and adduce evidence as to why a particular premium was elected upon, to show that the ATE elected upon fell within the spectrum of reasonable choices.

Some reasons undoubtedly would be better than others. The fact that a particular solicitors firm is tied by reason of referral arrangements to recommending a single more expensive premium or receive a large commission from the particular provider or even in the extreme case that they are the owner of the ATE insurance provider would not seem to amount necessarily to good reasons. Conversely particular features of a policy which make it attractive or an experience of reliable claims settlement or prompt administration might seem to be better reasons why a particular policy was elected upon.

With Jackson looming the point may soon become otiose as the recoverability of ATE premiums is likely to be removed by the Legal Aid Bill currently passing through the Houses of Parliament.  But in the short term at least this will prove to be one of the more contentious arguments before the District Judge.

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