Disbursements and ATE premiums

An important element of the decision in Herbert -v- H H Law Ltd (Final) concerned the Court’s decision that an ATE insurance premium was not a solicitor’s disbursement, and so did not fall within the scope of a section 70 assessment at all. The basic assumption underlying the challenge to the ATE which had succeeded at first instance and on appeal, was that if there were cheaper insurance premiums to be sourced, a more expensive one would be an unreasonable expense.

This does not necessarily follow. Price is not the only criterion for placing an insurance premium. Reliability and a good record of paying claims, may be more important considerations. As John Ruskin observed long ago:

There is hardly anything in the world that someone cannot make a little worse and sell a little cheaper, and the people who consider price alone are that person’s lawful prey. It’s unwise to pay too much, but it’s worse to pay too little. When you pay too much, you lose a little money — that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing it was bought to do. The common law of business balance prohibits paying a little and getting a lot — it can’t be done. If you deal with the lowest bidder, it is well to add something for the risk you run, and if you do that you will have enough to pay for something better.”

It is hard to overstate the significance of this aspect of the decision. Had an ATE insurance premium been judged to be a disbursement, solicitors would have become effective guarantors of the premium. The mischief would not have ended there. Logically other funding “packages” such as third party litigation funding, effected through a solicitor’s agency, and where fees may be charged to the client by the litigation funder might have fallen to be treated the same way in due course, imposing huge liabilities on a solicitor’s practice.

The court began by noting the position thus:

57. HH contends that both DJ Bellamy and Soole J were wrong to treat the ATE insurance premium as a solicitor’s disbursement rather than an item incurred on behalf of, and as agent for the client, which was properly shown in the cash account as a cash payment

58. I would allow the appeal on this point.

59. In Re Remnant (1849) 11 Beav 603 the issue was whether a particular payment made by a solicitor on behalf of the client was “a professional disbursement in the bill of costs” or “a mere cash payment”. The payment in question was the sum of £64 18s 6d, which the client owed to a third party and which the solicitor paid to the third party in the course of compromise negotiations. The solicitor included that sum in his bill of costs as a professional disbursement. On taxation, the Master disallowed it, and the question was whether that disallowance was right. The point was of importance in view of the law that, if the bill of costs was reduced by more than one sixth on taxation, the solicitor would pay the costs but not otherwise.

60. Lord Langdale upheld the decision of the Taxing Master. He referred to the certificate of the Taxing Masters, which they had given to him in answer to a request by him that they state their opinion as to the principle on which the practice of the solicitors’ profession rested. In that certificate the Taxing Masters stated the principle as follows:

“That such payments as the solicitor, in the due discharge of the duty he has undertaken, is bound to make, so long as he continues to act as solicitor, whether his client furnishes him with money for the purpose, or with money on account, or not: as, for instance, fees of the officers of the Court, fees of counsel, expense of witnesses, &c., and also such payments in general business, not in suits, as the solicitor is looked upon as the person bound, by custom, to make, as for instance, counsel’s fees on abstracts and conveyances, payments for registers in proving pedigree, stamp duty on conveyances and mortgages, charges of agents, stationers, or printers employers by him, &c., are, by practice and we think properly, introduced into the solicitor’s bill of fees and disbursements.

But that payments which the solicitor is not either by law bound to make, or, by custom, looked upon as the person to make, as for instance, purchase-monies or interest thereon, monies paid into Court, damages or costs paid to opponent parties, bills due to the solicitors of trustees, mortgagees, or other parties, legacy or residuary duties, or other payments of a like description, which the solicitor makes as agent, on the order of the client, and not in discharge of his own duty or liability as solicitor, are, by practice and we think properly, charged in the cash account.

We think also, that the question whether such payments are professional disbursements or otherwise, is not affected by the state of the cash account between the solicitor and the client; and that (for instance) counsel’s fees would not the less properly be introduced into the bill of costs as a professional disbursement, because the client may have given money expressly for paying them; and that the purchase-money or damages would not be properly so introduced, notwithstanding the solicitor may have advanced the money out of his own funds.”

61. Lord Langdale MR said the following at 612-613:

“From this certificate, and from the inquiries which I have made, it appears to me, that it is the practice of solicitors, who may have to pay or advance money on behalf of their clients, carefully to distinguish such professional disbursements as ought to be entered in their bills of costs, from such other advances or payments, as ought to be entered only in their cash accounts, as cash payments or advances. And it seems to me to be a very reasonable and proper rule, that those payments only, which are made in pursuance of the professional duty undertaken by the solicitor, and which he is bound to perform, or which are sanctioned as professional payments, by the general and established custom and practice of the profession, ought to be entered or allowed as professional disbursements in the bill of costs. And, considering that the sum of £64, 18s. 6d. now in question, was not a sum which it was incumbent on the solicitor to pay in the discharge [614] of his professional duty, and that it is not the practice or custom of the profession to consider such a payment as a professional disbursement, but only as a cash payment, I have come to the conclusion (not in accordance with my first impression) that the Taxing Masters’ certificate is right, and that the petition must be dismissed.”

Despite the antiquity of the authorities, the court had little difficulty applying the principle to a twenty first century bill:

68. The ATE insurance premium does not fall within either of those categories of solicitor’s disbursements I have mentioned. It is a premium on a policy of insurance under which the client is the insured, pursuant to a contract of insurance made between the insurer and the client, in order to provide the client with funds to discharge costs which are not recovered from the opposing party and the client is liable to pay, whether those are costs of the other party or of the client’s own solicitors. As the Court of Appeal observed in Hollins v Russell [2003] EWCA Civ 718, [2003] 1 WLR 2487 at [114], “the client’s liability to pay the [ATE] insurance premium arises from the contract of insurance, not from her contract with the legal representative”. In the present case, it was an insurance contract effected by HH as Ms Herbert’s disclosed agent, and it specified Ms Herbert as “the Policyholder”. An ATE insurance premium is not a payment which a solicitor is obliged, as such, to make irrespective of whether or not put in funds by the client, comparable to court fees and counsel’s fees. It is not, technically speaking, a litigation expense at all: see BNM v MGN Limited [2017] EWCA Civ 1767 at [73]. Nor does the evidence establish that there is a custom of the solicitors’ profession that an ATE insurance premium is to be treated as a solicitors’ disbursement to be included in the bill submitted to the client. Ms Herbert relies on the practice of including the ATE insurance premium as a disbursement in the bill presented by the successful party to the losing party when success fees were recoverable before LASPO. I agree with Mr Bacon that this does not assist at all in establishing a custom that such a premium has customarily been treated as a solicitor’s disbursement on solicitor and client assessments. There is no evidence at all before us as to such a custom. Nor did District Judge Bellamy refer to any such custom. He referred to Cook on Costs 2017 para. 2.12. We have not been shown that passage and it is not in our bundle of authorities. There is in the bundle an extract from para. 2.13 of Cook on Costs 2018, although we were not referred to it.  I assume it is the same as the paragraph in the earlier edition of Cook, to which the District Judge referred. It describes the principle in Re Remnant and gives examples of what are and are not solicitor’s disbursements consistent with that case.  An ATE insurance premium is not one of them.

The court also observed:

71. This decision is based on the evidence before the District Judge. I appreciate that the consequence is that the client will not be able to challenge the amount of an ATE insurance premium through the convenient mechanism of an assessment under the Solicitors Act 1974 s. 70. That is not, however, a good reason to decline to apply the principle which is clearly binding on us, in the light of the limited evidence before us, and so create a precedent which both undermines the coherence of the principle and may have unforeseen implications in other and different cases. No doubt, if this outcome is considered unsatisfactory within the profession, the Solicitors Regulation Authority and the Law Society can consider what could be done to bring an ATE insurance premium within the principle as to what is a solicitor’s disbursement.

I suspect there will be little enthusiasm for the profession to make an ATE insurance premium a solicitor’s disbursement once the significance of the decision has been digested. Solicitors liabilities are onerous enough at the current time.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.