Geoffrey Nice QC and Nicholas Bacon (instructed by Messrs Amelans
for Imran Sarwar)
Peter Birts QC and Peter Goodbody (instructed by David
Higginson for Muhammad Alam)
Stephen Irwin QC and Richard Hermer (instructed
by the Association of Personal Injury Lawyers (APIL))
John Leighton-Williams QC (instructed by Messrs Barlow
Lyde & Gilbert for the Association of British Insurers (ABI))
Anna Guggenheim QC (instructed by A E Wyeth & Co
for the Forum of Insurance Lawyers (FOIL))
Benjamin Williams (instructed by Messrs Colman Tilley
Tarrant Sutton for the Motor Accident Solicitors Society (MASS))
Peter Birts QC (instructed by Messrs Beachcroft Wansbroughs
for the Liability Insurers Group)
Jeremy Stuart-Smith QC (instructed by Messrs Lyons Davidson
for DAS Legal Expenses Insurance Co Ltd)
Lord Phillips MR : This
is the judgment of the court.
1. Introduction
- This case is a natural sequel to Callery v Gray
[2001] EWCA Civ 1117 ("Callery"). Like Callery, it
is concerned with a claim by a passenger who suffered personal injuries in
a road traffic accident. The passenger instructed the same firm of solicitors
as Mr Callery, and he also took out "after the event" ("ATE")
insurance. As in Callery the claim was settled for a comparatively
small sum at an early stage, without the need to institute legal proceedings.
The defendant’s insurers agreed to pay costs, but disputed the recoverability
of the ATE premium. There was no dispute as to the reasonableness of the premium,
if recoverable.
- Here the similarities end. The disputes in Callery were concerned
with the amount of the solicitors’ success fee and with issues relating to
the ATE insurance taken out by the claimant, including the amount of the ATE
premium (for that issue, see Callery v Gray [2001] EWCA Civ 1246 ("Callery
(No 2")). This case is concerned with "before the event"
("BTE") insurance, which did not feature in Callery.
- Another distinguishing feature of the present case is that Mr Sarwar’s claim
was against the driver of the car in which he was travelling as a passenger,
and not against the driver of a different car. The present dispute arose during
the costs-only proceedings when Mr Alam’s insurers disclosed for the first
time that their client’s motor insurance policy contained a provision for
legal expenses insurance ("LEI") which might have covered a claim
made by a passenger in their insured’s car against their insured driver. Both
the district judge and the judge on appeal held that this BTE insurance was
available to Mr Sarwar, and they disallowed the cost of his ATE premium on
those grounds. Mr Sarwar now appeals.
- Judge Halbert made his ruling in this case on 5th July 2001, between the
conclusion of the hearing in Callery and the delivery of the judgment
on 17th July. Its importance was identified during the course of the inquiry
conducted by Master O'Hare in Callery at the request of the court,
and on the last page of his report (which is annexed to the judgment in Callery
(No 2)) he revealed that he had received a submission to the effect that
Judge Halbert’s decision had significantly altered the dynamics of the legal
expenses insurance industry. The point we now have to decide did not arise
for decision in either of the Callery judgments, but once the court
became aware of it, arrangements were made to expedite the hearing of the
present appeal, for which Brooke LJ granted permission, as a second appeal,
on 26th July. He also granted permission for a number of interested parties
to intervene in the appeal. Master O’Hare was invited to assist the court
as an informal assessor on the appeal, and we benefited from the advice he
gave us.
2. The facts of the case
- The facts of the case can be stated briefly. Mr Sarwar and Mr Alam live
at the same address in Ashton-under-Lyne. The accident occurred on 22nd February
2000 when Mr Alam drove his car out of a side road onto a main road, colliding
with another car as he did so. Liability was admitted three months later.
Mr Sarwar instructed Messrs Amelans who wrote a letter before action on 15th
March. It appears that Mr Alam did not forward this letter to his insurers.
On 21st March Mr Sarwar told his solicitors, on inquiry, that he was not aware
that any LEI policy was available to him. He then took out an ATE policy,
and on 3rd April his solicitors told Mr Alam’s insurers (of whose identity
they were now aware) of the existence of this policy. About three weeks later
they also sent them a copy of their original letter before action. On 30th
October Mr Sarwar’s claim was settled for £2250 together with reasonable costs.
On 15th November a costs-only Part 8 claim was made pursuant to CPR 44.12A.
- Mr Alam possessed a motor vehicle policy issued
by the Co-operative Insurance Society Ltd ("CIS"). Section H of
this policy reads, so far as is material:
"For the purposes of this Section
(1) ‘We’, ‘us’ and ‘our’ means DAS Legal Expense Insurance
Company Limited, who administer this insurance on behalf of CIS.
(2) ‘Insured Person’ means you and, with your agreement
(ii) any passenger
whilst in or on the Insured Vehicle.
If any accident occurs which results in ..
(2) injury to an Insured Person
and we accept that there is reasonable prospect of a successful
recovery against the negligent party we will at your request:
(i) negotiate to recover the Insured Person’s uninsured losses
and costs
(ii) pay costs and expenses incurred with our consent
together with third party costs for which the Insured Person is responsible
We will not ..
(b) pay more than £50,000 in respect of all claims under
this Section, including the legal costs of an appeal or of defending an appeal,
arising from any one accident.
If claims from more than one Insured Person are involved
the insurance will apply to the aggregate amount and in priority to you.
Note
1. We will be entitled to the full conduct and control
of any claim or legal proceedings.
2. We will be entitled to appoint a legal representative
where we regard it as necessary. An Insured Person may choose an alternative
legal representative only where
(i) we decide to commence legal proceedings or
(ii) there is a conflict of interest
Any dispute as to the choice of legal representative or the
handling of a claim will be referred to an independent arbitrator who will
normally be the President of the Law Society.
3. An Insured Person must not settle a claim without our
agreement."
- We will describe the relationship between CIS and DAS in paragraphs 33-34
below.
3. The judgments in the courts below
- District Judge Wallace held that this cover was available to Mr Sarwar,
and that the premium for the ATE policy was prima facie not allowable because
it was in effect double insurance. He considered that the BTE cover was entirely
adequate for the purposes of this action, had Mr Sarwar known about it, and
he did not think the defendant’s insurers could be blamed for not mentioning
the existence of the pre-existing LEI cover when they were notified of the
ATE cover, because by that time the liability for the ATE premium had already
been incurred.
- Judge Halbert considered that the core of the matter centred round the lack
of any knowledge on the part of Mr Sarwar and his solicitors that any pre-existing
LEI cover existed. He said that the principal question he had to decide was
whether it was unreasonable for a claimant passenger to incur the cost of
ATE insurance without checking whether the driver’s policy provided LEI cover
for his passengers. He considered that it was not reasonable to incur this
expense without making such a check. If the driver of another vehicle had
hit Mr Alam’s car, it would be very obvious that Mr Alam’s policy should be
checked to see if Mr Sarwar could make a claim under it, and he did not think
that the fact that the driver of the car was the defendant should change the
position.
- The judge went on to reject the claimant’s contentions on a number of other
issues which arise again for consideration on this appeal. The gist of his
decision was to the effect that it was clearly desirable that unnecessary
premiums were not paid by litigants, that the primary responsibility for checking
whether BTE insurance existed lay with those representing the claimants, and
that in the context of this case (as opposed to what he described as a "complex
or serious case") a sensible claimant would have used the BTE policy
rather than incur an additional insurance premium.
4. Funding options and the solicitor’s duty to the client
- This is a challenge to the exercise of a discretion in the lower courts
on an appeal in costs-only proceedings. The principles on which the lower
court must approach an issue of this kind are clearly set out in CPR 44.4
and 44.5 in these terms:
"44.4 (1) ..the court will not allow costs which
have been unreasonably incurred
(2) ..the court will (b) resolve any doubt which it may
have as to whether costs were unreasonably incurred in favour of the paying
party.
44.5 (1) The court is to have regard to all the circumstances
in deciding whether costs were
(a)(ii) proportionately and reasonably incurred
(3) The court must also have regard to:
(a) the conduct of all the parties
(b) the amount or value of any money or property involved
.."
- Material provisions of the Practice Direction to CPR Part 44 are all set
out in paragraphs 32 and 33 of Lord Woolf CJ’s judgment in Callery
and it is not necessary to set them out again here. "The availability
of any pre-existing insurance cover" is one of five relevant factors
specifically identified in paragraph 11.10 of the Practice Direction as appropriate
to take into account in deciding whether the cost of insurance cover is reasonable,
but this is not an exhaustive list. The governing rule is CPR 44.5(1), which
imposes a duty on the court to have regard to all the circumstances in deciding
whether any item of costs was proportionately and reasonably incurred.
- As the judge rightly pointed out, the central question in this appeal is
whether it was reasonable in all the circumstances for Mr Sarwar, acting on
his solicitor’s advice, to incur the cost of the ATE premium without making
any further inquiries into the possible existence of BTE cover. A solicitor’s
duty when he is first instructed by his client is set out in the Solicitors’
Costs Information and Client Care Code 1999. This Code is given teeth by Rule
15 of the Solicitors’ Practice Rules 1990 (as amended) which provides that
"Solicitors shall:
(a) give information about costs and other matters in accordance
with a Solicitors’ Costs Information and Client Care Code made from time to
time by the Council of the Law Society."
- Paragraph 4(j) of the Care Code is headed "Client’s
ability to pay". It provides, so far as is material, that:
"The solicitor should discuss with the client how, when
and by whom any costs are to be met, and consider:
(i) whether the client may be eligible and should apply for
legal aid
(ii) whether the client’s liability for their own costs may
be covered by insurance;
(iii) whether the client’s liability for another party’s
costs may be covered by pre-purchased insurance and, if not, whether it would
be advisable for the client’s liability for another party’s costs to be covered
by after the event insurance
(iv) whether the client’s liability for costs (including
the costs of another party) may be paid by another person eg an employer or
trade union."
- We were told by Mr Drabble QC, who appeared for the Law Society, that the
new code was approved by the Council of the Law Society in December 1998 at
a time when the premium for ATE insurance could not be recovered from the
other side. The code is clearly concerned with the protection of the client,
and paragraph 4(j) does not purport to impose new duties of inquiry on solicitors
other than those suggested by the fairly simple language used.
- Mr Cockx, who is a partner in Messrs Amelans, made a telephone attendance
note of a discussion with Mr Sarwar on 21st March 2000. The note reads:
"Discussing funding with client and various options
available.
Advising him of the changes due [to] the Access to Justice
Act. Discussed the benefit of taking out a ATE policy to protect him against
the payment of other side’s costs.
Client advised that he did not have the benefit of any other
Legal Cover and wished to take out a policy with Temple Legal Protect. Will
send out a copy."
- It should be observed that Mr Cockx would have realised that he was handling
a comparatively small passenger claim in which liability was unlikely to be
in issue. He was charging £150 per hour for his time, and he noted that this
attendance consumed an hour of his time. He would have been aware of the provisions
of CPR 44.5, with its reference to proportionality as well as reasonableness.
He would not have had the benefit of the advice contained in the Practice
Direction to CPR Part 44, which had not yet been published. Furthermore, the
Conditional Fee Agreements Regulations 2000 had only been laid before Parliament
11 days earlier and were not yet in force. Paragraph 4(2)(c) of these regulations
includes, among the matters which a legal representative must tell his client
before a CFA is made:
"whether the legal representative considers that the
client’s risk of incurring liability for costs in respect of the proceedings
to which the agreement relates is insured against under an existing contract
of insurance."
5. The intervenors in the appeal
- We received representations on this appeal from
bodies representative of the great majority of the insurers and solicitors
who have an interest in the outcome of this appeal, and from the Trades Union
Congress ("TUC"). In addition to the Law Society, the intervenors
included the Motor Accident Solicitors’ Society ("MASS"), whose
175 member firms handle about 500,000 motor accident claims each year; the
Association of Personal Injury Lawyers ("APIL"), whose membership
includes about 5,000 solicitors, barristers, legal executives and academics
who are predominantly concerned with injured claimants; and the Forum of Insurance
Lawyers ("FOIL"), whose members act predominantly or exclusively
for liability insurers.
- So far as insurance interests are concerned, in addition to the Association
of British Insurers ("ABI"), which represents over 400 insurance
companies, we also received submissions from the ATE Group (which contains
15 ATE insurance interests) and the Liability Insurers’ Group (whose members
represent 88% of the total gross premium value of the motor insurance market
and about 75% of the general liability market). The ultimate BTE insurer in
this case, DAS Legal Expenses Insurance Ltd ("DAS"), chose to be
separately represented.
6. LEI/BTE insurance
- Legal expenses insurance was first developed in Europe. Over the years a
positive view has grown up there that people have a social duty to insure
themselves, in advance whenever possible, against life’s adverse events, particularly
if this result can be achieved at a modest premium. At the start LEI was offered
independently of any other insurance business, but with the opening up of
the insurance market in the 1980s other insurance companies wished to offer
LEI as well. This meant that a closer association developed between companies
which offered LEI and other general insurance providers. Concerns about possible
conflicts of interest led to the making of an EEC Directive in 1987 and the
introduction of statutory regulations pursuant to that directive in this country
three years later. We will refer to the terms of these regulations in paragraphs
24-25 below.
- In this country LEI has for the most part been sold with other insurance,
typically motor and household policies. Its use has grown considerably over
the last ten years. In Callery Lord Woolf CJ noted at para 18 that
in 1998 the Government disclosed that over 17 million people were now paying
premiums for BTE cover at a trivial annual cost to themselves, and that the
Government was then keen to encourage the wider use of LEI. We were told that
BTE insurance is now available in at least five main ways: as part of a motor
insurance policy; as part of a household insurance policy; as part of an employment
package (or of the benefits of membership of a trade union or a professional
body); as part of a credit card agreement or charge card service; or by being
sold directly as a stand-alone policy (for which, unless there are any unusual
features, the cost is unlikely to exceed £20).
- The ABI told us that BTE insurance features most commonly as part of a motor
insurance policy. Such insurance typically, but not invariably, includes cover
to enable passengers in the insured vehicle to bring an action either against
another driver or against their own driver. In 1999 23.5 million motor vehicles
were licensed, and 9.9 million BTE motor polices were sold. This represents
a 42% penetration. This market has grown significantly in the last two years,
and continues to do so.
- Some of the purposes of Council Directive 87/344/EEC may be divined from
two paragraphs of its preamble:
"Whereas, in order to protect insured persons, steps
should be taken to preclude, as far as possible, any conflict of interests
between a person with legal expenses cover and his insurer arising out of
the fact that the latter is covering him in respect of any other class of
insurance or is covering another person and, should such a conflict arise,
to enable it to be resolved;
Whereas the interest of persons having legal expenses cover
means that the insured person must be able to choose a lawyer or other person
appropriately qualified according to national law in an inquiry or proceedings
and whenever a conflict of interests arises "
- It is unnecessary to refer to the text of the directive because so far as
is material it is faithfully reproduced in the Insurance Companies (Legal
Expenses Insurance) Regulations 1990. Regulation 5 offered a LEI insurer three
ways of conducting its business lawfully. The method adopted in the present
case is described in regulation 5(3) in these terms:
"The company shall entrust the management of claims
under legal expenses insurance contracts to an undertaking having separate
legal personality, which shall be mentioned in the separate policy or section
referred to in regulation 4.
If that undertaking has financial, commercial or administrative
links with another insurance company which carries on one or more other classes
of general insurance business, members of the staff of the undertaking who
are concerned with the processing of claims, or with providing legal advice
connected with such processing, shall not pursue the same or a similar activity
in that other insurance company at the same time."
- Regulation 4 prescribes that if LEI cover is provided under a policy relating
to one or more other classes of general insurance business, it must be the
subject of a separate section of the policy relating to that cover only, which
must specify the nature of the LEI cover. Regulation 6, for its part, is headed
"Freedom to choose lawyer" and provides that:
"(1) Where under a legal expenses insurance contract
recourse is had to a lawyer (or other person having such qualifications as
may be necessary) to defend, represent or serve the interests of the insured
in any inquiry or proceedings, the insured shall be free to choose that lawyer
(or other person).
(2) The insured shall also be free to choose a lawyer
(or other person having such qualifications as may be necessary) to serve
his interests whenever a conflict of interests arises.
(3) The above rights shall be expressly recognised in
the policy."
- It appears that the Insurance Ombudsman has consistently interpreted regulation
6(1) as meaning that the obligation to permit the insured to select a lawyer
of his choice is triggered at the time when efforts to settle a claim by negotiation
have failed and legal proceedings have to be initiated.
7. The practice of an LEI insurer
- The ABI showed us a statement by Mr Ross Clark, who is the underwriting
and claims manager of First Assist Group Ltd ("FGL"). This company
was formed in 1997 following the merger of two major insurance companies which
had each had its own wholly owned subsidiary handling its LEI business. FGL
is one of the largest LEI providers in this country, and since March 1999
it has also been involved in ATE business to an increasing extent. In the
BTE market it handles 40,000 motor uninsured loss recovery claims a year,
of which 10,000 involve personal injury. He showed us his company’s policy
booklet, which sets out the extent of the cover provided in simple, intelligible
language. FGL is separately managed from its parent, with its own employment
contracts and premises, and it also undertakes independent claims handling
work on LEI cases for other insurers.
- Mr Clark said that FGL adopts the method of conducting its business which
is permitted by regulation 5(c) of the 1990 regulations. This has led to FGL
supporting claims made against its parent company. When legal representation
is required, or when a conflict of interest arises, it is the company’s practice
to recommend firms of solicitors to LEI claimants. The overwhelming majority
of these claimants are content to follow FGL’s recommendations: they generally
want appropriate representation, rather than the services of a particular
solicitor.
- He said that the LEI insurer has a vested interest in ensuring that the
cases which it funds, and for which it bears the adverse costs risk, are properly
conducted. Solicitors recommended by LEI insurers are invariably firms with
extensive relevant experience and substantial resources to handle the range
of actions introduced to them. Those firms (who are sometimes referred to
as "panel" solicitors) in turn have an interest in meeting the insurer’s
service standards. He was not aware of any evidence to suggest that solicitors
chosen by claimants achieved better settlements for their clients than those
achieved by panel solicitors. He said that the practice adopted by BTE insurers
of monitoring the costs charged by the solicitors representing the claimant
has the obvious advantage that the cost to the paying party is generally proportionate
and is kept as low as is reasonably practicable.
- He also observed that the need to reconcile conflicts of interest was not
new to insurance companies. Nor was it limited to LEI. He said that the Norwich
Union, which insures about 25% of vehicles on the road, is the largest motor
vehicle insurer. He suggested that it was likely that it would be insuring
both the vehicles involved in an accident in just over 6% of all claims. Typical
claims handling procedures would ensure that the handling of each side of
the dispute was kept separate, and that the individuals responsible for handling
each claim were prevented from acting together to influence its outcome. Other
conflicts of interest might occur where a company insures the defence of one
family member against each other.
- FGL’s experience is that substantial numbers of claims are made by passengers
against their drivers, using the cover available to them under the driver’s
BTE policy. The company creates separate claims for the driver and each passenger
and handles them independently. Mr Clark estimates that 100 accidents giving
rise to uninsured loss recovery claims will produce 125 separate legal claims,
the extra 25 being claims made by passengers. In most cases it is readily
apparent which driver is responsible for the accident.
- He believes that it is already well known in the market that certain motor
insurers include BTE cover for all their policyholders and usually for their
passengers, too. He thinks it would be very useful for BTE providers to collaborate
to produce a database accessible to claimants’ representatives which would
identify the motor policies in which BTE cover of different kinds is available.
Details of this cover could perhaps be integrated in a database already used
by the ABI through its website which gives comparable details in relation
to the companies who are participants in a market agreement concerned with
credit hire and courtesy car arrangements.
8. The CIS/DAS arrangements
- Turning to the facts of the present case, we have set out in paragraph 6
above the terms of the BTE cover provided by Mr Alam’s motor insurance policy.
We were told that CIS first added this type of cover to their motor insurance
policies in September 1999, and they used DAS as their LEI provider. DAS is
a specialist LEI insurer. It is an entirely separate company from CIS. It
does not provide or sell any form of motor liability insurance. On the other
hand, it provides both BTE and ATE legal expense insurance. So far as BTE
cover is concerned, it is the leading provider of this type of insurance in
this country, providing 6.1 million policies, of which 3 million are for motor
legal expenses.
- The commercial arrangements between CIS and DAS are founded on a reinsurance
agreement whereby CIS ceded to DAS by way of reinsurance 100% of the risk
undertaken by CIS in the LEI section of its policies. Under this agreement
CIS agreed that it would notify all legal expenses claims to DAS and that
DAS should administer this insurance on CIS’s behalf. It was a term of the
agreement that all settlements made by DAS (as administrators of the insurance)
were unconditionally binding on CIS. As reinsurers, DAS agreed to follow the
fortunes of CIS. The agreement contained provisions whereby DAS received its
100% quota share of the premiums set out in a schedule. DAS paid CIS a commission
at an agreed rate on the profits of the business ceded, calculated in accordance
with agreed principles.
- None of the matters relating to DAS and its relationship with CIS that are
set out in the two preceding paragraphs of this judgment are apparent on the
face of the policy. Section H of the policy merely provides that DAS will
administer the legal expenses insurance on behalf of CIS. The reader of the
policy is left with the impression that DAS is merely a manager of this particular
aspect of CIS’s business.
- During the course of the hearing we made a number of inquiries about the
way in which DAS conducted its business. About 80% of the motor claims DAS
handles are damage only claims, and DAS employs about 150 in-house staff (who
include a relatively small number of lawyers) to deal with such claims. The
remaining 20%, which include personal injury claims, will typically be placed
with a panel firm of solicitors at an early stage.
- DAS uses the services of 52 panel firms of solicitors, with 60 offices in
England and Wales. In the part of the country with which this claim is concerned,
there are panel firms in Chester, Wrexham, Manchester and Liverpool. DAS expects
that if distance causes a problem, the solicitor would travel to see the client.
In answer to a question posed by the court, DAS says that it frequently provides
indemnity to persons for whom English is not the language of choice, as evidenced
by the appointment of interpreters for which the company pays.
- About seven years ago senior representatives of DAS had a meeting with the
former insurance ombudsman, at which two principles emerged, which DAS has
followed ever since. The first was that if there was a disagreement between
DAS and the insured as to the prospects of the claim, DAS would take counsel’s
opinion and would follow it. The second was that regulation 6(1) of the 1990
regulations (as it now is) required freedom of choice of lawyer at and from
the time that proceedings are issued. It has been DAS’s experience that very
few complaints are made about freedom to choose a lawyer. Of those that are
made, the great majority appear to DAS to have been generated by the solicitor
who runs the risk of not being instructed.
9. The conflicting concerns about BTE cover
- The issues at the heart of this appeal are of great concern not only to
the immediate parties but also to all the intervenors. Liability insurers
believe that if BTE cover is available for these small motor accident claims
the claimants should use it, and should not saddle them with the cost (upheld
in Callery) of an ATE premium and a success fee uplift. BTE insurers
wish to hold onto and expand their business. ATE insurers are worried that
if they lose business to BTE insurers, their premiums may have to rise or
they may have to go out of business altogether. While wishing to hold the
ring between the different insurance interests which are members of the Association,
the ABI believes that in a case like the present the BTE insurer should be
given precedence. It believes, however, that there is a market for both BTE
and ATE insurance, which should complement but not duplicate each other, and
that each should be allowed to develop in response to public demand.
- APIL and MASS both considered that ATE insurance was the appropriate choice
in a case like the present, and they were supported in this respect by the
Law Society. FOIL was inclined to take the opposite view. The TUC was concerned
that nothing should be decided which might detract from the services trade
unions provide for their members through their panel solicitors. These solicitors
are now assisting trade union members through collective conditional fee agreements,
using either an ATE insurance policy taken out in the member’s name under
section 29 of the Access to Justice Act 1999 or arrangements sanctioned by
section 30 of that Act. The main thrust of the submissions we received from
the intervenors who supported the claimant was that the instruction of a solicitor
of the client’s (or the client’s union’s) choice, backed by a suitable ATE
policy, not only respects the client’s entitlement to freedom of choice but
is also likely to secure a better result for the client.
10. The appropriateness of BTE cover for small motor accident claims
- In this case we are concerned only with a relatively small personal injuries
claim in a road traffic accident. We are not concerned with claims which look
as if they will exceed about £5,000, and we are not concerned with any other
type of BTE claim. We have no doubt that if a claimant possesses pre-existing
BTE cover which appears to be satisfactory for a claim of that size, then
in the ordinary course of things that claimant should be referred to the relevant
BTE insurer.
- It will be recalled that in Callery, which was an extremely simple
passenger’s claim, settled for £1,500 plus costs, this court expressed concern
(at para 133) that the costs of the claim exceeded the agreed damages. In
addition to disbursements of £617.50, the court allowed an ATE premium of
£350 and an uplift on the solicitor’s costs, by way of a success fee, of 20%.
With the type of BTE cover with which this case is concerned (which covers
both sides’ costs, where necessary) the cost of processing the claim is more
likely to be proportionate to the value of the claim, since there will be
no uplift and no ATE premium and the cost of the BTE premium (if identifiable)
is treated as an expense incurred in the past which is irrecoverable.
- We received very helpful submissions from MASS, whose members (see para
18 above) collectively have vast experience in conducting personal injury
claims. The chairman of MASS told us that in her experience, formed both from
her own practice and through her duties with the Society, personal interviews
are not ordinarily necessary to facilitate claims of this kind. MASS was not
concerned with the idea that BTE insurers’ panel solicitors, whose offices
might be a considerable distance from the claimant’s home, were inappropriate
to handle run of the mill small personal injury claims. On the other hand
they considered that in larger cases, or those which raised unusual or difficult
issues, it would usually be appropriate for a claimant to elect to purchase
an ATE-based funding arrangement in preference to invoking a BTE policy, unless
it could be shown that the latter was capable from the outset of providing
what they described as a bespoke service adequate to the nature of the claim.
- In this case we are not concerned either with a larger case or with a case
which raised unusual or difficult issues. A judgment concerned with those
types of case will have to await an appeal where an issue of this kind arises
directly for decision. During the course of the hearing, however, members
of the court made critical observations from time to time about the size of
some of the BTE insurers’ panels and the possible inappropriateness in these
post-Woolf days of a BTE claimant being denied freedom of choice of solicitor
(at any event so far as the members of the Law Society’s or some other reputable
panel of approved personal injury solicitors are concerned) at the time the
procedures in a pre-action protocol come to be activated. We also saw correspondence
(which DAS’s representatives sought to explain away) that left us uneasy about
the terms on which DAS is in practice willing to allow a claimant’s solicitor
of choice to act for their insured. We do not have to decide any of these
matters on the present appeal, however. We only mention them because Mr Leighton-Williams
QC, for the ABI, told us that insurers welcomed the opportunity afforded by
litigation of this type to learn which business practices would be likely
to be welcome to a court and which would not.
11. Proper practice for a solicitor inquiring about BTE cover
- In our judgment, proper modern practice dictates
that a solicitor should normally invite a client to bring to the first interview
any relevant motor insurance policy, any household insurance policy and any
stand-alone BTE insurance policy belonging to the client and/or any spouse
or partner living in the same household as the client. It would seem desirable
for solicitors to develop the practice of sending a standard form letter requesting
a sight of these documents to the client in advance of the first interview.
At the interview the solicitor will also ask the client, as required by paragraph
4(j)(iv) of the client care code (see para 14 above) whether his/her liability
for costs may be paid by another person, for example an employer or trade
union.
- If these simple steps are taken, they ought to reduce the burden and extent
of the inquiries about which some of the intervenors expressed concern. The
solicitor will then be able to read through the policy, and if BTE cover is
available, if the motor accident claim is likely to be less than about £5,000,
and if there are no features of the cover that make it inappropriate (for
instance, if there are a number of potential claimants and the policy cover
is only, say, £25,000), the solicitor should refer the client to the BTE insurer
without further ado. The solicitor’s inquiries should be proportionate to
the amount at stake. The solicitor is not obliged to embark on a treasure
hunt, seeking to see the insurance policies of every member of the client’s
family in case by chance they contain relevant BTE cover which the client
might use.
- Now that motor insurance often contains provision for BTE cover for a claim
brought by a passenger, the solicitor should ordinarily ask the client passenger
to obtain a copy of the driver’s insurance policy, if reasonably practicable.
Whether it is reasonably practicable to comply with the solicitor’s request
is likely to be fact-sensitive. At one end of the spectrum is the driver who
is a member of the same family or the same household (as with Mr Sarwar and
Mr Alam). At the other is the unknown driver who gave a lift to a hitchhiker
who got hurt in an accident and the driver then disappeared into the night.
- If the solicitor sees that the BTE cover contains a stipulation, like the
BTE cover in this case, that the driver should consent to its use by the passenger,
the solicitor should tell the client to obtain the driver’s consent before
making a claim on the BTE insurer. It would be professionally inappropriate
for the solicitor to do anything to induce the client to encourage the driver
to withhold consent. If in due course there was any evidence that this had
happened the court would normally disallow both the ATE premium and any success
fee claimed. On the other hand, if the driver refuses consent for reasons
of his/her own, then it is common ground that the BTE cover would not be available.
- So far as credit cards and charge cards are concerned, we have received
no evidence of the terms of LEI cover offered by the companies marketing these
cards, and we do not know how easy it is for the cardholders to avail themselves
of such cover in a case like the present. We are inclined to think that the
time taken by a solicitor in assisting a client to identify and pursue such
cover would at present be likely to result in this course proving more expensive
than an ATE premium in this class of case. If, at some time in the future,
credit card or charge card companies decide as a matter of business practice
to make the extent of any BTE cover they provide readily available to solicitors
(either through one of their professional journals or guides or on a publicly
accessible website), then the client should also be asked to bring to the
first interview any credit card or charge card belonging to him/her and/or
any spouse or partner living in the same household.
- The guidance we have given in this part of our judgment should not be treated
as an inflexible code. The overriding principle is that the claimant, assisted
by his/her solicitor, should act in a manner that is reasonable. The availability
of ATE cover at a modest premium will inevitably restrict the extent to which
it will be reasonable for a solicitor’s time to be used in investigating alternative
sources of insurance.
- Mr Nice QC, for Mr Sarwar, submitted that the test of the adequacy of a
solicitor’s inquiries and advice should be the same as the test applied when
determining whether a solicitor has been professionally negligent. Thus the
client would either recover the cost of the premium or have a claim against
his/her solicitor for breach of duty. We deprecate any attempt to equate the
question of reasonableness that a costs judge has to decide with the question
whether the claimant’s solicitor has been in breach of duty to his/her client.
If a solicitor gives advice which proves unsound, it will not necessarily
follow that the advice was negligent. The advice will necessarily be based
on information provided by the client. If the information is inadequate or
inaccurate, the advice may prove to be unsound without any question of fault
on the part of the solicitor.
12. Motor accident claims where the passenger blames the driver
- We consider and in this respect we differ from the judge that if there
is a reasonable possibility in a passenger claim that the passenger is likely
to blame the driver, or the driver the passenger, then if the BTE cover resembles
the cover provided by Mr Alam’s policy, it is not incumbent on the passenger
to use it. The scene we were invited to consider with favour was one in which
Mr Sarwar’s solicitor was under a duty to invite his client to refer the conduct
of his claim to Mr Alam’s own insurers pursuant to a policy whereby those
insurers, through their chosen administrators, would be entitled to "the
full conduct and control of any claim", denying him the opportunity of
instructing a suitably qualified solicitor of his own choice except in the
unlikely event that legal proceedings had to be instituted.
- We have no doubt that in the many cases where a passenger is content with
the proposed arrangements, reputable BTE insurers endeavour to follow the
practices described by Mr Ross Clark and treat each claim on its own merits
in a separate compartment. It is also the case that the BTE cover in the present
case contains an arbitration clause in the event of a dispute as to the handling
of a claim. (On the other hand, it contains no mention of DAS’s practice of
sending the papers to independent counsel for a binding decision if the client
is dissatisfied with the sum he/she is being offered). However, in our judgment,
it is not reasonable for a claimant to be required to invoke insurance cover
provided by the opponent’s camp on terms such as those proffered by CIS. If
BTE insurers financed some transparently independent organisation to handle
such claims, and made it clear in the policy that this is what they were doing,
the position might be different, but we do not see any such transparency or
independence in the CIS-DAS arrangements.
- Once again, we were influenced by the submissions we received from MASS.
They observed that a claimant could not be expected to rely on a BTE policy
held by his opponent to fund his litigation. They added:
"Moreover, there are obvious concerns as to conflict
of interest in any case where a defendant is being sued via his own policy
of insurance. It is not enough to say that any damages recovered will be paid
by a liability insurer which is a separate legal entity from the BTE insurer.
Where liability is disputed, the defendant may very well have a strong personal
motivation in resisting the claim (payment of an excess; loss of a no-claims
bonus; a stiff-necked refusal to accept the possibility that he drove carelessly
the last can generate remarkable passions). Moreover, it is probable that
many claimants would feel uneasy in entrusting the conduct of their claim
to the insurer of the opposing party, and would distrust its advice where
adverse to their private expectations. Justice should be seen to be done,
and the rules of court should support a claimant who elects to fund his claim
from a source which is not only neutral and objective, but is seen to be so."
- We accept these submissions. Although as a matter of law an arbitration
provision might be thought adequate to allay a claimant’s fears of receiving
less than objective advice, we consider that a claimant is entitled to feel
comfortable with the objectivity of the representative who is looking after
his/her claim, and that the concerns which MASS identifies are reasonable
concerns.
- We are not, however, persuaded by the Law Society’s contention that there
is such a strong public interest in maintaining a client’s freedom of choice
of legal adviser that this should override the appropriateness of a claim
as small as that with which we are concerned on this appeal being handled
by a BTE insurer with or without the assistance of a panel solicitor. The
philosophy contained in CPR1.1(2)(c), and the express provisions of CPR 44.5,
require the court to ensure that no costs are incurred which are not reasonable
and proportionate. While we would not interpret the sensible non-exhaustive
guidance given in paragraphs 11.7-11.10 of the Costs Practice Direction as
if they were the words of a statute, they point the reader towards an inquiry
into the availability of alternative funding arrangements which might be less
expensive. The same principle is now set out in regulation 4 of the Conditional
Fee Agreements Regulations 2000.
- In R v Legal Aid Board ex parte Mackintosh and Duncan (unreported,
COT 16th February 2000) the Divisional Court at paras 444-468 rejected the
applicant solicitors’ contention that their clients had a common law right
to representation by the solicitor of their choice notwithstanding that they
were unable to pay for the solicitor’s services themselves and the limitations
on the choice of a publicly funded solicitor were prescribed by Parliament.
We do not consider that it is necessary to repeat here the powerful dictum
of Neuberger J in Maltez v Lewis (unreported, 27th April 1999) quoted
in paragraph 459 of that 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
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 of advancing the client’s
interests with the help of an appropriately qualified lawyer is available.
- On the other hand we accept Mr Drabble’s submission that representation
arranged by the insurer of the opposing party, pursuant to a policy to which
the claimant had never been a party, and of which he/she had no knowledge
at the time it was entered into, and where the opposing insurer through its
chosen representative reserves to itself the full conduct and control of the
claim, is not a reasonable alternative. Mr Birts QC, for the respondent, sought
to persuade us that as a matter of rationality and logic there ought to be
no reasonable perception that there might be a conflict of interest in the
CIS-DAS arrangements when the contractual provisions of the BTE cover are
studied carefully. We do not accept this submission. However careful these
insurers may have attempted to be, appearances matter, and appearances are
very hostile to the notion that a passenger like Mr Sarwar should be obliged
to go to the driver’s insurers and entrust them with the full conduct and
control of his claim when he wishes to sue the driver.
13.. The concerns of the ATE Group and the TUC
- We have considered carefully the submissions we received from the ATE Group
and the TUC. The former was naturally anxious that we should make no decision
which might prejudice the development of the fledgling ATE market and drive
up ATE premiums to a level which might impede access to justice. APIL also
shared this worry. The TUC, for its part, was anxious that we should not imperil
the dedicated services trade unions and their panel lawyers offer to their
members. In the context of the simple small claims with which this judgment
is concerned we do not consider that either of these considerations should
impel us to impose on defendants and their liability insurers a burden of
costs which is disproportionate to both the value and the lack of complexity
of the claim. We accept the submission of the Liability Insurers’ Group that
it is not in the interests of motorists or the general public that motor liability
insurers should have to make unnecessary disbursements which raise premium
costs.
14. How this judgment fits in with the judgment in Callery
- We do not consider that there is anything in this judgment which is inconsistent
with the judgment of this court in Callery. In Callery Lord
Woolf CJ said (at para 91) that the court considered that it would normally
be reasonable for a CFA to be concluded and ATE cover taken out on the occasion
that the claimant first instructed his solicitors. In Callery the court
was not invited to consider the implications of the solicitors’ client care
code or the possible availability of BTE cover. If the client is able to comply
with the request contained in the suggested letter which he/she receives before
the first interview (see para 45 above) then there is no reason why the course
suggested in Callery should not be adopted as soon as the solicitor
is satisfied that no appropriate BTE cover is available. If this inquiry cannot
be satisfactorily resolved at that first interview the steps mentioned in
paragraph 91 of the Callery judgment should not be taken until such
further inquiries into the availability of BTE cover as are reasonable and
proportionate to the value of the claim have been concluded.
15. Why we differ from the judge
- Finally, we remind ourselves that this court is not entitled to set aside
the judgment of Judge Halbert unless we consider it was clearly wrong. While
we would wish to applaud the judge for an admirably clear judgment we consider
that he was clearly wrong when he decided that the BTE policy provided Mr
Sarwar with appropriate cover in the circumstances of this case. We therefore
allow the appeal.