Rogers v Merthyr Tydfil County Borough Council

LORD JUSTICE BROOKE: This is an appeal by the claimant, but in reality by the DAS Insurance Company who acted as the claimants “after the event” legal expenses insurers, on appeal from a decision of HHJ Graham Jones sitting as a deputy circuit judge on 23 November 2005 when he was hearing an appeal from Deputy District Judge Sandecott in the Pontypridd County Court on 5 March 2005. The action related to a child of 11. On 23 August 2001, at about 7.45pm, the child tripped over a protruding peg in a designated play area in Merthyr Tydfil which was owned and occupied by the defendant local authority. There were shreds of glass embedded in the peg.

The matter went to trial on liability. The damages were agreed in the sum of £3,105 plus interest, and the deputy district judge held that the defendants were liable. He there and then assessed the costs summarily in the sum of £16,821.30, which was a reduction from the sum of £18,632.73 which was claimed. The sums he allowed included an ATE premium of £5,103, being £4,860 premium plus insurance premium tax. There was also a debate about the 100 per cent success fee, which was upheld.

The defendants appealed against that order. There was no new evidence adduced for the purposes of the appeal, apart from some material from a magazine called Litigation Funding. This was sent by the defendants to the claimants and was included in the bundle for the appeal without formally being put in evidence, but the approach of the judge was influenced very considerably by the contents of that document. He heard the appeal without a district judge or any other assessor, and he reduced the costs to £12,628.30 including VAT, a substantial reduction being made in the ATE premium which he reduced to £900. Other elements of the costs which were allowed were the base profit costs of £4,000, 100 per cent success fee of £4,000, counsel’s fees of £1,100 and then court fees, disbursements and VAT.

The judge was influenced by the fact that the claimant’s ATE insurers had crafted a three-stage premium of £450 being payable at the outset, a further £1,350 when proceedings were issued making £1,850 in all, and the balance up to £5,000 being paid three weeks before the trial. The judge was influenced by the fact that according to Litigation Funding, ATE insurance was available at costs of between £450 and £1,350 from a range of companies, and he could not see that the staged premium justified the wholly excessive charge that was being made, given that other companies in the market were charging much less than £1,800 for the whole proceedings. He held that nobody conducting litigation reasonably would have agreed to pay a premium of this order if the case did not settle, when he could obtain an insurance policy that covered him for the whole of the conduct of the proceedings for much less than was payable at issue and indeed for not very much more than was payable at the initial stage. That was the approach of the judge, and he decided that the evidence before him clearly indicated that products were available from a range of companies for cheaper premiums providing the same amount of cover, including the self-insurance aspects of it. That was why he took an axe to the award of about £5,000 and reduced it to £900, which he said was in the middle of the range of £450 to £1,350 which was quoted in Litigation Funding.

In the grounds of appeal for a second appeal to this court, the ATE insurers asserted that the judge had been wrong to reduce the premium in this way. He failed to pay any or any sufficient regard to the risks being insured under the policy, and if he had done so he would have allowed the premium in the sum claimed. They said that the £900 did not reasonably reflect the risks insured, and that the judge had failed to apply paragraph 11.10 of the Costs Practice Direction. He had been wrong to take any account of the material in Litigation Funding. Reference was made in this contract to what Master Hurst said about this in his judgment in the RSA pursuit test cases. It was said that the sum of £900 was unreasonable and therefore wrong in the context of CPR 44.4, and that the judge was wrong not to have ordered a detailed assessment as opposed to trying a summary assessment on the limited evidence and information available. Mr Hext, who appears for the defendants said quite reasonably that the arguments that the insurers wished to advance on the appeal are to a considerable extent significantly different from those which were being advanced by the different solicitors and counsel who were instructed before the deputy judge. In particular, DAS wish to adduce a good deal of evidence about the way they set about their task in fixing a premium, none of which was placed before the judge.

Initially Mr Bellamy, who is the underwriting manager of the ATE insurance operation called 8e Limited, which is part of DAS, made a witness statement in support of the application for permission for a second appeal in which he said the appeal was of extreme public importance and of critical importance to the insurance industry in general. The judge’s arbitrary reduction of the premium was so severe that if it should be used as a persuasive precedent to reduce all ATE trial premiums to this level, some ATE insurers would stop writing this business overnight. He said that with an already very limited UK based ATE insurance market, this would be at odds with the Government’s Access to Justice Act requirements. This decision would impact on the entire ATE market, and the question of a second appeal must be considered from this global position. Currently, in many hundreds, if not thousands, of settled cases throughout the market, defendants were still refusing to pay an ATE insurance premium and were waiting a decisive decision from the Court of Appeal. Another hindrance for the fledgling ATE market was that they not only had to predict future claim numbers and claims costs on losing cases, but they also had to be aware they might not collect their premiums due on the cases they won for many months or years. This made accurate underwriting of this market almost impossible. Numerous high profile insurers had departed from the ATE over the last two years, and a judgment of this magnitude was exactly what this sector of the insurance industry needed to provide certainty and clarity in an otherwise uncertain market. That was the reason why DAS wished the matter to come before this court for a second appeal, and I directed that a second appeal should be allowed in the light of the public importance of the case.

In the skeleton argument prepared for this hearing, it has been suggested that there are four main issues, the fourth of which is sub-divided:

in determining whether the choice of a particular ATE product was reasonable;

when considering the availability of alternative ATE products, and with particular regard to data such as that published in Litigation Funding;

the degree to which the insurer must go to justify his premium whilst maintaining an eye on proportionality in low cost cases.

I directed that the Civil Appeals Office should write to certain people in the market who might be interested in intervening, and as a result of that invitation applications of one kind or another have been made by Allianz Cornhill, Abbey Legal Protection, Brit Insurance Limited, LAMP Insurance, Temple Legal Protection Limited and Keystone Legal Benefits Limited, and the Law Society. After enquiries that I have made today, I have been told that liability insurers will be interested in intervening if the case provided an opportunity to explore the wider issues of after the event insurance such as premiums, risk and proportionality in the market, rather than being confined to the facts of this particular dispute.

Mr Hext on behalf of the defendants has argued that this should not be made into a test case. His clients are not liability insurers. Their interest in the wider issues which are of absorbing interest to DAS is extremely strictly limited. I think they said that this is the first time they have come across a stage three premium and that if the court allowed a test case with multiple interventions and the cascading of costs, it would be wholly unfair in the circumstances for them to be involved in it without any kind of protection as to costs, when all that they were concerned about was whether the ATE premium that they had to pay in this case should be £5,000 or £900 or something in between. In my judgment there is a good deal of force in those submissions, particularly given that DAS wish to have far more evidence adduced in the Court of Appeal than they adduced before the judge. Even if no application was made to put the pages from Litigation Funding strictly into evidence, it must have been perfectly obvious to those who were then conducting the appeal, or the resistance of the appeal, before the deputy judge that reliance was going to be placed on it. Yet they did not seek to adduce any of the evidence which Mr Bellamy now seeks to adduce so that the judge in the first appeal court could consider it.

In view of what I have been told about the public interest in the Court of Appeal determining the issues in this case at a reasonably early date, I consider that the matter should proceed as a second appeal as a test case, allowing the parties and the interveners to adduce such evidence and submissions as they consider fit. The appeal will have to be by way of re-hearing as opposed to a review, but I am satisfied that justice requires that there be some protection for Merthyr Tydfil in relation to their potential costs liability. In my judgment, having heard the submissions of the parties, it would be proper for the appeal to go ahead on the condition that the orders as to costs in the courts below shall stand in any event and that each side should bear its own costs in the Court of Appeal except that if the appeal is dismissed Merthyr Tydfil to be at liberty to apply for its reasonable costs in relation to the preparation of written submission and evidence, not to exceed £20,000. [This was slightly varied, following post-judgment discussion].

That is my direction on the application by Merthyr Tydfil as to the form of the appeal and as to the conditions on which it should be allowed to go forward. I am therefore satisfied that it should be allowed to go forward. I am willing to grant permission to Allianz Cornhill, Abbey Legal, Brit Insurance, LAMP, Temple, Keystone and the Law Society to intervene with written submissions. So far as those parties are concerned (if it is correct to call them parties, and Allianz Cornhill for instance wishes to play a very small role), any evidence which they may wish to adduce which is not already before the court should be filed by 4.00pm on 9 June. I exclude from that any evidence to be relied on by the defendants, who will wish to consider what evidence is going to be before the court before considering whether to put in any evidence of its own. But the defendants must file bullet points of the issues that they will be arguing at the appeal hearing by the end of next week, Friday 2 June. They will have liberty to apply to amend them in due course, but at the moment they have not put in anything. Mr Hext made it clear to me that they would not, in any event, wish to take some of the points which were being taken in the case of Watson v McDonalds Restaurants Limited which was in my list and settled yesterday. So, the parties must have clarity as to which points the defendants will wish to take and which points they will not wish to take.

Master Hurst has told me that he will be available on 12 and 13 June, and I direct that there should be a hearing on 12 June at a time, and for a length of time, to be ascertained by Master Hurst depending on the state of his diary and that he should hear the parties and the interveners in order to consider:

what timetable to set for any enquiries he made decide to conduct;

on what terms he should conduct his enquiry;

whether it will be possible to complete the necessary enquiries and report before a hearing on 17 to 18 July, or whether it might be desirable that that hearing should be adjourned.

I direct that the transcript of this judgment be expedited, and that the parties and the interveners should receive a copy of it. I also direct that it be sent to liability insurers so that they can consider what steps they are capable of taking in advance of the hearing before Master Hurst on 12 June. All parties and the interveners will have liberty to apply to me for further directions if they see fit, which I will normally deal with in writing. At the moment, I am giving leave to intervene in writing only. Applications to intervene orally at the hearing should be submitted in writing to the Civil Appeals Office, with the reasons for the request, on or before 3 July. I very much hope that the parties and the interveners can reach an agreement by which, subject to any confidential evidence, the evidence and submissions that they have filed with the court are all exchanged as rapidly as possible so that everybody can see what everybody else is saying.

I think I have covered all the issues that I was asked to cover. I certainly grant permission to DAS to adduce the new evidence by Mr Bellamy. It will be a matter for Master Hurst to consider whether further supplementary evidence will be needed from DAS, or how to best handle the evidence provided by Mr Bellamy about the way that DAS sets about its task of assessing appropriate premiums.