Brown -Quinn & Anor v Equity Syndicate Management Ltd & Anor (Rev 1)

There have been before me three Part 8 claims, which are effectively sample or test proceedings. The claims are ostensibly by or in respect of three clients of Webster Dixon ("WD"), a firm of solicitors, against an insurance company, Equity Syndicate Management Limited ("the Insurer"), who offered Before The Event ("BTE") legal expenses insurance (and in two of the claims also against an Administrator).

The three clients, Mrs Christine Brown-Quinn (“CBQ”), Ms Christine Jones (“CJ”) and Ms Janine Baxter (“JB”) had various claims against other parties (in this case all employment and discrimination claims), for which they wished to bring or continue proceedings with the benefit of the BTE insurance, using the services of WD, in respect of whom the following description is given in the Agreed Statement of Facts:

“1.

[WD] is a London-based firm of solicitors, established in 1998. Amongst other areas, [WD] specialises in employment law. It is situated in the City of London …

2.

[WD] is rated at Band Three (employment) in Chambers and Partners and is noted therein as being “tailored to suit the needs of City professionals, bankers, accountants, traders, lawyers, IT specialists and directors”. It is also rated at Band Three in Legal 500 as a Claimant firm acting in the field of employment law; in the recent past it was described therein as having “a focus on acting for executives and professionals, tailoring advice to their needs”; it is currently described as being a firm that “takes on complex cases involving multiple strands of discrimination, unfair dismissal and TUPE”.”

The Insurer, in circumstances which I shall describe, was not prepared to accept that the clients were covered for WD’s fees.

In the event, CBQ’s costs were paid by the other side, her former employers, as part of a settlement, but WD, who were joined as Claimants in her action, have nevertheless continued the proceedings, and CJ, who entered into a confidential compromise agreement in August 2008 with her former employer, has never been a claimant in “her” proceedings, in which WD were and remain the sole Claimants. Although objection was made as to WD’s locus by Dr Mark Friston of Counsel on behalf of the Insurer, particularly once it was clear that the relief sought in these proceedings was limited to declaratory relief he did not pursue any such objection: plainly WD have a significant interest in the decision in this case (and I understand there are at least 17 others pending) as to whether their clients are entitled to recover under their BTE insurance the fees which they are liable to pay WD.

The issues that arise in respect of the entitlement of those insured under BTE insurance to instruct solicitors of their own choice and expect that their reasonable fees will be covered under that BTE insurance apply more generally than to these three cases, and there was a submission made by the Law Society to the Jackson Review of Civil Litigation Costs, which was recited by Jackson LJ at paragraph 6.2 and described at 6.3 as forming part of an argument which had “considerable force”, that “Claimants wishing to take advantage of [their] BTE policy either instruct their own solicitors and are refused funding unless they agree to instruct a panel solicitor, often in a different part of the country, or are referred direct [there] by their insurer.” Similar concerns were expressed by the Court of Appeal in Sarwar v Alam [2002] 1 WLR 125 at para 44. BTE insurers traditionally, as did this Insurer, retain a panel of solicitors, with whom they have been able to negotiate reasonable, and no doubt discounted or reduced, fees for acting for their insured, in return for an expectation of receiving a quantity of such work, through clients being referred to them on a regular basis. I have not seen evidence of what these rates are, but I shall call them ‘panel rates’.

In the case of CJ, she instructed a non-panel solicitor, WD, from the beginning. CBQ and JB were both referred to panel solicitors by the Insurer from the outset, but in each case the case-handler left the panel solicitor, and joined WD, and the clients wished to ‘follow’ the case-handler to WD, and thus to transfer their instructions to WD. Different arguments were addressed before me with regard to cases where, as with CJ, there is a wish by the insured at the outset to instruct a non-panel solicitor (‘outset cases’) and those cases where, as with CBQ and JB, there is a transfer of instructions (‘transfer cases’).

The position taken by the Insurer was that, so far as outset and transfer cases were concerned, it was entitled to insist that if an insured did not wish to instruct a panel solicitor, any other solicitor of the insured’s choice must not charge more than the rates prescribed by its “Terms of Appointment for Non … Panel Solicitors”. These included the following provision:

“Your entitlement to recover reasonable costs in cases will be subject to:

(a)

an hourly rate of £125 plus VAT which is expected to be fully inclusive of any relevant mark up;

(b)

letters out and in at one tenth and one twentieth of the hourly rate respectively;

(c)

travelling and waiting time to be charged at two thirds of the agreed hourly rate.”

In the case of CBQ and JB, this rate of £125 was increased to £139. I shall call them “non-panel costs”.

There were two significant constituents:

In each case the dispute about these rates became apparent at the outset. It is part of the Agreed Statement of Facts (paragraphs 27 and 29) that the Insurer informed WD that they would not agree to their acting for JB or CBQ, and similarly so (paragraph 45) in respect of CJ. In the event, WD continued to act for the three clients and, at any rate in the case of CBQ and CJ, achieved satisfactory settlements on their behalf. I have not been told what occurred in relation to JB.

Colin Wynter QC and Thomas Cordrey on behalf of the Claimants rest their case on the effect of the Insurance Companies (Legal Expenses Insurance) Regulations 1990 SI 1990 No 1159, which brought into effect, in materially identical terms, the provisions of Article 4 of EC Council Directive 87/344/EEC of 22 June 1987, which has itself now been re-enacted, without material difference, as Article 201 of EU Directive 2009/138/EC. Regulation 6 reads as follows:

“Freedom to choose lawyer.

6.

—(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.”

The Regulations were considered in Erhard Eschig v UNIQA Sachversicherung AG [2009] KC-119/08 (“Eschig”), a case in which the legal expenses insurers refused to cover a litigant who wanted to use his own lawyer rather than join a group action, whose lawyers would inevitably charge at a lesser rate, and the decision of the court was:

“Article 4(1)(a) of [the] Council Directive … on the co-ordination of laws, regulations and administrative provisions relating to legal expenses insurance must be interpreted as not permitting the legal expenses insurer to reserve the right, where a large number of insured persons suffer loss as a result of the same event, itself to select the legal representative of all the insured persons concerned.”

The particular passages of the European Court’s judgment relied upon by Mr Wynter were as follows:

“45.

As is apparent from the entirety of Articles 4, 6 and 7 of [the] Directive … the rights of insured persons recognised by those Articles seek to broadly protect the interests of the insured person without being restricted to situations in which a conflict of interests arises.

…

59.

It should be noted … that whilst Article 5 of [the] Directive … authorises the Member States to provide exemption from the application of Article 4(1) … to certain cases arising from the use of road vehicles, that exemption to the right to freely choose one’s representative must be interpreted restrictively and cannot therefore serve as a basis for a reasoning by analogy.”

The provisions in the policies relating to the three clients in these cases, which are in materially the same terms [and are not necessarily in the same terms as those used by other legal expenses insurers or in other policies], are as follows:

“Definitions

COSTS and EXPENSES

Legal and professional fees for which you are responsible, including reasonable fees, costs and expenses incurred by the Appointed Representative acting for you in connection with the pursuit or defence of legal proceedings.

[There is a limitation to such costs and expenses of a maximum of £50,000, provided for by the Terms and Conditions.]

APPOINTED REPRESENTATIVE

A solicitor, firm of solicitors, barrister or any other suitably qualified person appointed to act on your behalf.

General Conditions

1.

You [defined in the Definitions section as “You, the insured” (plus certain dependants)] must:

1.1

Keep to the terms and conditions of this policy.

1.2

Take reasonable steps to keep any amount we have to pay as low as possible.

…

2.3

If we agree to start legal proceedings and it becomes mandatory for you to be represented by a lawyer, or there is a conflict of interest, you can choose an appointed representative by sending us the suitably qualified person’s name and address. We may choose not to accept the choice of representative, but only in exceptional circumstances. If there is a disagreement over the choice of appointed representative another other suitably qualified person can be appointed to decide the matter. Before you choose a lawyer, we can appoint an appointed representative.

2.4

An appointed representative will be appointed by us and represent you according to our standard terms of appointment. The appointed representative must co-operate fully with us at all times.

…

5.

If an appointed representative refused to continue acting for you or if you dismiss an appointed representative, the cover we provide will end at once, unless we agree to appoint another appointed representative.

…

7.

If we and you disagree about the choice [of] appointed representative … we and you can choose another suitably qualified person to decide the matter. We and you must both agree to the choice of this person in writing. Failing this we will ask the President of a relevant national Law Society to choose a suitably qualified person …”

The position originally taken by the Insurer was that it would not cover these clients in respect of their proposed claims and proceedings if they were to instruct WD, unless WD agreed the non-panel costs. Thus:

This was expanded on 12 January 2010 to CBQ by the statement that “the Regulation does not apply once the legal proceedings have started” and, in an undated letter to WD, received on 14 January 2010, that “As you will no doubt be aware, proceedings have already been commenced in all of the cases for which you now seek indemnity and as such, your clients have already had the opportunity to exercise their right to select a solicitor of their choosing”.

That position is no longer taken by the Defendants so far as concerns outset cases (I shall return below to the transfer cases), and Dr Friston, in the course of the hearing before me, expressly abjured any case that:

The Defendants’ case is now that they are only obliged to cover under the policy such fees as are (in the absence of agreement) assessed pursuant to an assessment under CPR part 48.3, which reads as follows:

“1.

Where the court assesses (whether by the summary or detailed procedure) costs which are payable by the paying party to the receiving party under the terms of a contract, the costs payable under those terms are, unless the contract expressly provides otherwise, to be presumed to be costs which –

(a)

have been reasonably incurred, and

(b)

are reasonable in amount, and the court will assess them accordingly.”

The Defendants do not contend that, in this case, the policy “expressly provides otherwise”. They submit that, by reference to the policy, the starting point should be the rate of £125 (or £139) as contained in the non-panel costs, and the assessment of what is reasonable should take place in the light of and by reference to those figures, effectively such that they should only be departed from if such rates can be shown to be unreasonable, and they rely on Clause 1.2 of the General Conditions set out above, so as to keep the fees “as low as possible”. The Claimants contend that this amounts to a fetter upon the right of the client to choose his solicitor, in breach of the Regulations, similar to that disapproved in Eschig.

The rival contentions that underlie the parties’ submissions are as follows:

Both parties addressed the policy provisions, from which the following can be deduced:

I take into account the following factors:

Two matters appear to me to be significant:

I conclude that the correct position on the wording of these policies is closer to that contended for by Mr Wynter, namely that the Claimants’ entitlement to recover legal costs (and thus WD’s expectation of receiving fees covered under the Insureds’ policies), will fall to be assessed, in the absence of agreement, under CPR 48.3, not as restricted to the provision for £139 or £125 per hour, but taking it into account. The submission of Dr Friston was, as referred to above, that Clause 1.2 of the General Conditions could be relied upon in such an assessment in order to argue that the mere fact of an insured choosing his or her own lawyer amounted to an unreasonable step. Mr Wynter wished to submit that it should be made plain that the choice of his or her own lawyer by an insured “shall not under any circumstances constitute the taking of an unreasonable step”. I conclude that the correct approach is rather to conclude that the choice of his own lawyer by an insured “shall not of itself constitute the taking of an unreasonable step”. It seems to me both inevitable and right that there should be consideration of the reasonableness of the fees charged by the lawyer selected by the insured by reference to the existence of the panel of solicitors prepared to act at panel rates, and to the existence of the non-panel costs, coupled no doubt with evidence that there have been (if there have been) many solicitors ready and willing to act on that basis and/or that, in the instant case, there are or were suitable solicitors who had been offered to the insured but rejected, who would have been prepared to act on that basis. This however will be part of a comparative exercise which can be carried out as part of the CPR 48 assessment.

It is plain from Eschig that an insured is entitled to conclude that he would rather have his own solicitor than be part of a group at discounted rates, and I agree with Mr Wynter that the analogy is a close one, though not identical, to a situation in which an insured prefers to have a solicitor of his own choice rather than one imposed upon him at panel rates or non-panel costs. However the significant difference is that, as a result of the concession referred to in paragraph 16 above, the Defendants are no longer seeking to prevent the Insured from taking that course, but only to pay for the consequences of doing so. I take into account Mr Wynter’s submissions that Stark is addressing a national legislative provision, but it was still necessary for the European Court to consider whether that provision offended against Article 4; and I find helpful the consideration referred to in paragraph 33 of the European Court’s judgment as to whether a restriction, or in this case a fetter, would render “de facto impossible a reasonable choice of representative by the Insured person”. I also take into account the commercial background of the need for availability of BTE insurance on the basis of economically viable but reasonable premiums.

My judgment accordingly is that, in the absence of agreement between the Insurer and the firm which will have been accepted de facto as Authorised Representative but will not have accepted the Insurer’s non-panel costs, any assessment of costs due pursuant to CPR 48 will address the non-panel costs, not as a starting point, but as a comparator. As I have concluded, it will be necessary and right for the Court assessing the costs to take into account the availability of any other suitable firms on lesser rates negotiated with the Insurers, but there will also fall to be taken into account (and both sides can draw assistance in this regard from the words of Kennedy LJ in Wraith v Sheffield Forgemasters Ltd [1998] 1 WLR 132 at 142:

In carrying out such an assessment, and in bearing in mind the comparator of the non-panel costs, the fact that the non-panel costs include a flat fee for whoever is doing the work will inevitably be considered. It does not seem to me that it matters whether the Court assessing the costs carries out a normal assessment, by reference to who has in fact done the work, with an allocation of an appropriate hourly rate, or whether, having done that assessment, the Court then arrives on an average or aggregate basis at a flat rate. The difference in approach between specifically charging for letters in and allowing for them in the reasonable rate, does not seem to me to lead to any different result.

The end product consequently is a hybrid, neither an ordinary assessment, only taking account of the factors in CPR 44, nor an assessment specifically adopting the £139 and only moving away from it if persuaded to do so, which was the basis of Dr Friston’s submission. The assessment will be one in which the existence of the lower rates as reasonably available will need to be established, and, once established, they can and will be used as a comparator by reference to what in fact happened. I suspect that in this case, where the Insured made a choice of specialist solicitors, in London, fully qualified to meet the difficult issues in dispute with substantial defendants, an assessment would be likely to treat such comparator as of less weight.

So far as the outset cases are concerned, therefore, and in the light of the concessions made as set out in paragraph 16 above, the declaratory relief sought by the Claimants is substantially appropriate. Subject to any redrafting that may be carried out by the parties in the light of my judgment, it would seem to me that the following relief, by reference to paragraph 16 of the Particulars of Claim, is appropriate in the individual cases, namely that:

This relates to the cases of CBQ and JB (and any other case, subject to its precise facts) in which there was first the instruction of a solicitor on non-panel terms (or for that matter instruction of a panel solicitor) and then a change or proposed change of solicitor by the Insured to another firm, which firm was not prepared to accept the non-panel costs. Here the Defendants’ case is that, if such new solicitor is prepared to accept the non-panel costs, then they would agree to accept such solicitor as Appointed Representative in place of the original solicitor, but that would be a matter of choice by them, in that the insured has no entitlement to change solicitors and expect the fees of the new solicitor to be covered, even on the basis which I have now concluded to be appropriate, as set out above, in respect of outset cases. The most relevant condition is Clause 5, set out in paragraph 13 above. That clause is relied upon by the Defendants to assert that, if the insured dismisses the first Appointed Representative, the cover ends at once, unless there is agreement. Whereas the concessions were made, as set out in paragraph 16 above, in relation to outset cases, that there was no cesser of cover if the insured refused the proffered solicitor and chose his own, such case was pursued by the Defendants in respect of a transfer. Dr Friston’s case is effectively that there is only one “election”, and thereafter there is no longer the freedom of choice which he has accepted there has to be, by virtue of the Regulations, at the outset. I ignore for the purposes of this consideration the possible factual issue, whereby it is said that JB never in fact elected to instruct the original solicitors, but rather acquiesced in their acting for her.

This dispute as to transfer cases was not really apparent in the pleadings, and not materially identified in the skeleton arguments, and, as a result of my request on the first day, issues were put together, with rival formulations from each side, which I have cobbled together into the following list:

“Under the 1990 Regulations and in the context of these Policies:

1.

Is the provision under Clause 5 an enforceable provision in the light of the right to choose a lawyer as expressed in the 1990 Regulations? Is the freedom to choose a lawyer limited to one choice?

2.

On the facts of this case, was the Insurer’s refusal to agree to JB’s choice of WD unlawful?

3.

Pursuant to Clause 6(2) of the Regulations, had a conflict of interest arisen because of the Insurer’s interest in preventing the transfer of the case to WD and the interest of JB in maintaining continuity of representation? If so, was the refusal to agree to JB’s choice of lawyer unlawful?

4.

Is there an implied term to the insurance policy that there will be no unreasonable refusal by the Insurer to accept the transfer of a case to another Appointed Representative? If so, on the facts of the case, was the Insurer in breach of that implied provision, if found, to refuse to agree JB’s choice of WD?

5.

As a matter of fact, did the Defendant’s agree to appoint WD as another Appointed Representative of JB, thereby affirming the policy and waiving any right under the policy to refuse to pay WD’s costs, subject only to assessment of those costs?”

The last of these issues was effectively not pursued by Mr Wynter, and certainly not argued, although I gave him the opportunity to do so, and I answer it in the negative.

As for the balance of the issues, I am content to reach a conclusion by reference to the facts of these cases. There may be a case in which it might be appropriate for an insurer to argue that there is no breach of the Regulation (and no conflict of interest) in refusing to accept a substitute Appointed Representative. I am however entirely satisfied that to stand on an alleged absolute right to cancel by reference to Clause 5 does amount to a breach of Regulation 6. I see no basis upon which the Directive or the Regulations can be interpreted to arrive at a conclusion that the freedom of choice of the client is limited to one selection or ‘election’ at the outset. There may be all kinds of scenarios in which it is appropriate and reasonable for a client who has selected (or had imposed upon him) a panel firm, or a non-panel solicitor who has accepted non-panel costs, and subsequently decides to change. That firm may cease to exist, or may close its relevant department or make members of it redundant: there may be a substantial and reasonable disagreement between the client and the solicitor, not ascribable to any breach by the client of his obligations under the General Conditions: or there may, as here, be a situation in which the case-handler leaves the firm and the client wishes that case- handler to carry on acting for him in a new firm.

I am satisfied that it is appropriate to read into Clause 5 an implied term that such agreement will not be unreasonably refused, both by virtue of the restrictions imposed upon the insurer by Regulation 6 and also at common law, by virtue of the perfectly normal interpolation of an obligation of reasonableness in relation to the giving of a consent; also by cross reference to the provisions of Clause 2.3 (set out in paragraph 13 above) which substantially limits the right of the insurer to refuse approval to an Authorised Representative chosen by the insured at the outset.

It would seem to me that there are matters which a reasonable insurer could seek to raise on a request to change Appointed Representative, such as the avoidance of any duplication of costs which might be caused by an unnecessary transfer, but certainly in a case such as those before me, where the reason for the transfer was indeed because the case-handler was changing firms, on the one hand it does not seem to me to begin to be reasonable for the Insurer to refuse, and in any event there would be no such duplication. An objection simply on the basis that it would cost the insurer more would seem clearly to result in a conflict of interest within Regulation 6(2).

Accordingly, on the facts of these cases and by reference to the issues, I conclude as follows: