Sharratt v London Central Bus Co (Accident Group Test Cases Tranche 2)

TABLE OF CONTENTS

1.      Reference should be made to my judgment dated 27 November 2002 which dealt with the first preliminary issue in these proceedings, that of delegation. That judgment, at paragraphs 11 to 16, sets out the statutory framework governing conditional fee agreements and to the extent that I have already set out the relevant statutory provisions I do not propose to repeat them. At paragraphs 17 to 37 of the judgment an outline of the TAG scheme is set out. In this judgment it will be necessary to consider the scheme in far greater detail as it developed over the years from 1999 to 2001. The references which I give (eg D/34/866) are to pages in the trial bundle files A to N.

2.      The preliminary issue which I have already decided was:

3.      Those questions were answered as follows:

4.      That decision was appealed to the Court of Appeal and was heard over four days commencing 18 March 2003, together with five other unrelated cases all of which raised points of principle concerning CFAs.

5.      By an order dated 27 November 2002 I ordered by consent that further issues should be tried. Those issues fall into two sections: Compliance Issues, and General Issues which are in turn sub-divided into Premium Issues, Standardised TAG Disbursements, Consumer Credit and the Indemnity Principle. With regard to the Compliance Issues it was agreed between the parties that these should be adjourned to await the outcome of the appeals currently before the Court of Appeal. Once that decision is known it will be possible to decide which, if any, of the Compliance Issues relating to TAG still need to be decided.

6.      The issues argued in front of me were as follows:

7.      The Defendants have sensibly divided the issues between them: the First Defendants arguing the Compliance Issues and the Second Defendants the General Issues. Each set of Defendants adopts and relies upon the submissions of the other in respect of each issue.

8.      With regard to the General Issues it is no longer necessary to deal with some of these because of recent developments including the decision of the Court of Appeal in the Claims Direct Test Cases [2003] EWCA Civ 136 dated 12 February 2003; and my decisions in Claims Direct [2003] Lloyds Rep 69, and 3 January 2003.

9.      In respect of Issue 1 the Defendants did not pursue any submission that if the CFA is unenforceable the ATE premium becomes irrecoverable by reason of the failure of the CFA.

10.  Issue 4 relates to block rating. In the Claims Direct Tranche 1 trial no reduction was made to the premium for block rating in the absence of any sufficient evidence as to whether block rated premiums were more expensive than individually rated policies (paragraph 222). The Defendants wished to reserve their position with regard to block rating but it was recognised that in the absence of any better evidence the issue should not be argued further in these Test Cases.

11.  Issue 6 is purely factual and will be dealt with within Issues 2 and 3.

12.  Issue 7 was not pursued by the Defendants and in relation to Issue 8 the parties agreed that the judgment in the Claims Direct Tranche 1, paragraphs 230-231 provides the necessary guidance.

13.  Part B of the General Issues deals with Standardised TAG Disbursements and Issue 9 asks: What are the financial arrangements between all parties involved in the TAG scheme? Who pays what to whom? These are factual issues which will in any event have to be decided when considering the other issues. No separate judgment will be required under this issue.

14.  Issue 12 asks what the consequences are if the payment of £310 plus VAT to AIL is a referral fee and if the solicitors’ agreement to pay that money breaches the Introduction and Referral Code. The Claimants accept that if they lose on those issues the fee is not recoverable. The Defendants do not contend that a finding of a breach of the Introduction and Referral Code would taint the entire retainer between a claimant and a panel solicitor and accept that the consequence would be that the referral fee itself was not recoverable against the Defendants.

15.  Part C of the General Issues deals with Consumer Credit but the Defendants do not pursue Issues 14 and 15.

16.  Before considering the remaining issues it is necessary to understand in some detail the contractual background to the TAG scheme and also to see how it developed over the years covered by the Test Cases. It will also be necessary to consider the evidence. The first agreement in time is dated 26 October 1999 between Litigation Protection Limited (LPL) and AAB Limited (later TAG) (I/43/2241) under which LPL agreed with AAB to introduce an insurance scheme underwritten by Lloyds underwriters in respect of which LPL had been appointed underwriters representatives:

17.  The agreement states that LPL will use its best endeavours to maintain the insurance for a minimum period of 2 years and that each claim will be referred by AAB to vetting solicitors to undertake an assessment of the risk before the insurance is commenced. AAB for their part agreed to recruit and manage firms of solicitors who had been accredited following an evaluation of their case handling, general management and financial status. If the performance of any appointed representative became unsatisfactory that member could be removed from the AAB panel.

18.  The agreement continues:

19.  The agreement goes on to deal with premium allocation providing that LPL would instruct Investec to pay AAB a proportion of the premium allocation, namely £380 in respect of those policies for which insurance had been issued during the previous week.

20.  The agreement was to come into force on 1 November 1999 and remain in force for a period of 2 years: "thereafter the agreement will continue on an annual basis as per the agreed terms and conditions subject to either party giving the other side 6 months notice".

21.  A new agreement was entered into on 28 September 2000 between LPL and TAG (I/43/2261) which was in virtually identical terms to the earlier agreement in respect of initial insurance services, continuing insurance services and premium allocation. The major change is at recital F (2262) which states:

22.  The binding authority agreement No.711/HH025960Y (I/43/2285A-2285P) was made between the Lloyds underwriters and LPL the coverholder, the named broker being Prentis Donegan & Partners. The agreement is effective during the period from 1 January 2000 to 31 December 2000 unless cancelled or terminated. I quote selectively from the agreement:

23.  TAG entered into a new agreement with underwriters and with the brokers BESSO on 5 November 2002. BESSO had replaced Prentis Donegan as brokers. The agreement provides (I/43/2527):

24.  In this document the insurance services had undergone considerable rewriting. The services include (I/43/2551):

25.  The fourth schedule to the agreement deals with premium allocation as follows (I/2558):

26.  The fifth schedule deals with profit commission, but merely states that this is as set out in binding authority XA027220a. That binding authority has not been produced.

27.  The Binding Authority Agreement No.711/HH027220Z (I/43/2366-2386) was made between the Lloyds underwriters and TAG the coverholder, the named broker being Prentis Donegan & Partners. The agreement is effective during the period during 1 February 2001 to 31 January 2004 unless cancelled or terminated. The terms of the Binding Authority are, apart from some matters which I list below, identical to those in the Agreement with LPL which I have set out in paragraph 22. At paragraph 2.1 the person authorised to bind is Neil Ross, rather than Brian Raincock.

28.  At Section 16 the maximum limits of liability/sums insured is £50,000 each case.

29.  At Section 20.1 the premium is put at "£950 each case plus insurance premium tax of £47.50 each case, less £621.50 underwriters contribution to costs".

30.  At Section 20.1:

31.  At Section 21 the gross premium income limit is put at £15 million for each annual period.

32.  At Section 25.1 the coverholder’s commission is stated to be "not applicable." Section 25.2 reads (1/43/2377):

33.  and Appendix 1 (1/43/2381):

34.  This agreement was negotiated directed between TAG and NIG (I/43/2435-2467). It is dated 1 July 2001, although the commencement dated is stated to be 1 February 2001.

35.  The agreement provides (quoting selectively):

36.  This was the first agreement set up in order to fund the payment of premiums (J/44/2574-2580). The agreement recites:

37.  There then follows a series of definition, including:

38.  There is no definition of "disbursement". The agreement continues:

39.  The Agreement dated 3 October 2000 (J/44/2616-2626) between First National Bank and TAG replaced the earlier Agreement of 26 November 1999 between Investec Bank UK Limited and AAB (TAG). Investec’s Special Lending Division was effectively taken over by First National Bank as from 1 December 2000.

40.  The most significant change between the two Agreements is that in the recital to the earlier Agreement it was provided:

41.  Disbursement is defined as follows:

42.  Other provisions include:

43.  A new funding arrangement was agreed on 15 February 2001 between TAG and the Bank of Scotland (K/2796/ff). This agreement provides for a panel solicitors agreement (2944) and every panel solicitor was required to enter into such an agreement (see paragraph 70).

44.  This agreement states under the heading "Background":

45.  The example of the Agreement (E/1301-1305) which I quote here is the one annexed to Operating Manual 3 (OM3) but I have not been told that there have been any significant changes to it. The Agreement sets out, among other things, the duties of the parties:

46.  Paragraph 1.1(1) which I have quoted above refers to the obligations set out in the Accident Protect legal expenses insurance policy. The policy wording can be found in OM2 at J/44/2741. The policy provides, under the heading "Conditions" (J/44/2744):

47.  The remaining conditions (4 to 11) deal with Progress of Proceedings, Payment, Subrogation, Fraud, Policy voidable, Arbitration, Jurisdiction and Communications.

48.  Finally the policy provides (2747):

49.  There were a total of five Operating Manuals which were in use as follows:

50.  The Operating Manuals developed as the TAG scheme developed. I set out below the basic scheme in OM1 and will identify the developments as they occur in subsequent manuals.

51.  OM1 (D/40/1049-1136) describes Key Personnel at AAB (TAG), LPL, Investec Bank UK Ltd and vetting solicitors, Messrs Rowe & Cohen of Manchester. The manual sets out the roles of the claims manager (1059) as follows:

52.  The Manual then deals with the role of the vetting solicitors and at Section 5 sets out the Step by Step Procedures. 30 steps are detailed. So far as relevant for the purpose of this judgment they are as follows:

53.  Section 6 of OM1 sets out the Panel Solicitors’ obligations and service standards, including:

54.  So far as relevant this Section provides:

55.  Section 7 deals with the intention of LPL randomly to check ten files per week from each panel solicitor.

56.  Section 8 contains specimen documents, namely: the claim and information pack (D/40/1084-5) ; application form (1086-1088); CCA (1089); AAB Service Agreement and Declaration (1090) and policy wording (1091-1098). Also set out in Section 8 are specimen forms and standard letters: AIL questionnaire (1100-1111); standard acknowledgement letters from AAB (1112-1113); referral bordereau (1114); client care letter (1115-1118) and the CFA (terms and conditions) (1119-1127).

57.  Where a claim is accepted a letter is sent to the Claimant from AAB (1112) which states:

58.  A letter is also sent by AAB to AIL (1113):

59.  The panel solicitor is then required to write to the client in the terms of the draft client care letter (1115):

60.  The CFA under the heading "Paying Us" states (1119):

61.  Under the heading "Success Fee" (1126) the CFA states:

62.  Under the heading "Own Disbursements" (1126) the CFA states:

63.  Under the "Explanation of Words Used" "own disbursements" are described as follows (1121):

64.  Section 9 deals with Medical Disbursement Company (MDL) service level agreement and medical reporting procedures.

65.  The second Operating Manual is dated 1 October 2000 (J/2699-2793). The role of the AAB claims manager described in OM1 becomes the role of TAG, but the initial and continuing insurance services remain virtually identical (2710/11). The step by step procedures have been somewhat expanded and deal separately with telephone reported claims (2722) and non telephone reported claims (2717/20). The procedure relating to incurring disbursements is greatly expanded:

66.  Part 6(v) of OM2 sets out what is to happen in various circumstances including:

67.  OM3 is dated 1 February 2001 (E/1308/1482). The initial and continuing insurance services remain as before (1319-1320). The step by step procedures for telephone and non telephone reported claims remain to all intents and purposes the same (1326-1330). The provisions with regard to disbursement funding remain similar, save that at paragraph 6(iii)(a)(3) panel solicitors are permitted to apply for reimbursement of disbursements which exceed an aggregate of £100 (E/1338). The provisions relating to third party challenge to additional liabilities remain the same (1341).

68.  OM4 is dated 23 February 2001 (F/1484-1593). By this time the funders are the Bank of Scotland. The initial and continuing insurance services remain substantially the same (1496/97) as do the step by step procedures. The provisions relating to incurring disbursements remain substantially the same, but at paragraph 6(iii)(a)(3) it is explained that payment of any disbursement will be arranged with the funders and TAG will forward the monies on a monthly basis if the request is accepted by both TAG and the funders (1515). The provision with regard to third party challenge to additional liabilities remains the same (1518).

69.  OM5 was published on 19 November 2001 (F/160/3). Since OM5 is after the period covered by any of the Test Cases and since it has not been referred to in any detail by either party it is not necessary here to set out its terms. I have set out elsewhere those elements, such as the AIL agreement, which are of relevance to the matters in issue.

70.  On 27 February 2002 TAG sent out a letter with OM5 (C/32/830B). The letter points out that the AIL fee has been increased to £320 plus VAT with effect from 1 March 2002. The accompanying pages set out the various changes which have been made to OM4.

71.  This example of the Agreement between AIL and the panel solicitors appears as Schedule 4 to the agreement between TAG and the panel solicitors which I have just quoted (E/1474-1478) (see para 45). The Agreement recites the duties of AIL and the appointed representative and sets out various other terms and conditions:

72.  A new form of AIL agreement was introduced in November 2001 by OM5 (F/1812). This agreement states:

73.  Initially under the TAG scheme disbursements were funded by Investec Bank. The recital states (D/40/1163)

74.  The agreement with the panel solicitor states:

75.  When the AAB application form was in use (D/40/1087) the client was required to declare:

76.  The AAB Service Agreement and Declaration (D/40/1090) reads:

77.  The remainder of the declaration contains matters which are not relevant for the purpose of this decision. The declaration is signed by the client and dated.

78.  In 2001 when a TAG claim application form was completed the client was required to sign a declaration as follows:

79.  The client was also required to sign a TAG Service Agreement and Declaration (D/35/930) which in part reads as follows:

80.  The retainer between the client and the panel solicitor is controlled by the requirement that each panel solicitor should utilise the form of client care letter and CFA set out in the appropriate Operating Manual. I have already set out at paragraphs 59 - 63 those parts of the client care letter and CFA which are relevant for the purpose of this judgment. In addition I set out the sequence of events between client and panel solicitor at paragraphs 21 to 27 and 30 to 32 of my earlier judgment.

81.  The evidence called by the Claimants in this case was provided by: Mr Neil Ross, Legal Director of the Accident Group since 1 April 2000 and Operations Director for TAG since 31 January 2001; Mr Justin Coss, Managing Director of Lawbridge Underwriting Ltd a wholly owned subsidiary of the Amulet Group Ltd, which is itself the holding company of TAG. Mr Coss had been employed by Lawbridge since April 2002; Daniel Primer, Director of Catlin Underwriting Agency Ltd, managing agents for syndicates 1003/2003 at Lloyds; Mr Gordon Blair, Amulet Group Finance Director whose responsibilities include all aspects of finance and accounting for TAG; and Mr Stewart McCulloch, Partner in the firm of Mace & Jones solicitors and Head of their Personal Injury Department. The majority of the cases selected for the TAG Test Cases are cases dealt with by Mr McCulloch’s firm and for which he is personally responsible.

82.  The Defendants called Mr Robert Cowley, who is employed by Norwich Union Insurance as Head of Actuarial (Intermediary Business) and who is a Fellow of the Institute of Actuaries. It was accepted by the Claimants that Mr Cowley was not giving expert evidence since he was giving evidence of fact, namely the figures produced when utilising data from the B & W Deloittes Reports commissioned by TAG.

83.  It is necessary to summarise the evidence of each witness before proceeding further.

84.  Mr Ross confirmed that in about November 1999 the AAB (TAG) scheme was launched and cases began to flow through. The premium was set at £800 plus IPT, the cost of TAG providing the insurance services was agreed at £480 with £100 being retained as premium retention. The risk premium was therefore £320 (including LPL’s commission and Prentis Donegan’s brokerage totalling £112) leaving a net premium of £208. He explained that the premium retention was required as security in case the venture failed and there was a run off. He confirmed that there is still a retention fund in place, although about two thirds of the fund has been released to TAG.

85.  Mr Ross was the only person giving evidence who was in a position to speak about the original insurance scheme and the original terms. He confirmed that Mr Primer of Catlin Agencies was not himself directly involved in November 1999. Mr Ross’ dealings were with Ian Thompson of Catlin, with Brian Raincock of Litigation Protection Ltd (LPL), with Richard Barnes of Investec Bank and he also obtained advice from Anthony Dennison of Rowe & Cohen.

86.  Mr Ross was aware that LPL was a company that offered legal expenses insurance products and was also aware that they were broking insurance arrangements for Claims Direct Ltd. Mr Ross approached Mr Raincock and, once the scheme was put in place, he met Ian Thompson and Ian Hacker of Alleghany who were both Lloyds underwriters. He referred to a fax from Mr Raincock of 21 December 1999 (I/43/2245). This confirmed the business was now coming through although it was only three months since the scheme had been set up. The fax continues:

87.  Mr Ross was essentially relying on Mr Raincock’s expertise. He did not receive any actual insurance document in any form until November 2000 and spent most of the year 2000 chasing Mr Raincock for some sort of document.

88.  Mr Ross was taken by Mr Neish to the binding authority (D/43/4485(c)) under which the underwriters authorise LPL as coverholder –

89.  Mr Ross did not agree that LPL processed claims, saying that the reality of the situation was that for every failed case, the whole file of papers came in from the solicitor and would be reviewed by TAG.

90.  He was taken to the agreement dated 26 October 1999 between LPL and AAB (I/43/2241) and particularly paragraph 3 of the Continuing Insurance Services. Mr Ross suggested that this was part of the function of processing a claim. He expressed surprise that the agreement did not contain full detail of what it was the underwriters were paying TAG to do and suggested it did not reflect the reality of the situation and the intention of the situation.

91.  The overall price of £800 (plus IPT) had to be agreed with the underwriters themselves because an element of the insurance was insuring the premium itself and there had to be an agreement as to what the gross price of the premium was to be in order that the underwriters could arrive at their risk premium. The final decision as to the premium to be charged was agreed in discussions with Mr Raincock in which Mr Ross’ managing director, Mr Langford, was involved. Mr Ross thought there was "an awful lot of guesswork in terms of the costings of the services that we were going to provide."

92.  Mr Ross was asked about the coverholder’s commission (I/43/2285/M). Section 25.2 of the Agreement refers to commission: "as specified in Appendix 1", but no Appendix 1 has been produced. Mr Ross was asked if he could confirm that it was £78 per head at that stage. He replied that there was confusion as to what the commission was during 2000. He knew that the premium was inclusive of brokerage but "we were never very comfortable hence why we were chasing documents, as to what the exact breakdown was. We knew that it was around £112". Because Mr Ross had not seen the binding authority and did not see it until November 2000 he was not aware that there was a gross premium income limit. (See Section 21, I/43/2285K) Because of his later experience he was however able to confirm that the £3 million limit would have been divisible by the figure of £320 (the risk premium inclusive of brokerage) to calculate the number of policies which could be sold (i.e. 9375). When it became apparent that there was such a limit, and that the company was approaching the limit, TAG became dissatisfied with Mr Raincock and subsequently other arrangements were made. Mr Ross confirmed that for the 2000 year there was no contractual entitlement on behalf of underwriters to any further premium than the £320 per case.

93.  On 5 April 2000 a meeting took place at the offices of Prentis Donegan & Partners attended by Mr Ross and his finance director Alan Cartwright, together with a representative of Prentis Donegan (Charles Knight) and Mr Raincock and others from LPL. The underwriters Ian Hacker and Ian Thompson also attended. Mr Ross stated that the premium allocation split had already been agreed and could not remember whether it was discussed again at that meeting. He knew that it was £320 inclusive of brokerage and that the underwriters contribution to costs was £480.

94.  In a letter dated 12 March 2001 (I/43/2390) Mr Ross wrote to Rupert Aitken at Alleghany Underwriting Limited setting out the premium split agreed at a meeting with LPL in mid January 2000. The premium of £840 was made up of £40 IPT, £480 to AAB (TAG) (£400 for the insurance services provided to underwriters and £80 for commission), £242 premium to underwriters and £78 commission to LPL. Mr Ross’ contemporaneous note of the meeting (I/2392) has the words "assessment and monitoring £400" next to the figure of £480 to AAB. The note of Mr Hoddes who also attended the meeting, (I/2393) refers to a £400 assessment/monitoring charge and £75 commission. Whilst his note of the LPL commission is £83. The total figure in each note is £840. Mr Ross was unable to confirm whether the £80 described in his letter as being "for commission" was commission for bringing cases into the scheme. Mr Ross said this was never clarified and certainly never agreed.

95.  In a letter of 7 August 2000 from Mr Ross to Mr Raincock of LPL (I/2258) he wrote:

96.  Mr Ross explained that there was negotiation during 2000 which was finalised around January 2001. The business was growing fast and towards the end of 2000 Mr Raincock informed Mr Ross that there were immediate capacity problems which he was able to resolve with short term solutions. When the business projections for 2001 were given to Mr Raincock he was unable to provide the capacity for the whole year. As a result of LPL’s failure to provide the necessary capacity they dropped out and Prentis Donegan took over and negotiated terms with Lloyds for 2001.

97.  On 17 January 2001 Prentis Donegan faxed Mr Ross offering TAG, as the coverholder, terms which included the following (I/2290/91):

98.  By this time Mr Primer of Catlin had become more directly involved. Although Mr Ross had conversations with Mr Primer and Mr Aitken of Alleghany they preferred to negotiate through Prentis Donegan.

99.  The details relating to swing premium were not finally agreed but on 25 January 2001 Prentis Donegan sent to Mr Ross a copy of the placing slip (I/43/2294-2299). This confirmed TAG as the coverholder and also provided details of the proposed swing premium and retention fund (2297).

100.                      The period of the placing slip is stated to be: "36 months from 1 February 2001 inclusive" (2295).

101.                      Mr Ross confirmed that the risk premium including brokerage of £16.50 amounted to £328.50.

102.                      On 9 February 2001 Prentis Donegan sent to Mr Ross the final placing slip, the terms with regard to premium had been somewhat altered as follows (I/43/2317):

103.                      That slip was signed by four Lloyds underwriter and ultimately by six, including Catlin, Alleghany and Goshawk.

104.                      LPL dropped out of the picture, but Mr Ross confirmed there was no formal agreement replacing the agreement which TAG had had with LPL but the insurance services were provided in the same way as they had been before. A new Operating Manual was issued, OM3 (E/1308). Mr Ross confirmed that a copy of OM3 would have gone to Prentis Donegan, who would in turn have shown it to the underwriters. OM4 is dated 23 February 2001 (F/1484-1593). The initial and continuing insurance services remained substantially the same (1496/97). Mr Ross was responsible for the production of both OM3 and OM4. He did not agree that the insurance services were designed to dovetail with the step by step procedures in OM4 (F/1503) in that the step by step procedures were not written by reference to the insurance services. Whilst the insurance services provisions had remained the same, the step by step procedure had very much altered with operational changes.

105.                      With regard to the agreement entered into with BESSO on 5 November 2002 (I/43/2527) (see para 23) which is said to be effective from 1 February 2001, Mr Ross explained that TAG had attempted to have a service contract with its underwriters from the beginning of 2001 onwards. The agreement went through various drafts but the basic agreement appears to have come from the lawyers for the underwriters. Mr Ross confirmed that the services being provided by TAG to underwriters were the same as under the Operating Manuals, although now set out in the later agreement in rather more detail.

106.                      The BESSO agreement required TAG, as part of the initial insurance services, to undertake: "the reasonable and responsible marketing and promotion of the TAG conditional fee insurance scheme" (2551). Mr Ross agreed that TAG was advertising the whole of the scheme and not just the insurance product. He suggested there was only one product and that insurance was an integral part of that product. The Lloyds underwriters required to be informed of the different routes to market and of any major changes to those routes. TAG had to have permission to use the Lloyds brand name. The various routes to market used by TAG included direct TV advertising and brand advertising of the TAG name as a backup to other routes to market, such as stands in shopping centres and door to door canvassing, there was also newspaper advertising and some radio advertising. Mr Ross was unable to say what the cost of marketing was.

107.                      Under the agreement with LPL, although it was Mr Raincock who was authorised to issue the certificate of insurance and to sign it, Mr Ross explained that the certificate was a computer standard form into which would be inserted the relevant details and that form had on it Mr Raincock’s electronic signature. The actual issue of the document was from the TAG system from their offices. Mr Ross confirmed that the underwriters knew about this and did not complain.

108.                      Although under the Binding Authority in force from 1 February 2001 (I/43/2366) Mr Ross was the person authorised to bind, and the only person authorised to sign documents issued, he stated that he never in fact signed certificates. This was done by Mark Langford the Chairman. This was again done by means of an electronic signature.

109.                      At the beginning of February 2001 TAG arranged underwriting capacity with NIG which was formalised in an agreement dated 1 July 2001. TAG began issuing polices with NIG from the beginning of February, with whom a policy wording had been agreed, and the premium allocation was as set out in the formal agreement of 1 July 2001 (I/43/2435) (see para 34). Prentis Donegan & Partners had nothing to do with this agreement which was directly negotiated between TAG and NIG. There is therefore no brokerage element in the premium. Different types of cases were allocated to the Lloyds policies and to the NIG policies. It was important for TAG to be able to identify which cases were with which underwriter, not only for reporting purposes but also because there were different terms relating to premium allocation. Once there was computer software in place the individuals who activated the cases and put them on cover would select the underwriter. This was done on a purely random basis.

110.                      Under the Agreement with NIG the premium was £950 plus IPT, of which NIG received £300. Although there was provision for additional premium in the agreement (paragraph 5.2, I/43/2441) NIG did not give notice of any variation of premium during the 2001 year. The premium allocation went up to £450 in the last four months of 2002. The £450 applied only to cases going forward. TAG were authorised to handle and settle claims up to £5,000.

111.                      Mr Ross confirmed that "New Insurance Fulfilment" in Appendix 2 of the Agreement (T/43/2452) was intended to be the equivalent of initial insurance services. He suggested that the services set out at paragraph 3.2 and 4.1 (2453) were designed to take place after the case had been activated and AIL were not any longer in the loop. He suggested that under paragraph 3.2 what was happening was the collation of information rather than the obtaining of information. He did not think that there were many occasions where a solicitor, once a claim was accepted, would come back to TAG to obtain witness statements. He thought it was probable that the solicitor would manage that work.

112.                      The NIG Agreement (I/43/2435) was drafted by NIG’s lawyers. AIL investigates the claim in accordance with paragraph 3.2 of the Service Level Agreement (2453) but does nothing within the NIG Service Level Agreement. The situation is no different to that under the Lloyds cover.

113.                      Mr Ross confirmed that the teams running stands in various shopping malls were referred to as "exhibition consultants" and were employed by TAG. He was shown a copy of a computer screen print-out (B/21/408A). This sets out in various columns activities undertaken in respect of claims and states the company carrying out the act, the date when it was done, a brief description of what was done and the time taken. The first line therefore shows that AIL, on 4 October 2000, interviewed the client at an exhibition stand for 30 minutes. Mr Ross explained (transcript day 2, page 36, line 25):

114.                      He was asked why it was that the task of interviewing the client at the exhibition stand was being attributed to AIL rather than TAG. He replied (day 2, page 37, line 21):

115.                      In relation to the Step by Step Procedure (D/40/1066) Mr Ross stated that the reference to a "claims manager" at steps 5 and 6 was incorrect (day 2, page 40, line 25):

116.                      By "high level" vetting Mr Ross meant "superficial", looking for very obvious deficiencies, such as being outside the limitation period. He explained that the people employed by AIL as investigators were a different type of person to the exhibition consultants. They were an internal team of people and a different quality of individual. He characterised an exhibition consultant as carrying out a sales role, whereas the investigators carried out an investigation role which attracted, for example, retired policemen. Mr Ross did not really know how exhibition consultants were paid, suggesting that they might have been given a salary and a commission for productivity but he confirmed that they were not franchisees.

117.                      At paragraph 77 of his witness statement (C/29/681) Mr Ross explained how:

118.                      He was asked whether this equated to the Initial Insurance Services (D/40/1060). He did not think that they were identical and pointed out that paragraph 4 of the Initial Insurance Services (collating the AAB application form and other documents) was not part of the investigation process carried out by AIL. Mr Ross also pointed out that, in slip and trip cases, photographs were obtained, sometimes by AIL, sometimes by TAG. There was a separate photography team but sometimes TAG would arrange for the photographs to be taken.

119.                      The arrangement in the TAG office in Old Trafford was that both TAG and AIL occupied the same one storey building. There was a separate room for the AIL people and a main office for the TAG people, both were on the same floor. He confirmed that the room was a sort of call centre room with banks of desks, with phones and computer screens. He confirmed that the AIL investigator filled in the AIL questionnaire (D/40/1100 ff) whilst speaking to the client over the telephone.

120.                      Once the questionnaire had been filled in TAG employees would keep the client informed of the progress of the case. This would be done by administrative staff who would have to deal with the processing of the case through the system and also communicating with the client by standard letter or by taking phone calls dealing with the progress of the case. The TAG Customer Services Department helped with complaints and customer enquiries even after the claim had been accepted by the panel solicitors. He stated (day 2, page 51, line 18):

121.                      The AIL role generally finished when the case was passed for final vetting. Mr Ross pointed out that sometimes the vetting solicitors Rowe & Cohen would ask for further information and the case would be referred back to AIL for further work to be done. Mr Ross suggested that "an awful lot of cases" came back with a request for further information from the vetting solicitors.

122.                      Mr Ross was asked whether it was correct that the costs of the investigation by AIL were not included within the cost of providing the insurance services (C/29/679 para 69). He confirmed that it was correct. He said that after the case had been accepted by the panel solicitor, if assistance was needed beyond acceptance of the case, then it was more likely to be TAG that would provide that assistance rather than the AIL part of the business. TAG does not invoice the panel solicitors for doing any of that work because it is effectively part of the Continuing Insurance Services being provided. Mr Ross was adamant that after acceptance of a case by a panel solicitor TAG would certainly be carrying out further work but he confirmed that TAG would not be obtaining statements of truth, witness statements and expert’s reports. He explained (transcript day 2, page 60, line 10):

123.                      It was suggested to Mr Ross that the agreement with LPL (I/43/2241 FF) did not reflect the position as he related it. He pointed out that this was very early on at the beginning of the scheme and that as time went by the documents caught up with the reality. Mr Neish pointed out that in the agreement of 28 September 2000 between LPL and TAG (I/43/2261 FF) similar provisions appeared. Mr Ross stated (day 2, page 64, line 5):

124.                      It was put to Mr Ross that the duties of AIL under its agreement with the panel solicitor (E1474-1478) (see para 71) were to all intents and purposes the same as the continuing insurance services to be provided by TAG under its agreement with LPL. He disagreed, suggesting that the insurance services provided by TAG identified in the agreement with LPL (I/43/2262 at eg, para 1.4) were not designed to mean that it was the detailed investigation, obtaining photographs, etc, which was carried out by AIL.

125.                      Under the Agreement of 26 October 1999 between AAB (TAG) and LPL (I/43/2241) (see para 16) Mr Ross said that TAG undertook Initial Insurance Services 1 and 2 but that in respect of 3 AIL did some of the work collating, having carried out their investigation. He confirmed that the function of AIL was the actual investigation. Initial Insurance Service 4 was again a TAG function. TAG had a team who could obtain the further information requested by the panel solicitor.

126.                      With regard to monitoring the conduct of panel solicitors (in accordance with paragraph 2 of the continuing insurance services in OM1 (D/40/1061)) (see para 51), Mr Ross explained that TAG had a team of solicitor auditors that would remove solicitors from the panel who were not up to scratch. Any change would be communicated to the underwriters. Originally there were two individuals doing this. The team had now grown to 15. The monitoring was done on an ad hoc basis. He was unable to identify in any detail the way in which monitoring of panel solicitors was carried out.

127.                      In relation to continuing insurance service 3 "providing on-going assistance to the client" (D/40/1061) this was described by Mr Ross as the continuing support to the client in relation to attending medical examinations or in respect of letters received by a client which they are confused about. TAG provide explanations and assistance. He felt that they needed to do a lot of work with regard to supporting the clients through the process. He confirmed that there was a high failure rate early in the process in terms of what he called "voided cases".

128.                      In respect of continuing insurance service 4 (D/1061) this service was provided when there was a claim under the policy. There would be a full review of the case analysing the work done and the amount involved. Details of the analysis were fed through to the underwriters on a regular basis. If there was a claim for costs which warranted further investigation a costs consultant would be appointed to review the costs. This was done on an ad hoc basis.

129.                      Continuing insurance service 5 (D/1061) "providing and maintaining relevant financial information" was undertaken by means of a regular monthly development report setting out the position of the cases, the details of claims ratios, the amount of claims costs that have been paid. It gave details of the successful cases. The system started with closed case and claim information from the start and has developed and improved over the years. Information was given to the underwriters on a daily basis through computer link.

130.                      With regard to the Continuing Insurance Services he confirmed that AIL had no involvement with the solicitors at all in terms of gathering information after the case had been activated. At the stage of the Continuing Insurance Services no work is conducted by AIL only by TAG.

131.                      The insurance services set out in the BESSO agreement are very much more detailed than in the earlier agreements. Nonetheless Mr Ross confirmed that the intention always was that AIL would gather the information and carry out the investigation, whereas TAG’s vetting processes and procedures were to carry out the vetting and the filter of cases going through the system.

132.                      With regard to the Agreement dated 5 November 2002 (I/43/2527) which was stated to be effective from 1 February 2001 Mr Ross agreed that TAG was acknowledging by the Agreement, in relation to Initial and Continuing Insurance Services, that TAG had performed their services as required by the Agreement as from that date. He confirmed that AIL played no part in either the Initial or Continuing Insurance Services described in that Agreement.

133.                      Mr Ross’ evidence is to the effect that the AIL fee of £310 plus VAT was in respect of investigatory work undertaken by AIL on behalf of the claimant rather than on behalf of the panel solicitor. The fee has increased to £320 plus VAT (£376) with effect from May 2002.

134.                      In relation to AIL Mr Ross asserted that the claimant was fully aware of and agreed to be responsible for the AIL investigation fee. The panel solicitor does not contract with AIL to pay the fee, except that in the early scheme the fee was paid by the panel solicitor as a disbursement on behalf of the claimant. As the AIL fee is paid by the claimant through a loan, the claimant is liable for the interest accruing on the loan once the AIL invoice is discharged, and remains liable for the interest regardless of success or failure of the action. By the time the AIL invoice is rendered the investigation works have been completed. The claimant pays AIL’s fee at the outset and Mr Ross asserted that the claimant’s liability for the fee is discharged by way of the loan or by the claimant direct. If there was no loan, the outcome of the case has no bearing on the claimant’s responsibility to discharge the fee (see Mr Ross’ witness statement C/29/661 at para 8).

135.                      AIL were instructed to carry out the investigation work by means of a standard letter (F1571) delivered to them (internally through the office) in respect of the relevant case.

136.                      In accordance with step 6 of the step by step procedures (non telephone reported claims) (step 4 of telephone reported claims) AIL contact the client and complete a questionnaire with more detailed information of the accident, circumstances and losses sustained. AIL return the file having also provided their recommendations on liability and quantum. Mr Ross explained there was effectively a standard form that would be used. If there was information that the case was not fit to go further that would be the recommendation. It was ultimately the vetting solicitors who would decide on liability and quantum but if something obvious came up during the investigation showing that the claim was without merit it would be stopped at that point.

137.                      The vetting is carried out by Rowe & Cohen who charge a fee of £45 to the panel solicitor. The panel solicitor has had no contact with AIL.

138.                      Mr Ross agreed that the pro forma agreement between the solicitors and TAG was used until a new form of agreement came into effect with OM5 in approximately November 2001. Mr Ross accepted that in paragraph 8 of his witness statement he was dealing with the position as it now is. He said he was seeking to clarify the intention, (day 2, page 134, line 14):

139.                      Mr Ross agreed that under OM5 the provisions relating to AIL were entirely different. The pro forma agreement (F/1812) recites:

140.                      The duties of AIL include:

141.                      The duties of the appointed representative include:

142.                      Mr Ross explained that it had been the intention all along that the investigation costs were a disbursement of the claimants payable by the solicitor and that the original contract had not accurately reflected that. Mr Ross thought this was another example of the documentation catching up. He stated (day 2, page 137, line 17):

143.                      He stated that although payment of AIL fee was originally funded directly between the funders and the panel solicitors the intention was that the payment was made on behalf of the claimant and would be recoverable at the conclusion of the claim. When the funding arrangements were altered to provide the client with a loan this was a reflection of the situation.

144.                      Mr Ross was of the view that the requirement in the AIL agreement (E/1475) that the solicitors should pay £310 was a mistake, or an oversight, or a failure to catch up. He thought that the problem was considered around the summer of 2001 which led to the change in November 2001.

145.                      Mr Ross agreed that panel solicitors, in return for the volume of work sent to them by TAG, had to agree to use the standard form of CFA. He accepted that the panel solicitors do not get the work unless they agree to comply with the terms of the Operating Manual.

146.                      It is clear from Mr Ross’ evidence that he, and no doubt others in the company, were feeling their way at first with the TAG scheme. Mr Ross appears to have operated for a considerable period on what he hoped was the agreed position. Thus, although the initial agreement with LPL is dated October 1999, it was not until November 2000 that he received details of the insurance cover under which the company was operating. It was at that time that the capacity problems were revealed. In his evidence Mr Ross expressed surprise that a number of the documents did not appear to reflect the scheme as he had understood it to be operating. Since however, TAG has signed up to the various agreements which I have set out, TAG must be taken to have agreed that its scheme would operate in accordance with those agreements even though, as in the case of the BESSO agreement, it was not finally signed until some 19 months after it was said to have come into force. There appears to have been a level of naivety on the part of those involved in TAG who appear to have felt that they could run the TAG scheme as they thought appropriate with no great regard to the terms subsequently agreed. One specific instance which demonstrates this is the TAG binding authority under which Mr Ross is the only person authorised to sign. Something which apparently he never did.

147.                      In relation to the arrangements for the 2000 year, it does seem clear that it was agreed in January 2000 that the amount payable to TAG would be £480. Of that £480, I find that £80 was paid to TAG as introducer’s commission. The remaining £400 is recorded in two independent but contemporaneous notes as relating to "assessment and monitoring". When asked about this Mr Ross was somewhat vague as to what it might mean. It seems to me, given the background, that "assessment" can only mean vetting and "monitoring" must mean monitoring the performance of panel solicitors, and I so find.

148.                      In respect of the Lloyds 2001 year, and the BESSO agreement under which TAG was required to carry out marketing and promotion, Mr Ross had no idea of the cost of marketing, notwithstanding that this was said to have been carried out since 1 February 2001.

149.                      So far as NIG 2001 year is concerned it is clear that the amount paid to TAG from February 2001 until September 2002 was £650, thereafter the premium allocation was altered giving £450 to NIG and £500 to TAG.

150.                      In relation to the work done by AIL, I find that AIL carried out a limited investigation role separate from the work undertaken by TAG. There is some overlap between the original questionnaire obtained by the exhibition consultant (a TAG employee) and the application form completed by AIL (usually by means of a telephone call). AIL also carried out some collating work similar to that required by Initial Insurance Service 3. I also find that AIL do nothing in the case after it has been accepted by the panel solicitor.

151.                      Mr Coss became involved in ATE legal expenses insurance when he was litigation risks underwriter at XL Brockbank which he joined in May 1999 initially as an in-house legal adviser. The syndicate was involved in the Accident Line scheme endorsed by the Law Society and administered by Abbey Legal Protection Ltd. Abbey possessed claims statistics relating to ATE insurance of cases dealt with on CFAs from 1995 onwards. The previous underwriter of the Abbey scheme had realised a significant loss despite large gross premium increases in both 1997 and 1999. Since the statistics which had been accumulated applied to the period before the advent of recoverable success fees and ATE premiums no great reliance could be placed upon them.

152.                      In about January 2001 Mr Coss was approached by Prentis Donegan as a result of which XL Brockbank participated as one of the underwriters of TAG’s 2001 Lloyds facility. In March 2002 Mr Coss was appointed managing director of Lawbridge with overall responsibility for the Amulet Group’s insurance affairs.

153.                      Realising that there was no formal, comprehensive, external analysis of claims statistics he instructed B & W Deloitte (BWD) to undertake a full actuarial review of TAG’s claims statistics. The first report was dated 1 July 2002 (M/3333-3366). A second report was produced on 3 March 2003 (M/3366-3417). The second report is an analysis based upon data as at 31 October 2002. The purpose of these reports was to give some certainty to underwriters in fixing premium for risk. Prior to the preparation of these reports no adequate statistics were available. The report sets out (M/3355) a summary of results as at May 2002, tabulated on a monthly basis from December 1999. The table shows the number of cases activated and the net premium per case. It also shows the number of claims to date and the ultimate failure rate. Similar information is provided in the second report (M/3387). The second report, sets out a summary of results for TAG business at table 1 (M/3371). The ultimate failure rate is shown to average 31.6% and the burn per case averages £625. Mr Coss explained that "scheme 1" covered the period from December 1999 to January 2001 and "scheme 2" February 2001 to May 2002.

154.                      With regard to the reference to "burning cost before interest" and "burning cost after interest" (M/3355) these figures were inserted at Mr Coss’ specific request since he wanted to negotiate with underwriters to achieve the lowest possible net premium figure. He wanted to be able to discount the net premium to take into account the fact that underwriters earned investment income on premiums received before any claims came to fruition. This approach came to nothing since the underwriters did not take into account investment income in calculating their premiums.

155.                      Having obtained the BWD report Mr Coss instructed several specialist Lloyds brokers to canvass the insurance market with a view to acquiring suitable underwriting capacity. Since joining Lawbridge he has approached in excess of 100 underwriters in various markets. It became clear to him that ATE business was not an attractive proposition to most underwriters because of the statistical uncertainty and losses sustained by certain insurers. There was also the problem of what he called "reputational issues of being associated with an industry that has received considerable publicity" (C/30/698 para 15).

156.                      Mr Coss explained (C/30/699, paras 18 & 19) that an additional facility was agreed with Catlin during October 2002 providing for a risk premium of £550 plus IPT (inclusive of £10.50 brokerage payable to BESSO) and a swing premium of up to £275 (in respect of potential losses). In addition it was a term of the agreement that for each new policy written £150 would be paid to the underwriter to offset losses in relation to the 2000 year Lloyds facility. The 2000 year was underwritten as to 45.5% by Catlin. The additional premium of £150 agreed in October 2002 was attributable only to Catlin’s participation. The 2002 facility enabled TAG to underwrite 20,000 policies, meaning that the payment of £150 per policy produced approximately £3 million. Mr Coss suggested that this was distributed "as to approximately £248 over 12,080 polices which represents 45.5% of the 26,550 policies underwritten by TAG on behalf of Lloyds in 2000". He suggested that this effectively meant that Catlin would receive £456 per policy excluding brokerage, while the other underwriters would receive £208 per policy. This arrangement reduced Catlin’s predicted ultimate loss ratio from 268% to approximately 134%.

157.                      In the 2001 year Goshawk contributed 35% to the overall Lloyds capacity. It was a term of the Lloyds renewal under the 2003 facility that £70 per policy (a total of £1.75 million) would be paid to Goshawk in respect of their participation in the 2001 Lloyds facility. Mr Coss said this meant that Goshawk would receive effectively £635 per policy excluding brokerage of £16.50 per policy, whilst the other Lloyds underwriters would receive £550 per policy excluding brokerage. Mr Coss went on to detail the other arrangements which he had made and was in process of making for the 2003 renewal.

158.                      Annexed to the second BWD report is a summary of average cost comparison and analysis. This was apparently produced separately from the report (M/3406). The table sets out a total cost of some £2,045 made up of a number of elements, the biggest of which is £997.50 return of premium (premium to TAG). Also included was the return of the AIL fee, £376, interest on the premium and AIL fee, disbursements and third party costs and disbursements. Mr Coss agreed that underwriters would decide on premium globally based on whatever statistics were available. Underwriters would be aware of the cost to them, it would merely be the frequency of claims which would change. Mr Coss suggested that some 40% of the 2000 cases were still live and for later years the majority of cases were still live.

159.                      Mr Coss confirmed that the loss experience adjustment in the 2000 agreement (C/30/723) was arrived at in a similar context to the agreement to pay Goshawk additional amounts, ie TAG were approaching them for additional capacity. During the negotiations with Catlin and Goshawk these payments were often referred to as "premium" even though it might not have been written down using that word.

160.                      Mr Coss’ evidence was entirely factual and I accept those facts as given in evidence.

161.                      Mr Primer explained that the syndicate which he represents was one of the first to participate in the ATE market and his agency was involved in discussions with Brian Raincock of LPL. At first these discussions were dealt with by Jamie Lewis and then by Ian Thompson. He (Primer) assumed personal responsibility for the account during 2000.

162.                      As with any new project predictability of the TAG scheme was very uncertain. The likely underwriting results were extremely difficult to project. Underwriters tried to estimate and anticipate "burning cost" per policy and added a margin for error, overhead and profit. Although they looked at Law Society data which indicated a high rate (95%) of success in personal injury claims the burning costs were roughly estimated:

163.                      The TAG scheme was judged on its own merits and on the assumption that there would be a failure rate of no more than 4% to 6%. Underwriters were attracted to the CFA based scheme since this would give solicitors a better incentive to succeed. Underwriters loss experience for the 2000 year was projected to settle at a loss ratio for underwriters in excess of 250% (this figure is reduced to 150% after further payments had been made to underwriters by TAG). Mr Primer thought TAG’s failure rate to be in excess of 30%.

164.                      The value of services provided by TAG was never precisely quantified. The split of premium between the parties reflected an arms length negotiation.

165.                      The premium paid by the policy holders, originally £800 plus IPT for 2000 and thereafter £950 plus IPT, is the amount that underwriters are insuring. Mr Primer explained that the larger the premium the more expensive underwriters claims costs would be. The cost of the premium is indemnified, thus the claim costs increase.

166.                      The premium allocation agreed was based on underwriters best estimate of the ultimate burning cost together with an understanding between the parties that future allocation would reflect actual underwriting results in the scheme. In the 2000 year it was agreed that underwriters would retain £320 of the premium (including £112 brokerage and commission), the remainder was retained by TAG. In December 2000 underwriters share of premium was increased to £275 (brokerage and commission was reduced to £45).

167.                      At paragraph 16 of his witness statement Mr Primer deals with the fact that he felt the risk premium being retained was insufficient (C/31/787):

168.                      Mr Primer was of the opinion that the risk premium for 2001 would increase from the initial £328.50 to £566.50 including brokerage of £16.50. The risk premium for January to October 2002 was agreed at £360.50 with a "swing premium" to a maximum of £610 per policy including £10.50 brokerage. The premium was further re-adjusted in October 2002 to £539.50 with a swing premium to a maximum of £825 per policy including £10.50 brokerage. The October 2002 slip (C/30/718) for the period 24 October to 31 December 2002 authorises TAG as the coverholder. The gross premium is set at £950 plus IPT of £47.50, brokerage to BESSO Ltd of £10.50, underwriters contribution to costs £400, the net premium payable to underwriters being £539.50 per certificate. The Agreement continues:

169.                      Mr Primer thought that about 21,000 certificates were issued and after cancellation was expecting a figure in the region of 18,000 producing a figure of about £2.8 million. The entire amount was paid to the underwriters 2000 year of account.

170.                      Mr Primer explained that when TAG approached him for additional capacity in Autumn 2002 he was looking at a very unfavourable result for the 2000 year. He informed TAG that if they wanted additional capacity they had to demonstrate their commitment to the partnership by making good the significant hole in the 2000 year. The figure of £150 per certificate was arrived at after negotiation. Underwriters did not pay the money back to the existing 2000 reference but established a new reference:

171.                      Jamie Lewis was the person at Catlin who set the original premium. He left Catlin’s employment at the end of 1999 and Ian Thompson who was his assistant probably signed the slip.

172.                      Mr Primer confirmed that Mr Lewis and Mr Thompson had been involved in negotiation with Mr Raincock in connection with Claims Direct but Mr Primer was of the view that there was an absolute lack of statistical data which was why the 25% margin was added because there was so much uncertainty as to the underlying performance of the books:

173.                      Because of the uncertainty in the class of business being undertaken, and because the insurance product which underwriters were providing was absolutely integral to the product that TAG was hoping to sell, Mr Primer intended to take full commercial advantage of the leverage he had in underwriters importance to TAG’s business. The parties viewed this as a partnership with a great deal of uncertainty. Over time things would become clearer and the parties would have to agree to sit down and talk, to reallocate, readjust and consider the premium. He confirmed that there was no contractual entitlement under the 2000 contract to take any more money. He hoped to achieve some payback either by increasing premiums on subsequent years or by way of the mechanism which was actually adopted in 2002 which was to make a payment back to the 2000 year.

174.                      At the very end of 2000 Prentis Donegan and LPL agreed to change the financial terms (ie, reduce them) because TAG had consumed all its capacity and underwriters agreed to meet the request for additional capacity and an extended contract period on the basis of changed financial terms. This adjustment was effectively to reflect the changed role and responsibilities as they evolved. LPL and PDP had done a great deal of work at the outset but accepted that since the account was picking up in terms of numbers the same amount per unit was not justifiable.

175.                      In the original 1999 negotiations there was no attempt to price the services to be provided by TAG precisely, but from their own experience underwriters knew what levels of expense were appropriate.

176.                      In relation to the 2000 binder (I/43/2285A) Mr Primer confirmed that there was no review provision for adjusting premium nor was there any addendum to allow underwriters to adjust premium to cap their exposure to claims. The only agreement to readjust the 2000 result was the one that was made in late 2002. The only change at the end of 2000 was when the commission payable to the brokers and LPL was reduced. Ultimately, because LPL dropped out and TAG became the coverholder, the commission of £112 per unit dropped to £16.50.

177.                      Mr Primer did not think there was any reason why either he or Jamie Lewis should have seen a copy of the agreement between TAG and LPL but he confirmed that he would have seen the master policy in various stages and as a lawyer would typically be involved in looking at wordings on new products. (I/43/2269)

178.                      On 10 January 2001 Mr Primer e-mailed Neil Ross. He explained that he handled the renewal and by this stage he had effectively taken over the account from Ian Thompson. At the end of the e-mail Mr Primer was seeking some assurance that TAG had the wherewithal to manage the extremely rapid and significant growth which was being projected. He wished to be confident that he was dealing with a company that was going to be there in the future to fulfil its obligations to underwriters.

179.                      Mr Primer was taken to the placing slip (I/43/2315) which is stated to run for 36 months from 1 February 2001 subject to annual resigning. He confirmed that Catlin signed for 2002. There was a further contract running from 24 October 2002 which was extended to the beginning of February 2003. At the time of giving evidence Catlin had not renewed for the 2003 year. The 2001 contract made provision for a swing premium. (I/43/2317) He had concerns enough about the uncertainty of the performance of the contract that he wanted to build up some protection for underwriters in the event that TAG performed less well than projected.

180.                      He explained that the copy document exhibited in the bundle has an endorsement (I/43/2317) under the heading "premium", that the net premium would be adjusted subject to a maximum premium of £550. Mr Primer had endorsed "(less bkg)" but another underwriter Goshawk, who had the largest share on the slip, insisted on the removal of that endorsement which effectively produced a higher maximum swing of £566.50 (ie, £550 plus brokerage of £16.50).

181.                      Mr Primer was asked about "loss experience adjustment" (C/30/723) set out in the placing slip for 24 October to 31 December 2002. TAG were running out of capacity and required greater capacity. Mr Primer stated that underwriters were in a strong commercial position. This was demonstrated by the provision in the slip (720):

182.                      Mr Primer explained (day 3, page 38, line 17):

183.                      This was not resisted by TAG. It was an additional protection for underwriters. Underwriters imposed an additional requirement for each and every failed case for which underwriters are obliged to indemnify and assure, that TAG was required to reimburse them: the underwriters contribution to costs; an amount equal to the AIL fee; an amount equal to the claim support services fee; and, to medical referral fees. Underwriters average claims costs were accordingly reduced by those amounts.

184.                      Mr Primer asserted that TAG showed a willingness to bear some more of the costs involved in running the scheme. He confirmed that this arrangement did not appear in any other agreements with TAG but suggested that its economic impact was similar to having a swing premium provision.

185.                      He confirmed that the loss experience adjustment was not a premium under the October 2002 slip but it was ultimately counted as premium to the 2000 year. When TAG approached Catlin for further capacity for the 2002 year Mr Primer discussed the situation with the chief underwriter who told him they were not interested unless TAG wished to make good the hole in the accounts for 2000. He confirmed that the payment of £150 per case was not paid under a contractual entitlement under the 2000 policy. It was only Catlin which received the payment.

186.                      Mr Primer suggested that the risk premium for 2000 was Catlin’s percentage share of £208 which was variable during the course of the year plus £150. He stated (day 3, page 47, line 24):

187.                      Of the money received some came from the contract that was written in 2002 but it was always earmarked and intended for 2000. Mr Primer did not know how TAG had handled this payment on their own balance sheet or where the money came from.

188.                      The Catlin line in relation to the 2000 year was initially 50% and then as other underwriters came in down to 45%. When the additional £150 per case was paid (roughly £3 million) Catlin created for accounting purposes an underwriting reference. The reference was a 2000 year account reference. This was a different reference to the existing 2000 contract.

189.                      Mr Primer is an experienced professional who gave his evidence in an entirely straightforward manner. I accept what he says. In my judgment, for reasons which appear below, the additional payments to Catlin for the 2000 year and to Goshawk for the 2001 year are not recoverable from the paying parties as premium.

190.                      Mr Blair has been finance director of the Amulet Group since November 2001. He produced the audited accounts for TAG and AIL for the year ending 31 August 2002 (D/34/880-907). TAG’s profit before tax was £17.8 million on a turnover of just over £181 million, a profit margin of 9.8%. AIL made a profit of £84,000 on a turnover of £56.4 million a profit margin of 0.15%. TAG’s administrative expenses amounted to £61.2 million.

191.                      Mr Blair stated that he had undertaken a review of the level of cost included in that figure for TAG providing initial and continuing insurance services. He did this by extracting from the administrative expenses elements that were not connected to the provision of those insurance services including (868 para 8):

192.                      He bore in mind the detail of TAG’s contractual obligations in providing the insurance services to underwriters based on information given to him by the executives. In Mr Blair’s calculation the cost of providing initial and continuing insurance services amounts to £55.487 million. This is the administrative cost only and does not include any profit element. Mr Blair explained the amount charged by TAG at paragraph 11 of his witness statement (868):

193.                      In respect of AIL Mr Blair put the cost per case at £266.77 without any profit element. He suggested that an appropriate profit element would be up to 20%. Mr Blair explained that although the Test Cases fall between November 1999 and November 2001 he had used, in arriving at his figures, the accounts up to the end of August 2002. He said that the business had been developing quite rapidly from a small company into a sizeable organisation. The accounting systems in place in the earlier years were fairly basic accounting systems which did not provide the type of analysis and detail to perform the type of exercise which he had now carried out.

194.                      Mr Neish took Mr Blair to the accounts for the year to 31 October 2001 (now at D/34/907A-G). The earlier accounts are consolidated for both TAG and AIL. In the earlier accounts the turnover is stated to be £101.3 million with administrative expenses put at £63.15 million. These figures include the figures in respect of TAG, AIL and other subsidiaries within the Accident Group Ltd. Mr Blair thought that all the companies ran separately but that the accounts were consolidated.

195.                      In relation to his assertion that in carrying out his analysis he had had in mind TAG’s contractual obligations to supply insurance services, he stated that he had not seen the contracts in detail nor did he know how many contracts there were during the accounting period. He bore the detail of the obligations in mind through discussing them with the executives of the business such as Neil Ross and Amanda Ashton. The analysis itself was carried out by Mr Blair’s finance team under his instructions (day 3, page 103, line 25):

196.                      Mr Blair confirmed that the £56 million of turnover for AIL (D/34/901) principally comprised amounts receivable from third parties for the investigation and collation of information relating to personal injury claims, ie, the various payments of £360 or £310 as the case may be. Of the gross profit of £47.7 million, £47.6 million goes to TAG and is offset against the total administration expenses in respect of a number of administrative functions including the provision of premises and other resources provided by the Amulet Group. There are apparently no contractual documents governing this arrangement.

197.                      Whilst I do not doubt the accuracy of the figures which Mr Blair has arrived at in carrying out the exercise which he has described, there are two reasons why it is of no assistance to me in arriving at an appropriate figure for insurance services in the context of arriving at a figure for recoverable premium. First Mr Blair described the accounting systems in use in the early part of the scheme as being fairly basic and not providing the detailed information which is available for cases after the Test Cases. Secondly, it may be that the actual cost of carrying out the insurance services is £310 but it does not follow from that that it would be appropriate to require a paying party to pay such an amount. The figures with regard to the costs of AIL serve to illustrate the difficulty. Mr Blair puts the cost per case at £266.77 without any profit element. No doubt the profit element would increase that figure to the amount actually charged by AIL. In the course of argument however Mr Charlton has accepted that the amount properly allowable in respect of the work done by AIL would be in the region of 1 hour at the relevant rates (say £100). I derive no assistance from Mr Blair’s evidence.

198.                      Mr McCulloch is a solicitor whose firm, Mace & Jones, has been one of the Accident Group’s panel solicitors since April 2000. Such solicitors accept cases on CFA terms which carry no success fee. His firm also does other cases on CFA which carry success fees of varying amounts. He set out in his witness statement his extensive experience in carrying out risk assessments in various types of case and at paragraph 20 (C/32/799) explained that he had carried out a retrospective risk assessment of the Test Cases handled by his firm. He suggests this was done for the purpose of making a comparison under Costs Practice Direction paragraph 11.10(1). He calculates success fees ranging from 23.5% to as high as 61.5%, although from these figures is discounted the irrecoverable element. In his exhibit SDM3 (C/32/823) he has set out a comparative table. The notional success fees claimed range from 18.5% to 56.5%. The TAG premium is put at £998, save for one case (Harrison) where it is £840. This figure is compared with the products of Accident Line Protect and LPL. To the premiums quoted by these companies the notional success fee has been added in each case. In every LPL comparison the LPL premium plus the notional success fee is more than the TAG premium. In the Accident Line cases, all but two, Mellor and Ward, produce a figure greater than the TAG premium. Mr McCulloch suggests that the policy benefits offered by ALP and LPL were inferior compared to the TAG policy.

199.                      In exhibit SDM4 (C/32/824) Mr McCulloch sets out an analysis of the various insurance products available at the relevant times.

200.                      The remainder of Mr McCulloch’s witness statement deals with the use of TAG instructors and relates to the compliance issues.

201.                      Mr McCulloch confirmed that his firm took between 200 and 250 cases a month from TAG. He produced a list of cases actually received by his firm between November 1999 and October 2002 (C/32/830A). He suggested that the higher level of cases appears to have been taken on from July 2001. He thought the lower level of cases in March/April was due to the fact that TAG was having difficulty with some panel solicitors during that time and he agreed to take on the handling of other firms files. Some 1600 files were taken on in this way, of which only 500 developed into claims. In the middle of 2002 large numbers of files were being received (eg, 669 in May) from solicitors who were not performing adequately. About two thirds of these files were never actioned and were closed because Mace & Jones could not receive any instructions. In addition there were some 500 other cases throughout the period where the client did not sign the CFA for one reason or another. Of a total of 5,238 clients referred to the firm by TAG Mr McCulloch estimated that 3,634 proceeded.

202.                      He thought that TAG work comprised about 50% of the work of his department.

203.                      In his witness statement of 30 September 2002 Mr McCulloch exhibits an agreement dated 19 November 1999 between AAB (TAG) and his firm (H/41/2057) (this is in similar form to the agreement mentioned in paragraph 45). He thought there was benefit in having cases vetted by Rowe & Cohen before they were passed to his firm because this increased the quality of the work being passed to his firm and it reduced his own time in reviewing cases.

204.                      Annexed to the contract between TAG and Mace & Jones of November 1999 is a copy of OM1 with, at schedule 4, a copy of the AIL agreement (H/41/2180) (this is similar in terms to the agreement mentioned in paragraph 71 above). He confirmed that under the agreement AIL would carry out investigative work in respect of which the solicitors agreed to pay £310 plus VAT. It was a fee payable for every case referred to the firm by TAG which was accepted by his firm.

205.                      Mr McCulloch explained that funding of disbursements on a large scale was not financially viable, particularly if solicitors were acting under a CFA and therefore had the risk of not being paid. At the outset the TAG scheme provided funding to solicitors through Investec Bank (H/41/2189) (see paragraph 36). Under that arrangement when AIL raised an invoice, the bank settled it on behalf of the firm and debited the account of the firm at the bank. Mace & Jones entered into such an agreement with Investec.

206.                      Mace & Jones entered into a new agreement with TAG dated 1 November 2000 (H/41/2198) this was because AAB had changed its name to TAG and also there were new funding arrangements with First National Bank Ltd, OM2 became the Operating Manual. The firm again entered into an agreement with AIL. The new funding agreement (J/44/2616) between First National Bank and TAG (see paragraph 39) provided for the Bank to provide credit transactions to clients of TAG to pay for "premia due and payable by the client in respect of the policy; or disbursements due and payable by the client to their appointed representative". Mace & Jones entered into a further agreement with TAG on 29 March 2001 which reflected the change of funder to Bank of Scotland (H/41/2203).

207.                      The new arrangements required the panel solicitors to enter into an agreement with TAG and in turn to operate in accordance with the provisions of OM2 (see paragraph 65). Under the new funding arrangement "the clients indebtedness to AIL will automatically be paid by the Bank and debited to the clients loan following acceptance of the claim by the panel solicitor and inception of the client’s loan with the funders." Mr McCulloch agreed that if his firm were to participate in the scheme, which included this form of funding, any disbursements recovered had to be paid straight back to the Bank for the client’s account but if the firm failed wholly or in part to recover disbursements, the firm personally undertook to repay the Bank. The client was therefore never in a position of having to pay the disbursement if it could not be recovered from the paying party.

208.                      Mr McCulloch was taken to the case of Ashmore v Mellor in which his firm had acted for the claimant (A/13/117). On 19 June 2001 an invoice was raised by AIL (129) addressed to Mace & Jones:

209.                      Below that narrative the invoice reads:

210.                      VAT is then added to the figure of £310 to give an invoice total of £364.25. On the same date that amount was debited to Ms Ashmore’s account with First National Litigation Funding Plc, bringing the total debit balance on her account to £1,381.75 (134). The client had already been charged the TAG premium of £997.50 and a document fee of £20. Miss Ashmore’s account was debited with interest on a monthly basis and also with a fee for a medical report paid to MDL of £385. By the time the case was settled, on 21 June 2002, the debit balance was £1,971.43. Her case was settled for £2,000 damages leaving a balance of £28.57 due to the client. The costs claimed on behalf of the claimant amount to £4,870.86 including the TAG premium and the disbursements paid to AIL and MDL. If those items are successfully recovered the client will receive a further £1,746.75, bringing her total receipt to £1,775.32.

211.                      The invoice addressed to Mace & Jones was marked "delivered to" the client because the service had been provided to Miss Ashmore. The invoice was discharged out of the client’s loan account with First National Bank. With regard to the MDL invoices one had been discharged from the client’s loan account (page 128) but the later ones appear to have been discharged by Mace & Jones (130 – 131). Mr McCulloch agreed, having considered the documents, that it appeared that the fee to MDL was paid directly by First National Bank rather than by the firm.

212.                      Mr McCulloch was asked if the AIL invoice was an invoice which his firm was contractually liable to pay. He stated (day 3, page 138, line 5):

213.                      He stated that his firm did not explain disbursement funding arrangements to the client since it had already been explained to them before they came to the firm. He thought that the arrangement with regard to disbursements was explained to the client by the TAG representative. There was also an explanation in the CFA (A/13/142):

214.                      Mr McCulloch confirmed that the agreement of March 2001 following the change of funder to the Bank of Scotland brought with it OM3 which contains the same provisions as to funding disbursements, warranting disbursements and not pursuing clients if they could not be recovered from third parties. The AIL agreement attached to OM3 remained in exactly the same terms.

215.                      The new agreement with AIL under OM5 is completely different, there is no provision for the panel solicitors to appoint AIL their agents, nor do they undertake to pay any fee.

216.                      Mr McCulloch produced a third witness statement dated 26 March 2003 (N/1/1). He confirmed that, of the Test Cases handled by his firm, all were commenced between January 2001 and November 2001. In each case an invoice was raised by AIL in respect of investigation services (paragraph 5, page 2):

217.                      Mr McCulloch points out that, in the bills of costs prepared in each of the Test Cases, no claim has been made on behalf of his firm in respect of taking initial instructions from the client. There is usually a later attendance on the client by telephone.

218.                      Mr McCulloch suggested that the AIL invoice (A/13/129) was "addressed to the client". He stated (day 4, page 13, line 1):

219.                      He explained that he charged the AIL fee as a disbursement in his bill because he was entitled to do that following the judgment of this court in The Claims Direct Test Cases, Tranche 2.

220.                      It was put to him that the AIL fee was not an expense incurred by the client but an expense incurred by the solicitor under the contractual arrangements. He accepted that the practical effect was that the work was carried out before he had signed the CFA and none of it was carried out after the firm had been retained. He thought however that it was the client’s own expenditure. He confirmed that he could not have ordered the work from AIL because he did not know the client or the case. He appeared to find it difficult to accept that the meaning of the contract between his firm and AIL was that the firm agreed to pay AIL for the investigatory work which it carried out. He felt that the fee of £310 was reasonable for the work carried out by AIL.

221.                      Mr McCulloch had had discussions with Mr Ross of TAG at the end of 1999 and asked him what it was that AIL was going to do. He was, at that time, looking at what TAG had to offer in the round. Mr Ross was at that time looking for sensible firms to expand the AAB business. With his third witness statement Mr McCulloch produced a schedule headed "Analysis of work carried out by AIL – TAG Test Cases" (N/2/7). The purpose of the schedule was to set out what had been provided by AIL that was on the firm’s files. He had been provided with time sheets from AIL and tried to analyse what had been done at AIL to produce the information. He used, in his analysis, the actual times on the time sheets where there were such times or if the times were unclear he inserted estimates, but in using the actual times he has rounded them up into six minute units.

222.                      It became apparent during the course of cross examination that Mr McCulloch had tried to carry out an analysis for which he did not have sufficient information. The effect of using estimated times for work which he assumed must have taken place, and of rounding up actual times, has produced a series of figures from which I can derive no assistance. It is perhaps worth mentioning that on the AIL time sheets various activities are recorded all of which are given what is clearly a standard time, also all activities are recorded even when they are abortive, for example unanswered phone calls.

223.                      What is clear from the documents produced by Mr McCulloch with his third witness statement is that the exhibition consultant completes the original questionnaire face to face with the prospective claimant. The exhibition consultant is a TAG employee and Mr McCulloch agreed that this work had nothing to do with AIL. AIL would subsequently make contact with the client, usually by telephone, and it is at that point that AIL complete the TAG application form. Some of this information has already been obtained on the questionnaire, other parts of the information are new.

224.                      Although the panel solicitor receives a copy of the AIL questionnaire, Mr McCulloch stated that there were cases where AIL had also produced a witness statement, although this does not appear to have occurred in any of the Test Cases. He could recall having seen witness statements on some five or six occasions.

225.                      In a slip and trip case (e.g. Johnson (C/28/626)) a home visit took place and photographs were taken (N/3/87 and 89).

226.                      Mr McCulloch was asked by Mr Neish about the Law Society’s Rules in relation to referral fees. He rejected the suggestion that he was paying a reward to TAG for them referring cases to his firm, stating that he had entered into a contract to pay for an investigation by AIL.

227.                      Asked why he agreed to set the success fee at zero he replied (day 4, page 85, line 18):

228.                      Whilst he was content with a zero success fee and urged TAG to retain the arrangement other panel solicitors thought otherwise.

229.                      There are no Mace & Jones Test Cases pre-dating November 2000. In the case of Johnson (C/28/637) the accident occurred in April 2000. In the service agreement and declaration (641) the client acknowledges that if the claim is not successful she will be indemnified against her liability to pay her own disbursements. Own disbursements are defined in the master policy (I/2270). The reference in that definition to "investigation costs" refers to the investigation fee charged by AIL.

230.                      From November 2000 Mr McCulloch suggested that the client became indebted to AIL by virtue of the fact that the client had asked for the investigation to be undertaken.

231.                      During the currency of the Test Cases that assertion of Mr McCulloch is simply not made out. (I express no view as to the position under OM5). Mr McCulloch, like Mr Ross, appears to have been willing to conduct cases whilst disregarding the clear contractual provisions relating to the payment of the AIL fee. His assertion that he is entitled to charge the AIL fee as a disbursement must also fail. For reasons which appear below I am not persuaded that the client ever authorised payment of the AIL fee or agreed to pay it personally. The solicitor is clearly liable to AIL for the fee under the terms of the panel solicitor’s contract with AIL. He states that he thought that the payment was the client’s own expenditure and confirmed that he could not have ordered the work because he did not know the client or the case. In any event, as appears below, in my judgment the payment to AIL is not properly a disbursement but is a referral fee. It is therefore irrecoverable under either of those heads.

232.                      With regard to Mr McCulloch’s analysis of success fees and his comparative table I do not accept that this exercise provides a worthwhile comparison. All the cases listed (C/30/823), except Perkins and Johnson, are RTA cases in respect of which the maximum damages are put at £2,500. All settled before proceedings and, in the light of the judgments of the Court of appeal in Callery v Gray and Halloran v Delaney, it seems to me that the success fees claimed (between 18.5% and 31.5%) are wholly unrealistic. Applying a success fee of 5% to the largest of the profit costs estimated by Mr McCulloch, and adding a sum equal to the cost of an Accident Line Protect premium gives a figure of £442.

233.                      Another problem is the estimated level of profit costs. The Civil Justice Council under the Chairmanship of the Master of the Rolls has recently been considering predictable costs in RTA cases. The formula agreed in respect of RTA cases up to £10,000 which settle before proceedings produces figures for costs of approximately half the level sought in the comparative table (ie, £1160 to £1300). If the predictable costs figure is used for that exercise the total is even lower. On any reading, the total reached in respect of the RTA cases is less than half the premium charged by TAG. Whilst different considerations may apply in the case of Perkins, which was an industrial accident, and Johnson, which was a trip case, I am not persuaded that the level of success fee suggested (46.5% and 56.5%) is justified.

234.                      Mr Cowley was called on behalf of the Defendants, his evidence being contained in two witness statements, one dated 21 February 2003 and the second 26 March 2003 (D/39/1020(a) and 1020(0)). He explained that as part of his role within Norwich Union he has from time to time assisted the claims team in clarifying or applying actuarial assessments, including some work in understanding CFAs and ATE insurance. He had seen and considered the two BWD Reports. In reaching his own conclusions he used the same assumptions as those adopted by BWD.

235.                      The first BWD report analyses claim costs for the following elements:

236.                      The BWD report estimated the claim frequency in the Scheme 2 business as a whole to be 31.6% which Mr Cowley also adopted.

237.                      Mr Cowley states, at paragraph 9 of his first statement (1020(c)):

238.                      He points out that the most significant part of the claim costs comes from the need to cover the premium itself and any associated loan interest. The figure for defendants’ costs assessed by BWD is put at £24.

239.                      The second BWD report contains a more up to date analysis of claims in the TAG scheme and Mr Cowley produced four sets of figures which he revised to take account of the later data (see RHSC1-RHSC4, D/39/1020, (p)(q)(r)(s). Period 4 covers the months March to May 2002.

240.                      Table RHSC1 sets out the estimated average claim cost and the burning cost for each of the components of the cover listed above. The BWD report assumes that, on average, interest of 7.5% of burning cost will accrue between receipt of the premium and settlement of the claim and Mr Cowley applied this assumption in his Table 1 to produce a "discounted burning cost" for each claim component. (It was this discount that underwriters refused to accept.) The BWD assumptions produce a discounted burning cost for 2001 of £587 (£634 before discounting). The premium charged at this time was £950 plus IPT. The excess of net premium over the discounted burning cost is therefore £363 or 62% of the discounted burning cost. (The figures before discounting are £316 and 50%).

241.                      Table RHSC2 was calculated by Mr Cowley using the legal assumptions (supplied by the Defendant lawyers) set out at paragraph 13 of his first statement (D/39/1020(d)):

242.                      In table RHSC3 Mr Cowley uses the assumptions in the BWD report to work out the premium which gives the same 62% margin over the discounted burning cost as the £950 TAG premium, but which applies only to the elements of the claim costs assumed to be recoverable in table 2. It will be seen from table 3 that a premium net of IPT of £139 produced a 0% margin over the discounted burning cost. To achieve the same 62% margin a premium of £311 is necessary (£327 including IPT). If the premium of £950 is adopted, the margin over discounted burning costs is shown to be 145%. The reduction from the discounted burning cost figure of £388 shown in table 2 is entirely due to the lower premium. The amounts in respect of disbursements and third party (ie, defendants costs) are unchanged. If it was assumed that the premium to cover the risk of paying the premium itself could not be recovered from the losing party, the discounted burning cost itself would then be reduced to £97. The premium required to produce a margin of 62% would then be calculated simply by adding 62% to the £97 figure. This would give a premium of £158 (£157.14 rounded up) plus IPT, a total of £166 (£165.90).

243.                      With regard to table 4 Mr Cowley states (paragraph 21) (D/39/1020(e)):

244.                      In addition to his witness statements Mr Cowley produced a document headed "Formula Used by Robert Cowley". This formula relates to an analysis (day 4, page 124, line 19):

245.                      It was an analysis performed separately from the exercise set out in the tables to which I have referred. It was in fact used to produce Mr Neish’s "Calculation of level of premium based on actual underwriting results". The schedule is a spreadsheet calculated on the basis of Mr Cowley’s formula which allows any figure that is put into the spreadsheet to perform "an illustrative calculation".

246.                      Having been supplied with a lap top computer Mr Cowley altered certain of the figures on the spreadsheet. Firstly, replacing the 7.5% reduction to reflect investment income available to underwriters, and secondly increasing underwriters’ profit from 22% to 25%. This produced a total premium of £434 (see Schedule 3 of Claimant’s closing submissions). That figure was arrived at on the assumption that nothing was allowed in relation to the AIL fee and that only £30 was allowed in respect of insurance services.

247.                      Continuing the exercise at Mr Charlton’s request, Mr Cowley altered the figure in Schedule 3 for disbursements from £206 to £253 (as per his revised table 2), this produced a premium of £497. When the third party costs were increased from £24 to £77 (also in accordance with the revised table 2) the premium became £568.

248.                      When insurance services were increased from £30 to £100 the premium became £737 and if the figure was increased to £150 the premium became £858.

249.                      Mr Cowley explained the premium increases in this way (day 4, page 133, line 6):

250.                      Mr Charlton then asked that Mr Cowley, utilising a figure for insurance services of £100, to insert a figure of £100 for AIL, this gave a premium of £895. When the insurance services were put in at £150 the premium reached £1,015.

251.                      Mr Cowley explained further (day 4, page 136, line 9):

252.                      I found Mr Cowley’s evidence extremely helpful since he was able to illustrate very clearly the way in which the figures move as the various elements are altered. His explanation of the interrelationship between the various figures and the way in which his formula operates was not challenged and I accept it. However, before adopting it, I must decide what assumptions I should make about which parts of the actual premium are recoverable.

253.                      I now turn to consider the remaining issues in turn.

254.                      I take the following premium issues together.

255.                      That the issues which I have to decide arise in the context of detailed assessment proceedings brought about as a result of costs only proceedings under CPR 44.12A. All the assessments are on the standard basis under CPR 44.4 which provides, so far as relevant:

256.                      The Court of Appeal has given guidance on the correct approach to proportionality (see Home Office v Lownds [2002] EWCA Civ 365; [2002] 1 WLR 2450).

257.                      The Court of Appeal in Callery v Gray (No.2) [2001] EWCA Civ 1246, [2001] 1 WLR 2142 decided that Section 29 of the 1999 Act should be interpreted so as to treat the words "insurance against the risk of incurring a costs liability" as meaning "insurance against the risk of incurring a cost liability that cannot be passed on to the opposing party" (paragraphs 59 and 60).

258.                      For the purpose of this judgment I adopt the definition of premium contained in MacGillivray on Insurance Law 9^th Edition 1997, Sweet & Maxwell, paragraph 72:

259.                      Reference has been made to my judgment and that of the Court of Appeal in the Claims Direct Test Cases [2003] EWCA Civ 136. It is important to bear in mind what Brooke LJ said:

260.                      The Claimants accept that in an exceptional case dissection or deconstruction of the premium is an appropriate course. The question is whether this case is an exceptional case of the type which Brooke LJ had in mind in paragraph 87 of the judgment which I have just quoted. Mr Neish argues, and I accept, that what is exceptional about this case is that I am not dealing simply with the question of whether the recoverable premium claimed is reasonable but rather dealing with a claims management company selling a basket of services. Whilst the methods used to sell the product and the precise details of the scheme are not identical with that used by Claims Direct there are broad similarities and the insurance arrangements in particular are very similar. As Mr Neish points out this is not surprising because they appear to have been designed by Mr Brian Raincock of LPL dealing with the same underwriters: Mr Lewis and subsequently Mr Thompson of Catlin and Mr Hacker of Alleghany. In these Test Cases there is a complex contractual web in which eg, solicitors agree to do certain acts in the future on behalf of clients they do not have and agree to be liable to AIL in respect of work which they do not authorise. I add to these factors the fact that I have been told that some 250,000 cases await the outcome of the decision on these Test Cases. Mr Ross in his first witness statement (D/40/1022) states that TAG is the acknowledged market leader in the provision of ATE products to the general public to support personal injury claims. Accepted claims currently number 10,000 to 15,000 per month. According to the Datamonitor Report "Personal Injury Litigation 2001" TAG is described as having a market share of 15%. In those circumstances it is, in my judgment, correct to treat the TAG Test Cases as exceptional and to carry out an analysis to determine how much of the premium claimed is properly recoverable.

261.                      Mr Neish characterises the TAG claims services as including, in addition to access to the ATE policy, a basket of services which aim to take the claimant through each stage of his or her claim from initial enquiry, through expert legal and medical assessments to the goal of compensation.

262.                      In considering the questions in these issues I bear in mind what Arden LJ said in the case management appeal in the Claims Direct Test Cases, heard on 19 March 2002 [2002] EWCA Civ 428:

263.                      It is necessary to deal with the premium issues in relation to separate years of insurance, ie the 2000 year and the 2001 year. The 2001 year has itself to be considered in relation to Lloyds policies and in relation to NIG policies.

264.                      In the 2000 year the gross premium was £800 plus £40 IPT, split as to £320 risk premium and £480 payable to TAG. The £320 included £112 brokerage and commission. The Claimants suggest that the initial risk premium of £208 (£320 - £112), was not in any sense a scientific calculation of the necessary "pure" premium required by the risk, because nobody knew at the time what it should be. They argue that there was a later re-adjustment (£150 per policy) which is referable to the 2000 year of account in respect of Catlin.

265.                      The Defendants dispute that this premium re-adjustment should be brought into account for the 2000 year because, they argue that the additional premium was extracted from new cases in subsequent years. The Claimants argue that it does not matter where TAG found the funds to pay for the additional amount required by the underwriters. The question is rather: Is the additional amount properly referable to the year 2000 insurances? Mr Charlton argues that it is vital to distinguish between the source of funds to pay the additional amount on the one hand and the allocation of the additional amount to the individual covers to which they are referable.

266.                      For the reasons which appear later, I find that the additional £150 per policy is not part of the premium and I therefore do not take it into account in arriving at a figure for recoverable premium.

267.                      The Claimants accept that it may be necessary to make certain deductions from the premium to reflect three elements of the cover which the Defendants argue cannot properly be recovered as part of an insurance premium under Section 29. These are:

268.                      The Claimants accept the principle that a reduction falls to be made for this because it was the subject of a contemporary attribution of an amount within the original "pure" figure that was to be paid to underwriters. The amount attributable to ring fencing was £10 and the Claimants accept that this figure should be deducted from the £208, reducing the base risk premium to £198.

269.                      Mr Neish suggests, relying on the schedules produced by Mr Cowley (D/1020P), (I am taking the figures from his revised schedules), that it would be appropriate to make a reduction of 15% of the premium in respect of insurance of the cost of funding the premium and a further 18% in respect of insurance of the inability of recover the cost of AIL’s services. On that basis he suggests that the premium should be reduced from £198 to £167 and then further reduced to £129. The Claimants criticise this arithmetical exercise suggesting that no element of the premium, whether as originally paid or ultimately received by underwriters for the 2000 year, was ever attributed to these elements of the contract of insurance. It is, they suggest, therefore wrong in principle to make a reduction in such circumstances. The Claimants also point out that Mr Cowley’s exercise was done with the benefit of hindsight (a criticism which the Defendants accept). The Claimants go on to argue that if any exercise of deduction for non qualifying elements of cover is to be done by reference to the actual results of the business it must be done by reference to what would have been a "correct" premium, otherwise underwriters, and through them claimants, will be penalised by a deduction to represent non qualifying elements in circumstances where too small a charge was being made by underwriters for actual burn cost. They do not, however, suggest what the "correct" premium should be.

270.                      The Claimants further criticised Mr Cowley’s exercise because they suggest it is no more than a snapshot taken at the date of the BWD report. Mr Primer in his evidence pointed out that some 40% of cases insured in the 2000 year remain unresolved. These cases may produce losses for underwriters and because they have been running for some time, those losses may be higher on a per case basis than those which failed at an earlier date.

271.                      Although Mr Neish acknowledges the limitations of his exercise in arriving at deductions of 15% for the funding element and 18% for the AIL element he suggests that these are balanced by the fact that the Defendants do not seek, for the moment, to make a deduction in respect of the cost of insuring the irrecoverable element of the premium.

272.                      Mr Charlton, whilst recognising that some form of allowance needs to be made for the non qualifying elements of the cover, submits that since there is no contemporaneous evidence of how the risk was priced when it was originally taken on, the non qualifying elements can be stripped out effectively at the stage at which the cross check exercise is carried out. He expresses the fear that the production of actuarial evidence and its analysis by specialist actuaries like Mr Cowley would have the effect of making costs assessments throughout the country very much more complicated. In my view this fear is misconceived. The court will not normally be prepared to receive such evidence. Evans J in Johnson v Reed Corrugated Cases Ltd [1992] 1 All ER 169 at 183 stated:

273.                      In this case the BWD reports (which were not produced for the purpose of this litigation) formed part of the Claimants’ disclosure. Those reports give the clearest and most accurate information available about the state of TAG’s business. Mr Cowley was called as a witness of fact, not as an expert, but he was able to demonstrate by means of his formula the inflationary spiral caused by the self insuring element of the premium.

274.                      In any event Mr Charlton accepts that the revised table 1 produced by Mr Cowley (D/1020(p)) is uncontroversial. He objects to the reduction made by Mr Cowley in respect of investment income, and it is clear from the evidence that the underwriters would not agree to such a deduction. In considering Mr Cowley’s figures it is therefore necessary to reinstate that reduction.

275.                      With regard to Mr Cowley’s table 2 Mr Charlton again accepts his figures, subject to the investment income point, and also subject to the appropriate figure for AIL being included. For the reasons given below no figure for AIL should be inserted.

276.                      Mr Charlton suggests that the Defendants’ closing premium schedule is in error because the schedule simply subtracts from the original premium amounts to reflect the share (ascertained with hindsight) attributable to non qualifying cover. He suggests that the proper exercise is that carried out by Mr Cowley in his revised table 2. This automatically makes an adjustment for the element of self insured premium which can no longer be claimed. The Defendants’ schedule, he argues, fails to reflect that, eg the various commissions which form part of the premium, have to be insured. In schedules 3 and 4 to Mr Charlton’s closing submissions he sets out the results arrived at by Mr Cowley during cross-examination (in each case the investment income element has been reinstated) ranging from an AIL fee of zero and charge for insurance services of £30, up to an AIL fee of £100 with insurance services of £150. These produced various figures for premium ranging from £434 to £1,015. In schedule 4 to the closing submissions Mr Charlton sets out further calculations using Mr Cowley’s model. These encompass a number of situations from AIL fee zero and insurance services £250, to AIL fee £310 and insurance services £400. The premiums thus arrived at range from £966 to £1,242. Mr Charlton explains that the figures used were put in for illustrative purposes and not as any sort of bid by the Claimants. The exercise serves to illustrate how the figure for premium moves as other figures are altered.

277.                      In Mr Neish’s submission Mr Cowley was not trying to recreate the premiums for the 2000 and 2001 years by his formula, he was merely demonstrating the inflationary spiral.

278.                      Mr Neish raised an additional point, namely: the cost of insuring that part of the premium charged by TAG which is itself not Section 29 premium. It is evident from the evidence of Mr Cowley that approximately half of the claims cost in the TAG cases is the payment to the claimant for the premium in failed cases. Mr Neish argues that there is an inflationary spiral in any premium which insures itself. Having raised the point however Mr Neish then stated that the Defendants did not have the materials or the analysis to deal with the point at the moment and therefore did not, in these cases, seek a specific deduction for that element. He made it clear however that this would be an issue to be decided in the future. In these cases he limited himself to arguing about ring-fencing, the premium indemnifying the cost of funding and the premium indemnifying the AIL fee.

279.                      Certain items need to be added to the risk premium.

280.                      Until December 2000 the premium, net of brokerage and commission paid to underwriters, was £208. For the months of December and January 2001 the underwriters share was increased to £275, brokerage and commission being reduced to £45. Throughout the period therefore pure risk premium plus brokerage and commission remained £320. Mr Neish’s figures, which I have already set out, are based on the original figure of £208 payable to underwriters. Carrying out Mr Neish’s suggested calculation would give at this point a figure of £174 for these two months.

281.                      In his witness statement Mr Coss (C/30/699) referred to what he called loss experience additional premium (LEAP). As a term of the agreement for additional capacity in later years Catlin insisted that an extra £150 per new policy be paid to underwriters to off-set losses in relation to the 2000 year.

282.                      The Defendants argue that, since this additional £150 was not paid pursuant to any agreement to adjust the premium allocation for the 2000 underwriting year; was not a lump sum payment out of TAG’s premium allocation for 2000; and, was not specifically paid back to enhance the premium allocation received from cases written in 2000; there is no justification for it to be re-allocated to Catlin’s share of the policies written. Mr Neish argues that it was no more than a commercial side arrangement which had nothing whatsoever to do with the premiums paid by claimants in 2000 and which should therefore be ignored for the purpose of arriving at the allowable premium for the 2000 year.

283.                      Mr Charlton argues that the absence of a contractual right to adjust in the 2000 binder is irrelevant. Changes to the terms of a contract can take place either by agreement between the parties exercising a contractual right provided for in the original contract or by simple variation; that is, a subsequent agreement expressed to operate as a change to their originally agreed terms. He argues that the parties do not need a provision in their original contract to enable them to make later adjustments, all that is required is to reach an agreement that varies the original.

284.                      Mr Neish points out that neither Mr Coss nor Mr Primer gave any evidence to the effect that they had varied the 2000 contract. Mr Primer’s evidence was that he wanted this extra money to make his hole in 2000 good, and he gave that as his reason to Mr Coss. He always intended to use it to put back in the 2000 year and that that is what he did when he got it – none of that submits Mr Neish, amounts to the variation of the 2000 contract.

285.                      Mr Neish argues that there were, in the case of TAG, variations to both the 2000 insurance policy and the 2001 insurance policy and every time there was a variation, as Lloyds require, there was an addendum recording the variation (see eg I/2281, addendum to cover note HH 025960Y the 2000 policy). He submits that there is no addendum to the contract recording the premium variation because there was no variation.

286.                      Mr Neish also argues that if the arrangement was that TAG would give Catlin another £150 of premium per new policy issue, in respect of which Catlin had to do nothing, the variation would be unsupported by any consideration. No further cover was granted, nor were any more policies written in respect of that year. In Mr Neish’s submission the arrangement was an entirely new contract entered into between Catlin and TAG which was not a variation of the old contract at all. The new contract was an agreement by TAG to pay £150 per new case in addition to the agreed £539 premium in return for additional capacity.

287.                      In my judgment Mr Neish’s submission is correct. The additional payment of £150 per new case is not on any reading additional premium in relation to the 2000 year.

288.                      The Defendants accept that it is proper to add commissions to the pure risk premium and having argued that that premium should be £129 they seek to add back the Prentis Donegan brokerage which they put at 16%, giving a gross sum figure of £153. The Defendants also accept a commission for LPL of 32.5% to carry out its duties as cover holder. They calculate the grossed up premium at £226. In addition a commission was paid to TAG in the sum of £80. The Defendants concede that it would be reasonable to allow TAG to recover an acquisition commission of about 25% (of gross risk premium i.e. £57). On that basis the Defendants suggest that the figure thus arrived at is £283.

289.                      In respect of the period December to January 2001 carrying out a similar calculation, but altering the percentages for brokerage and coverholder commission (both of which were significantly lower than previously), the figure arrived at is £257.

290.                      The Claimants argue that whilst commissions need to be added back in they have been wrongly calculated as percentages by the Defendants. They argue that percentages were not used at the time that the LPL and PD commissions were actually set (at £78 and £34). They were fixed figures and should therefore remain fixed costs the whole of which should be allowed.

291.                      On the basis of Mr Charlton’s argument the figure for premium thus arrived at, including the £80 TAG commission, is £390. This figure remains constant throughout the period.

292.                      The initial and continuing insurance services which TAG was required to perform under its agreement with LPL of 26 October 1999 (I/43/2241) and the agreement of 28 September 2000 (I/43/2261) were very similar to those considered by the Court of Appeal in the Claims Direct Test Cases. The only material difference is that the continuing insurance services do not include the requirement that TAG should arrange for the client to attend medical examinations. In the CD Test Cases the court at first instance concluded (judgment paragraphs 189 to 193) that all of these items were properly to be regarded as insurance services except initial service 4 (obtaining further information) and continuing services 1 (obtaining witness statements) and 3 (arranging for client to attend medical examination). The Claimants accept that the same result will apply in these Test Cases but argue in respect of Continuing Service 3 (costs draftsman) that this should be regarded as a proper insurance service because, Mr Charlton submits, it is an element of the insurance claims handling service provided to underwriters and is only required to be performed "where there is a claim under the insurance". He submits that it is not a costs assessment process for the purpose of every claimant’s claim. Mr Ross dealt with this in his evidence. I accept Mr Charlton’s submission but do not think it makes any significant difference to the amount ultimately recoverable in respect of insurance services.

293.                      Although no mention is made of marketing services in the 2000 agreements Mr Charlton argues that it is clear that these were provided, for the benefit of underwriters as well as for TAG and that proper allowance should be made for them. Again I accept that submission but the real problem is, as Mr Charlton said, how to arrive at a figure for what may properly be recoverable in respect of insurance services and marketing. Mr Charlton relies on the evidence of Mr Blair whose figures I have rejected for the reasons given. Mr Primer in his evidence referred to the cost of undertaking the insurance services as a whole as running into hundreds of pounds.

294.                      Mr Neish’s primary submission is that a proper interpretation of the judgment of Brooke LJ in Claims Direct leads to the conclusion that nothing should be added to the premium for insurance services. His secondary submission is that if something is to be allowed it could not be some hundreds of pounds and should at most be a figure similar to that allowed by me in Claims Direct (£30).

295.                      Brooke LJ did not alter the premium which I allowed in that case but came to the same conclusion by a different route. Mr Neish suggests that what Brooke LJ is saying at paragraph 88 of his judgment is that the insurers are undertaking the indemnity, not a basket of services, and nothing should be allowed for insurance services. He suggests that TAG should be substituted for MLSS, but in my judgment the two are not on all fours. Brooke LJ refers to "the costs customarily embraced by such a premium" but expressed the view that "the costs which a company like MLSS had to incur if insurers were to accept the risk at all" should not be added. He does not say that nothing should be allowed in respect of insurance services. I accordingly reject Mr Neish’s primary position.

296.                      Mr Neish submitted that it was appropriate to distinguish the cost of providing claims management services from the costs of providing outsourced insurance services to insurers. He argued that that it was appropriate to distinguish the costs of providing claims management services from the costs of providing outsourced insurance services to insurers. As Brooke LJ stated (at paragraph 89) of the judgment the obligation which the insurer undertook "was not an obligation to provide the ‘continuing insurance services’ ". He points out that Brooke LJ stated (at paragraph 90) that he would not have been as generous as I was in attributing expenses to the insurance element.

297.                      Mr Neish submits that it is necessary to arrive at a cost per case of:

298.                      These headings accurately reflect the elements of the insurance services which are recoverable. To that list I add:

299.                      The Defendants suggest that the figure of £310 per case, arrived at by Mr Blair is in respect of all the initial and continuing insurance services and may also include marketing costs per case. It is the Defendants’ case that the proper allowable cost under this head should be £30. The same figure as I allowed in Claims Direct. At paragraph 86 of the judgment in the Claims Direct appeal Brooke LJ said this:

300.                      The Defendants accept that the cost of providing all of the insurance services, including those which are claims management services, would have been significantly more than £30. They note that the Court of Appeal did not disturb the conclusion in Claims Direct that only an additional £30 was attributable to insurance services and recoverable. On that basis the Defendants do not resist the addition of a further £30 to the base premium and commission referred to above. Mr Neish points to the fact that the Defendants’ approach already allows TAG significant income in respect of insurance related services, namely the LPL commission for cover holder tasks and the TAG commission.

301.                      Adding this £30 to the £283 mentioned in paragraph 288 a premium figure of £313 is reached to which must be added 5% IPT (£15.65). The Defendants accordingly suggest that for this period the recoverable premium should be £329 (£328.65). For the period December 2000 to January 2001 the figure would be £301.

302.                      Mr Charlton argues that the critical distinction between the Claims Direct Test Cases and the TAG Test Cases is that AIL provided the work of investigation of individual cases in return for a fee charged to clients quite separately from the premium. Whilst this type of work was regarded in the Claims Direct cases as part of the claims management services provided by MLSS which led to a reduction of the MLSS element of the premium in Claims Direct, the same is not true in the case of TAG since insurance services are provided only by TAG. The Claimants argue that it is wrong in principle simply to look for a bare cost which might be calculated, after the event, for TAG’s provision of insurance services. It is suggested that what matters is not the ultimate actual cost but the amount which underwriters were prepared to pay, namely £480. The fact that underwriters were prepared to pay £480 to TAG does not assist me in arriving at an appropriate figure to add to the basic premium figure in respect of insurance services.

303.                      Mr Charlton argues that, even if it is concluded that some reduction has to be made from the figure paid to TAG out of the premium to reflect the distinction between the insurance services properly so called, and damages claim management services, there must still be allowed a significant figure for advertising expenditure. The Claimants give no suggested figures. Adopting for the moment the figure of £390, the addition of insurance services valued at £100 would produce a premium, including IPT, of £514.50 (£490 plus £24.50). Using the £30 suggested by Mr Neish gives a figure of £441 (£420 plus £21).

304.                      During this period LPL ceased to be the coverholder and Prentis Donegan placed a binding authority with a wider Lloyds market than in 2000. Goshawk and Brockbank Syndicates participated; TAG itself became the coverholder. Because of the rapid increase in the number of cases TAG was taking on, and the need for further capacity, TAG entered into a separate arrangement with NIG (see below). The premium for both types of policies was £950 plus IPT (£997.50). In the Lloyds cases the premium paid to underwriters and brokerage amounted to £328.50 (£312 plus £16.50). £621.50 was paid to TAG as "underwriters contribution to costs". There was provision for "swing premium" which depended upon the level of losses incurred. This required TAG to pay additional premium by way of rebate of the underwriters contribution to costs. The swing was between 80% and 125% of losses but with a cap of £550 per case. The indications are, from Mr Primer, that results to date mean that this swing premium will take effect.

305.                      As with the 2000 year it is necessary for some deductions to be made in respect of irrecoverable benefits. These deductions, as before, relate to ringfencing, insuring the cost of funding and insuring against the non recovery of AIL fees.

306.                      Mr Neish carried out a similar exercise to the one which I have already described in relation to the 2000 year (paragraph 267 ff). From the £312 net risk premium he has deducted £10 in respect of ringfencing, deducted a further 15% in respect of insuring the cost of funding and a further 18% in respect of insuring against non recovery of the AIL fee. This reduces the premium to £200.

307.                      The Claimants seek to add back £85 to Goshawk policies written in 2001 (see Coss C/30/701). Mr Charlton’s argument remains the same as that in relation to Catlin in that he suggests that the absence of the right to adjust does not prevent an adjustment being made. Mr Neish argues, for the same reasons as those put forward in respect of the 2000 Catlin policies, that there is no basis for this and that that amount is not recoverable from the Defendants.

308.                      Mr Charlton points out that two changes to the contractual position have taken place, firstly TAG has an express obligation to market the scheme for underwriters (Initial Service 1), and secondly TAG was itself now the coverholder. The Defendants accept that since TAG was itself carrying out the coverholder task previously performed by LPL they would not resist the addition of 32.5% of the Section 29 risk premium (£211) being built into the 2001 Lloyds premium, giving a grossed up figure of £313 plus items mentioned below.

309.                      I am unable to distinguish on the facts between the situation as it related to Catlin in the 2000 year and that which relates to Goshawk in 2001. In those circumstances, and for the same reasons, I find that nothing is recoverable in respect of the additional sum paid to Goshawk.

310.                      In relation to the swing premium, Mr Neish submits that none should be allowed under Section 29 because the premium is triggered by losses. The losses which make the swing premium payable in full are sustained in respect of irrecoverable benefits, ie failure to recover the AIL fee, the cost of interest and premium losses. Mr Neish argues these are not "qualifying losses" in respect of which the Defendants are liable to pay. His alternative submission is that, if the Defendants are liable for any of the swing premium, it should be in the same ratio to the recoverable Section 29 premium as the full swing premium is to the full risk premium of £312.

311.                      In my judgment, to the extent that the swing premium is triggered by losses arising out of elements of the insurance cover in respect of which premium is not recoverable, it should not be visited against the Defendants. It is not possible, at this stage, to indicate with any certainty the extent to which swing premium will be payable as a result of losses sustained in respect of irrecoverable benefits. In those circumstances I accept Mr Neish’s alternative submission. I express the hope that it will be possible for the parties to agree a figure on that basis but, if necessary, the matter can be relisted to deal with the actual allowance to be made in respect of the swing premium.

312.                      By this time (2001 Lloyds) Prentis Donegan’s brokerage had reduced to approximately 5%, which by Mr Neish’s calculation produces a grossed up figure of £211. As I have said (paragraph 288), he also allows a commission of 32.5% for coverholders commission, which produces a figure of £313; and, although TAG did not charge an introduction commission as part of the premium allocation during this period, he conceded that it would be appropriate to allow an introduction commission of about 25%, as a recognition that TAG marketing costs would be significant and would have included marketing the ATE insurance product. The figure thus reached is £391.

313.                      Both Claimants and Defendants repeat their arguments relating to insurance services and Mr Neish, for the purposes of his calculation, adds £30 producing a figure of £421, to which must be added IPT, giving a total figure of £441.05 (£421 plus £20.05). Again, Mr Charlton puts forward no figures, but, adopting his previous position, it is appropriate to reduce the premium of £312 by £10 in respect of ringfencing, giving a figure of £302. To this is added £16.50, the actual commission paid to Prentis Donegan. As to the coverholder’s commission and the TAG introductory commission, in the absence of any figures put forward by Mr Charlton I again the use the figure of £78 and £80, giving a total of £476.50. If £30 is allowed in respect of insurance services, the premium amounts to £532 including IPT (£506.50, plus £25.52). If £100 is allowed the figure is £605 (£576.50 plus £28.83).

314.                      Under its agreement with NIG, TAG was appointed NIG’s agent for marketing ATE insurance to be underwritten by NIG and was given a binding authority. The charge to the customer was £950 plus IPT, of which £300 was paid to NIG and £650 remained with TAG. TAG was required to carry out services described as "new insurance fulfilment services" and "claims handling services", some of which are similar to the earlier initial and continuing insurance services. TAG was also required to carry out certain "administrative services". NIG had no right to any additional or swing premium.

315.                      Mr Neish again sought to make reductions for ringfencing, insuring the cost of funding and insuring the cost of failing to recover the AIL fee. He carried out his calculation making deductions as before from the £300 premium paid to NIG leaving a risk premium of £191.

316.                      Mr Charlton argues that since there were no attributions of the NIG share of the premiums to any of these aspects no deduction should be made. He argues that this was an arms length transaction. NIG was prepared to pay £650 for the purposes of acquiring the services and the benefit of the marketing. He accepted that if any deduction was to be made it would be appropriate to deduct £10 in respect of ringfencing.

317.                      Mr Charlton also submitted that, at this point, the question being addressed is: what premium qualifies as recoverable under Section 29 based on the contractual analysis? It is only subsequently that the court has to consider whether the figure thus produced is a reasonable one. This he suggests is a matter to be considered under issue 5.

318.                      There is no provision for additional premium.

319.                      No broker was involved so there is no fee for brokerage. Mr Neish again concedes that it would be appropriate to allow 32.5% commission to TAG for performing coverholders services. This produces a grossed up figure of £283.

320.                      Mr Neish again allowed 25% as a notional introduction commission, giving a grossed up figure of £354.

321.                      Mr Neish again accepted that the addition of £30 per case might be added in respect of these services, giving a final figure of £384 which together with IPT totalled £403.20 (£384 plus £19.20). Again Mr Charlton produced no figures. Carrying out the exercise as before, I arrive at figures based on his arguments of £502 (£478 plus £23.90 IPT) with £30 allowed for insurance services and £575 (£554 PLUS £27.40 IPT) where £100 allowed for insurance services.

322.                      I summarise the rival figures by way of a diagram:

323.                      Costs Practice Direction paragraph 11.10 states:

324.                      Mr Charlton argues that since the CFA entered into by the panel solicitor has a zero success fee it is not "a CFA with a success fee". Mr Neish argues that the CFA does have a success fee but it happens to be zero. In my view Mr Neish’s approach is to be preferred. A similar situation arises in relation to VAT. Certain supplies are zero rated, others are exempt. Supplies which are exempt are not liable to VAT, those which are zero rated are liable but the rate is zero. In the end it appears to be a distinction without a difference. In my judgment the court should cross-check the premium value against alternative funding options whether or not those options fall within CPD 11.10(1).

325.                      These Test Cases are all straightforward personal injury cases which settled without the necessity of proceedings. The agreed damages range from about £1,000 to £3,500. The costs (including the TAG premium) range between £2,100 and £4,800. On that basis Mr Neish does not challenge the reasonableness and proportionality of the premiums which he arrived at as a result of the exercise which he carried out. He suggests that Mr Cowley’s analysis provides a reliable basis for a reasonable cross check to be performed.

326.                      Mr Charlton prefers to rely on Mr McCulloch’s notional success fee analysis to provide a cross check.

327.                      Mr Charlton argues that the results arrived at by Mr McCulloch (between £765 and £1,993) are consistent with the results obtained by using the Cowley formula. The fact that Mr McCullogh was prepared to run his cases with a nil success fee was not merely because he was willing to trade away a success fee for a volume of cases but because he had in mind the paramount interests of his potential clients. Mr Charlton suggests that for cross check purposes it has to be assumed that each case does involve the solicitor in an element of risk and that is what Mr McCulloch had attempted to do in his analysis.

328.                      Mr Cowley’s approach as a cross check produces, in Mr Charlton’s submission, reasonable and proportionate figures when using the figures which he (Mr Charlton) put forward as being more appropriate. Mr Charlton set out in Appendix 5 to his closing submissions the results of Mr Cowley’s exercise utilising the up to date figures for disbursements and third party costs and removing the discount from investment income. Mr Charlton also used what he described as the correct brokerage figures of £112 for the 2000 year and £16.50 for the 2001 year. He also used for the purpose of this exercise £30 in respect of insurance services. The figures so produced were £535 for 2000 and £532 for 2001. Mr Charlton pointed out that these figures were put forward simply to illustrate the incremental effect of changing some of the assumptions. He did not accept the figure in respect of insurance services and had inserted nothing in the calculations for AIL. Nonetheless given that this is part of a cross check exercise these figures must be seen against the figures produced by Mr Neish (£330 and £441) as a result of his exercise.

329.                      It does appear to me that Mr Cowley’s approach provides a useful cross check. Allowing no discount for investment income and no fee for AIL, adopting the figure of £253 for disbursements and £77 for third party costs, further allowing brokerage of £16.50, underwriters profit of 25% and TAG commission of 25%, together with £30 in respect of insurance services, a premium of £480.30 (£457.40 plus £22.90 IPT) is arrived at. Mr Charlton adopted various figures for insurance services, up to as much as £150. Given the remarks of Brooke LJ in the Claims Direct judgment I do not see how figures of this magnitude can reasonably be charged to the paying parties. As Mr Primer demonstrated in his evidence, because the account was picking up some adjustment of the brokerage and commission became justifiable and the figure for the 2000 year was reduced from £112 to £45, whilst the underwriters share increased. I have been struck by the comparatively low figures which are actually insuring the risk. As Mr Neish points out, this is an operation on an industrial scale and there are no doubt economies of scale. Brooke LJ expressed the view that in allowing the figure of £30 for insurance services in the Claims Direct cases I was perhaps being over generous. I certainly see no evidence in these Test Cases that it would be appropriate to exceed that figure. Given Mr Neish’s concession that the Defendants would accept a figure of £30, that is the figure I adopt. If the allowance for insurance services were to be reduced to £20 the premium, including IPT, would become £458.

330.                      Cross checking each year using Mr Cowley’s approach produces: for the 2000 year £488; for 2001 Lloyds £480; and, for 2001 NIG £424.

331.                      Mr Charlton’s figure for Lloyds 2000 is £441 including IPT. With brokerage increased to £112 the figure increases to £600 including IPT. It is clear from these figures that the brokerage and commission initially agreed unjustifiably over inflate the premium.

332.                      Doing the best I can from the mass of material and figures now accumulated I must now arrive at figures for each of the insurance years. Using a figure for insurance services of £30, it will be seen that Mr Cowley’s cross check figure falls between the Claimants’ and Defendants’ figures in the 2001 year and is somewhat higher than the Claimants’ figure in the 2000 year. The figures which I allow are those which appear to me reasonable and proportionate in all the circumstances. I do not say that these are the only correct figures but they are within a bracket of what I would regard as reasonable. I allow: for 2000, a premium of £450 including IPT; for Lloyds 2001 £480 including IPT; and for NIG 2001 £425 including IPT.

333.                      With regard to swing premium, I have expressed the hope that the parties may be able to agree a figure, but, if the figure for swing premium is such that the total premium is outside the bracket of what is reasonable and proportionate, it will not be recoverable.

334.                      None of the Test Cases relate to these years and although I am not invited to make a formal finding as to the appropriate recoverable element of premium for these years it is suggested that I should record findings about the figures as they presently stand and give some indication as to what I would expect the recoverable element of the premium to be. In the absence of full argument concerning those years I do not express any view as to the recoverable element of the premium in those years, although I would expect the basic principles of what is recoverable to remain the same.

335.                      The sums payable for insurance by a Claimant under the TAG scheme (£840 and £997.50) are not properly to be regarded as premium within the meaning of Section 29 of the Access to Justice Act 1999. The amounts properly recoverable as premium from the paying parties are: for the 2000 year £450 including IPT; for 2001 Lloyds £480 including IPT; and for 2001 NIG £425 including IPT. The figure for 2001 Lloyds may alter if an adjustment has to be made for swing premium.

336.                      During the course of argument it was accepted that deductions should be made for ringfencing and I accepted that it was also proper to make deductions for insuring the cost of funding and insuring the cost of failing to recover the AIL fee. To that extent therefore those collateral benefits are not covered by the recoverable premium. Although the Issue states that it is intended to include the block rate issue I have heard no argument on that issue and express no view about it.

337.                      For the reasons given in the judgment, the premium element of the sum claimed (i.e. the figures allowed under Issue 2), is a reasonable and proportionate sum for the benefits actually purchased and for cases of this character.

338.                      The matters raised by this Issue are matters of fact which are set out in the judgment and were not in the event controversial.

339.                      No submissions are made by the Defendants in respect of the payments to Mobile Doctors Ltd or to Rowe & Cohen. The only live issue is the AIL fee.

340.                      The panel solicitors were required, as a term of their agreement with TAG, to enter into an agreement with AIL under which the panel solicitor appointed AIL as its agent for the purposes of investigating, collating and assessing information regarding claims. The panel solicitor also agreed to pay the AIL fee. The panel solicitor was to be invoiced 14 days after the solicitor had confirmed that he had received instructions from the Claimant. In other words the solicitor was instructing AIL to carry out work on his or her behalf, investigating the circumstances of claims of potential clients. At this point the client would almost certainly be unknown to the solicitor, nor would there be any retainer in place.

341.                      Mr Neish argues that the agreement to pay a fixed fee to AIL (if a client was accepted) was an entry price into the TAG scheme and something which the panel solicitor was bound to pay if he wished to take on the case.

342.                      Clearly if the payment to AIL is a referral fee this amounts to a breach of the Introduction and Referral Code. Rule 2(3) of the Introduction and Referral Code provides:

343.                      Mr Neish submits that the payment to AIL included the payment of a referral fee element as a reward for the introduction to the panel solicitor.

344.                      Mr Charlton’s answer to that is that AIL was not an introducer and therefore whatever else the payment may have been it cannot have been a referral fee. In his submission all clients were introduced by TAG.

345.                      Mr Charlton suggests that pre November 2000 the AIL fee was paid by the solicitors on the client’s behalf but after that date it was not paid by the solicitor at all and is therefore not capable of amounting to a referral fee. He argues that since credit facilities were made "to enable the client to pay for the premium due under a policy and/or disbursement" and since the AIL fee is included within the reference to "disbursements", and since the solicitors gave an undertaking to the client to recover the AIL fee, that fee cannot fall within the definition of a referral fee. In my judgment Mr Charlton’s submission on this point does not address the underlying questions, namely: who was contractually liable to pay the AIL fee, and, if it was a solicitor was the AIL fee a reward to introducers by the payment of commission or otherwise?

346.                      Mr Charlton submits that for the period up to November 2000 the AIL fee was met by solicitors and was a disbursement paid on the client’s behalf. From November 2000 until the new form of client application form came into use, in about October 2001 (there may be earlier instances which are not within the Test Cases), the position was that the client paid for the AIL fee through the new First National Bank funding arrangement. At no point did any of the panel solicitors actually pay any money. From October 2001 Mr Charlton submits that the position is that the client continues to pay the AIL fee and in so doing is discharging a personal liability which he undertakes directly to AIL because of the agreement contained in the new application form to instruct AIL. Mr Charlton argues that in the first two periods the clients liability arises through the agency of the solicitor, whereas in the third period the liability arises direct without any agency of the solicitor.

347.                      He argues that, although the solicitors had a contract with AIL by which they agreed to use AIL services for which they paid personally during the first period, but for which the client paid during the second period, the fact that there was an agreement between the solicitors and AIL to pay the fee is itself insufficient to establish a breach of the Referral Code. He argues there is no breach of the Code unless and until the solicitor himself pays.

348.                      During period 1 Mr Charlton suggests that there exists a direct contractual path of liability between AIL and the solicitor on the one hand (which is undoubtedly correct) and what he describes as "another liability path" between the client and AIL, with the client’s liability arising through the agency of his or her solicitor. For the reasons given below that submission cannot succeed.

349.                      In respect of period 2 Mr Charlton relies, among other things, on the fact that the solicitor never physically pays the AIL fee. The funding arrangements do not, in my judgment, convert the solicitors’ liability to pay into a disbursement, they merely enable the AIL fee to be paid out of the client’s loan account, a payment in respect of which the client may arguably not be liable.

350.                      In respect of period 3 Mr Charlton referred to the case of Burgess (A/15 and N/5). This case involved the use of the new application form. The service agreement explicitly authorises the solicitor to account for the AIL investigation fee to the bank, if it has been funded by the bank (A/1172), and the application form itself states:

351.                      Mr Charlton argues that the liability of the panel solicitor to AIL drops away with the introduction of the new application form rather than from the date of publication of OM5. That cannot in my view be correct, since the solicitor is still contractually bound to pay AIL, and the client has no contractual liability to pay.

352.                      Mr Neish, referred to the case of Johnson (C/28), a case dealt with under OM1 in July 2000 (period 1). The client was told nothing about the arrangements between AIL and the panel solicitor, nor was the client told that when a panel solicitor accepted her case the AIL fee would be charged to the solicitor who would treat it as a disbursement, nor did the contract which the Claimant signed with TAG contain any contractual undertaking by the Claimant to pay AIL anything. The client care letter did set out the solicitors’ current hourly rate and mentioned disbursements such as court fees, investigation fees and expert’s fees. While it is now clear that "investigation fees" must have referred to the AIL fee, there appears to be no way in which the client could have known this or what amount was to be charged in respect of investigation.

353.                      Mr Neish argues that the position after November 2000 (period 2) was no different, since the contractual arrangement between the panel solicitor and TAG remained the same, as did the terms of the agreement between the panel solicitor and AIL. The only change was in the funding arrangement so that the funding was provided to the client rather than to the solicitor.

354.                      In relation to the period after November 2000 Mr Neish referred to the case of Ashmore (A/13), this is a case under OM4. At the outset Ms Ashmore was told no more than Mrs Johnson. OM4 sets out the arrangements in relation to funding, but this is a document governing the way in which the panel solicitors must operate, it is not a contract with the Claimant. By the time AIL wrote to TAG confirming that their investigations were complete, the client knew no more than that an accident investigator would contact her to seek more detailed information. In Mr Neish’s submission, which I accept, this work was done by AIL as agent for the panel solicitor to enable the panel solicitor to see whether or not he wished to take on the case.

355.                      When the solicitors wrote to Ms Ashmore she was told that she was borrowing from a funder who might provide her with additional funding in relation to disbursements incurred in pursuing her claim. Disbursements were said to include investigation fees. There was at no stage any explanation that the client was incurring the AIL fee. Mr Neish argues that this is not surprising since the arrangement was between AIL and the panel solicitor. Work has been done pre-retainer pursuant to that contract and for which the paying party cannot, in my view, be liable. The AIL invoice was sent to the solicitors, although the payment was now made direct to AIL out of the client’s loan account. It may be, after the introduction of OM5, that the client enters into a contract with AIL but prior to that there is no contract, even when the new form of application is used.

356.                      The case of Perkins (B/18/300), which was put to Mr McCulloch in re-examination, was a case in which the new form of application form was used. It is paragraph 9 of the declaration on that form (N/108) where Ms Perkins acknowledges:

357.                      Mr Neish submits correctly that that does not amount to a contract for the client to pay those charges.

358.                      The contract signed with TAG is still in the old form (B/18/317). It provides nothing about AIL save that the Claimant declares:

359.                      The Claimant is not agreeing that AIL are being contractually retained by her. The solicitors are invoiced in just the same way (B/18/312). Mr Neish again correctly submits that this is because the only contract which AIL have at the time is with the solicitors. The situation is similar in the case of Burgess (A/14/154, the contract is at A/14/172 and the invoice at A/14/167). It is clear that both cases are being dealt with under OM4 rather than OM5.

360.                      In my judgment the solicitor is liable to pay the AIL fee during all three periods. The fact that the money is taken from the client’s loan account and paid directly to AIL is not proof of the client’s liability to AIL. It merely demonstrates a short circuiting of the true position ie, that the solicitor should pay AIL and the client, if liable, should refund the solicitor. This device is of no value or benefit to the client. It is of value to AIL since it provides automatic provision for payment. It is also of value to the solicitor in that it saves him from having to pay AIL and assists him in seeking to recover this sum from the client’s opponent.

361.                      It was not until the introduction of OM5 that the Claimant personally contracted with AIL to carry out investigatory work. OM5 was published on 19 November 2001. The Claimants’ case is that this was an instance of the documentation catching up late in the day with a change which had in fact occurred a year earlier in November 2000. Even after the introduction of OM5 it is stated that AIL will:

362.                      The new version of the agreement between AIL and the panel solicitor (see paragraph 72) provides that AIL will undertake the investigatory work as instructed by the Claimant, that the fee will be funded by a credit transaction and that:

363.                      The panel solicitor agrees to repay the AIL fee to the funder in the event that it is not recovered from the Defendant within six months.

364.                      None of the Test Cases arose after 19 November 2001. In all except three of the Test Cases the AIL fee is claimed as a disbursement. In the cases of Kennedy v Parkin (B/23) and Hawker v Viegas (C/26) costs have been claimed but no breakdown has been supplied. These are both cases under OM4, the solicitors becoming involved on 17 March 2001 and 14 May 2001 respectively. In the third case, Mathison v Sommer Allibert (B/24), the AIL fee is claimed as part of the profit costs. This again is an OM4 case, the solicitors became involved on 10 July 2001.

365.                      Every operating manual from OM2 makes it clear that funding arrangements are in place:

366.                      The solicitor took on an obligation to pay the AIL fee but cannot be said to have been doing so on behalf of the client. Although AIL did not invoice the solicitor until the retainer was complete that did not in my judgment convert the solicitor’s obligation to pay into a disbursement properly incurred on behalf of the client.

367.                      Mr Neish argued that much of the work appears to have predated any retainer and could not have been incurred by AIL as an agent instructed by the panel solicitor. He referred to my judgment in Claims Direct Tranche 2:

368.                      In relation to pre November 2000 cases Mr Charlton argues that the AIL fee was incurred by the solicitor on behalf of the individual claimants. This was on the basis that the solicitor appointed AIL as its agent for the provision of investigatory works in consideration of the payment of £310 plus VAT. That provision was contained in OM1 and remained the same throughout, save that in OM3 one of TAG’s roles in relation to initial insurance services included the instruction of AIL on behalf of clients and the solicitor. I have already indicated the problem in relation to that arrangement, namely that the solicitor has taken on an obligation to pay AIL the investigation fee but has done so before there is any retainer. It may be that the client is liable to the solicitor under the terms of the retainer for that fee, but since it is not a disbursement properly so called it is not, in my judgment, recoverable from the paying party. The argument that it is a fee properly paid by the client, and therefore recoverable as such, also fails because what the client is in effect doing is reimbursing the solicitor for a liability incurred by the solicitor without any authority from the client. In my view, if the client objected to paying this amount to the solicitor, it would be disallowed on an assessment between solicitor and client.

369.                      It is indeed part of Mr Charlton’s submission that the services rendered by AIL are all performed prior to the retainer of the solicitor by the client and provided "for the purpose of validating the arguability of the client’s case before the solicitor".

370.                      Mr Charlton argues that it was in November 2000 that disbursement funding was introduced within the TAG scheme and clients were enabled to pay the AIL fee through this funding. He sought to show by reference to the Test Cases (Schedule 1 to his opening submissions) that the AIL fee had been "incurred by the clients" by referring to the loan account statements which had had these amounts debited to them (save in the case of Pollock). In my view that exercise does no more than demonstrate the way in which the bank had dealt with the client’s loan account but does not overcome the position clearly set out in contractual documents from which it can be seen, without any doubt, that it was the solicitor who incurred the obligation to pay and who was invoiced for the amount due. It was not until the introduction of OM5 in November 2001 that some attempt appears to have been made to make the client primarily liable for the AIL fee. Mr Charlton’s suggestion that OM5 was merely an instance of the documentation catching up with the reality does not alter the contractual situation which applied in relation to the Test Cases. Indeed it was not until 27 February 2002 that TAG sent out a letter explaining the changes brought about by OM5. I find that OM5 came into operation on 19 November 2001. Any application forms completed prior to that date, even if in the so called new form, are dealt with under the terms of OM4.

371.                      As I have already indicated the contractual obligation to pay was upon the solicitor. What happened in fact after November 2000 was that, rather than the solicitor paying the AIL invoice, the money was deducted from the client’s loan account by the bank and paid direct to AIL. For the reasons I have given this did not render it a disbursement.

372.                      Mr Neish accepts that the MDL fee is recoverable as a disbursement because it is incurred post retainer.

373.                      The Claimants recognise that the AIL work will not be allowed in full on a between the parties assessment. Mr Charlton accepts that the amount properly allowable in respect of the work done by AIL will be in the region of 1 hour at the relevant rates. Mr Neish suggests no more than half an hour.

374.                      The payment of £310 plus VAT paid to AIL which is passed on to TAG is a referral fee.

375.                      Although payment of the AIL fee is made direct to AIL in every case, it is clear from the evidence of Mr Blair that the turnover of AIL (£56 million in the year ended 31August 2002) (D/34/901) is comprised mainly of the AIL fees received. After deducting the cost of sales, the bulk of the remaining gross profit is paid to TAG as administrative expenses (for 2002: gross profit £47.78 million, amount paid to TAG as administrative expenses £47.69 million. In 2001: turnover £24.5 million, gross profit £22.10 million, administrative expenses paid to TAG £21.93 million). It is clear from this that TAG is receiving the great majority of the AIL fees and that money is, in my view, a referral fee paid to TAG as the introducer. The fact that the money passes through the hands of AIL, a company exclusively linked with TAG, does not prevent it from being a referral fee. Equally, the fact that the solicitor has not physically paid AIL, the money having been removed from the client’s loan account, does not mean that the solicitor is not liable to AIL and is in fact making the payment notwithstanding that money from the client’s loan account is paid direct to AIL.

376.                      The matter is in my view put beyond doubt by the agreement between TAG and First National Bank of 3 October 2000 (see paragraph 39) (J/44/2616 to 2626). That agreement recites that the bank has agreed to provide funding to clients "to finance … disbursements payable by the client to the appointed representative …" The general obligations of the bank provide:

377.                      This is another instance of participants in the TAG scheme operating in a way which they find convenient, whilst ignoring the clear contractual provisions upon which the scheme is based.

378.                      The solicitors are in breach of the Introduction and Referral Code and the fee paid is not recoverable.

379.                      The payment to AIL is not a disbursement paid by the solicitor on the client’s behalf, nor is it expenditure authorised by the client on his or her own behalf. No part of the fee paid to AIL is recoverable as a disbursement.

380.                      Issue 16 relates to Test Cases covered by OM2, 3 and 4, Issue 17 relates only to those covered by OM1. In relation to Issue 16 Mr Neish referred to OM2 (J/44/2730, see paragraph 65) under which the panel solicitor is required only to incur disbursements which are recoverable from the paying party. It is said to be an express condition of the agreement between TAG and the panel solicitor that any disbursements are reasonable in amount and that the panel solicitor has warranted that the disbursements are recoverable. If the solicitor fails to recover a disbursement the solicitors undertake either to refund the funders on behalf of the client, or if the disbursement has not been funded, not to seek recovery from the client. Identical provisions are contained in OM3 and OM4. Furthermore on the standard disbursement funding request form TAG SF2 (J/44/2774) the solicitor confirms that the disbursement has been remitted and that the details shown are correct. The declaration continues:

381.                      Mr Neish argues that this amounts to an arrangement between the panel solicitor and TAG that the solicitor will not pursue the client, pursuant to any rights he would otherwise have to do so, for any disbursements in excess of those which can be recovered from the paying party. This he suggests is a straightforward breach of the indemnity principle.

382.                      Mr Charlton argues that the undertaking given by solicitors to remit from their own resources an amount equivalent to the unrecovered disbursements does not alter or undermine the client’s liability to pay the full amount of the disbursements. He argues that clause 4 of the CFA ensures that the client remains liable for the full amount of disbursements incurred whether or not recovered in full from the paying party. Clause 4 explains:

383.                      Mr Neish sought to rely on the decision in Customs & Excise Commissioners v Vaz [1995] STC 14 in which MacPherson of Cluny J held that an arrangement under which a client’s fees and expenses were to be payable only if the client was successful and would equal the costs received, was a breach of the indemnity principle. That decision was given in 1994 before legal representatives were allowed to enter into conditional fee agreements. Although the agreement under consideration in Vaz was not made by a legal representative, it is my view that the provisions of Section 58 of the Courts and Legal Services Act 1990 are sufficiently wide (provided all the statutory requirements are complied with) to enable legal representatives to enter into just such an agreement. Section 58 provides:

384.                      There appears to be no reason why the circumstances specified should not be the recovery of those costs and/or disbursements from the paying party. I am reinforced in that view by the fact that the Civil Procedure Rules Committee has recently agreed to amend CPR 43.2 to insert:

385.                      This Rule is not yet in force. In my view, when it is in force it will not alter the law. It will merely clarify it. In addition to the rule change, an amendment to the CFA Regulations is envisaged which will make very much simpler the steps required to be taken by a legal representative when entering into a CFA under which, in certain circumstances, the client’s liability for fees and expenses is limited to costs recovered. Also the amendment to Section 51 of the Supreme Court Act 1981 by Section 31 of the Access to Justice Act 1999 will be implemented. This also, in my judgment will not alter the law. CFA’s of all types have been regularly used and regularly upheld in all courts, including the House of Lords, without this amendment being implemented.

386.                      On that basis therefore Mr Neish’s submission fails. I should however make it clear that the enforceability of the CFA depends upon compliance with the statutory requirements.

387.                      Between April and August 2000 the form of CFA in use provided (D/40/1119):

388.                      Mr Neish argues that this is an agreement with the client that the client will not be pursued further than the extent to which those costs can be recovered.

389.                      In essence this is the same point as that under Issue 16, and for the reasons which I have given Mr Neish’s submission must fail.

390.                      The TAG panel solicitors obligation to reimburse any disbursements which are not recovered from the Defendant is not a breach of the indemnity principle.

391.                      The provision in some versions of the CFA that the panel solicitor will in successful cases limit his fees to those recovered from the paying party is not a breach of the indemnity principle.