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Christopher McClure examines the decision of the Court of Appeal in the conjoined appeals of West and Demouilpied v Stockport NHS Foundation Trust  EWCA Civ 1220
Readers of COSTS will recall the front cover to our November/Christmas edition which featured a rather upset lady (probably a solicitor) sporting some festive headwear, sat head in hands, and accompanied with the following caption:
All I want for Christmas is clear and unequivocal judicial guidance on how to apply the new* test proportionality test.
* Only six years old next April
It was a sorry state of affairs indeed. The courts, whilst highly adept at defining the various strands of the new test, were particularly unhelpful in explaining how to apply it. Practitioners were left frustrated when the Court of Appeal on more than one occasion evaded the opportunity to provide definitive guidance on the pragmatic application of the test; this was particularly frustrating given that Sir Rupert Jackson had voiced opposition to the provision of extra-judicial guidance on the basis that the common law would provide any guidance needed.
Whilst the appeals in West and Demouilpied raised specific points about the assessment of ATE insurance premiums they also served to highlight wider concerned regarding the costs assessment process, viz. the application and interplay between the tests of reasonableness and proportionality in relation to both ATE insurance premiums and costs generally.
The facts are perfectly common. Both cases concerned claims against the NHS wherein damages were sought for personal injury arising from clinical negligence. Each claimant took out an ATE policy in order to insure against the risk of incurring a liability to pay for expert reports relating to liability or causation.
On 1 April 2013 LASPO 2012 introduced an almost blanket reduction on the inter partes recovery of additional liabilities. In order to provide access to justice in clinical negligence claims an exception was made in relation to expert’s reports dealing with liability and causation such that the same continued to be recoverable inter partes.
To that end, Regulation 3 of the Recovery of Costs Insurance Premiums in Clinical Negligence Proceedings (Number 2) Regulations provides that:
(1) A costs order made in favour of a party to clinical negligence proceedings who has taken out a costs insurance policy may include provision requiring the payment of an amount in respect of all or part of the premium of that policy if –
(a) The financial value of the claim for damages in respect of clinical negligence is more than £1,000; and
(b) The costs insurance policy insures against the risk of incurring a liability to pay for an expert report or reports relating to liability or causation in respect of clinical negligence (or against that risk and other risks).
(2) The amount of the premium that may be required to be paid under the costs order shall not exceed that part of the premium which relates to the risk of incurring liability to pay for an expert report or reports relating to liability or causation in respect of clinical negligence in connection with the proceedings.
The current position is now reflected in s. 58C of the Courts and Legal Services Act 1990.
The new proportionality test was introduced on 1 April 2013 but does not apply to cases commenced before 1 April 2013 or to costs incurred before that date. The test is found at CPR r. 44(2)(a) and (5); crucially, costs which ‘are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred’.
The concept of ‘necessarily incurred’ is an important point and one to which we shall return in due course.
ATE Insurance Premiums
In the absence of any clear guidance on the vulnerability of insurance premiums toassessment there has been a distinct lack of consistency in how the courts have dealt with premiums claimed inter partes either side of LASPO 2012. This was particularly well-illustrated by the present case as articulated by the Court in the following terms:
‘[T]here have been a wide range of answers from the judges, running from disallowance of the premium altogether, increasing to the freestanding figure of £650, and up to the £1,982 referable to the LAMP policies and the calculation of £2,500 said to be based upon those same policies. In this way, four different assessments of the same figure by three different district judges produced four different results.’
It is important to note that the insurance premiums in this case were block-rated. Unless otherwise stated, judicial comments must be taken in that context, i.e. block-rated as opposed bespoke.
The Court of Appeal referred to its own decision in Rogers v Merthyr Tydfil County Borough Council  EWCA Civ 1134 wherein at paragraph 117 it was held that:
‘District judges and costs judges do not, as Lord Hoffmann observed in Callery v Gray (Nos 1 and 2)  1 WLR 2000, para 44, have the expertise to judge the reasonableness of a premium except in very broad brush terms, and the viability of the ATE market will be imperilled if they regard themselves (without the assistance of expert evidence) as better qualified than the underwriter to rate the financial risk the insurer faces.’
In reliance upon that decision the Court prescribed the following list of considerations to be applied in similar cases:
"41. [T]he fixed costs regime inevitably contains swings and roundabouts, and lawyers who assist claimants by participating in it are accustomed to taking the rough with the smooth, in pursuing legal business which is profitable overall.";
This article will address the relationship between reasonableness and proportionality, and ATE insurance premiums, below.
It will not be easy for paying parties to dispute the reasonableness of insurance premiums moving forward – particularly block-rated premiums. The Court was at pains to note the complex workings of the ATE market which render broad-brush or generalised submissions on the reasonableness of ATE insurance premiums by paying parties inappropriate. Moreover, expert evidence will certainly be required in order to reach the view that a particular premium was unreasonable. And in relation to block-related policies the point was made that the premium is unconnected both to the risk of success and the level of cover in any particular case.
Notwithstanding the foregoing, the Court did state that a paying party is not automatically bound to accept the reasonableness of whatever premium has been paid. But as will be seen, once a block-rated ATE policy is accepted as being a reasonable cost in the claim (whether by concession or on assessment) it is not possible to then challenge that policy on the basis of proportionality.
Speaking of block-rated policies, the Court determined that it would be incorrect to subject any such premium to the test of proportionality. This was primarily on the basis that the amount of a block-rated premium bears no relationship to the value of the claim - an essential strand in the proportionality test.
The Court’s second reason is, perhaps, less clear cut. The Court made reference to items of costs which are ‘fixed and unavoidable, or which have an irreducible minimum, without which the litigation could not have been progressed.’ Court fees were cited as ‘perhaps the best example’ of this.
In other words, the Court has given binding effect to the longstanding process on assessment of ring-fencing from the proportionality test items of costs which constitute an irreducible minimum in the claim. This, however, raises an interesting point regarding the distinction between the terms ‘fixed and unavoidable’, ‘irreducible minimum’ and costs 'without which the litigation could not have progressed’ on the one hand, and costs which have been ‘necessary incurred’ on the other.
The point arises from a key change brought about by the new test, i.e. that ‘costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred’ (CPR r. 44.3(2)(a) refers; emphasis added).
Proportionality, then, clearly applies to costs which are necessarily incurred; but it does not, apparently, apply to costs incurred ‘without which the litigation could not have progressed’ – a phrase which many would treat as synonymous with costs ‘necessarily incurred’.
In this commentator’s view, however, it is likely that ‘conduct’ provides an adequate answer to any averment that these terms represent a distinction without a difference.
By way of example, consider that a claimant who fails to comply with directions to file a budget (and is thereby limited to court fees only) makes an application for relief from sanctions which the court duly grants. In so granting, the court considers that the respondent unreasonably resisted the application and therefore orders that the costs of the application be costs in the claim, which the applicant/claimant then goes onto win. The claimant’s bill of costs will, of course, now contain those profit costs, fees and disbursements associated with the application for relief.
Whilst few would argue against the position that costs relating to the application have been necessarily incurred (it is no-one's interests for solicitors to run litigation at a loss), they are very arguably not ‘unavoidable’. They were, in fact, perfectly avoidable having been incurred only as a direct result of poor conduct but for which they would not have been incurred at all. In other words, the application and costs associated therewith were avoidable but necessary.
In terms of the application of the test generally, the Court of Appeal has laid down the following guidance:
The decision is both sensible and comprehensive. Certainly it has settled the basis on which premiums – both block-rated and bespoke – may be properly challenged and has provided practitioners with clear guidelines on how the courts should approach the new proportionality test on assessment. This, in turn, should go some way to assist in furthering the overriding objective of dealing with cases at a proportionate cost as parties will now have a much better idea of how the court will approach proportionality on assessment.
LLB (Hons), PG Dip (BVC)
Wednesday 7th August 2019