ATE Recovery for Cases Settled Early: Peterborough & Stamford Hospitals NHS Trust v McMenemy & Ors [2017] EWCA Civ 1941

The Court of Appeal has ruled that claimants are able to recover ATE insurance premiums where the policies were taken out as soon as they entered into a CFA.

The case of Peterborough concerned two clinical negligence cases brought against the NHS prior to the QOCS regime, in February 2013. In each case the claimant took out ATE insurance as soon as solicitors were instructed. In the event both claimants settled by accepting an offer of compensation before any proceedings were issued and before any expert report was commissioned. Under the terms of each ATE policy the claimants were to have no personal ultimate liability to pay the premium. If the claim succeeded, the expectation was that it would be paid by the unsuccessful defendant. If the claim failed, or not all the premium was recovered from the defendant, the insurers would bear the loss.

In both of these cases the claimants’ insurers tried to recover around £5,000 of the cost of the ATE premium from the NHS, following settlement.

Claim 1

The first claimant sought recovery of £5,088 in her bill of costs. Initially the Trust served points of dispute to which the claimant responded and the bill was then provisionally assessed by DDJ Davies with the premium being allowed in full.

The Trust then requested an oral hearing solely in respect of the premium and the matter came before DDJ Holligan who found in favour of the Trust, concluding that it was unreasonable for the policy to have been taken out when it was, before medical records had been seen to confirm the facts and so before there could be any assessment of risk.

The claimant appealed this decision on the ground that the DDJ had been wrong to hold that she should have waited to ascertain the level of risk before taking out an ATE policy.

HHJ Pearce heard the appeal and allowed it, holding that the premium was recoverable in principle and remitted the case to a regional costs judge for consideration of the amount recoverable.

The NHS appealed, leading to the present litigation.

Claim 2

The second claimant also sought to recover £5,088 from the NHS in his bill of costs. The NHS again, served points of dispute challenging the recoverability of the premium including on the basis that it was unreasonably and unnecessarily incurred because liability and causation were both indefensible, the amount of the premium was disproportionate and comparables showed insurance could have been obtained for less.

The claimant served detailed Replies and the Bill was provisionally assessed with the premium allowed in full. The Trust requested an oral hearing and at that hearing DJ Rogers held that it was unreasonable to have insured against the cost of expert reports on the question of liability but that it would have been reasonable to insure against the cost of reports on causation. Although he refused to apportion the premium and so disallowed the whole of it.

The claimant appealed and HHJ Moloney granted permission on the basis that the appeal would be heard before the Court of Appeal, leading to the present proceedings.

The Rules under the Pre QOCS Regime

The costs of ATE premiums were recoverable under section 29 of the Access to Justice Act 1999 which provided:

‘Where in any proceedings a costs order is made in favour of any party who has taken out an insurance policy against the risk of incurring a liability in those proceedings, the costs payable to him may, subject in the case of court proceedings to rules of court, include costs in respect of the premium of the policy’.

Paragraph 11. 10 of the Costs Practice Direction then in force provided:

‘11.10 In deciding whether the cost of insurance cover is reasonable, relevant factors to be taken into account include: (1) where the insurance cover is not purchased in support of a conditional fee agreement with a success fee, how its cost compares with the likely cost of funding the case with a conditional fee agreement with a success fee and supporting insurance cover; (2) the level and extent of the cover provided; (3) the availability of any pre-existing insurance cover; (4) whether any part of the premium would be rebated in the event of early settlement; (5) the amount of commission payable to the receiving party or his legal representative or other agents.’

The leading judgment on the recoverability of ATE premiums under this regime can be found in Callery v Gray [2001] EWCA Civ 1117, and also concerned claims which were settled quickly, without proceedings being issued with the defendants agreeing to pay the claimants damages and reasonable costs.

The issues in dispute in Callery were (a) the appropriate level of success fee, (b) the recoverability of the ATE insurance premium and (c) the stage at which it was appropriate to enter into a CFA and take out ATE insurance. 

The essence of the decision is contained in the following paragraphs of the court's judgment:

‘[98] The defendants contend, however, that it is unjust to saddle defendants with the costs of the ATE insurance premiums and success fees without giving them a fair chance to identify those cases where liability and quantum is not disputed so that success is assured.

[99] We see the force of this submission, but we have concluded that, at least in the circumstances of the two appeals, the prejudice to defendants is not as clear as is suggested and that it is outweighed by the legislative policy and by a number of practical considerations.

Thus:

(i) If the new regime is to achieve its object, the legal costs of claimants whose claims fail should fall to be borne by unsuccessful defendants in the manner described in paragraph [93] above. On these appeals the court has to decide whether to permit liability for success fees to be apportioned in relatively small amounts among many unsuccessful defendants, or to insist on an approach under which they will be borne in much larger amounts by those unsuccessful defendants who persist in contesting liability.

(ii) If the latter alternative is adopted, the defendants who contest liability will not share liability for costs in a manner which is equitable. Where there is a strong defence which it is reasonable to advance, a larger uplift will be appropriate than where a defendant unreasonably persists in contesting liability despite the fact that the defence is weak. Thus the more reasonable the conduct of the defendant, the larger the uplift that he will have to pay if his defence fails.

(iii) In relation to claims arising out of road accidents, where defendants will be insured, the same insurers will often be sharing the costs involved, whether in the form of many uniform small uplifts or fewer large uplifts.

(iv) So far as insurance premiums are concerned, these will produce cover which benefits the defendants, for they will ensure that costs are awarded against unsuccessful claimants and that such awards are satisfied.

(v) Defendant interests, with the assistance of the court, should be able to restrict uplifts and insurance premiums to amounts which are reasonable having regard to overall requirements of the scheme. In saying this we are contemplating a position where there will be adequate data to enable informed judgment of the amount of uplift and the size of insurance premium that are reasonable in circumstances such as those before the court. We are well aware that that position has not yet been reached and that, on these appeals, we are faced with doing our best on very sketchy data. We have had particular regard to the fact that the representations and evidence submitted after the hearing have not been tested or analysed in the course of oral argument.

(vi) Claimants naturally want to know at the outset that a satisfactory arrangement to cover the costs of litigation has been made which provides sufficient protection for them, no matter what the outcome.

(vii) Claimants incur liabilities for costs to their legal advisers as soon as they give them instructions. Once a defendant starts to incur costs in complying with a protocol, the claimant will be exposed to liability for those costs if proceedings are commenced.

(viii) Solicitors and claims managers are anxious to be able to offer legal services on terms that the claimant will not be required to pay costs in any circumstances. This will assist access to justice.

(ix) There is the overwhelming evidence from those engaged in the provision of ATE insurance that unless the policy is taken out before it is known whether a defendant is going to contest liability, the premium is going to rise substantially. Indeed the evidence suggests that cover may not be available in such circumstances.

[100] For these reasons we have concluded that where, at the outset, a reasonable uplift is agreed and ATE insurance at a reasonable premium is taken out, the costs of each are recoverable from the defendant in the event that the claim succeeds, or is settled on terms that the defendant pay the claimant's costs.’

The question was then considered, should the court now depart from this policy decision in Callery in light of the changed legal landscape – namely – the introduction of QOCS, the restrictions on recoverability of ATE premiums limited to certain expert reports and the new test of proportionality.

As a reminder, the new test of proportionality is contained in CPR Part 44.3 and took effect from 1 April 2013. It states:

(1) Where the court is to assess the amount of costs … it will assess those costs:

(a) on the standard basis; or

(b) on the indemnity basis

But the court will not in either case allow costs which have been unreasonably incurred or are unreasonable in amount.

(2) Where the amount of costs is to be assessed on the standard basis, the court will –

(a) only allow costs which are proportionate to the matters in issue. Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred; and

(b) resolve any doubt which it may have as to whether costs were reasonably and proportionately incurred or were reasonable and proportionate in amount in favour of the paying party.

Before this, CPR Rule 44.4(1) provided that on an assessment of costs on the standard basis the court would only allow costs ‘which are proportionate to the matters in issue’.

The first claimant submitted that the recovery of ATE premiums in clinical negligence cases, even if the policies were taken out after 1 April 2013, continued to be governed by the old regime and were not subject to the new test of proportionality.

Handing down judgment in the Court of Appeal, Lord Justice Lewison rejected this submission on the basis that the Regulations surrounding the transitional provisions for LASPO and QOCs made it clear that the new test, including the provisions about proportionality, apply to post-April 2013 clinical negligence claims.

Returning to the question of whether the Court should depart from the decision in Callery, Levison LJ stated at para 74:

‘I have not been persuaded that we should depart from the policy decision taken in Callery v Gray and examine the reasonableness of taking out ATE insurance on a case by case basis. Nor am I persuaded that the new proportionality test requires a case by case approach. It is clear from the Government's formal response to Sir Rupert Jackson's recommendations that "for reasons of public policy" the Government decided to exclude ATE insurance premiums relating to the cost of expert reports in clinical negligence cases from the general abolition of their recovery. The concern was that claimants might not be able to afford the "upfront" costs of such reports, and thus that access to justice might be unduly restricted’.

He went on to say that, the Government were aware at the time of restricting the recoverability of ATE premiums, that ATE policies were taken out at the same time as a potential claimant entered into a CFA, and must have intended not to disturb that practice. As such he concluded, and the Court agreed, that it is still permissible for ATE insurance to be taken out as soon as a claimant enters into a CFA.

Turning to the specifics of the claims before him he held that the District Judge in the second claim had been wrong to conclude that although it was reasonable to take out ATE insurance against the cost of reports on causation it was unreasonable to insure against the cost of reports on liability. Costs judges, he stated, ‘do not have the expertise to second guess the insurance market, still less to deconstruct a policy that is offered as a package into its constituent parts’.

As such, the NHS trust’s appeal was dismissed and the second claimant’s appeal allowed.

The full judgment can be accessed here.