AN INSURANCE PREMIUM WAS PROPERLY INCURRED: JUDGE, ON APPEAL, ALLOWS ATE COSTS TO BE DEDUCTED FROM CHILD’S DAMAGES

I am grateful to Express Solicitors for sending me a copy of a judgment of X -v- H&M Hennes, made by HHJ Lethem on 21st April 2022. It relates to the recoverability of an insurance premium between solicitor and client.  The judge overturned a decision that the costs of a premium were not to be deducted from a child claimant’s damages.  On appeal the premium was allowed to be recovered.  The starting point was that the costs were reasonably incurred and it was not open to the court to challenge the costs of the premium on a “micro” basis.

A copy of the judgment is available here Transcript – xxx – insurance costs.  I have anonymised the claimant’s details, although no anonymity order was made.

THE FACTS

The claimant was injured in an accident.  He instructed solicitors through a litigation friend.  The conditional fee agreement provided for a deduction from damages if the action was successful and payment of an ATE policy.  The cost of that policy was £336.00.

THE APPROVAL HEARING BEFORE THE DISTRICT JUDGE

The matter settled for £1,750.00. The Deputy District Judge, however,  refused to approve an order that the £336.00 be deducted from the claimant’s damages.

THE CLAIMANT’S SUCCESSFUL APPEAL TO THE CIRCUIT JUDGE

The claimant was successful in an appeal to the District Judge.   The appeal was also on behalf of the litigation friend who was joined as a party to the appeal. If the costs of the premium could not be deducted the litigation friend stood to be personally liable.

The judge allowed the appeal.
9. In terms of the application of the law, Mr Hughes’ approach to the provisions of Part 21.12 essentially started from the premise contained in Rule 21.12(4) that the Court has to have regard to the provisions of Rule 46.9. He of course made the point that, in relation to Rule 46.9, notions of proportionality are absent because the assessment is on an indemnity basis. Further, that there are the presumptions that the costs have been reasonably incurred and are reasonable in amount provided they are incurred with the agreement of the client.  Factually he referred to the witness statement from the litigation friend which confirmed that costs were incurred with her knowledge and approval.  Thirdly, of course, he submitted that, based on the Herbert v HH Law decision, ATE premiums are not capable of being challenged under the provisions of 46.9.  Thus he submitted that, on a true interpretation, it is not open to a district judge to disallow an ATE premium that meets the requirements of Part 46.9.
10. He accepted that there is something of a tension between the suggestion that some ATE premiums can be considered under the provisions of CPR 21.12 and the consequences of Herbert v HH Law that they cannot be considered under 46.9. He referred me to the decision in BCX v DTA [2021] EWHC B27 (Costs), and that there was perhaps some residual discretion under 21.12.  In that respect, he said that the Court should start with a presumption that the costs have been reasonably incurred and reasonable in amount providing the litigation friend has approved them.  Thus, in his submission, the litigation friend had two advantages in the exercise of discretion under CPR 21.12.  Firstly, that proportionality should not play a part in the consideration of whether to allow a payment out pursuant to Part 21.12, and secondly, the assumption ought to be that the costs were reasonable in amount and reasonably incurred.  On that basis therefore, Mr Hughes gave some primacy to the effect of Part 46.9 over the operation of Part 21.12.
11. In seeking to clarify the way in which those two provisions mesh, it seems to me that there is a conscious reference to the provisions of Part 46.9 in Rule 21.12(4). That it is there for a reason.  However, it is plain that the provision simply enjoins the Court to have regard to the provisions of 46.9.  In other words, the judge is to have regard to the fact that were there to be an assessment between the solicitor and the litigation friend, then that would be on an indemnity basis and the presumptions to which I have referred apply.  It is not a provision that makes Part 21.12 subservient to Rule 46.9.  Rather, it seems to me that the Court has to recognise that insofar as it departs from the provisions of Rule 46.9, it is rendering the litigation friend vulnerable to being personally liable for costs which are not permitted under Part 21.12 but are not open to challenge as between the litigation friend and the solicitors under CPR 46.9, because of the way in which 46.9 operates.  Thus the effect of that recognition is that the Court is likely to start from a presumption that providing the litigation friend has approved the costs, they have been reasonably incurred and are reasonable in amount.  Secondly, the judge is likely to start from the assumption that the costs are proportionate.
12. However, it is open to the judge to depart from that initial starting-off point, and indeed were that not to be the case, then there would be no reference to Rule 44.4(3) with of course the ‘eight pillars of wisdom’ which would guide a judge in deciding whether to depart from the initial starting off point. Thus, it may be that there are factors found in 44.4(3) or in any other circumstances of the case that would cause the Court to depart from those presumptions.  That would depend on the factors engaged in each particular case.  Where there is evidence that undermines the starting off point of proportionality and reasonableness, then the Court is entitled to take into account those factors and to decide that the ATE premium should not be deducted from the child’s damages.  What is not open to the court is to simply say that the premium was unreasonable in amount on a case by case basis. (see West)
13. Against the legal background, I turn to consider the grounds of appeal. I do so in a context where I interpret that the deputy district judge’s primary concern was not the quantum of the costs but rather whether they were reasonably incurred at all.  I accept that in the busy hurly-burly of delivering a short judgment that the judge did make some references to quantum.  Insofar as he made references to quantum, it seems to me that this was in error.  I accept Mr Hughes’ submission that the approach to the quantification of ATE premium has now been resolved by the West decision and that it is not open to a district judge to consider quantum on a case-by-case basis, closing his or her eyes to the overall operation of the market.  Indeed, West makes clear, any challenge to an ATE premium will be conducted at a macro as opposed to a micro level.  Thus, I consider that the deputy district judge fell into error insofar as he was seeking to quantify the amount of the ATE premium.
14. However, in my judgment, that was not the overriding and overarching factor playing on his mind. I have already made reference to the passages which suggest that a starting off point was that this premium was not reasonably incurred.  I accept that on occasions he diverts, as does the advocate, into talking about necessity.  That I think is a looseness of language arising out of the circumstances in which the judgment was given.  It is plain, particularly in the resolution, that the learned deputy district judge bore in mind the reasonableness test.  In considering the reasonableness of the matter, it seems to me that the deputy district judge approached the case without the presumptions and assumptions that arise under a proper interpretation of Rule 46.9 in his mind. The point of departure should have been that these costs were reasonable, both in being incurred and in quantum, whereas the judge approached the matter on the basis that they were unreasonable and simply supportive of that position. 
15. His consideration of them being unreasonable I consider falls into error which can be demonstrated by a passage to which I have already referred. It is the passage in which Mr Bailey on behalf of the claimant and litigation friend talked about the risks involved in the litigation bringing the claim.  The deputy district judge replies, “That is why I am allowing a 25% success fee”.  That to my mind is an acceptance that there was a risk.  Indeed, I would go further.  It is an acceptance that the risk is such as would justify a 25% success fee as opposed to a lower success fee.  It is therefore an acceptance that there was an appreciable and significant risk in the litigation.  Accordingly, when the deputy district judge resolved the matter, he seemed to approach it on the basis that the risk was de minimis, and thus it seems to me that there is within the judgment an inherent contradiction and tension between allowing the success fee and then disallowing the ATE premium upon which it was based.  I thus consider that the deputy district judge failed to properly apply the operation of Rule 21.12(4) and failed to have a proper regard from the assumptions and presumptions that arise from that provision via CPR 46.9.  This was a failure to properly apply Rule 21.12 and an inherent contradiction in factual findings.  In the circumstances, I will allow the appeal under grounds two and three and I will order that the litigation friend is entitled to have the £336 deducted from the children’s damages. 
16. Upon hearing counsel for the litigation friend and upon the litigation friend applying to be joined as a party to the appeal, (1), the litigation friend be joined as appellant to the appeal, and the appeal be allowed pursuant to grounds two and three.