ATE & Proportionality - Latest Court of Appeal Ruling provides clear guidance as to the approach to be taken upon assessment
Since the abolition of the recovery of success fees and ATE policy premiums between the parties with the inception of the Jackson Reforms under the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (“LASPO”), and their replacement by Qualified One-Way Cost Shifting (“QOCS”), there have been a multitude of cases throughout the Courts, some more widely publicised than others, but none perhaps more eagerly awaited by both paying and receiving parties than the latest offering from the Court of Appeal.
Whilst, broadly, LASPO had removed the recoverability of additional liabilities between the parties, a number of exceptions remained, most notably in respect of ATE policy premiums covering the cost of medical reports assessing liability and causation in clinical negligence cases, where the value of the claim was more than £1000. This led to such policy premiums being subject to the same test of recoverability under the Civil Procedure Rules, such that the same would only be allowed between the parties if they were judged to be both reasonable and proportionate; CPR 44.3 & 44.4.
Such consideration and adjudication is, of course, nothing new. However there had perhaps been little progress in the courts approach to such premiums since the earlier days of the Woolf reforms with decisions such as The Accident Group Test Cases, RSA Pursuit Test Cases, Rogers v Merthyr Tydfil County Borough Council  EWCA Civ 1134 and, more latterly, Kris Motor Spares Ltd v Fox Williams LLP  EWHC 1008 (QB) and Redwing Construction Ltd v Wishart  EWHC 19 (TCC), to name but a few, and these matters were, of course, all within the period where additional liabilities were recoverable between the parties in all matters.
What was lacking was any definitive judgement on the interplay between recoverable additional liabilities and the Civil Procedure Rules post-LASPO.
It was, therefore, with great anticipation that all sides received the Court of Appeal’s judgement in the (joined for the purposes of the Appeal) matters of Suzanne West v Stockport NHS Foundation Trust & Lee Thomas Demouilpied v Stockport NHS Foundation Trust  EWCA Civ 1220, heard before the Master of the Rolls, Sir Terence Etherton, and Lord Justices Irwin and Coulson, many matters having been stayed pending the handing down of judgement, some for in excess of 18 months.
The underlying claims themselves were relatively unremarkable, both being claims for clinical negligence, with the matter of West being settled for £10,000 and the matter of Demouilpied being settled for £4500, with Bills of Costs being presented in the sums of £31,714.44 and £18,376.36 respectively. What was considered to be remarkable, however and at least by the paying party, were the recoverable elements of the policy premiums entered into by the Claimants, necessitated by the need to obtain experts reports into both liability and causation, such recoverable elements being £5088 in each instance, the policies being block-rated policies issued by ARAG.
In both instances, upon the initial detailed assessment in 2016, the paying party contended that the premiums were excessive, with the premium in West being reduced to £2,600 on the basis that the same was considered unreasonable, and in Demouilpied to just £650 on the basis that it was disproportionate. Such decisions, if nothing else, served to demonstrate the very wide differences of view which could be taken to the same insurance product by different judges, the matter of West having been initially and provisionally assessed by District Judge Iyer and Demouilpied by Deputy District Judge Beard.
In the matter of West, an oral hearing is requested in respect of the policy premium, with District Judge Iyer concluding
"Even if I had not seen any evidence about what the premiums might be, I would have thought that the premium really should not have exceeded £2,500. I do have evidence here. There is a question about whether the evidence indicates an alternative policy but I think that given the information that there is here, that the evidence is sufficient, and according to these, it does rather look as if the claimant could have found insurance policies available to cover a figure that was no more than what the likely expert report costs would be, ranging from £2,120 to £2,332… My instinct would have been a figure of about £2,500 and that is the figure that I consider would have been a reasonable premium to have paid."
with which the claimant was not satisfied.
Similarly, in the matter of Demouilpied, again reference was made by the paying party to the same LAMP policies to which the Deputy District Judge had observed
"Comparable premium approach adopted in satisfaction of achieving overriding objective and proportionality. Defendants' comparable premium of £1982.20 adopted."
in respect of which the receiving party was equally dissatisfied and thus sought an oral hearing, which was undertaken by Deputy District Judge Buckley who, in turn, provided an 11 page judgement dated 11 May 2016, concluding that
"…the amount of the premium was disproportionate in the light of the compensation targeted, and the limited amount of the risk to which the insurer was exposed…"
and further considered that the cost of the LAMP policies were disproportionate and therefore sought to undertake his own, alternative calculation starting at a figure of £1100 (for which no explanation was provided within the judgement) and then reducing the same by 50% to reflect the perceived prospects of success, thus arriving at a figure of £650, concluding
"34. While I appreciate that [a] block rate scheme, with its 'one size fits all' approach, makes good commercial sense, I fear that that approach is not reconcilable, in small claims such as this, with the requirement of proportionality."
Neither of the receiving parties were satisfied with the decisions upon their respective oral hearings and thus appealed further to His Honour Judge Smith who, on 4 November 2016, dismissed the appeal concluding that District Judge Iyer’s judgement focusing solely on the question of reasonableness and “…based on an ‘instinctive’view that the premium was unreasonable, the district judge had been wrong to proceed on that basis…”, concluding that the paying party had, in referring to the existence of LAMP policies and with the receiving party having not relied upon any material in response
"The District Judge was therefore entitled, as a matter of law, to rely upon the evidence before him. At that stage, he was also entitled to rely upon his experience, which in fact led him to award a higher figure than that given in the LAMP documents. He was entitled to do so in the exercise of his discretion to allow a reasonable figure, having resolved the doubt as to reasonableness in favour of the paying party, as he was required to do by CPR 44.3 (2) (b). I therefore dismiss the appeal."
and in respect of Deputy District Judge Buckley, the “freestanding calculation” of £650 was
“…both inappropriate…and potentially inadmissible…”
and further, in concluding that the £650 was also proportionate
"… I am satisfied that it was within the generous ambit of his discretion to reach that conclusion. The fact that he used an inappropriate calculation to support that figure does not mean that his conclusion was wrong. Accordingly, the appeal is dismissed."
Upon the subsequent Appeal to the Court of Appeal, the tribunal expressed wider concerns with regards to the assessment of ATE insurance premiums, namely
that “…there is a clear risk that an issue…which ought to be the subject of clear guidance with minimal room for debate, is being decided on an ad hoc, case-by-case basis…”;
that “…some of those assessments appear to have been the result of the instinctive or subjective reaction of the judge undertaking the costs of assessment without reference to objectively ascertained comparable policies and premiums…”;
further that “…there are concerns about the Respondents repeated reliance on the burden of proof…[and that their]…strategy appears to be to offer something minimal to put the reasonableness or proportionality of the ATE premium in issue, and then assert that the burden of proof falls upon the individual Claimant, who will usually be unable to deal with the wider questions that might be raised concerning the insurance market…”; and
“…the Respondent’s use of so-called comparables…” and the method by which the same were submitted, with the paying party’s approach being criticised thus “We consider that, when dealing with reasonableness, detailed evidence about unarguably comparable insurance policies and premiums would be admissible. "What is not permissible is reliance of production of a few photocopied pages of another policy which, taken as a whole, is not in fact comparable."
The appeal proceeded by way of permission being granted by Lewison LJ on 13 July 2017, with directions being given by Irwin LJ on 24 August 2018, followed by a hearing on 9 October 2018 at which, following the guidance provided previously in the matters of Callery v Gray (No 2)  EWCA Civ 1246 and Rogers, made provision for an Assessor’s Report to be prepared by Kerr J and Master Leonard, who heard submissions and evidence for 5 days between one and 8 April 2019, resulting in their “…meticulous report of some 70 pages…” (which is appended at “Annex 1” to the Court of Appeal judgement).
Having taken into consideration the assessors report, and further heard detailed submissions on behalf of both parties, provided by Nicholas Bacon QC and Rupert Cohen on behalf of the receiving parties, and Roger Mallalieu for the paying party, at the two-day Appeal Hearing on 18 & 19 June 2019, Sir Terence Etherton MR, sitting with Irwin and Coulson LJJ handed down judgement on 17 July 2019, concluding that the full ATE Insurance Premiums should be recovered.
In reaching its conclusions and whilst being keen not to restrict judicial discretion, the court found, in respect of reasonableness, having considered and bringing together the leading authorities which preceded, that as points of principle the following were relevant
“i) Disputes about the reasonableness and recoverability of the ATE insurance premium are not to be decided on the usual case-by-case basis. Questions of reasonableness are settled at a macro level by reference to the general run of cases and the macro-economics of the ATE insurance market, and not by reference to the facts in any specific case [McMenemy].
ii) Issues of reasonableness go beyond the dictates of a particular case and include the unavoidable characteristics of the ATE insurance market [Rogers].
iii) District judges and cost judges do not 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 [Rogers].
iv) It is for the paying party to raise a substantive issue as to the reasonableness of the premium which will generally only be capable of being resolved by way of expert evidence [Kris].
Those are the relevant principles applicable to any consideration of the reasonableness of an ATE insurance policy. They must be applied in every case because the ATE insurance market "is integral to the means of providing access to justice in civil disputes [now limited to clinical negligence cases] in what may be called the post-legal aid world": see paragraph 105 of Rogers.”
and in in respect of proportionality, that following any line by line assessment, there must be a consideration of proportionality in respect of the total amount assessed as reasonable, to include any ATE policy premium, and that in so doing, all circumstances must be considered “…by reference to both r.44.3(5) and r.44.4(1)…” such that “If that total figure is found to be proportionate, the no further assessment is required…” but if the figure is found to be disproportionate, the judge should then
“…consider various categories of cost, such as disclosure or experts reports, or specific periods where particular costs were incurred, all particular parts of the profit costs.
…however, any reductions from proportionality should exclude those elements of costs which are properly regarded as unavoidable, such as court fees, the reasonable element of the ATE premium in clinical negligence cases, and the like. Specifically, therefore, if the ATE premium is assessed as reasonable, it will not fall to be reduced by any further assessment of proportionality.”
The judgement therefore finally provides very valuable guidance on the approach to be taken not only by paying and receiving parties, but also the judiciary, to the question of assessing ATE policy premiums where they are recoverable between the parties. However, the Court of Appeal further provided the following caveats, namely that
“The fact that ATE insurance provides access to justice does not mean that the relevant premium must automatically be regarded as reasonable,…”
“We recognise, of course, that in the future points may arise as to the reasonableness of such premiums as they and the market change,…If and when they do, they ought to be addressed by way of a group of test cases.”
It does, therefore and at least for now, appear that the issue has finally been put to bed…until the next time…
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