Archive for July 2014
In a stunning decision the Supreme Court has declined to order payment of a recoverable success fee and After the Event insurance premium against a losing party and has adjourned the matter for the Attorney General and Secretary of State for Justice to be notified so that they may make representations in relation to the suggestion that recoverability breached a paying party’s right to a fair trial as enshrined in Article 6 of the European Convention on Human Rights and was also an unjustified deprivation of property contrary to Article 1 of the First Protocol to the Convention.
The Supreme Court, in Coventry and others v Lawrence and another (No 2)  UKSC 46, judgment delivered on 23 July 2014 also said that it was considering making a declaration of incompatibility, meaning the matter would be referred back to Parliament, even though the relevant legislation – the Access to Justice Act 1999 – has been repealed.
The decision does not affect post 31 March 2013 CFAs. In relation to pre 1 April CFAs where the success fee and ATE has been paid it is unlikely that the paying party will be able to appeal out of time to try and get these back as the law was clear, if illegal.
Rather the UK government would face claims by defendants, generally insurance companies, for the return of hundreds of millions of pounds, if not billions, for additional liabilities that they were illegally forced to pay. The Government – insurance company love in might be about to end.
In relation to ongoing cases with pre 1 April 2013 CFAs and ATE premiums- on the face of it recoverable – it is unlikely now that any court will order them to be paid. Expect cases to be adjourned until Coventry is decided. Note that the Supreme Court has not made any final decision either way.
While I do not disagree with the Supreme Court’s comments – and I set out Paragraphs 32-48 below- to disallow recoverability for clients who incurred ATE premiums and success fees on the basis that they would be recoverable, as very clearly intended and stated by Parliament in primary legislation would be grossly unfair.
Watch this space.
“32. The final issue arises out of the Judge’s order for costs, namely that the respondents should pay 60% of the appellants’ costs. The appellants’ costs at first instance consisted of three components, as permitted by the Courts and Legal Services Act 1990 as amended by sections 27-31 in Part II of the Access to Justice Act 1999. The first was the “base costs”, ie what their lawyers charged on the traditional basis, which was, in crude terms, calculated on an hourly rate and the costs of disbursements. The second component was the success fee (or uplift) to which the lawyers were entitled, because they were providing their services on a conditional fee (or no win no fee) basis. The third component was the so-called ATE premium, a sum which is payable to an insurer who agreed to underwrite the appellants’ potential liability to the respondents for their costs if the respondents had won. The appellants’ base costs amounted to £398,000; the success fee, which (we will assume) was at the maximum permitted level of 100%, amounted to £319,000-odd (as the uplift does not apply to every item of costs), and the ATE premium was apparently about £350,000.
33. Accordingly, if the respondents had been liable for the whole of the appellants’ costs up to the date the Judge made the order, they would have had to pay the appellants around £1,067,000. As it is they are liable for over £640,000.
34. These figures are very disturbing.
35. They give rise to grave concern even if one ignores the success fee and ATE premium. The fact that it can cost two citizens £400,000 in legal fees and disbursements to establish and enforce their right to live in peace in their home is on any view highly regrettable. The point is reinforced when one takes into account the value of their home, which is less than £300,000 (coupled with the effect of the nuisance on that value, £74,000 at the most) and the fact that there will have been very significant further “base costs” incurred as a result of four-day appeals in the Court of Appeal and this Court. The point can equally forcefully be made from the point of view of the respondents. As relatively small business operators, they are not only having to fund their own costs, which presumably would be of the same order, but in addition they are going to have to pay some £240,000 towards the appellants’ costs. It is true that the respondents lost, but they were seeking to defend their businesses and they plainly had a reasonable case, as is evidenced by the fact that they won in the Court of Appeal.
36. One of the main, and laudable, aims of the proposals made by Lord Woolf in his report Access to Justice (1996), which led to the enactment of the Civil Procedure Act 1997, and the introduction of the Civil Procedure Rules the following year, was to try and achieve a better relationship between the costs and benefits of litigation. As the figures in this case show, and as is reflected in many other cases, that target has not merely proved elusive, but it is often missed by a very wide margin indeed. It is, of course, easy to criticise, and, having been Master of the Rolls until 2013, I am as aware as anyone how hard it is to ensure that a case, particularly one that does not involve a very large sum of money but is potentially complex in terms of fact, law and expertise, such as the present case, is both properly and proportionately litigated. It is also right to acknowledge that the reforms proposed by Sir Rupert Jackson in 2010, which do not apply to this case, have been largely introduced and are being absorbed. Nonetheless, even without the effect of Part II of the 1999 Act, to which I must shortly turn, it would be wrong for this Court not to express its grave concern about the base costs in this case, and express the hope that those responsible for civil justice in England and Wales are considering what further steps can be taken to ensure better access to justice. It is only fair to emphasise that this concern relates to the current system and that it is not intended to imply any criticism of the lawyers in this case.
37. The amount of the base costs in this case is however dwarfed by the total potentially recoverable costs, which are nearly three times as much. The figures illustrate the malign influence of the amendments made to the 1990 Act by Part II of the 1999 Act, and as implemented through CPR rule 44 and CPR44 PD – now fortunately repealed and replaced by the provisions of Part 2 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012, following Sir Rupert Jackson’s Review of Civil Litigation Costs (2010), referred to above. As Sir Rupert pointed out in his Review, and as is explained in Zuckerman on Civil Procedure Principles and Practice (3rd ed 2013), the system introduced in 1999 had a number of unique and regrettable features, four of which are worth mentioning for present purposes. First, claimants had no interest whatever in the level of base costs, success fee or ATE premium which they agreed with their lawyers, as, if they lost they had to pay nothing, and if they won the costs would all be paid by the defendants, who, on the other hand, had no say about the costs (other than retrospectively on an assessment). Secondly, in many cases, unsuccessful defendants found themselves paying, in addition to the whole of their own costs, three times the claimants’ “real” costs. Thirdly, while proportionality had a part to play when assessing the recoverability of base costs (albeit a limited part – see Home Office v Lownds  1 WLR 2450), it was excluded from consideration in relation to the recovery of success fee or ATE premium (which were simply required to be reasonable) – see CPR44 PD, paras 11.7-11.10. Fourthly, the stronger the defendants’ case, the greater their liability for costs would be if they lost, as the size of the success fee and the ATE premium should have reflected the claimants’ prospects of success.
38. Even accepting that they have no complaint about their liability for 60% of the appellants’ base costs, the respondents are understandably aggrieved by the consequences of the Judge’s order that they pay 60% of the appellants’ costs, because it means that they have to pay (i) 60% of the 100% success fee, and (ii) 60% of the ATE premium. Mr McCracken QC contends on their behalf that this is a grievance which can be accorded legal recognition through article 6 of the European Convention on Human Rights and/or article 1 of the First Protocol to the Convention (“A1P1”). His argument is that, by virtue of section 6 of the Human Rights Act 1998 the court, as a public body, must exercise its discretion when awarding costs in accordance with the Convention, save where otherwise required by primary legislation (such as the 1990 and 1999 Acts), and that secondary legislation (such as the CPR and Practice Directions) must be disapplied where it requires otherwise. Relying on the judgments of the Strasbourg Court in MGN Limited v United Kingdom (2011) 53 EHRR 5 and Dombo Beheer BV v Netherlands (1994) 18 EHRR 213, he contends that article 6 would be infringed if the court required the respondents to pay 60% of the success fee and the ATE premium. As to A1P1, he relies on the reasoning of the Strasbourg court in James v United Kingdom (1986) 8 EHRR 123.
39. In MGN v UK at para 217, the Strasbourg Court said that “the depth and nature of the flaws in the system” introduced by the 1999 Act and the provisions of the CPR referred to above were “such that the Court can conclude that [it] exceeded even the broad margin of appreciation to be accorded to the State in respect of general measures pursuing social and economic interests”. That provides some support for the respondents’ case. However, the observation and the decision itself were made in connection with an alleged infringement of article 10, where the claimant was rich enough not to need to take advantage of a conditional fee agreement. In the present case, by contrast, article 10 does not apply and it is apparent that the appellants needed the protection of a conditional fee agreement and recoverable ATE premium in order to be able to bring their claim. Dombo Beheer was a case concerned with article 6, and the Strasbourg court said that it was “clear that the requirement of ‘equality of arms’, in the sense of a ‘fair balance’ between the parties applies in principle” to “cases concerning civil rights and obligations”. However, it is by no means clear that that general observation would necessarily support the respondents’ argument. In James v UK at para 50, the Strasbourg court said that, when someone is deprived of property, there must be “a reasonable relationship of proportionality between the means employed and the aim sought to be realised”, and that “a ‘fair balance’ …. must be struck between the demands of the general interest of the community and the requirements of the protection of the individual’s fundamental rights”. I am unconvinced that this takes matters any further than the argument based on article 6.
40. In Callery v Gray  1 WLR 2000, the House of Lords effectively confirmed that, subject to reasonableness, success fees and ATE premiums were recoverable, and in Campbell v MGN Ltd (No 2)  1 WLR 3394, the House of Lords held that the 1999 Act costs recovery regime did not infringe article 10. However, as I have mentioned, the Strasbourg court took a different view in the latter case. In those circumstances, it must, in my view, follow that the issue of whether the 1999 Act costs regime, and in particular a claimant’s right to recover any success fee and ATE premium from an unsuccessful defendant, infringes the Convention, is one which it is open to this Court to reconsider.
41. In the light of the facts of this case and the Strasbourg court judgments relied on by Mr McCracken, it may be that the respondents are right in their contention that their liability for costs under the 1990 Act, as amended by Part II of the 1999 Act, and in accordance with the CPR, would be inconsistent with their Convention rights. However, it would be wrong for this Court to decide the point without the Government having had the opportunity to address the Court on the issue.
42. This concern is based on the proposition that a declaration of incompatibility ought not be made by a court without the Government having the opportunity of addressing the court. It appears to me that there is a substantial argument to the effect that it is not merely secondary legislation, namely CPR 44 and CPR44 PD, but also Part II of the 1999 Act, which had the effect of requiring defendants who have been ordered to pay a claimant’s costs to pay the uplift and ATE premium in full, subject to the uplift and premium having been reasonable, but irrespective of proportionality. Section 58A(6) of the 1990 Act (added by section 27 of the 1999 Act) provides that an order for costs “may, subject … to rules of court, include provision requiring the payment of any fees payable under a conditional fee agreement which provides for a success fee”, and section 29 of the 1999 Act has a similar provision in relation to an ATE premium. It is true that these provisions are not on their face mandatory, but it seems to me to be arguable that the costs charging and recovery system introduced by Part II of the 1999 Act simply would not work unless a claimant’s success fee and ATE premium were recoverable in full, irrespective of proportionality, from a defendant who had been ordered to pay the claimant’s costs.”
What I tell you three times is true
Lewis Carroll – The Hunting of the Snark
The Story So far
The Master of the Rolls, not Lord Justice Dyson, sets up a judicial enquiry into the civil justice system that has nothing seriously wrong with it.
Lord Justice Jackson spends a year of judicial time preparing the report. His relatively modest proposal on relief from sanctions is wholly changed by an unelected Rules Committee. That Committee removes the rather important draft rule that the court must take in to account “the interests of justice in the particular case.”
So at a stroke of an unelected pen 800 years of English and Welsh principles are cast aside.
The Master of the Rolls makes a speech supporting the proposal that Lord Justice Jackson never made.
The Master of the Rolls gives judgment in the Mitchell case supporting his own speech supporting the rule that was never meant to be.
The storm breaks .
June 2014: Parliament overturns much of the effect of the Mitchell decision.
In July 2014 the Master of the Rolls – he gets around a bit –hears three appeals against his own decision in Mitchell and fundamentally alters that decision while denying that he is doing so, continually referring to the delivery of his implementation speech and himself as the judge in Mitchell in the third person.
In that same decision Lord Justice Jackson, to his great credit, gives a powerful dissenting judgment which could be encapsulated in T S Eliot’s line from The Love Song of J Alfred Prufrock.
“That is not what I meant at all.
That is not it, at all. ”
The Court of Appeal in its July 2014 judgment makes just the barest mention of new rule 3.8(4), allowing all parties to agree a 28 day extension in all matters, subject to conditions, without the court being allowed to have any involvement at all. It does not mention that Parliament, not the Rules Committee, made this change.
Jackson LJ giving a dissenting judgment on his own report is one of many ironies in this case. Another is that the original decision in Mitchell was upheld largely because court time – half a day – had been wasted by the solicitor’s failure to file its budget on time. The clearly wrong original Court of Appeal decision in Mitchell has probably wasted more judicial time than any other decision in history, leading to tens of thousands of unnecessary relief from sanctions applications.
Yet there has been no apology from the Court of Appeal. Rather it was the fault of all of the following for misunderstanding the decision:
- all other judges;
- all other lawyers;
- all journalists;
- all academics;
This view of the Master of the Rolls is expressed neatly in Paragraph 39 of the Denton cases.
“Justifiable concern has been expressed by the legal profession about the satellite litigation and the non-cooperation between lawyers that Mitchell has generated. We believe that this has been caused by a failure to apply Mitchell correctly………..”.
As in all the best fairy tales everyone is now supposed to live happily ever after and, curiously, a whole host of lawyers have tripped over themselves to say how wonderful this decision is by the very man who caused all of the problems in the first place.
I think not. The more thoughtful commentators, Gordon Exall and Simon Gibbs for example, have a different view. So do I.
As to the detail of this SuperOmnishambles here goes.
the Mitchell Take Two case – rather than recognize that the Mitchell decision was wrong – in full or in part – the Court of Appeal, while accepting that it had “been the subject of criticism” took the view that the fault was everyone else’s and that the decision had “been misunderstood and is being misapplied by some courts”.
The Court of Appeal accurately summarized the main criticism of the Mitchell decision at paragraph 21 of its decision.
“21. The principal criticisms may be summarized as follows. First, the “triviality” test amounts to an “exceptionality” test which was rejected by Sir Rupert Jackson in his report and is not reflected in the rule. It is unjustifiably narrow. Secondly, the description of factors (a) and (b) in rule 3.9(1) as “paramount considerations” gives too much weight to those factors and is inconsistent with rule 3.9 when read in accordance with rule 1.1. They should be given no more weight than all other relevant factors. It is said that the Mitchell approach downplays the obligation to consider “all the circumstances of the case, so as to enable [the court] to deal justly with the applications. Thirdly, it has led to the imposition of disproportionate penalties on parties for breaches which have little practical effect on the course of litigation. The result is that one party gets a windfall, while the other party is left to sue its own solicitors. This is unsatisfactory and adds to the cost of litigation through increases in insurance premiums. Fourthly, the consequences of this unduly strict approach has been to encourage (i) uncooperative behaviour by litigants; (ii) excessive and unreasonable satellite litigation; and (iii) inconsistent approaches by the courts”.
In an already notorious statement the Court of Appeal said “we consider that the guidance given at paras 40 and 41 of Mitchell remains substantially sound”.
The Court of Appeal then states that courts should address an application for relief from sanctions in three stages:
- …………“Identify and assess the seriousness and significance of the “failure to comply with any rule, practice direction or court order” which engages rule 3.9(1). If the breach is neither serious nor significant, the court is unlikely to need to spend much time on the second and third stages”.
- Consider why the default occurred;
- …….Evaluate “all the circumstances of the case, so as to enable [the court] to deal justly with the application including [factors (a) and (b)]”.
Thus the breach must now be serious or significant, rather than not trivial, for relief potentially to be refused.
Paragraphs 26 and 27 are waffle. They do not help to define “serious or significant” any more than “trivial” was defined. I, for one, am none the wiser.
Paragraph 28 reads:
“28. If a judge concludes that a breach is not serious or significant, then relief from sanctions will usually be granted and it will usually be unnecessary to spend much time on the second or third stages”.
Thus “usually” is used twice in a few words, clearly leaving open the possibility that there will be non serious non-significant breaches where relief will not be granted.
What on earth does the statement “it will usually be unnecessary to spend much time on the second and third stages” mean? If the breach is not serious or significant why should any time be spent? If time needs to be spent then surely it should be sufficient time to deal with the issue properly.
This guidance is really:
“If the breach is not serious or significant, which we have not attempted to define, then pay lip service to stages 2 and 3 but don’t really bother about them”.
The second stage
Here is the full and verbatim guidance in relation to the second stage.
“29. The second stage cannot be derived from the express wording of rule 3.9(1), but it is nonetheless important particularly where the breach is serious or significant. The court should consider why the failure or default occurred: this is what the court said in Mitchell at para 41.
30. It would be inappropriate to produce an encyclopaedia of good and bad reasons for a failure to comply with rules, practice directions or court orders. Para 41 of Mitchell gives some examples, but they are no more than examples”.
So judges now have to consider whether the breach is serious or significant. If it is then Stage 2 is engaged. If it is not then it appears that Stage 2 is still engaged but the judge should not really take it seriously.
If it is to be taken seriously, because the breach was serious or significant, then the judge has to consider why the default occurred but is given no guidance of any kind whatsoever as to what are, or are not, acceptable reasons.
So there is a serious or significant breach (no guidance given as to what is serious or significant), there is a bad reason for the breach (no guidance given as to good or bad reasons) and thus Stage 3 is engaged.
The third stage
“31. The important misunderstanding that has occurred is that, if (i) there is a non-trivial (now serious or significant) breach and (ii) there is no good reason for the breach, the application for relief from sanctions will automatically fail. That is not so and is not what the court said in Mitchell: see para 37. Rule 3.9(1) requires that, in every case, the court will consider “all the circumstances of the case so as to enable it to deal justly with the application”. We regard this as the third stage”.
How does that square with
“Parties can no longer expect indulgence if they fail to comply with their procedural obligations.”
(Dyson LJ, MR, paragraph 27 of the 18th lecture implementing the Jackson reforms,approved in Mitchell with the lead judgment given by Dyson LJ, MR, now apparently disagreed with in Denton by Dyson, LJ, MR).
How stupid of all of us – how could we possibly have misinterpreted the following passage from Paragraph 58 of Mitchell:
“58. The expectation is that the sanction will usually apply unless
- the breach is trivial or
- there is a good reason for it.
It is true that the court has the power to grant relief, but the expectation is that, unless (i) or (ii) is satisfied, the two factors mentioned in the rule will usually trump other circumstances”.
How could we possibly have failed to spot that there must be a Stage (iii)? Possibly because there is only a two stage test in Mitchell.
Paragraphs 32-35 of Denton then say at great length and with little guidance that “all the circumstances” must be considered.
The Court of Appeal grudgingly acknowledges that it could “see that the use of the phrase “paramount importance” in para 36 of Mitchell has encouraged the idea that the factors other than factors (a) and (b) are of little weight”.
That is unsurprising when you consider the entry in the Oxford Thesaurus of English for paramount:
“most important, of greatest importance, of prime importance, of supreme importance; uppermost, supreme, chief, overriding, predominant, cardinal, foremost, first and foremost, prime, primary, principal, pre-eminent, highest, utmost, main, key central, leading, major, top, topmost, dominant”.
Now paramount is to be replaced by particular:
“Although the two factors may not be of paramount importance, we reassert that they are of particular importance”. (Paragraph 32).
The truth is that no-one misunderstood anything. Everyone correctly understood the meaning of paramount although very many judges refused to apply Mitchell. Paragraph 31 is simply not correct. The fact is that the Court of Appeal got it very badly wrong in Mitchell and the Court of Appeal will not recognize the fact, making this decision itself deeply flawed.
One judge who did look at all of the circumstances and then granted relief was Mr Justice Andrew Smith in Raayan Al Iraq Co Ltd v Trans Victory Marine Inc  EWHC 2696.
For applying the law, correctly as we now know, he was roundly criticized by the Master of the Rolls Lord Justice Richards and Lord Justice Elias in Paragraphs 49-51 of Mitchell, a decision which apparently is still right even though it criticized a Judge for being wrong when in fact he was right. I must have missed the apology to Mr Justice Andrew Smith in the Denton judgment.
In any event it is now particular not paramount.
The Oxford Thesaurus has this in relation to “an issue of particular importance”
“special, extra special, especial, exceptional, unusual, marked, singular, uncommon, notable, noteworthy, remarkable, outstanding, unique”.
No doubt someone will enlighten me as to the substantial and significant, not trivial, difference and whether there is a good reason for the change and I will then consider all of the circumstances.
Paragraph 36 does give a little guidance…… “the promptness of the application will be a relevant circumstance to be weighed in the balance along with all the circumstances. Likewise, other past or current breaches of the rules, practice directions and court orders by the parties may also be taken into account as a relevant circumstance”.
Er – was not that basically the pre-rule change rule?
So clear was the Mitchell guidance that the Court of Appeal allowed all three appeals here – the facts are irrelevant – but ……….“Two of them evidence an unduly draconian approach and the third evidences an unduly relaxed approach to compliance which the Jackson reforms were intended to discourage”.
This makes relief from sanctions the judicial equivalent of the Golden Shot – “up a little, down a little”.
At Paragraph 38 the court says:
“38. It seems that some judges are approaching applications for relief on the basis that, unless a default can be characterised as trivial or there is a good reason for it, they are bound to refuse relief. This is leading to decisions which are manifestly unjust and disproportionate. It is not the correct approach and is not mandated by what the court said in Mitchell…….”.
Really? In its conclusion in Mitchell, at Paragraph 59 the Court of Appeal said:
“The defaults by the claimant’s solicitors were not minor or trivial and there was no good excuse for them”.
There is no consideration of “all the circumstances” except to dismiss the very obvious problems that the claimant firm had – “a small firm; two of their trainees were on maternity leave; the senior associate who was used to dealing with costs budgeting had recently left the firm; and the firm was engaged on work on other heavy litigation”.
In each case the Judge delivering the words was Lord Justice Dyson. For all intents and purposes he was hearing an appeal against his own decision and giving the lead judgment supporting his own speech, the notorious 18th implementation lecture of 22 March 2013.
Lord Justice Dyson distances himself from himself in bizarre language. This is the opening of Paragraph 38 in Mitchell:
“38. In the 18th implementation lecture on the Jackson reforms delivered on 22 March 2013, the Master of the Rolls said in relation to CPR 3.9 that there was now to be a shift away from exclusively focusing on doing justice in the individual case. He said:……..”.
He was of course quoting his own speech! In Denton when Dyson LJ refers to paragraphs 40 and 41 being “substantially sound” he is referring to his own findings in that case.
That is disturbing. It is also unusual. Judges often refer to other cases in which they have given judgments. That is bound to happen but they never talk about themselves in the third person.
In Paragraph 38 of the current case the omnipresent Master of the Rolls says that although a more nuanced approach is required “the two factors stated in the rule must always be given particular weight. Anything less will inevitably lead to the court slipping back to the old culture of non-compliance which the Jackson reforms were designed to eliminate”.
The richest irony of all is that in this very case Lord Justice Jackson gives a dissenting judgment.
At Paragraph 44 the Court of Appeal states that judges should ensure that the directions that they give are “realistic and achievable”, which is what Lord Justice Jackson said in his report:
“First, the courts should set realistic timetables for cases and not impossibly tough timetables in order to given an impression of firmness”.
Here the Court of Appeal goes on to say:
“It is no use imposing a tight timetable that can be seen at the outset to be unattainable. The court must have regard to the realities of litigation in making orders in the first place. Judges should also have in mind, when making directions, where the Rules provide for automatic sanctions in the case of default. Likewise, the parties should be aware of these consequences when they are agreeing directions. “Unless” orders should be reserved for situations in which they are truly required: these are usually so as to enable the litigation to proceed efficiently and at proportionate cost”.
So it is all the fault of courts and lawyers. I think not. Courts generally take in to account the needs of the case, which is why so many were including the 28 days buffer direction before it became compulsory.
It is quite something for the Court of Appeal to deliver the above paragraph without mentioning that Parliament, just one month before its judgment, has made it largely meaningless, due to the statutory 28 day extension without reference to the court.
At Paragraphs 40 and 41 the Court of Appeal states that parties should once again cooperate. It is breathtaking in its complete failure to see that the only reason that parties “opportunistically and unreasonably oppose application for relief from sanctions” is because Mitchell virtually forced them to.
My firm had a whole batch of such applications in June and July 2013 in relations to cases we had taken over from a firm in administration. Every one was agreed. Post-Mitchell none would have been agreed.
The problems set out by Lord Justice Dyson, Master of the Rolls, in paragraphs 40 and 41 were caused by just one person, that is Lord Justice Dyson, Master of the Rolls, in Mitchell.
The following paragraphs 40 and 41 are from Denton. Confusingly the key paragraphs in Mitchell were also 40 and 41!
Here are paragraphs 40 and 41 in full:
“40. Litigation cannot be conducted efficiently and at proportionate cost without (a) fostering a culture of compliance with rules, practice directions and court orders, and (b) cooperation between the parties and their lawyers. This applies as much to litigation undertaken by litigants in person as it does to others. This was part of the foundation of the Jackson report. Nor should it be overlooked that CPR rule 1.3 provides that “the parties are required to help the court to further the overriding objective”. Parties who opportunistically and unreasonably oppose applications for relief from sanctions take up court time and act in breach of this obligation.
41. We think we should make it plain that it is wholly inappropriate for litigants or their lawyers to take advantage of mistakes made by opposing parties in the hope that relief from sanctions will be denied and that they will obtain a windfall strike out or other litigation advantage. In a case where (a) the failure can be seen to be neither serious nor significant, (b) where a good reason is demonstrated, or (c) where it is otherwise obvious that relief from sanctions is appropriate, parties should agree that relief from sanctions be granted without the need for further costs to be expended in satellite litigation. The parties should in any event be ready to agree limited but reasonable extensions of time up to 28 days as envisaged by the new rule 3.8(4)”.
At Paragraph 42 the court says:
“42. It should be very much the exceptional case where a contested application for relief from sanctions is necessary. This is for two reasons: first because compliance should become the norm, rather than the exception as it was in the past, and secondly, because the parties should work together to make sure that, in all but the most serious cases, satellite litigation is avoided even where a breach has occurred”.
The timebomb, the nuclear option, Mitchell on steroids is contained in paragraph 43, one of the most extraordinary statements ever to appear in a decision of a superior court in this country’s history:
“43. The court will be more ready in the future to penalise opportunism. The duty of care owed by a legal representative to his client takes account of the fact that litigants are required to help the court to further the overriding objective. Representatives should bear this important obligation to the court in mind when considering whether to advise their clients to adopt an uncooperative attitude in unreasonably refusing to agree extensions of time and in unreasonably opposing applications for relief from sanctions. It is as unacceptable for a party to try to take advantage of a minor inadvertent error, as it is for rules, orders and practice directions to be breached in the first place. Heavy costs sanctions should, therefore, be imposed on parties who behave unreasonably in refusing to agree extensions of time or unreasonably oppose applications for relief from sanctions. An order to pay the costs of the application under rule 3.9 may not always be sufficient. The court can, in an appropriate case, also record in its order that the opposition to the relief application was unreasonable conduct to be taken into account under CPR rule 44.11 when costs are dealt with at the end of the case. If the offending party ultimately wins, the court may make a substantial reduction in its costs recovery on grounds of conduct under rule 44.11. If the offending party ultimately loses, then its conduct may be a good reason to order it to pay indemnity costs. Such an order would free the winning party from the operation of CPR rule 3.18 in relation to its costs budget”.
In summary a party resisting an application by a party in default, a default that may be serious and significant and for which there is no good reason, may be deprived of its costs if it wins the case and ordered to pay indemnity costs if it loses.
That is wholly disproportionate, irrational and almost certainly a breach of Article 6 of the European Convention on Human Rights.
It turns Mitchell on its head. A party can now treat the rules as largely irrelevant: you need to be pretty rich to oppose an application for relief.
This is punishing the victim rather than the offender.
“We are now in a world where a party, not in default, can end up paying the costs of an application by the party in default and, thereafter, be heavily penalized in costs for taking the point”.
Gordon isolates out the key points of Paragraph 43:
- Heavy costs sanctions “should” (almost mandatory) be imposed on parties who behave unreasonably in refusing to agree extensions of time or unreasonably oppose applications for relief from sanctions.
- An order that the party, unreasonably opposing should pay the costs of 3.9 application may not be sufficient.
- The court can record in its order that the opposition to the relief application was unreasonable conduct to be taken into account under CPR r.44.11 when costs are dealt with at the end of the case.
- If the offending party wins it may suffer a “substantial reduction” in its costs recovery on grounds of conduct under rule 44.11.
- If the offending party loses then its conduct may be a good reason to order it to pay indemnity costs.
- Such an order would free the wining party from the operation of CPR3.18 in relation to its costs budget.
Gordon speculates as to whether this renders CPR3.9 “a dead duck”. “A defaulting party still has to apply for relief from sanctions. However it has to be a brave litigator who opposes. In essence the party opposing the application may have much more to lose. It is only in the clearest cut of cases that applications will be opposed”.
The situation now is very different…..Now it is respondents to applications that face major risk. In any event any decision to oppose an application for relief from sanctions has to be fully thought out and the risks considered in detail”.
“What Denton has done is to take difficult decisions about sanctions hearings away from the judiciary and into the lap of the “innocent party”.
“If a litigant is proposing to oppose an application for relief from sanctions then they have to be confident (if not extremely confident) that the application will be refused. The consequence of unsuccessfully opposing an application for relief from sanctions could be dire”.
Thus this is effectively a criminal sanction, a substantial fine, possibly hundreds of thousands of pounds, entirely unrelated to the “costs of and occasioned by” in the time-honoured phrase, of the application.
So a successful party conducts its righteous winning case impeccably at all times save that it exercises its legal right to object to a serially defaulting party to treat the Civil Procedure Rules with contempt and that wholly innocent party gets hit hard on the costs of the whole action which it has won and the losing, defaulting party gets a massive windfall.
That is outrageous, unconstitutional and in my opinion illegal.
There will inevitably be a flood of appeals against any such first instance decisions which will no doubt be heard by the Master of the Rolls.
In Johnson v Bourne Leisure 21 July 2014
Mr Justice King granted relief from sanctions and allowed an appeal from a Circuit Judge who had refused relief.
Mr Justice King, for reasons best known to himself, held that in resisting the appeal against the decision of the Circuit Judge, that is in seeking to rely on the Circuit Judge’s decision, the defendant/respondent was acting unreasonably and thus was ordered to pay costs.
It beggars belief that one is acting “unreasonably” by seeking to hold on to a decision in one’s favour given by a Circuit Judge.
That is a far cry from unreasonably refusing a request to extend time or whatever.
This is the shape of things to come; chaos and unfairness stalk the legal land.
Now I just wonder who in the Court of Appeal might hear the appeal in this case and what his decision will be?
Contrast this with the almost universal practice to date of the successful applicant for relief being ordered to pay costs as it had caused the problem by its default in the first place. What has happened here is that the Court of Appeal has caused the entire problem in the first place. Lawyers follow that decision and resist applications for relief. That is not opportunism. It is not wrong. It is following the law as set out by the Court of Appeal in Mitchell.
Now, suddenly, you are treated like a criminal and fined.
Supposing Mr Mitchell now appeals to the Supreme Court out of time and that court follows Denton. Rather than Mr Mitchell being deprived of £500,000 costs would he get them all back with News Group Newspapers being fined £500,000 for opposing the application? This is literally a £1 million question.
The application for permission to appeal out of time must be made under CPR 3.9. Oh, the irony of it all! Gordon Exall again:
Simon Gibbs [http://www.gwslaw.co.uk/blog/] is not a huge fan of the decision either.
“They were not prepared to state the Mitchell test was wrong but neither were they willing to confirm it was correct. Apparently, the fault lies with other judges being silly enough to believe that the Mitchell test meant what it said”.
“We now have a different test. The Court of Appeal optimistically hopes the new test will reduce the amount of satellite litigation generated by Mitchell. It appears the Court has forgotten what was said in Mitchell:
“We share the judge’s desire to discourage satellite litigation, but that is not a good reason for adopting a more relaxed approach to the enforcement of compliance with rules, practice directions and orders. In our view, once it is well understood that the courts will adopt a firm line on enforcement, litigation will be conducted in a more disciplined way and there should be fewer applications under CPR 3.9. In other words, once the new culture becomes accepted, there should be less satellite litigation, not more.”
“It now appears the courts are meant to take a less firm line. Quite how this will lead to less satellite litigation remains a mystery, particularly given the new test creates far more uncertainty as to which way a court may go on an application for relief”.
“There is clearly a range of significance in terms of non-compliance with rules, practice directions or court orders. At one end of the spectrum are “trivial”/“insignificant” ones. At the other are “serious or significant” ones. “Trivial”/“insignificant” ones might occupy the bottom 10-20% of the spectrum in terms of significance. “Serious or significant” ones might occupy the top 10-20%. There is therefore a world of difference between the Mitchell test where 10-20% of breaches might be saved by the first stage test (being categorised as “trivial” – everything at the bottom of the spectrum) and the Denton test which saves 80-90% of breaches which do not fall into the top 10-20% of the spectrum”.
“A 14 year old at their school debating society would not try to argue “trivial” and “not serious or significant” are the same thing”.
“It is therefore laughable that the Court of Appeal stated the guidance given in Mitchell “remains substantially sound”.
“If a solicitor drafted a legal document and used the word “trivial” when they meant “not serious or significant” they would leave themselves wide open to a professional negligence claim. As Kerry Underwood recently commented: “When courts go wrong why do parties, rather than the state, have to pay the legal costs? If fees reflect full cost we should get full value.”
“Fortunately the Court of Appeal is never bound by their own decisions and can overturn themselves whenever they feel like it. If it were otherwise we would now, for the first stage of the test, have two conflicting decisions of the same weight. Then we would be in a right mess”.
“The Denton judgment has been widely welcomed by many in the legal profession. I suspect this is largely a result of relief from lawyers that they no longer face the same risk of professional negligence claims and spiralling professional indemnity insurance. In terms of judicial thinking the judgment is a dog’s dinner”.
Simon also deals with what now appears to be a complete vacuum as to the importance of promptness in making a relief from sanctions application.
“The Court of Appeal advises that the guidance given in Mitchell “remains substantially sound”.
In Mitchell the Court stated:
“If [the breach] can properly be regarded as trivial, the court will usually grant relief provided [emphasis added] that an application is made promptly”
It was therefore implicit that even where the breach was trivial, relief would probably not be granted where a prompt application was not made.
“Elsewhere in the judgment it was stated:
“Moreover, as the court emphasised, the application must [emphasis added] be made promptly. This reasoning has equal validity in the context of an application under CPR 3.9.”
Again, absolutely clear an application needs to be prompt.
The Court of Appeal has now “clarified and amplified” its earlier guidance in Denton.
“Trivial” has been redefined:
“we think it would be preferable if in future the focus of the enquiry at the first stage should not be on whether the breach has been trivial. Rather, it should be on whether the breach has been serious or significant.”
The first stage of the new is now:
“If a judge concludes that a breach is not serious or significant, then relief from sanctions will usually be granted and it will usually be unnecessary to spend much time on the second or third stages. If, however, the court decides that the breach is serious or significant, then the second and third stages assume greater importance.”
The guidance was silent at this stage as to whether there is need to make an application promptly if the breach is not serious or significant, unlike in Mitchell.
“Promptness is given brief consideration in the Denton judgment when considering “all the circumstances”:
“As has been pointed out in some of the authorities that have followed Mitchell, the promptness of the application will be a relevant circumstance to be weighed in the balance along with all the circumstances.”
The new guidance fails to explain whether the issue of promptness is to be given little weight if the breach was not “serious or significant”.
This is unfortunate.
“The Court gives a strong warning to parties:
“We think we should make it plain that it is wholly inappropriate for litigants or their lawyers to take advantage of mistakes made by opposing parties in the hope that relief from sanctions will be denied and that they will obtain a windfall strike out or other litigation advantage. In a case where (a) the failure can be seen to be neither serious nor significant, (b) where a good reason is demonstrated, or (c) where it is otherwise obvious that relief from sanctions is appropriate, parties should agree that relief from sanctions be granted without the need for further costs to be expended in satellite litigation. … Heavy costs sanctions should, therefore, be imposed on parties who behave unreasonably in refusing to agree extensions of time or unreasonably oppose applications for relief from sanctions. An order to pay the costs of the application under rule 3.9 may not always be sufficient. The court can, in an appropriate case, also record in its order that the opposition to the relief application was unreasonable conduct to be taken into account under CPR rule 44.11 when costs are dealt with at the end of the case. If the offending party ultimately wins, the court may make a substantial reduction in its costs recovery on grounds of conduct under rule 44.11. If the offending party ultimately loses, then its conduct may be a good reason to order it to pay indemnity costs. Such an order would free the winning party from the operation of CPR rule 3.18 in relation to its costs budget.”
“How is the non-defaulting party meant to deal with a breach that is not “serious or significant” if there has not been a prompt application? Gordon Exall’s Civil Litigation Brief recently explored the problems the non-defaulting party now faces where there is a breach. This is an acute problem in this situation. At what stage should the innocent (ie non-defaulting) party concede relief should be granted? If the promptness of the application is still important, the innocent party can presumably sit back and wait for the formal application to be made. The later it is, the less likely relief will be granted”.
“It is not uncommon for parties at fault to advise they will make an application for relief and ask the innocent party whether they consent to the same. Can the innocent party sit back and await a formal application and consent to the same if the application is made promptly, in the expectation the defaulting party will have to pay the costs? Will a failure to consent to relief being granted pre-application be treated as unreasonable behaviour even in the absence of a formal application, meaning the innocent party has to pay the costs of the application if, and when, it is made?”
“Given the Court of Appeal advised that the guidance given in Mitchell “remains substantially sound” surely this means the need for a prompt application still remains. Even if we pretend (as the Court of Appeal did) that they have the power to overturn their own decisions on a whim, surely they would have needed to expressly state the need for a prompt application for breaches which are not “serious or significant” is no longer good law”.
One ray of sunshine, well more a golden shaft, is the lucid and sensible dissenting judgment of Lord Justice Jackson who may turn out to be a much maligned man, mainly by me.
Here is Lord Justice Jackson’s dissenting judgment in full:
“Lord Justice Jackson:
83. I am grateful to the Master of the Rolls and Vos LJ for setting out the facts of the three cases under appeal. I am also grateful for their clear and accurate summary of Mitchell and the post-Mitchell decisions. I agree that all three appeals should be allowed.
84. As the Master of the Rolls and Vos LJ state in their joint judgment, it is helpful to approach the application of rule 3.9 in three stages. I agree with what they say about the first and second stages.
85. I take a somewhat different view, however, in relation to the third stage. Rule 3.9 requires the court to consider all the circumstances of the case as well as factor (a) and factor (b). The rule does not require that factor (a) or factor (b) be given greater weight than other considerations. What the rule requires is that the two factors be specifically considered in every case. The weight to be attached to those two factors is a matter for the court having regard to all the circumstances. The word “including” in rule 3.9 means that factors (a) and (b) are included amongst the matters to be considered. No more and no less. As the Bar Council put it in their submissions, factors (a) and (b) should “have a seat at the table, not the top seats at the table”. Ultimately what rule 3.9 requires is that the court should “deal justly with the application”.
86. The reason why the rule has been amended to require courts to give specific consideration to factors (a) and (b) is that previously courts were not doing so. This is a point which Professor Zuckerman makes in his article The revised CPR 3.9: a coded message demanding articulation (2013) 32 CJQ 123 at 134, although he criticises the wording of rule 3.9 as being anodyne and saying nothing that is not already in the rules.
87. As the Master of the Rolls and Vos LJ demonstrate, it is legitimate to have regard to the Review of Civil Litigation Costs Final Report (“Final Report”) as part of the background when construing the new version of rule 3.9.
88. Chapter 39, paragraph 6.5 of the Final Report identifies the mischief at which this particular reform is directed: “The conclusions to which I have come are as follows. First, the courts should set realistic timetables for cases and not impossibly tough timetables in order to give an impression of firmness. Secondly, courts at all levels have become too tolerant of delays and non-compliance with orders. In so doing they have lost sight of the damage which the culture of delay and noncompliance is inflicting upon the civil justice system. The balance therefore needs to be redressed.” The paragraph then goes on to reject the “extreme course” of refusing relief save in exceptional circumstances.
89. Denton is a good illustration of how courts used to operate under the former rule 3.9 (but should not operate under the new rule). In his concern to enable the claimants to deploy their full case the judge did not consider factor (a) or factor (b). If he had considered all the circumstances of the case as well as factor (a) and factor (b), he would have refused relief. The judge’s order that the claimants pay “the defendant’s costs thrown away by the vacation of the trial” does not begin to meet the justice of the case. There are many hidden costs flowing from adjournment of the trial: witness statements and reports need updating; fee earners handling the litigation may change with a need for newcomers to read into the case; both legal teams continue to work upon the litigation and so forth. In addition to the increased costs there is wastage of resources. Lawyers, experts, factual witnesses and other busy people who had cleared their diaries to attend the trial (probably cancelling other commitments) will have to clear their diaries yet again for another trial a year later. There is also the continuing strain on the parties to consider. What litigants need is finality, not procrastination. Quite apart from its impact on the immediate parties in Denton, the judge’s order has caused unnecessary delay for many other litigants awaiting their day in court.
90. The parties in Denton, Decadent and Utilise are either small businesses or businessmen. Litigation is a massive drain on management time and an unwelcome diversion of resources for any business. It is important for the economy that the courts provide swift and just resolution of disputes involving SMEs: see Preliminary Report chapter 29 and Final Report chapter 25. Hence the need to minimise delay and avoid adjournments or satellite litigation.
91. Although adjournments pose a particular problem, as illustrated by Denton, they are not the only vice inherent in a culture of delay and non-compliance. Depending upon the circumstances, a failure timeously to make disclosure or to serve evidence or to take some other step in the action might have a serious impact on the litigation or on opposing parties.
92. As Mr Holland QC has reminded us, in its written submissions to the Civil Litigation Costs Review, the Law Society stated:
“The Law Society considers that the overriding objective is not applied as rigorously or as consistently as it should be. The most infrequently applied rules are those that are available to control the progress of a case. Lord Woolf introduced a number of ways in which this could be achieved (most notably CPR Parts 1.1, 1.4 and 3.1), but the experience of practitioners suggests that in practice these are not used fully or at all. Therefore we question whether further rules would bring any benefit unless they are applied fully. We suggest there needs to be a change in the attitudes of the judiciary and court users so that court rules are fully complied with and applied in practice.”
93. In the light of this and similar submissions, the first part of recommendation 86 of the Final Report stated: “The courts should be less tolerant than hitherto of unjustified delays and breaches of orders. This change of emphasis should be signalled by amendment of CPR rule 3.9.”
94. Recommendation 86 needs to be understood in its proper context. It is part of a large package of interlocking reforms which were designed to promote access to justice at proportionate cost. Recommendation 86 was necessary for two reasons. First, the culture of delay and non-compliance was one of the (numerous) causes of high litigation costs. This cause needed to be tackled along with all the others. Secondly, as the Law Society pointed out in the passage quoted above, the (then anticipated) package of civil justice reforms would not bring any benefit unless the new rules were actually enforced.
95. The new rule 3.9 will not play any part in promoting access to justice at proportionate cost if it continues to generate satellite litigation on the present scale or if it leads to results such as we have seen in each of the three cases under appeal. I agree with the Master of the Rolls and Vos LJ that co-operation should be encouraged and satellite litigation should be discouraged by the means that they propose.
96. If rule 3.9 is construed as I propose above, this accords with the natural meaning of the language used and also gives proper effect to recommendation 86. The rule becomes an aid to doing justice. The new rule 3.9 is intended to introduce a culture of compliance, because that is necessary to promote access to justice at proportionate cost. It is not intended to introduce a harsh regime of almost zero tolerance, as some commentators have suggested.
97. My approach to the construction of rule 3.9 leads to the same result in the three cases under appeal as that reached by the Master of the Rolls and Vos LJ. These three cases are all extreme examples of judges misapplying rule 3.9, albeit at opposite extremes. There will be other less clear cut cases where the difference of opinion between my colleagues and myself may matter. That is why I am delivering this separate judgment agreeing in the result, but dissenting on the issue of construction.
98. Finally, for the avoidance of doubt, although I was not a member of the court which decided Mitchell, I am not criticising the actual decision in that case. The master made a very tough order in Mitchell, as demonstrated by Professor Sime in his article Sanctions after Mitchell (2014) 33 CJQ 133. Nevertheless that order was not outside the permissible range of her case management discretion, as the Master of the Rolls and Vos LJ explain in paragraph 9 of their judgment.
99. For the reasons set out above I agree that all three appeals must be allowed”.
Paragraph 85 is, in my view, an entirely correct statement of the law and rejects the concept of factors (a) and (b) being paramount or particular or anything else. They are factors – just that.
My only criticism of this dissenting judgment is that Lord Justice Jackson goes along with the proposal to punish severely those whose only crime is to oppose an application by the defaulting party.
Denton is a fictional town in “A Touch of Frost”. The Denton judgment is a work of fiction.
[i] In his Final Report Lord Justice Jackson proposed that CPR 3.9 be amended (6.7, Page 397).
“Proposed rule change.
I recommend that sub-paragraphs (a) to (i) of CPR rule 3.9 be repealed and replaced by:
“(a) the requirement that litigation should be conducted efficiently and at proportionate cost; and
(b) the interests of justice in the particular case”.
This form of words does not preclude the court taking into account all of the matters listed in the current paragraphs (a) to (i). However, it simplifies the rule and avoids the need for judges to embark upon a lengthy recitation of factors. It also signals the change of balance which I am advocating”.
The Rules Committee, which seems to think that it is Parliament, did not adopt that wording. It replaced the old CPR 3.9 and its list of factors, which as far as I am aware no-one ever had any problem about, with the following, current rule.
(1) On an application for relief from any sanction imposed for a failure to comply with any rule, practice direction or court order, the court will consider all the circumstances of the case, so as to enable it to deal justly with the application, including the need –
(a) for litigation to be conducted efficiently and at proportionate cost; and
(b) to enforce compliance with rules, practice directions and orders”.
How about this wording
“On an application for relief from sanctions judges are relied upon to use their common sense”.
© Reproduced by kind permission of LexisNexis. This material appears in Butterworth’s Personal Injury Litigation Service
FREEDOM OF CHOICE OF SOLICITORS – INSURERS AT IT AGAIN (1)
Wonga and the Student Loans Company (SLC) have demonstrated once again that many financial institutions in this country feel free to break the law with impunity, and apparently, immunity. Before-the-Event insurers are amongst the worst offenders and nothing has been done in spite of scathing criticisms by the courts.
Recently NatWest (Home Legal Expenses Department) wrote to a firm of solicitors as follows:
‘The issue regarding freedom of choice of solicitor has been debated for some time now and the Financial Ombudsman Service (FOS) has provided guidance to the industry on this point. In line with this guidance we will allow freedom of choice of solicitor only on claims with complex legal issues, or where there is a considerable history, or high value. Any decision we make regarding legal representation is made with these guidance points in mind, where we consider that the FOS would support our position.
From the information provided to us regarding our policyholder’s claim, we do not consider their case to be one where we would be expected to allow freedom of choice. We therefore would not be willing to agree to your appointment and would insist on appointing one of our nominated solicitors to act for our policyholder up to the point of issue of proceedings.’
The Financial Ombudsman Service’s website, wrongly, states:
‘Legal expenses policies often give the insurer the freedom to choose which solicitors to appoint for advice and assistance up to the time where legal proceedings start – unless there is a conflict of interest.
However, once proceedings start (when the legal “claim form” is issued) – or if there is a conflict of interest – the law (regulation 6 of the Insurance Companies (Legal Expenses Insurance) Regulations 1990 [SI 1159]) allows policyholders to choose their own solicitors.
These regulations are wide enough to include legal proceedings pursued and defended in tribunals – for example, employment tribunals – as well as proceedings in courts.
Insurers usually have panel solicitors whom they regularly instruct. We sometimes see disputes where a policyholder wants to appoint their own solicitor from the start (or have already instructed their own solicitor prior to making the claim).
Insurers sometimes have no objection to using a policyholder’s own solicitor. But for legitimate commercial and quality-control reasons, insurers often prefer to use their solicitors from their own panel.
We look at each case on its own individual merits. However, we are likely to decide that the policyholder should be able to appoint their own solicitors from the start only in exceptional circumstances.’
The law is very different and I set it out here:
In Jan Sneller v DAS Nederlandse Rechtsbijstand Verzekeringsmaatschappij NV, European Court of Justice, 7 November 2013
DAS, the before-the-event legal expenses insurer involved, stated that it was only prepared to provide legal assistance to Mr Sneller through one of its own unqualified members of staff, rather than through a qualified lawyer chosen by Mr Sneller.
The Supreme Court of the Netherlands referred the following question to the European Court of Justice:
“Does Article 4(1) of Directive [87/344] allow a legal expenses insurer, which stipulates in its policies that legal assistance in inquiries or proceedings will in principle be provided by employees of the insurer, also to stipulate that the costs of legal assistance provided by a lawyer or legal representative freely chosen by the insured person will be covered only if the insurer takes the view that the handling of the case must be subcontracted to an external lawyer?”
The answer is no. Thus the insured person must have the freedom to choose his own lawyer or other person appropriately qualified under national law, although in certain cases limitations may be imposed by the insurer on the level of costs.
In (1) Brown – Quinn (2) Webster Dixon LLP v (1) Equity Syndicate Management Ltd and (2) Motorplus Ltd  EWCA1633
the Court of Appeal examined in detail the law concerning the right to choose one’s own lawyer under a legal expenses policy.
Article 4 of Council Directive 87/344 EEC provides:
“1. Any contract of legal expenses insurance shall expressly recognise that:
a) where recourse is had to a lawyer or other person appropriately qualified according to national law in order to defend, represent or serve the interests of the insured person in any inquiry or proceedings, that insured person shall be free to choose such lawyer or other person.
b) the insured person shall be free to choose a lawyer or, if he so prefers to the extent that national law so permits, any other appropriately qualified person, to serve his interests whenever a conflict of interests arises.
205 provide for legal expenses insurance in the same terms. The 1987 Directive was transposed into English Law by the Insurance Companies (Legal Expenses Insurance) Regulations 1990 and the equivalent of the old Article 4 is Regulation 6 which provides:
“Freedom to choose lawyer
(1) Where under a legal expenses insurance contract recourse is had to a lawyer (or other person having such qualifications as may be necessary) to defend, represent or serve the interests of the insured in any inquiry or proceedings, the insured shall be free to choose that lawyer (or other person).
(2) The insured shall also be free to choose a lawyer (or other person having such qualifications as may be necessary) to serve his interests whenever a conflict of interests arises.
(3) The above rights shall be expressly recognised in the policy.”
The insurers operated a system of panel solicitors whereby solicitors agreed to charge either a fixed hourly rate or a total fixed fee irrespective of the importance or complexity of the work or of the experience or qualifications of the person carrying out the work.
The insurers also had a system of standard terms of appointment for non-panel solicitors providing for hourly rates of between £125 and £139. If an insured person wished to appoint a non-panel solicitor then the insurer would only agree to that appointment and be responsible for the fees if the solicitor agreed to the standard terms of appointment, including those hourly rates.
The non-panel solicitors sought a declaration that the insurers were bound to pay their fees at their hourly rate up to the limit of the insurance.
In two conjoined cases the clients wished to move from the panel solicitors to the same firm of non-panel solicitors, Messrs Webster Dixon, but the insurers refused to pay them anything and they sought a declaration that the insurers were bound to continue to support their cases. The solicitor at Webster Dixon had dealt with the cases all along as he had moved from the panel firm originally dealing with them.
At first instance the High Court held that the non-panel rates were relevant as a comparator, but not as a starting point and that any assessment should take in to account the availability of other suitable firms of solicitors charging less than Webster Dixon and that the following should also be taken into account:
(a) the location of the chosen solicitors compared to the panel solicitors;
(b) their specialisation and qualification for taking on the claim;
(c) the complexity of the claims;
(d)the importance of the claim to the client;
(e) the substance and strength of the proposed defendant to the claims; and
(f) the nature of the work to be carried out, e.g. whether it was appropriate to be conducted by a senior solicitor or partner of the firm.
Such an assessment would be neither an ordinary assessment taking account of those matters relevant to costs under the Civil Procedure Rules, nor an assessment adopting the non-panel rates as a starting point.
The judge held that a claimant who reasonably instructed a non-panel solicitor in the middle of a case was in the same position as a claimant who instructed such a solicitor from the outset.
The Court of Appeal set aside the High Court order and granted a declaration that the defendants were bound to pay the non-panel rates, but no more.
Thus the law is that a client has freedom of choice of solicitor, but will only recover the non-panel rates determined by the insurer.
Thus the non-panel solicitor must either settle for those rates or charge the insured client the extra, that is the difference between the non-panel rate and their actual charging rate. This can easily be achieved by a no win lower fee conditional fee agreement – see Gloucestershire County Council v Evans  EWCA Civ 21.
The Court of Appeal based its decision on Paragraph 33 of the judgement of the European Court of Justice in
Stark v DAS Oesterreichische Allgemeine Rechtsschutz – Versichergung A.G (2011) Case c-293/10,
“ 33. Consequently, freedom of choice, within the terms of Article 4(1) of Directive 87/344, does not mean that Member States are obliged to require insurers, in all circumstances, to cover in full the costs incurred in connection with the defence of an insured person, irrespective of the place where the person professionally entitled to represent that person is established in relation to the court or administrative authority with jurisdiction to deal with a dispute, on condition that that freedom is not rendered meaningless. That would be the case if the restriction imposed on the payment of those costs were to render de facto impossible a reasonable choice of representation by the insured person. In any event, it is for national courts … to determine whether or not there is any such restriction.”
The Court of Appeal held that there was no evidence that the rates offered were so insufficient as to render the insured’s freedom of choice meaningless. The Guideline Rates for Summary Assessment were of no relevance.
The Court of Appeal took the opportunity to launch a savage attack on the before-the-event insurers involved stating (paragraph 8)
“The facts of this case have revealed that the insurers exhibit an insouciance to their obligations under the Directive and the Regulations which leaves one quite breathless”. The Regulations (and the Directive) make it entirely clear that the insured’s freedom to have the lawyer of his choice is to be expressly stated in the contract made with the insured. What the contracts in the present case provide in General Condition 2.3 is almost the opposite…”
At Paragraph 13 the Court of Appeal said:
“It is very difficult to view all this conduct as the conduct of a reasonable and responsible insurers…” and that it viewed the insurer’s behaviour with “distaste”.
And finally at Paragraph 33
“It is quite wrong that, despite the warning shot delivered to legal expenses insurers by this court in Sarwar v Alam  1 WLR 125 para 44, insurers should many years later be issuing policies which do not comply with the Regulations, General Conditions 2.3 and 5 are in breach of the Regulations in the ways I have explained and must be either deleted or comprehensively re-drafted.”
[Regulation 5 provided, illegally,
“If an appointed representative refuses to continue acting for you or if you dismiss an appointed representative, the cover we provide will end at once, unless we agree to appoint another appointed representative.”
Regulation 2.3 provided, illegally,
“If we agree to start legal proceedings and it becomes mandatory for you to be represented by a lawyer, or there is a conflict of interest, you can choose an appointed representative by sending us the suitably qualified person’s name and address. We may choose not to accept the choice of representative, but only in exceptional circumstances. If there is a disagreement over the choice of appointed representative, another suitably qualified person can be appointed to decide the matter. Before you choose a lawyer, we can appoint an appointed representative.”]
It is time all Ombudsmen were abolished. They are a waste of space, woefully ignorant and very expensive and are harming this country and the rule of law.
It is also time that insurers who deliberately lie and draft illegal policies are prosecuted for contempt of court. Imprisoning a few directors of Before-the-Event insurers for a couple of weeks will end the practice.
INSURERS AT IT AGAIN (2)
Haven might mean a harbour, a shelter, a safe place but everyone in the land, as well as at sea, is well advised to give Haven Insurance a very wide berth indeed.
In the case below Haven contacted the Claimant direct and purported to do a deal specifically providing for no costs to be paid AFTER solicitors acting for the Claimant had submitted a Claim Notification Form which Haven had acknowledged in the portal.
Given the current issues before Parliament and the definition in the Qualified One-Way Costs Shifting rule you may reflect as to whether such conduct is dishonest, fundamentally dishonest, or something else.
In Kukadia v Haven Insurance Company Ltd and
Nord v Haven Insurance Company Ltd
Liverpool County Court, 20 February 2014,
District Judge Jenkinson was hearing applications by the Claimant in each case for summary judgment pursuant to CPR24.
In Kukadia the Claimant was involved in a road traffic accident on 13 December 2012 and a Claim Notification Form (CNF) was submitted on 2 January 2013 and was acknowledged by Haven the same day and liability was admitted on 7 January 2013 and on 16 January 2013 portal Stage 1 costs were paid.
However around 4 January 2013, that is after the Claimant’s solicitor had lodged the CNF and after Haven had acknowledged it, Haven contacted the Claimant direct. Taking the Defendant’s evidence at its highest – which is the rule in a summary judgment application – although highest may be a misnomer here – it agreed to settle the claim on the specific condition that it would not pay costs.
The District Judge decided that the issue before him was whether or not that agreement overrode paragraph 7.37 of the protocol which reads:-
“Any offer to settle made at any stage by either party will automatically include and cannot exclude:
(1) stage 2 fixed costs in accordance with CPR 45.29;
(2) an agreement in principle to pay disbursements; and
(3) a success fee in accordance with rule 45.31(1).”
Unsurprisingly the judge found that the law as passed by Parliament was indeed the law and that the insurance company was bound by it.
It is worth reading and considering the final six paragraphs of this short Judgment as they give a flavour of the contempt shown by insurers to the law of the land, as already seen in relation to Before-the-Event insurers in my blog Insurers At It Again (1).
I set out paragraphs 9 to 14 of the Judgment in the Kukadia v Haven matter.
“ 9. It is said on behalf of the defendant, represented by Mr Whibley of counsel today, that this was an offer made outwith the protocol. Contacting the claimant directly and making such an order, Mr Whibley says, evidences the intention of the insurance company to act outside the protocol and, accordingly, to reject its provisions. He accepts and concedes they would not be able to rely upon any such offer as a proper offer within the protocol. However, it is said on behalf of the defendant, the protocol does not override the fundamental principle of freedom of contract and there is nothing that prevents the parties agreeing to settle a claim that begins its life in the protocol on terms which are inconsistent with the provisions of it.
10. On behalf of the claimant, Mr Banks says that the provisions of 7.37 of the protocol are clear and until such time as the claim drops out of the protocol by one of the trigger factors that precipitate its leaving it, any offers automatically include and cannot exclude the offer to pay the liabilities referred to at 7.37 of the protocol. Mr Banks says that the position is quite different to Part 36, which specifically allows for offers to be made outside of Part 36 but provides that they will not have the costs protection that that particular provision of the CPR imputes. Mr Banks also says that any reference to offers pursuant to the protocol within CPR Part 36 effectively relate to a different situation, namely stage 3 offers within the protocol.
11. The claimant brings this application for summary judgment so the claimant must establish on the basis that this application is being approached today i.e. on an interpretation of the law on the assumption that nothing would be required at a final hearing beyond the interpretation of the rules that are available now, that, on a balance of probabilities, the claimant’s interpretation of the rules is correct.
12. Against that background, I find as follows. This was a claim that was proceeding pursuant to the pre-action protocol for low value PI claims in RTA cases. The protocol is and was engaged by the provision of the claims notification form. In fact, it appears that unless the defendant performs one of the acts that specifically cause the matter to drop out of the provisions of the protocol, then it remains in the protocol for 15 days before dropping out if no response is received. However, in this case, in fact, the claimant’s notification form was acknowledged by the defendant and if there was any doubt as to whether or not this matter was proceeding pursuant to the protocol, it is removed in my judgment by the admission of liability that was made, it would appear, within the portal, and the payment of stage 1 protocol costs.
13. I proceed, therefore, on the basis that the protocol did apply. Rule 7.37 of the protocol, which I have already quoted for the purposes of this judgment, is in, in my judgment, clear and unequivocal terms. It would have been open to the drafter of the rules to add, had it been felt appropriate, “Any offer made pursuant to the protocol procedure will automatically include and cannot exclude” but that is not what rule 7.37 says. The offer was an offer that was made at a stage of the protocol because none of the triggers which removed it from the protocol had applied.
14. Referring back to the defendant’s case at its highest, the rules could have said, “Any offer made at any stage by either party will automatically include and cannot exclude,” and added words “unless the parties agree otherwise.” Again, that is not said. In my judgment, the logical interpretation of rule 7.37 is that any offer made at any stage by either party will automatically include and cannot exclude the responsibility to pay the additional matters set out within paragraph 7.37 of the protocol. The acceptance of the offer by the claimant means that what is automatically included by reference to paragraph 7.37 applies and in my judgment the claimant is entitled to summary judgment on the basis of the costs claimed.”
It is time for this sort of behaviour to be made a criminal offence under the Compensation Act and carrying a two year prison sentence. What applies to Claims Management Companies should apply to insurance companies.
Kerry. Are you saying that you disagree with the FOS statement that, in the absence of a conflict, the freedom to choose a solicitor under the policy can be lawfully limited unless and until proceedings are commenced? If so, what authority do you cite for that. The authorities that you refer to in the blog do not appear to me to state this in terms. Regulation 6 of the Insurance Companies (Legal Expenses Insurance) Regulations does after all state that the freedom to choose the lawyer only arises when he or she is instructed to “defend, represent or serve the interests of the insured in any inquiry or proceedings”.
Yes, I am most definitely stating that I disagree with the statement that, in the absence of a conflict, the freedom to choose a solicitor under the policy can be lawfully limited unless and until proceedings are commenced.
The authority is Article 201 of Council Directive 2009/138/EC, which repealed Article 4 of Council Directive 87/344/EEC, as set out by the Court of Appeal in the case of (1) Brown – Quinn (2) Webster Dickson LLP v (1) Equity Syndicate Management Ltd and (2) Motor Plus Ltd EWCA 1633.
That Directive provides:-
“1. Any contract of legal expenses insurance shall expressly provide that:
(a) where recourse is had to a lawyer or other person appropriately qualified according to national law in order to defend, represent or serve the interests of the insured person in any inquiry or proceedings, that insured person shall be free to choose such lawyer or other person;
(b) the insured persons shall be free to choose a lawyer or, where they so prefer and to the extent that national law so permits, any other appropriately qualified person, to serve their interests whenever a conflict of interests arises.”
Thus 201.1(b) deals with a conflict point but 201.1(a) gives absolute and unrestricted freedom of choice to an insured person. It is not just during proceedings, but rather “in any enquiry.”
How could it be otherwise without destroying nearly a thousand years of Northern and Western European legal principles? Council Directive 2009/138/EC is due to be implemented by UK law in March 2015, but the previous Directive was transposed into English Law by the Insurance Companies (Legal Expenses Insurance) Regulations 1990 and the equivalent of Article 201 is Regulation 6 which provides:-
“Freedom to choose lawyer 6 (1) Where under a legal expenses insurance contract recourse is had to a lawyer (or other person having such qualifications as may be necessary) to defend, represent or serve the interests of the insured in any inquiry or proceedings, the insured shall be free to choose that lawyer (or other person).
(2) The insured shall also be free to choose a lawyer (or other person having such qualifications as may be necessary) to serve his interests whenever a conflict of interests arises.”
I pause there. Note the insertion by Parliament of the word “also” to make it clear that 6(2) gives extra rights, over and above those in 6(1) to an insured. That is not clear from the wording of Article 4.1(a) and (b). It is of course settled law that Member States may give greater protection under domestic law than given under European law, provided of course that in the case of regulations the statute under which the regulations are made gives that power so that the regulations are not ultra vires.
Regulation 6(3) states:-
“The above rights shall be expressly recognized in the policy.”
Note the Court of Appeal’s comment at paragraph 8:-
“The facts of this case have revealed that the insurer exhibits and insouciance to their obligations under the Directives and Regulations which leaves one quite breathless. The Regulations (and the Directives) make it entirely clear that the insured’s freedom to have the lawyer of his choice is to be expressly stated in the contract made with the insured.”
At paragraph 13:-
“It is very difficult to view all this conduct as the conduct for a reasonable and responsible insurer….”
The rest of the case report continues in similar vein.
In Eschig v UNIQA Sachversicherung a.g (2009) C-119/08
the European Court of Justice decided that an insurer could not insist that the litigant should join a group action rather than use a lawyer of his choice.
That clearly takes matters even further.
The matters in the current case were in fact largely dealt with in the case of Sarwar v Alam  1 WLR 125 paragraph 44 and as the courts says here, at paragraph 33:-
“It is quite wrong that, despite the warning shot delivered to legal expenses insurers by this court in Sarwar v Alam  1 WLR 125 paragraph 44, insurers should many years later be issuing policies which do not comply with the regulations.”
In paragraph 22 of the case of Jan Sneller v DAS Nederlandse Rechtsbijstand Verzekeringsmaatschappij NV, at paragraph 22, the European Court of Justice said:-
“In that regard, it follows from both the eleventh recital in the preamble to Directive 87/344 and Article 4(1) of that Directive that the interest of persons covered by legal expenses insurance means that the insured person must have the freedom to choose his own lawyer or other person appropriately qualified under national law for the purpose of any judicial or administrative proceedings.”
Note the reference to “administrative proceedings.”
In paragraph 25 the court said:-
“In that regard, it must be borne in mind that Article 4(1) of Directive 87/344, which concerns the right freely to choose a representative, is of general application and is obligatory in nature (see Eschig, paragraph 47, and Stark, paragraph 29).”
In my view the way forward is for Parliament to amend the Compensation Act specifically to provide, in line with Claims Management Companies who fail to comply with the rules, that any attempt to deprive an insured person of freedom to choose their own solicitor should carry a punishment of a maximum of two years imprisonment.
Hi Kerry. I so want you to be right, but it seems to me that it still comes down to how you interpret “in any inquiry or proceedings”. In the absence of specific authority insurers will continue to argue that it requires that some form of proceedings be active rather than contemplated (and that inquiry means quasi judicial proceedings.) I’m certainly not agreeing with that but when clients are faced with litigation to determine that point or going with a panel firm it is no surpise that they often opt for the latter.
Hi Paul. I take your point and understand the attitude of clients.
I hope that someday soon a court will put that beyond doubt.
But how do you do anything about this sort of behaviour? The Ombudsman is clueless and suing the insurer is likely to be a very expensive exercise: you can pretty much guarantee that the insurer will defend the case. The worst that happens is that a naive Lord Justice expresses his shock at the insurer’s behaviour, while another naive Lord Justice (Jackson) thinks that BTE insurance is the way forward.
A further point arises out of the way the case is conducted once it has been passed to a panel firm. The insurer pays no attention to the fact that it has written (say) £100,000 of cover and immediately starts pressurising the insured to settle for whatever inadequate offer is on the table. The panel firm does not have the guts to point out to the insurer that it (the panel firm) must act in the insured’s best interests, so it recommends acceptance of the inadequate offer. If the insured does not accept that offer, the insurer purports to withdraw funding.
The conduct of BTE insurers (at least, the ones I have seen) has been an absolute disgrace, which bears no relation at all to the law (in the form of Regulation 6) or the insurer’s obligations under the policy. They simply do whatever suits their ends, in the knowledge that it is virtually impossible for the insured to mount a challenge.
I agree that the Ombudsman is clueless but as far as proceedings are concerned I am unaware of any case of where a Before-the-Event insurer has succeeded. Consequently although the process involves a lot of work, remember that that is work at cost and not at sale price. You are likely to earn very considerable fees out of an action against Before-the-Event insurers.
In my experience, and from other firms that I am familiar with, the genuine threat of proceedings normally brings the BTE insurers to heel.
Lord Justice Jackson’s idea that BTE insurance is the way forward has proven to be entirely wrong in relation to existing BTE insurance policies, for the very good reason that BTE insurers made their profits by selling cases to law firms and that is now prohibited under the Legal Aid, Sentencing and Punishment of Offenders Act 2012. The ban on referral fees has clearly not stopped referral fees and many law firms and others are breaking the rules. However, by and large, I do believe that Before-the-Event insurers have stopped selling cases.
Having said that, I do believe that in the future there is a role for Before-the-Event insurance, and I believe that on that point Lord Justice Jackson is right. However this would be a policy costing several hundred pounds a year and more akin to private health insurance, or the legal expenses insurance system that they have in Germany.
I agree with you as to the conduct of BTE panel firms; indeed it is clear that the public have realised this, which is why they seek their own choice of solicitors. BTE panel firms do not generally operate to a high standard in my experience.
I agree that the conduct of BTE insurers is generally disgraceful. The courts have strongly opposed those companies and a legal action against BTE insurers for failing to allow freedom of choice of solicitors is as certain a win as you will ever get in litigation.
In short, sue BTE insurers who will not allow freedom of choice.
The Consumer Contracts Regulations 2013 now prohibit pre-ticked boxes and this has been another nail in the coffin of BTE insurers as they now have to give the insured the choice of opting in for BTE insurance and state the cost, which is now quite significant – generally around £50.00 or so. Previously they included it in a pre-ticked box and lied and said that it was free.
This one is all going our way – it is estimated that the percentage of the population with BTE insurance through motor policies, household insurance and credit cards etc is now only around 15% and falling.
Thank you for taking the trouble to comment on my piece.
In reply to Paul’s post, see this obiiter comment in para 44 of Sarwar v Alam:
“…members of the court made critical observations from time to time about the size of some of the BTE insurers’ panels and the possible inappropriateness in these post-Woolf days of a BTE claimant being denied freedom of choice of solicitor (at any event so far as the members of the Law Society’s or some other reputable panel of approved personal injury solicitors are concerned) at the time the procedures in a pre-action protocol come to be activated.”
See also the “Ken Hogg letter”:
The truth of the matter is that asking “what is the law on this?” is a pretty pointless question in this area, because (i) BTE insurers simply ignore it when it does not suit their business models and (ii) the FOS doesn’t bother with such pertinent questions.
I agree that the Court of Appeal’s criticism of the behaviour of BTE goes back at least to Sarwar v Alam.
However I disagree that asking “what is the law on this?” is a pretty pointless question.
All the regulators and all the ombudsmen and all the other hangers on are subject to the rule of law and to the courts. The courts have consistently, at every senior level, upheld the right of insured people to choose their own suitably qualified lawyers.
The answer is to go to court and win. Unfortunately far too many professionals moan about BTE insurers and complain about the ombudsmen but actually accept their decisions and do nothing.
The old phrase “all that is necessary for evil to triumph is that good people do nothing” comes to mind.
In my experience threatening to sue BTE insurers works and we now have reasonable working relationships with them, although we are not, and never have been, on any panels. It needs to be a real threat – you need to show a track record of bringing such people to book.
It is ironic that it is litigation solicitors, in the form of personal injury solicitors, who seem the most reluctant to take insurers to court!
BTE insurers, and indeed insurance companies generally, rely upon the reluctance of many solicitors to issue proceedings.
I agree with all you say, but clients who are having trouble with BTE insurers do not want to sue the BTE insurer – they want to resolve the problem which they notified to the BTE insurer in the first place. The stress to the claimants in (for example) Brown-Quinn must have been massive: not only did they have to fight an employment case, they also had to fight their BTE insurer.
A piece of paper which claims to provide £50,000/£100,000 of cover in return for a premium of about £20 invites all sorts of questions, to which I think you and I already know the answers. BTE may have a place, but only if the insured genuinely has a free choice of solicitor (without any attempt by the insurer to impose ludicrous “terms of business” on the solicitor). As you indicate, proper BTE insurance of this kind would be a great deal more expensive than the “product” which is currently being offered.
I agree entirely, but if the non-panel firm takes the case over the extra stress for the lay client is very little. I appreciate that it is a self-selecting group – my clients who have come to me and refused to be pushed to the panel solicitors – but I have never had a problem with getting clients to get me to go for the BTE insurers. Most are furious at being treated the way they are by the insurers, to whom they have paid a premium
Most BTE insurance is a scam – it can be nothing else at the prices charged – especially now insurers cannot charge panel solicitors a referral fee for the privilege of doing the work.
The wiping out of this type of BTE – and it has all but disappeared – there is very little BTE left – is a good thing and will allow proper policies to be developed.
In my own firm we are looking at an annual retainer which would give clients all sorts of services within it – effectively our own BTE product, although obviously it would not be an insurance policy but rather an annual retainer.
Well, you have more direct experience of this than I do, Kerry. I am relieved to hear that you think that BTE (in the £20 per policy sense) is dying – I was not aware of that. Perhaps BTE will move towards becoming more like D&O insurance, where the insured typically does choose its solicitors, with the insurer (if it wishes) instructing its own solicitors to deal with coverage issues or keep a watching brief.
When these cases have come before the courts (Pine, Brown-Quinn), the results have (in my view) been only partially satisfactory. I don’t for a moment think that those decisions have caused BTE insurers to change their ways: indeed, that was the whole point of your original piece.
As for Ombudsmen and the other hangers-on, they are indeed subject to the rule of law. But so was Jimmy Savile.
Getting matters to court is the key. Jimmy Savile would have been punished had he been prosecuted! BTE is definitely dying, partly because of the ban on referral fees but also because no solicitor will work for just portal fees, so the model no longer works for BTE insurers as it was predicated on them rarely having to pay legal costs.
I agree that the results have only been partly satisfactory, but I think that that reflects the unclear wording of the Regulations – the courts have done the best they can. No lawyer likes a person being deprived of freedom of choice of lawyer, and Judges are lawyers.
I suppose that my reservations about suing insurers stem from the fact that a client is already going to be worried about the underlying claim, without the extra layer of stress of battling the insurers. If the client is up for the fight, fine; but I wouldn’t want to use a client as a vehicle for a personal crusade against a BTE insurer (and, of course, I’m sure you wouldn’t either).
If BTE does not die, the Law Society is going to have to intervene in one of the litigated cases. I get the impression that it is gearing up to do this: hence the survey which was carried out by the ELA (which, needless to say, was rubbished by some BTE insurers).
There is an interesting discussion here:
I am not sure that ensuring that people are represented by a solicitor of their choice is a “personal crusade” – more a civic duty and a professional duty as an officer of the court in my view. That is what solicitors are for.
Sadly, the Court of Appeal and the Ombudsman do not see it as being quite as clear-cut as that. They are the ones who need persuading, not me.
Is there potential for a mis selling BTE insurance scandal bearing in mind the comments about the pre ticked boxes?
Yes, but normally it was free or a few pounds. The problem with BTE was the referring of clients to poorly paid pet panel firms of lawyers, thus depriving the client freedom of choice.
As far as I am concerned, BTE insurance is a scandal full stop. It is routinely missold, because no questions are ever asked by the insurer/broker to establish whether the proposer (who is invariably proposing for some other form of insurance – eg household or motor insurance) actually needs BTE cover. If the consumer tries to opt out of the BTE part of the policy, he is often told that he cannot do so because it comes as part of the package.
The indemnity limits are also misleading: the policy may purport to provide £100,000 of cover, but the consumer is likely to be put under great pressure to settle at an early stage for whatever figure the other side is offering. The extent to which the indemnity limit is being eroded may also be difficult to establish, because the consumer has to take the word of the panel firm that it is actually billing the insurer at the rates which were quoted to the consumer in the client care letter.
And what does the consumer get for his BTE premium? He gets shunted off to a panel firm, perhaps many miles away from him, with the BTE insurer making it as difficult as possible for him to exercise his freedom of choice under Regulation 6. The panel firm may well not understand the consumer’s rights under the policy and may well lean in favour of the insurer (because the insurer is more important to the firm than the consumer, with whom the firm is unlikely to deal more than once). If the consumer wants to use his own lawyer, he is told that his own lawyer must sign terms and conditions, which are frequently of a kind which no lawyer in his right mind would accept.
I agree that BTE insurance is routinely mis-sold.
With effect from 13 June 2014 the Consumer Contracts Regulations make it illegal to have pre-ticked boxes in any type of contract and therefore a consumer would have positively to opt in to take out BTE insurance, rather than opting out.
Insurers are complying with that rule – my own motor insurance fell around £50 as it no longer included the apparently free BTE insurance which obviously I never wanted.
I also agree with your point about indemnity limits and indeed there are very significant question marks about the independence of pet panel BTE insurer firms.
In fact I agree with all of your comments.
The good news is that BTE insurance is withering on the vine as of course the BTE insurers can no longer sell the cases to panel firms without breaking the law, and if they fall foul of the Compensation Act 2006, committing a criminal offence.
See my related blogs:-
On 22 April 2014 the minimum level for bringing a non-personal injury claim in the High Court jumped from £25,000 to £100,000, no doubt heralding a move to a fast-track of up to £100,000 with fixed recoverable costs.
The personal injury floor level remained at £50,000 and thus went from being twice the non-personal injury floor to half of it; again the likelihood is of a £50,000 personal injury fast-track with fixed recoverable costs, that is twice the current limit.
There is logic in this as the personal injury small claims limit remains at £1,000, that is just 10% of the general civil litigation limit of £10,000.
However there seems to have been a major error in relation to clinical negligence claims, where the minimum level before such a claim can be brought in the High Court jumped from £25,000 to £100,000 on 22 April 2014.
There was no consultation about this and it appears to have been unintended. Clinical negligence claims were deliberately lumped in with general civil litigation claims so as to keep the minimum level at £25,000, not £50,000, presumably in recognition of the fact that clinical negligence claims are in reality a species of professional negligence rather than personal injury.
Article 5 (1) of the High Court and County Court Jurisdiction Order 1991 provided that a personal injury claim must be commenced in the County Court unless the value of the action is £50,000 or more.
The High Court and County Court Jurisdiction (Amendment) Order 1999 inserted a new article 4A into the 1991 Order, which provided that a money claim may only be commenced in the High Court if the financial value of the claim is more than £15,000 and at Article 6 it repeated (although with slightly different wording) the provision in the 1991 Order requiring the value of a personal injury claim to be £50,000 or more before it can be issued in the High Court.
Clearly the thinking was that any claim with a value above £15,000 was on the face of it sufficiently weighty to justify proceeding in the High Court unless it was a personal injury claim in which event the value had to be £50,000 before it could proceed in the High Court. Therefore, the 1999 Amendment Order at Article 6(b) made it clear that for these purposes clinical negligence claims were to be excluded from the £50,000 requirement. That meant that the threshold for High Court claims (including clinical negligence claims) was £15,000 except for PI claims (excluding clinical negligence claims) where the threshold was £50,000.
Article 2 of the High Courts and County Courts Jurisdiction (Amendment) Order 2009 raised the £15,000 threshold to £25,000 but left the £50,000 higher limit for personal injury cases (excluding clinical negligence cases).
This meant that although a personal injury claim had to be worth more than £50,000 to go in the High Court a clinical negligence claim could be issued with values down to £25,000.
However, the High Court and County Court Jurisdiction (Amendment) Order 2014 at Article 2(7) amends Article 4A of the 1991 Order (as already amended) to substitute £100,000 in place of £25,000.
This means that the High Court jurisdiction for money claims now starts at £100,000. However, the provision in article 5(1) of the 1991 Order that provides a £50,000 threshold for personal injury cases remains intact as does the provision that for this purpose a clinical negligence claim is not a claim for personal injuries.
Therefore a personal injury arising out of a road traffic accident or work place accident or whatever can be brought in the High Court if the claim is worth £50,000 but a clinical negligence claim has to be in excess of £100,000 to be brought in the High Court.
It may be that this was intended; after all other professional negligence claims have jumped from £25,000 to £100,000 as a High Court minimum.
I suspect it was not intended.
Clarification, and if appropriate, an amendment from the Ministry of Justice would be welcome.