The European Court of Justice (ECJ) in the case of Erhard Eschig v UNIQA Sachversicherung AG (C-199/08) on 10 September 2009 made it clear that any provisions of a contract that detract from, or qualify in any way, the freedom to choose a Solicitor, will not be compliant with the Directive and in breach of Regulations.

The ECJ dealt specifically with the question of whether an insurer is entitled to select the legal representative of all insured persons, where a large number of insured persons suffer losses as a result of the same event. The Court answered that question in the negative. The judgment also confirmed the broader principle that the freedom to choose a Solicitor under Article 4 of the Directive is guaranteed, although this freedom is restricted to when recourse is had to a lawyer in any inquiry or proceedings, or whenever a conflict of interest arises.

The FSA are obliged to ensure that the Regulations are applied effectively and that customers are treated fairly.
Under the Regulations, the freedom to choose a Solicitor arises in the following areas: -

Principally under Regulation 6, where recourse is had to a Solicitor to represent the insured in any inquiry or proceedings. It is important to note that freedom of choice arises before the commencement of any inquiry or proceedings. This freedom has been interpreted as being triggered at the time when efforts to settle a claim by negotiation have failed and legal proceedings have to be initiated (see Sawar v Alam [2001] EWCA Civ 1401 at paragraph 26). Once it becomes clear that recourse is to be had to legal proceedings and litigation is pending then the insured may instruct a Solicitor their choice. This is because, generally, recourse to a lawyer logically precedes the commencement of legal proceedings which the lawyer initiates on behalf of his client.

Whenever there is a conflict of interest and, finally, if firms have chosen the option in Regulation 5(4) where the insured is afforded the right to entrust the defence of his interest to a lawyer of his choice, then the freedom to choose a Solicitor exists as soon as the right to claim under the policy arises, and cannot be curtailed.

Clearly, any terms that detract from, or qualify in any way, the freedom to choose a Solicitor as explained above, will not be compliant with the Directive and will be in breach of the Regulations.

In light of the Eschig judgment, for example, undertakings given by DAS to the FSA in July 2006 can no longer be relied on.

Accordingly, The FSA has ordered legal expenses insurers to prove to the regulator that they comply with European law that gives policyholders certain rights to choose their own solicitor. Insurers now have until 30 September to tell the FSA what they have done to ensure that the terms of their LEI policies comply with the law. This announcement comes at the same time a comparison website has launched free legal expense insurance.

At present, many insurers dictate to their policyholders that cover and indemnity is only afforded for the purpose of making a claim if they instruct solicitors from a panel chosen by the insurer. These panel firms often pay referral fees to the insurer, or undertake work at significantly reduced rates in exchange for receiving volume work.

We recently attended a detailed assessment for a client where, inter alia, the Defendant was attacking the level of the insurance premium. The matter concerned a housing disrepair claim in which the Claimants were seeking personal injury and a housing disrepair award. Proceedings were necessary given the lack of response from the Defendant. Prior to the issue of proceedings our client approached Elite for a bespoke policy and premium as the insurance company ordinarily used by our client did not cover housing disrepair claims. Amongst the documents provided to Elite, our client disclosed a copy of Counsel’s advice on liability which placed the prospects of success at 60% only. Elite undertook a risk assessment and calculated the premium at £4410.00 for both Claimants, inclusive of insurance premium tax for cover of £15,000. Our client subsequently accepted the quote and went on to win the claim.

Within the Points of Dispute, the Defendant sought to reduce the premium to £2500.00 for both Claimants (inclusive of IPT) on the basis that the level of premium being sought by the Claimants was excessive. The Defendant advanced no further argument and did not supply any documentation in support of their offer.

On behalf of the Claimants we submitted to the Court when assessing the reasonableness of the same, consideration had to be given to CPR 44.4(1), (2), CPR 44.5(3) and CPD 11.1, 11.5, 11.7 and 11.10 and reliance was placed on the case of Rogers v. Merthyr Tydfil 2007 1 WLR 808 (CA) in which the Court held that it did not have the expertise to judge the reasonableness of a premium except in very broad brush terms and that it was not better qualified than the underwriter to rate the financial risk that the insurer faces. We placed further reliance on the recent case of Kris Motor Spares Ltd v. Fox Williams 2010 EWCH 1008 (QB). In that case the insurance premium was £95,550.00 inclusive of insurance premium tax to obtain cover of £130,000 (a rate of 73.5%). The Defendant objected to the level of the insurance cover on a number of points, namely that it was not reasonable and proportionate for Fox Williams to have taken out the premium when they did (just before the trial of the preliminary issue) and was not consistent with the underlying principles of the Access to Justice Act 1999. The Defendant further placed reliance on the Preliminary Report of Lord Justice Jackson (Review of Litigation Costs – May 2009) in which it was acknowledged that premiums for large commercial cases were assessed on a case by case basis but usually in the range of 35% – 45% and that this had to be contrasted with the current premium charged at a rate of 73.5% and therefore obtaining insurance at high rates was contrary to the general principle against increasing costs in litigation.

The Court concluded that it could see no basis that Fox Williams should not have taken out insurance or indeed recover the cost of the ATE premium because they insured at such a late stage, although each case is likely to depend on its own facts. As to the amount of the premium the Court noted that at first instance and indeed at appeal there was no material which showed whether the premium was either reasonable or unreasonable in amount. However the Court concluded that in a case where an issue is to be raised as to the size of a premium then is an evidential burden on the paying party to advance at least some material in support of the contention that the premium is unreasonable (reference made to Rogers) – where a real issue is raised then the Court envisages the hearing of expert evidence as to the reasonableness of the premium and, if after hearing the evidence, the Court is still in doubt about the reasonableness of the premium then the Court must resolve the doubt in favour of the paying party. The Court concluded that KMS had not provided the Court with any evidence which could assist the Court and Fox Williams had received no further requests for information. The Court acknowledged that the recoverability of ATE premium under a costs order is the subject of immense debate (again quoting Lord Justice Jackson in his final report) but that challenges must be resolved on the basis of evidence and analysis rather than assertion and counter-assertion.

In line with the above case we presented to the Court the ATE proposal completed by our client, the documentation available to the ATE provider at the time the proposal was made and we further obtained a risk assessment matrix that the ATE provider had utilised when assessing the level of the premium. Given the documentation that we had provided and the fact that the Defendant had produced no evidence whatsoever, the Court ruled in our favour and assessed the premium as claimed.

Kenneth Ronald Parker v. Joel Carlos Seixo 2010 EWHC 90162 (Costs) provides further assistance for Claimants in respect of which a staged premium is taken out. The parties had agreed the Claimant’s base costs including VAT, but proceeded to assessment on the issue of the ATE premium. The premium was provided by Keystone Insurance and covered both own Solicitors costs and disbursements and adverse costs and disbursements cover. This enabled the matter to be conducted without a CFA and uplift. The policy was individually assessed and was staged – £551.25 (including IPT) pre service of defence or judgment in default and £9555.00 (including IPT) from service of defence until 28 days pre-trial. The Defendant was notified from the outset of the stages in which the premium would increase. The Defendant argued that the premium was excessive, unreasonable and excessive. The Defendant further asked for the Claimant’s insurance company to disclose the methodology of how they calculated the premium. The Claimant replied to the effect that following the guidance in the case of Rogers, then where the premium is a staged premium and there is a dispute over the second and third stage of the premium it is normally sufficient for the Claimant’s Solicitor to write a brief note for the purposes of the costs assessment as to why he chose the particular ATE product for the Claimant and the basis on which the premium is rated (block rated or individually rated) and disclosed such a note when serving the Points of Reply. The Claimant further provided comparable evidence taken from Litigation Funding in April 2003 which illustrated that the Keystone premium in this case was not manifestly different than had the matter been conducted under a CFA and success fee supported by a single-sided premium.

The Court allowed the premiums as claimed and re-iterated the judgment given in Rogers in that this was not a case in which the Court (without the assistance of expert evidence) should regard itself better qualified than the underwriter to rate the financial risk that the insurer faced and that this was a high value multi-track claim where the premiums were individually rated and properly staged. Further there was a great risk that the Claimant could fail to beat the Defendant’s offer during stage two because the Claimant was still undergoing medical investigations when the offer was made and when the stage two premium was calculated.

Therefore to recap:-

• It is up to the Defendant to raise any arguments over the level of the insurance premium and they must provide some evidential proof to support their arguments;
• Where the Defendant has raised a real issue then the Court should hear expert arguments from sides;
• To assist recoverability of the premium where the Defendant has raised an issue over the level of the premium and the matter is proceeding to assessment you should secure the risk assessment matrix utilised by the insurance company when they assessed the premium and provide the proposal form utilised;
• CPD 39.2 and the guidance of the Court in the Rogers case – where the premium is a staged premium and there is a dispute over the second and third stage of the premium you should provide your reasons as to why you chose the insurance policy and the basis on which the insurance premium is rated, i.e. individually rated or block rated.

It appears, therefore, that the Courts will not entertain any reduction in the level of insurance premiums without proper evidential proof by Defendants to support their arguments and without hearing expert evidence as to why the premium should be reduced.

On a separate note you will recall our May 2010 updates concerning the 52nd update to the Civil Procedure Rules and, in particular, the information to be provided on an ATE certificate when commencing detailed assessment proceedings, i.e.:-

(a) Whether the policy covers:-

(i) The Claimant’s own costs;
(ii) The opponent’s own costs;
(iii) Both the Claimant’s and the opponent’s costs; and

(b) The maximum extent of that cover; and

(c) The amount of the premium paid or payable.

We have noticed that some certificates or policy schedules contain information (b) and (c) and not (a), although the information is contained in a separate policy booklet which forms part of the overall policy. It is important when sending your files to us that you also send any booklet which forms part of the overall policy in order that the relevant information can be disclosed to the Defendant. It is also worthwhile approaching your insurance providers to see if the information can be provided on the one document for future cases.

The proposal has been put forward to cut the time that those involved in the trials need to take travelling to the hearing by holding them in centres closer to people’s homes or work.

Around 100 magistrates’ courts face closure as part of a £37m cost-cutting drive.

Conditional Fee Agreements have undoubtedly brought a particular discipline to clinical negligence Solicitors and ensures that only viable claims are pursued and non viable claims are quickly discontinued once negative medical evidence comes to light. It should be noted that whilst the coalition government is now complaining of Conditional Fees and uplifts, before the advent of CFAs the NHS Litigation Authority was complaining about the use of so called “legal aid blackmail” where they alleged that a weak case could be brought close to trial with the support of the Legal Services Commission.

Widlake –v- BAA Ltd [2009] EWCA Civ 1256: where a claim had been dishonestly exaggerated it was appropriate to make no order for costs even where the claimant had beaten a payment into court.

Sughra Sulaman –v- Axa Insurance PLC [2009] EWCA Civ 1331: costs reduced to one third because the winning party told lies in evidence.

O’Beirne –v- Hudson [2010] EWCA Civ 52: in a case suitable for allocation to the small claims track, if an order for costs is made by consent, the court assessing those costs may have regard to the rules applicable to small claims.

Drew –v- Whitbread PLC [2010] EWCA Civ 53: in a case allocated to the multi track, a refusal by the trial court to make a special order because of exaggeration does not prevent the costs judge assessing costs having regard to the costs appropriate to cases allocated to the fast track. (NB – this decision could lead to an increase in issues of misconduct being raised on assessment hearings).

Cheltenham Borough Council –v- Laird CA LTL 4/2/2010: where a defendant defeated allegations of fraud but failed on several other issues, an award of 65% of her costs was appropriate; the court must take an issues based approach even in cases involving fraud.

Bilkus –v- Stockler Brunton [2010] EWCA Civ 101: the Court of Appeal gave guidance as to the meaning of “contentious business”.

Buxton –v- Mills-Owen [2010] EWCA Civ 122: where a client instructs a solicitor to argue the unarguable, the solicitor may give notice to terminate the retainer and subsequently claim fees for
work done up to termination.

McCarthy –v- Essex Rivers Healthcare NHS LTL 9/2/2010: McKay J upheld a costs judge’s decision to reduce a single stage success fee from 100% in a clinical negligence case.

Nat West Bank PLC –v- Kotonou [2009] EWHC 3309 (Ch): Briggs J allowed the appellant to raise new points of law on an appeal from a costs judge; the fact that an appeal is by way of review does not necessarily preclude the consideration of fresh legal argument.

Shaw –v- Nine Regions Ltd [2009] EWHC 3553 (QB): the costs restriction in a small claim should not normally reduce any contractual right to costs the winning party has.

Wallace LLP –v- Yates LTL 2/3/2010: Morgan J, following Truex –v- Toll [2009] 1 WLR 2121 (Proudman J), held that a claim for costs payable under a solicitor’s invoice is a claim for an unliquidated sum and therefore cannot, without more, be made the subject of a statutory demand.

Kris Motor Spares Ltd v Fox Williams LLP [2010] EWHC 1008 (QB): an after the event insurance policy premium was recoverable as part of a party’s costs and there was no basis for concluding that it was not recoverable because the policy was taken out at a late stage in the proceedings. The timing of such a policy might have indicated that a contractual premium was an unreasonable cost, but there was no principle that the premium on a late incepting policy was irrecoverable as an unreasonable cost.

Carlo Moise Silvera v (1) Bray Walker Solicitors (A Firm) (2) Bevans Bray Walker Ltd (T/A Bevans) [2010] EWCA Civ 332 CA (Civ Div): on the facts of the case, the Respondent Solicitors had, by not amplifying the factors mentioned in the Law Society’s model conditional fee agreement, complied with the requirement in the Conditional Fee Agreements Regulations 2000 reg.3(1)(a) to briefly specify the reasons for setting the percentage level of their success fee.

At the end of March 2010, there were 3,176 businesses authorised providing claims management services with some 2,500 of those businesses dealing simply with personal injury claims. Generally these type of companies simply operate as introducers or referral agencies for a commission ‘selling’ on the claim to a Solicitor. The North West region contained the highest number of authorised businesses with 815 businesses – over one quarter of all authorised businesses.

The selling or referring of compensation claims is big business. Total turnover confirmed to the regulator at the end of March 2010 stood at £370 million. This is an increase from £361 million in 2009 and £280 million in 2008. There are around 2,500 businesses dealing with just personal injury claims turning over approximately £250 million. The claims management business as a whole in the North West alone was worth £95 million last year.

However, despite this, only a small proportion, about 30%, of those injured in road traffic accidents do actually make an insurance claim.

There has also been an increase in the number of fraudulent claims. Fraudulent claims range from large scale organised staged accidents to far more minor whiplash claims done on an individual basis. The report also identified that there has been scope for claims management companies to encourage people to claim for very minor injuries and in some cases no doubt to exaggerate the extent of those injuries and even to invent them.

The Association of Personal Injury Lawyers said that there was ‘no real need’ for people to use the services of claims management companies at all. It said: “It seems anomalous that when commercial businesses are generally cutting costs by removing middle men, middle men have become an established feature of the personal injury landscape.”

Lord Young of Graffham was recently selected by the coalition government and has promised a ‘clampdown’ on personal injury advertising and compensation culture in the UK.

The Structural Reform Plan (SRP) sets out clear priorities and transparent milestones for every department across Government, allowing the public to check whether commitments are met.

The Ministry of Justice’s SRP sets out the top five priorities for restructuring the criminal justice system:

• Reform of sentencing and penalties
• Rehabilitation revolution
• Courts and legal aid
• Reform of the prison estate
• Civil liberties.

Commenting on the launch, Lord Chancellor and Justice Secretary Kenneth Clarke said:
‘The structural reform plan, which we have published today, sets out the priorities that my department will be working on in the coming months. I am clear that we need to focus our resources on protecting the public, punishing offenders and providing access to justice – in a way that is both intelligent and transparent.

‘Working alongside my Cabinet colleagues, we must also play our role in reversing the erosion of civil liberties and rolling back state intrusion in people’s lives.

‘The Prime Minister’s visit to the Ministry of Justice today to mark the launch of the structural reform plan highlights the importance of the work of this department to the coalition Government’s programme.’

The Ministry of Justice is among the first departments to publish its plans for implementing the reforms set out in the Coalition Agreement. The public will measure the Government’s performance against the key milestones and priorities set out in the plans.

This article looks at the importance of Part 36 offers following the recent Court of Appeal decisions of Susan Gibbon v. Manchester City Council and L G Blower Ltd v. Reeves (2010) EWCA Civ 726 (heard together as they had similar points).

The Court generally observed that the wording of CPR 36 as drafted is a self contained code which sets out how formal offers can be made to settle proceedings and the specific consequences that arise from either accepting or rejecting a Part 36 offer. The Court accepted that the basic concept of offer and acceptance underpins Part 36 but that it is a voluntary procedure and either a Claimant or Defendant can utilise Part 36 offers to resolve a dispute. However the provisions of Part 36 are to be read according to its terms without including all the rules of law governing contracts, save where intended.

In the case of Gibbon, the Claimant’s Solicitor, in November 2008, made a Part 36 offer of £2500.00 plus CRU and costs in response to the Defendant’s offer of £1150. The Defendant made further offers but these were rejected. The Claimant’s Solicitor made no attempts to withdraw the earlier offer of £2500. In January 2009 the Defendant then increased its offer to £2500.00 but the Claimant’s Solicitor rejected this. Eventually, 3 months after the Claimant’s had been made the Defendant, noting that the offer had not been withdrawn, accepted the Claimant’s Part 36 offer. The Claimant’s Solicitor then attempted to withdraw the offer. The Defendant therefore applied for a declaration that it was entitled to accept the original offer of £2500.00 and requested an order for judgment to reflect. At first instance, the District Judge who heard the application held that the Defendant had been entitled to accept the Claimant’s offer and gave judgment for the Claimant for £2500.00. He further ordered that the Defendant pay the Claimant’s costs up to the date of the offer and the Claimant to pay the Defendant’s costs thereafter. The Claimant appealed but HHJ Holman dismissed the appeal. The Claimant appealed to the Court of Appeal.

At the further appeal, the Court rejected the Claimant’s arguments that the Defendant’s rejection of the offer made in November 2008 rendered it incapable of acceptance in accordance with the general principles of law and further rejected the Claimant’s argument that the Solicitors letter rejecting the Defendant’s offer of £2500.00 in January 2009 was an implied withdrawal of the part 36 offer and therefore no longer open for acceptance.

The Court held that Part 36.9(2) is clear – a Part 36 offer can be accepted at any time unless the offeror has withdrawn the offer by serving notice of withdrawal on the offeree and can be accepted at any time, irrespective of whether or not the offeree has made subsequent different offers. The provisions in part 36 do not provide for the offer to lapse or become incapable of acceptance on being rejected by the offeree. The Court agreed with the decision of Sampla v. Rushmoor Borough Council (2008) EWHC 2616 (TCC) which held that the rejection of a part 36 offer does not render it incapable of later acceptance.

In respect of the Claimant’s argument over implied withdrawal the Court held that there cannot be implied withdrawal. CPR 36.3(7) is clear that an offer is withdrawn only by serving written notice on the offeree , i.e. it can only be express notice.

The Court advised that although the rule does not prescribe any particular form of notice, in order to avoid any ambiguity the notice should include express reference to the date of the offer and its terms together with some words making it clear that it is withdrawn. The Claimant’s appeal was dismissed.

The message is clear enough – if you wish to take advantage of the provisions of the CPR 36 then after the relevant period for acceptance has expired either serve a notice of withdrawal or change the terms of the offer to be less advantageous to the offeree.

You are further reminded of the importance of ensuring that you specify the “relevant period”, i.e. a period of not less than 21 days within which the Defendant will be liable for the Claimant’s costs in accordance with CPR 36.10 if the offer is accepted. CPR 36.10 provides that where a part 36 offer is accepted after the expiry of the “relevant period” then if the parties do not agree liability as to costs and unless the Court orders otherwise the offeree will be liable for the offeror’s costs for the period from the date of expiry of the “relevant period” to the date of the acceptance.