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	England and Wales High Court (Senior Courts Costs Office) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Senior Courts Costs Office) Decisions >> Able UK Ltd. v Reliance Security Services Ltd. [2006] EWHC 90058 (Costs) (29 March 2006) URL: http://www.bailii.org/ew/cases/EWHC/Costs/2006/90058.html Cite as: [2006] EWHC 90058 (Costs)

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IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
SUPREME COURT COSTS OFFICE
MERC4/04

		Clifford's Inn, Fetter Lane London, EC4A 1DQ
		29 March 2006

Master Wright, Costs Judge :

1. The background to this litigation is explained in the narrative to the Claimant's bill of costs. By an order made in the Newcastle-upon-Tyne District Registry on 21 April 2005 the Defendant was ordered to pay £285,000 damages to the Claimant together with the Claimant's costs on the standard basis, to be assessed if not agreed.
2. The Claimant gave notice of commencement of assessment on 1 June 2005. The bill totalled £154,601.26.
3. Points of Dispute and Replies to the Points of Dispute were served and the Claimant lodged a request for a detailed assessment hearing at the Newcastle- upon-Tyne District Registry dated 31 August 2005.
4. At the request of the parties a further order dated 22 September 2005 was made in the District Registry transferring the detailed assessment to the Supreme Court Costs Office.
5. The detailed assessment was listed to be heard by me over two days on Thursday and Friday 9 and 10 March 2006. However, the parties were able to agree all elements of the bill with the exception of the after the event legal expenses insurance premium which had been claimed. In the event, therefore, the detailed assessment was relisted to take place before me on Thursday 9 March 2006 only.
6. At the hearing on 9 March 2006 the Claimant was represented by Mr Bintley who is a costs draftsman. The Defendant was represented by Mr Hegley who is also a costs draftsman.
7. The outstanding issue which had to be decided is set out in the Defendant's Points of Dispute as follows:

"Item 74. Insurance Premium

The Defendant will say that the insurance premium is excessive. The insurance premium of £60,000 with the insurance premium tax of £3,000 is excessive when the limit of indemnity is only £200,000. This equates to the insurance premium being 30% of the limit of indemnity.

In the Claims Direct test cases it was held that the premiums must be reasonable and proportionate to other similar cases.

The Defendant asks the question what actions were taken to ensure that the cover provided / premium ratio was in line with other providers.

The Defendant will say that the premium should be proportionate and reasonable to the matters in hand, CPR 44.4 and CPR 44.5.

Please also confirm that other insurance providers were contacted and please provide evidence that other insurance providers were contacted.

The Defendant will reconsider the level of insurance premium once the Claimant has responded."

8. The Claimant's reply, in its Replies to the Points of Dispute, is as follows:

"It is the experience of the Claimant's solicitors that insurance premiums for commercial litigation are generally fixed at between 25% and 35% of the cover obtained. The premium in this case is, therefore, the middle of the range and is by no means excessive. It is contended that the premium is reasonable and proportionate both with respect to other cases and to the matters in hand, given the level of cover and the fact that damages of £285,000 were paid. You are referred to the case of Ashworth v Peterborough United Football Club Limited. A premium of £45,937.50 for cover of £125,000 representing 35% was fully recoverable. The damages claimed in that case were £66,000.

We had, as a firm, tested the after the event insurance market extensively with respect to other cases before the Claimant obtained this policy. We had a track record of dealing with Greystoke who had demonstrated that they offered competitive premiums for the cover provided and could be relied upon to make payment in appropriate cases. We would like to point out that market testing by case does not work: insurers who undertake the considerable work involved in carrying out a risk assessment only to be told that a competitor has been preferred are apt to refuse to deal with subsequent applications for insurance cover. "

9. The Claimant had lodged with the court a "paginated bundle of additional documentation" together with a "Schedule of Commercial Insurance Premiums" and a copy of an undated letter from Mr Huw Griffiths, the Senior Technical Underwriting Manager who had been employed by Greystoke Legal Services Limited.
10. With Mr Bintley's permission, Mr Hegley read this documentation, it having been agreed that it was disclosed purely for the purpose of this detailed assessment.
11. Mr Hegley referred to the letter which had been disclosed by the Claimant (the receipt of which was date stamped 2 March 2006) from Mr Huw Griffiths to Ward Hadaway. The letter says:

"Able UK Limited - v - Reliance Security Services Limited

I was the Senior Technical Underwriting Manager employed by Greystoke Legal Services Limited and was responsible for assessing the application for legal costs insurance submitted by Able UK Limited in connection with its potential claim against Reliance Security Services Limited. I have been asked to comment on how the premium of £60,000 plus IPT was arrived at to provide cover of £200,000.

The insurance premiums which applied to contractual disputes were fixed within a range of 25% to 40% of the cover provided. In this case we fixed a premium at the lower end of the range, amounting to 30%. We took the view that the facts of the case placed it nearer the lower end of the range in terms of the risks we would expect to encounter in this type of action. The factors we took into account in fixing the premium at 30% rather than 25%, however, were as follows:

The facts themselves were unusual in that it was strange that such a large quantity of cabling had disappeared without the apparent knowledge of the security guards. This caused us to wonder whether there may be some other explanation.

There was a lack of clarity about the contractual documents. If the Defendant's contract terms supplied (sic) it was possible that liability for economic loss was excluded.

There was heavy reliance on the oral evidence of one witness who had formerly been an employee of Able UK Limited but was no longer an employee. Although he was apparently co-operative, his continued co-operation could not be guaranteed.

There was a suggestion that Able may have been the author of its own misfortune in that it had reduced the level of security cover to such an extent that it was difficult for the Defendant's security guards to cover such a large site adequately.

There was some doubt about causation with respect to the thefts from the second site.

The premium would have been higher than 35% but for the fact that we considered that it would be difficult for the Defendant to explain the disappearance of such a large quantity of cabling and, in addition, there was evidence of the Defendant not carrying out regular and proper patrols."

12. Mr Hegley said that he had approached seven insurers to ask for information about their policies and that he had provided to them much the same background information as Mr Griffiths had been given. He listed the four insurers who were able to give the most relevant quotations (the other three were RTA related policies which he accepted were not appropriate in this case). They were:

"INSURERS RANGE OF PREMIUM QUOTES

Litco

20% - 40% (18% Insolvency) (Free Advice Bureau). More detailed analysis / quote £250 plus VAT

First Legal Indemnity

Range 15% - 35% - £300 Admin Fee

Law Assist Legal

Range 20% - 40% (Contract Dispute 25%) - £290 Admin Fee (including Barrister's Advice)

Temple

?Similar Range' may be 25% case. One off proposal form filled in - free quote (see Sample)"

13. Mr Hegley said that he had not asked any of these insurers to provide a specific quotation. He accepted that all of them (with the exception of Temple) would have required a fee for a quotation. However, he submitted that three quotations should have been obtained. He pointed out that Greystoke had charged £150 plus VAT in 2003 and that this was much less than the fees mentioned by Litco, First Legal Indemnity and Law Assist Legal when he had approached them recently. In 2003 their fees for providing quotations would probably have been at the same level as those charged by Greystoke.
14. Mr Hegley submitted that the premium of £63,000 (inclusive of IPT) was excessive. The Claimant's base costs had been agreed at £71,000. The premium of £63,000 represented some 90% of those base costs. He submitted that one reason for the excessive premium was that Mr Griffiths had not been given sufficient information. Had he been given such information he would, for example, have concluded that the evidence and co-operation of Andrew Jacques (the Claimant's Plant and Security Manager who was about to leave its employment when the policy was being negotiated) could be guaranteed. Further the Defendant was, he submitted, well aware that proper security patrols were not being carried out. There was very little chance of the claim failing on those grounds.
15. Mr Hegley submitted that it would have been more realistic to have put the proposer's prospects of success at 75% rather than at 70%. There was, he said, a good chance that if three quotations had been obtained, the other two would have seen the prospects of success as being 75%. The premium would then have been lower.
16. Mr Hegley said that the Defendant's concern was that there had been a lack of proper investigation about the availability of a reasonable insurance premium. Although he accepted that there had been very thorough discussion between Ward Hadaway and Greystoke and the Claimant, this did not amount to proper investigation of the availability of other policies. Referring to the Claimant's replies to this Point of Dispute, he said that it was not reasonable not to get quotations from other insurers simply because Greystoke would not approve.
17. Mr Bintley referred to the bundle of correspondence and attendance notes which had been lodged and which Mr Hegley had read. In their first letter to the Claimant dated 1 November 2002, Ward Hadaway said that on the basis of the documentation provided and the witness statement of Andrew Jacques, the claimant seemed to have a good case against Reliance Security Services Limited. The letter sets out the various funding options. With regard to Legal Expenses insurance the letter says:

"If the insurance company assesses that your prospects of success are 70% or greater, the insurance company will agree to underwrite the costs of the action from the date of the insurance policy. In short, in return for a premium, which is normally fixed at approximately 25% of the cover, the insurance company agrees to pay your own costs of the action and also the Defendant's costs in the event that your claim is unsuccessful."

18. Mr Bintley then referred to the attendance note of a long telephone conversation between Mr Collinson of Ward Hadaway and Mr Mark Sheave (the loss adjuster appointed on behalf of the Defendant) on 20 January 2003. He submitted that it was clear from the note that the claim was going to be strongly defended. Work then began on the preparation of the Legal Expenses Insurance Report to accompany a Proposal Form. The Proposal Form and Insurance Report were sent to the claimant by Ward Hadaway on 19 March 2003 so that they could check it. Ward Hadaway had put the prospects of success at 70% in the Form.
19. The Claimant responded with comments. On 21 March 2003 Mr Collinson of Ward Hadaway sent an e-mail to the Claimant in which he said:

"(3) By submitting an insurance proposal you will not be committed to a contract. If insurers approve the proposal they will make an offer which you will be free to accept or reject depending on the terms. I normally give detailed advice on the insurance offer at that time because the advice varies depending on the terms of the offer. Also it is not unusual for one insurer to decline to cover the claim but for another to accept cover. Different policies have different terms.

In general, however, I am proposing to send the proposal to Greystoke because their standard policy has the following features:

(a) In return for the premium insurers agree to pay your own costs (including the insurance premium) and the other side's costs (subject to the limit of indemnity) in the event that the claim is wholly unsuccessful.

(b) A claim is wholly unsuccessful if you fail to establish liability or if you fail to beat a Part 36 payment or offer which has been rejected (with insurer's approval).

(c) If an offer of a settlement is made Greystoke will continue cover if they consider that a decision to reject the offer is reasonable based upon legal advice. My experience of Greystoke is that they approach this exercise on a reasonable basis. If they disagree with a decision to reject an offer they can come off risk at that point but the cover is effective up to that point. The claim can continue but without further cover.

(d) The premium is normally in the region of 25% to 30% of the cover. If costs are estimated to be £100K per side the cover will be for £200K plus the premium.

(e) The cover can be taken out in two phases half initially and a top up when required.

(f) The cover deals with most eventualities. I will give full details of risk areas but the main gap which applies to all policies is that you take the risk that the Defendant is unable to meet the damages award. Therefore, if you win the case but the Defendant is unable to pay costs, the insurance will not pay out and you will be liable for the insurance premium. In this respect we have been dealing with Reliance's insurers, not Reliance and there is no current indication that Reliance are not fully covered by insurance.

(g) The essence of the policy is that Greystoke pay your costs and the other side's costs if you lose and the other side pay your costs (including the premium) if you win.

(h) Greystoke provide an optional funding facility which enables you to borrow the premium and any disbursements. The loan is repayable at the end of the case and is secured against the policy (if you lose) and against the proceeds of the action (if you win).

(i) Greystoke normally agree to backdate the policy to cover costs already incurred.

An alternative policy is offered by Royal Sun Alliance. This works in conjunction with a CFA (no win no fee agreement). This policy only covers other side's costs and your own disbursements not solicitors' costs. So far we have only placed cover with Royal on one case so we cannot say how reasonably they operate the policy. If you wish we could put a proposal to them as well. However, we normally only put proposals to one insurer at a time because we find that insurers respond more promptly and positively when they know that no other insurers have been approached. The main advantages of the Royal policy are:

(1) There is unlimited cover for other side's costs.

(2) No premium is payable in advance. The premium is payable at the end of the case and the amount of the premium depends upon the costs incurred at that point.

The main disadvantage of the Royal policy is that it is not designed to deal with Part 36 payments or offers and on a proper interpretation of the standard policy cover ceases when an offer is made. (However, we have just, as of yesterday, negotiated a variation to the standard contract on a case we have insured with Royal and they may be prepared to do the same in your case).

In summary, therefore, insurance policies reduce the high risks of litigation and mean that companies can manage their risk and reduce it as far as possible. They do not however completely eliminate risk, the main risk being the insolvency of the Defendant. This is however a risk which a claimant has to face in any event if there is no legal expenses insurance cover.

In my full report which I send out when we receive an offer I will confirm that we have no connection with any insurer and we receive no commission or other inducement from legal expenses insurers."

20. The Claimant replied on 24 March 2003 enclosing a cheque payable to Greystoke for their fee of £150 plus VAT and saying:

"Thank you for your detailed e-mail response to my insurance queries and, as you suggest, it is best we now wait to ascertain on what basis Greystoke are willing to proceed. I suggest you hold off in respect of the Royal Sun Alliance until we know the position regarding Greystoke"

21. The documentation was then sent to Greystoke. When Ward Hadaway received the letter of offer from Greystoke they wrote to the Claimant on 1 May 2003 with a lengthy letter of advice. The Claimant sent an e-mail to Ward Hadaway requesting further information to which Mr Collinson replied. He concluded his e-mail by saying:???

"I forgot to mention in my letter that professional rules require me to confirm that I have no financial or other interest in recommending the Greystoke policy. Whilst I believe that the Greystoke policy is suitable for your purposes and is a market leading product and whilst I am not aware of any other similar policies which are more suitable or better value, I am not an insurance broker and I cannot confirm that it is the best value product available."

22. The correspondence continued in the course of which the Claimant decided not to take up the optional funding facility or to purchase the top up facility (which Greystoke had offered in return for an extra 10% premium). A further meeting between Ward Hadaway and the Claimant took place on 28 May 2003 at which this decision was confirmed and the option of taking out a CFA with insurance cover was again considered. On the 2 June 2003 Ward Hadaway wrote to Mr Griffiths at Greystoke accepting their offer to provide cover with a £200,000 limit of indemnity with premium insurance included. A cheque for the premium was enclosed. On 23 June 2003 Greystoke sent the policy documents to Ward Hadaway.
23. Mr Bintley referred to the "Schedule of Commercial Insurance Premiums paid by Ward Hadaway clients from 2003" which had been lodged with the bundle of correspondence and attendance notes to which reference had been made by both parties in the course of the hearing.
24. The Schedule shows six policies with premiums of between 26% and 42% of cover. Four of these policies were with Greystoke and two with First Legal Indemnity. He submitted that this showed that Ward Hadaway had considerable recent experience of these types of policy and that it was not simply a question of price. He submitted that the terms upon which the policy was issued were important as well.
25. Mr Bintley said that it had been clear from the beginning (see paragraph 18 above) that the claim would be strongly defended. Section 11.7 of the Costs Practice Direction provided:

"11.7. Subject to paragraph 17.8(2), when the court is considering the factors to be taken into account in assessing an additional liability, it will have regard to the facts and circumstances as they reasonably appeared to the solicitor or counsel when the funding arrangement was entered into and at the time of any variation of the arrangement."

26. In their first letter to the Claimant dated 1 November 2002 Ward Hadaway had referred to a premium of 25% of the cover (see paragraph 17 above). Following the long telephone conversation with the Defendant's loss adjusters on 20 January 2003 it had become clear that the claim was going to be strongly defended. Based on the information available at the time Greystoke had considered that the premium should be 30% of cover. He submitted that this was reasonable and borne out by the way the claim had been defended. The Defendant had defended strongly up to the end. No offer to settle had been made until shortly before the date fixed for trial.
27. Mr Bintley referred to Section 11.10(1) of the Costs practice Direction. The section states:

"In deciding whether the cost of insurance cover is reasonable, relevant factors to be taken into account include:

(i) Where the insurance cover is not purchased in support of a conditional fee agreement with a success fee, how its cost compares with the likely cost of funding the case with a conditional fee agreement with a success fee and supporting insurance cover."

28. Mr Bintley referred to Ward Hadaway's letter of 1 November 2002 (paragraph 17 above). The various funding options had been set out. He submitted that if the case had been funded under a conditional fee agreement with a success fee the Claimant's costs would have been in the region of £143,000 (ie £100,000 including trial and 43% success fee based on a 70% prospect of success). Added to this there would be the after the event insurance policy to cover the other side's costs and own disbursements. The package would, he submitted, have been more expensive than the package which the Claimant had chosen.
29. Mr Bintley referred to Section 11.10(2). This provides that among the factors to be taken into account in deciding whether the cost of insurance cover is reasonable is:

"(2) The level and extent of the cover provided"

30. Mr Bintley referred to the letter Ward Hadaway had written to the Claimant on 1 November 2002. Mr Collinson had said in that letter:

"My recommendation is normally that a client should attempt to obtain full legal expenses insurance cover for both sides' costs. I will be in a position to provide a detailed estimate once we have reviewed the available evidence. However, my initial view at this stage is that the overall cost of this action is likely to be in the region of £50,000."

31. However that was before Mr Collinson had discussed the case with the Defendant's loss adjuster on 20 January 2003 when it became clear that the claim was going to be strongly defended (see paragraph 18 above). It had then become necessary to carry out an analysis of the likely cost which had been estimated at about £100,000 each side if the case went to trial. He submitted that this level of cover was reasonable.
32. With regard to sections 11.10(3),(4) and (5), it was accepted by the Defendant that there had been no pre-existing insurance cover available, no part of the premium was rebateable in the event of early settlement and no commission was payable.
33. Mr Bintley also submitted that the court should take into account the analysis of the Greystoke and Royal Sun Alliance policies in his e-mail sent to the Claimant on 21 March 2003 (see paragraph 19 above).
34. While I accept that the future history of the action is not relevant to the assessment of risk made by the Claimant and his advisers when the funding arrangement was entered into, it nevertheless serves to confirm the Claimant's view that the claim would be strongly defended. It was, in my view, reasonable for the Claimant and its advisers to accept Greystoke's premium based on 30% of the cover with 70% prospects of success.
35. The more difficult question is whether it was incumbent upon the Claimant to obtain quotations from other insurers as the Defendant has contended. Mr Bintley referred me to a passage from Master O'Hare's report which is annexed to the Court of Appeal's judgment in Callery v Gray (No 2) [2001] 4 All ER 1. At paragraph 79 Master O'Hare makes recommendations about the approach to be adopted when determining the reasonableness of an ATE premium claimed in RTA proceedings. In the course of those recommendations Master O'Hare said:

"(d) Recent history of the ATE insurance industry makes it reasonable to presume as a starting point that the premium charged is reasonable (subject to any necessary reductions to be made) unless the contrary is shown".

36. In his judgment Lord Phillips MR said

"68. Master O'Hare did his best to investigate premium rates in the market. He found that it was not possible to state standard or average premiums for different classes of business. He also found that results over several years had been uniformly poor, leading to several major increases in premium rates over those years. This led him to conclude that it was reasonable to presume as a starting point that a premium was reasonable unless the contrary was shown.

69. We do not consider it correct to start with Master O'Hare's presumption. When considering whether a premium is reasonable, the court must have regard to such evidence as there is, or knowledge that experience has provided, of the relationship between the premium and the risk and also the cost of alternative cover available. As time progresses this task should become easier. In the present case it is not easy as both data and experience are sparse . . ."

37. Having considered the evidence which has been provided, I am, as I have stated, satisfied that the Claimant was entitled to assess the prospects of success at the time the insurance policy was taken out to be 70%. I am also satisfied on the evidence which has been provided that it was reasonable for the Claimant to pay a premium based on 30% of the cover.
38. I accept Mr Bintley's submissions that it would have been more expensive in this case for the Claimant to have purchased the insurance cover in support of a conditional fee agreement with a success fee (see payment 28 above).
39. I also accept Mr Bintley's submission that the level and extent of the cover provided was reasonable (see paragraph 31 above).
40. While it is not permissible to presume as a starting point that the premium charged is reasonable unless the contrary is shown (see paragraph 36 above) the court must have regard to

"such evidence as there is, or knowledge that experience has provided of the relationship between the premium and the risk and also the cost of alternative cover provided"

41. It is clear to me that Ward Hadaway have considerable experience of commercial after the event insurance policies (see paragraph 24 above). It is also clear to me that in advising the Claimant to approach Greystoke, they took into account their client's needs and the alternative options which were in their professional opinion available (see paragraph 19 above). I have considered Mr Hegley's submissions (see paragraphs 13, 14 and 15 above) that the Claimant should have obtained other quotations for the insurance. However, Mr Hegley did not ask any of the insurers he approached for a specific quotation. It is therefore not possible to regard the information which he provided as evidence that a suitable alternative quotation would have been available.
42. I conclude that the evidence in this case shows that the Claimant made a reasonable choice of after the event insurance and the Defendant has not rebutted that evidence. To insist that the Claimant (in spite of the evidence which has been provided) should have gone in search of alternative insurers (bearing in mind the expense which would have been involved not only in insurance company's fees but also in solicitors' charges) would, in my judgment be to fail to have regard to CPR 1.1(2)(b) and (c).
43. I, therefore, find that the after the event insurance premium of £63,000 including IPT was both reasonable and proportionate.