Neutral Citation Number: [2010] EWHC 1008 (QB)
Case No: QB/2009/PTA/0589
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
On Appeal from the Senior Courts Costs Office
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 12 May 2010

Mr Justice Simon
Sitting with
Master Campbell and Mr Simon Veysey
(as Assessors)
____________________

Between:

	Kris Motor Spares Limited	Claimant	
	and 		
	Fox Williams LLP	Defendant	

____________________
____________________

Mr Alexander Hill-Smith (instructed by Key2Law) for the Claimant/Appellant
Mr Nicholas Bacon QC (instructed by Fox Williams LLP) for the Defendant/Respondent

Hearing date: 19 April 2010
____________________
Judgment

Mr Justice Simon
Introduction
1.	This is an appeal in relation to 2 items of disputed costs which were ordered to be paid by the Costs Judge, Master Rogers, in the course of a detailed assessment of costs to be paid by Kris Motor Spares Ltd (‘KMS’, the paying party) to Fox Williams (the receiving party). 
2.	The detailed assessment related to the costs of the trial of a preliminary issue in proceedings brought under the Solicitors Act 1974.
3.	It is necessary to set out at least some of the background to those assessment proceeding 
Background
4.	Fox Williams is a firm of City solicitors which acted for KMS in litigation conducted against Brewin Dolphin, a firm of stockbrokers. It did so under a Conditional Fee Agreement (the ‘CFA’) dated 29 March 2006.
5.	The proceedings between KMS and Brewin Dolphin were compromised, effectively on a drop hands basis. Shortly before the settlement agreement was concluded, Fox Williams terminated the CFA. The termination meant that Fox Williams was entitled to its fees. 
6.	Fox Williams rendered a bill of costs which KMS contended was excessive. It therefore sought an assessment of the bill under the provisions of the Solicitors Act. 
7.	These proceedings were commenced in August 2007; and, in September 2007, the Master ordered the determination of a preliminary issue: whether there were special circumstances within the meaning of section 70 of the Solicitors Act.  This involved a consideration of whether Fox Williams had lawfully terminated the CFA. 
8.	The Preliminary Issue before the Master Rogers was heard over 4 days beginning 16 December 2008. At this hearing KMS was represented by Leading and Junior Counsel.
9.	On 16 December Fox Williams served the solicitors for KMS with a Notice of Funding (dated 16 December 2008). This informed KMS that Fox Williams had taken out an ATE (After the Event) Insurance Policy in respect of the trial of the preliminary issue.
10.	Master Rogers heard both argument and evidence. Among those giving evidence on behalf of Fox Williams, was Mr Greager. Mr Greager had been a partner of Fox Williams at the time the CFA was terminated but, by December 2008, was a partner in another City Firm, Pritchard Englefield.
11.	The Master, in a reserved judgment, held that the CFA had been lawfully terminated by Fox Williams; and that there were no special circumstances. He ordered that KMS should pay the costs of the assessment proceedings to be assessed on the standard basis. KMS appealed that costs decision. That appeal was subsequently dismissed by Holroyde J with an order that KMS pay the costs of the appeal.
12.	On 23 and 24 September the Master conducted the detailed assessment of the costs payable to Fox Williams of the Solicitors Act assessment proceedings; and a Final Costs Certificate was drawn up on 28 September 2009. The Master held that the costs which should be paid by KMS were £249,208.02. This included an ATE premium of £95,550 inclusive of Insurance Premium Tax, and a sum of £12,000 in respect of the costs of Mr Greager.
13.	It is the ATE Premium and the allowance in respect of the costs of Mr Greager which KMS challenges on this appeal.
14.	It is a challenge to the costs awarded on what was itself an assessment of costs. It is in that sense a doubly satellite proceeding. 
The ATE Premium

The facts
15.	The facts in so far as material are that Fox Williams submitted a proposal to Insurers on Friday 12 December and served Notice of Funding on 16 December, the day on which the Policy was taken out. The premium was expensive: £95,550 to obtain cover of £130,000 (a rate of 73.5%). As is normal in such cases, the premium only became payable if the assured were successful.
16.	Before the Master, KMS challenged both the reasonableness of procuring ATE insurance and the amount of the premium; but it is important to see the way in which this was done.
17.	KMS served undated Points of Dispute in which they took issue with the costs of the ATE Insurance (item 33) and with Mr Greager’s costs (items 28-30). Fox Williams served Points of Reply on 7 September 2009. It is unnecessary to say anything further about Mr Greager’s costs at this stage. However the Points of Dispute and Reply highlighted some of the points which were raised in the hearing of this appeal.
18.	In the Points of Dispute KMS made the following points:
i)	The Insurance Certificate had not been served,
ii)	It was unreasonable of Fox Williams to obtain cover, particularly at the late stage they obtained it. 
iii)	The obtaining of cover at such a late stage, would ‘have increased the level of the premium.’
iv)	The Premium, being approximately one third of the total costs sought by Fox Williams, was in any event excessive.  
The Points of Dispute concluded on this issue:
[KMS] maintains that this is a genuine and valid line of enquiry given the magnitude of the fee and is not simply a ‘fishing expedition’. [KMS] is unable to put forward more detailed submissions in the absence of further details from [Fox Wlliams]
[KMS] intends to review the insurance premium and if necessary will make further submissions on receipt of [Fox Williams’s] response. 
19.	Fox Williams’s Reply, as well as enclosing the Insurance Certificate, contained the following points:
i)	The coverage and premium was reasonable; and the ‘suggestion that obtaining insurance cover was an unreasonable step to take is without merit;’
ii)	‘Had the premium been taken out at an earlier stage, the premium would have been staged and the final stage premium would have been reached because the Claimant pursued the claim to trial. The Claimant would have had the benefit of a lower premium had the matter been concluded earlier but the point is irrelevant.’
20.	The issue of the ATE premium was the subject of argument before the Master on 23 September, at which KMS was represented by Counsel and a Costs Draftsman. During the course of argument Fox Williams put before the Master an email from the Insurers, Temple Legal Protection Ltd. The context was the retrospective nature of the cover; but it also addressed another argument.
If this case had been insured earlier, the premium would have been stepped so that if the Claimant had settled the case at a much earlier stage, the premium would have been very much lower. However, the highest ‘step’ of the premium will always be at or immediately before the hearing and this was the level of premium that would have been fixed for this step if the case had been insured at the outset. Clearly a party is free to insure a case whenever they chose (sic) in a legal action. Generally the later they leave it, the harder it is to obtain cover but it should not be more expensive simply because they do so late in the day.
21.	The Master asked Counsel for KMS whether he had any evidence that the ATE Insurance could have been procured for a lower Premium. He replied that he did not. The Master then observed that it was difficult to get such evidence because rating of insurance risks was fact dependant. Counsel then referred to KMS’s difficulties due to the Points of Reply being served so close to the hearing. 
MASTER ROGERS: so what you are saying is ... that they had no right to insure so late. If they were going to insure at all, they should have insured either at the beginning or at a much earlier stage and ... with a staged premium ... the total would have been much less ...
COUNSEL: Yes. Having ... made a conscious decision ... to self fund and to be their own insurer all along up to the Friday before the start of the trial, it is not explained [how]... it passes the test of reasonableness ... what changes the position so that suddenly this enormous expense is incurred?
22.	The Master also established later in the hearing that no reason had been advanced by Fox Williams as to why they had decided to insure so late; although he regarded Fox Williams’s conduct as reasonable when it became apparent that a ‘very senior Leader’ had been instructed by KMS.
The Statutory and Procedural Framework
23.	The recovery of ATE premiums from the opposing party is authorised by section 29 of the Access to Justice Act 1999, which provides:
Where in any proceedings a costs order is made in favour of any party who has taken out an  insurance policy against the risk of incurring a liability in these proceedings, the costs payable to him may, subject in the case of court proceedings to rules of court, include costs in respect of the premium of the policy.
CPR Part 44.4(2) provides

Where the amount of costs is to be assessed on the standard basis, the court will
(a) only allow costs which are proportionate to the matters in issue; and 
(b) resolve any doubts which it may have as to whether costs were reasonably incurred or reasonable and proportionate in amount in favour of the paying party.
The Costs Practice Direction (44PD.5) provides at §11.7 that the Court will, 

have regard to the facts and circumstances as they reasonably appeared to the solicitor or counsel when the funding arrangement was entered into...;
By §11.10, 
In deciding whether the cost of insurance cover is reasonable, relevant factors to be taken into account include: 
(1) 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; 
(2) the level and extent of the cover provided; 
(3) the availability of any pre-existing insurance cover; 
(4) whether any part of the premium would be rebated in the event of early settlement; 
(5) the amount of commission payable to the receiving party or his legal representatives or agents.
24.	There is also a requirement (in §19.2(4)) for filing the Notice of Funding with the Court and serving the notice on the other side within 7 days.
The Argument
25.	For KMS Mr Hill-Smith (who did not appear below) submitted that the premium was nearly 40% of the costs incurred by Fox Williams and was objectionable for two reasons. 
26.	First, it was not reasonable and proportionate for Fox Williams to have taken out the Policy when it did. The Master should have found that Fox Williams had not advanced sufficient reasons for taking out the Policy; and none could have justified the decision at that stage in the litigation. The basis for the Master’s decision, that KMS had instructed Leading Counsel, was not sufficient reason. Fox Williams had been advised of this fact some time before 16 December and had not, in any event, objected to the instruction of Leading Counsel at the conclusion of the hearing. Fox Williams was well able to pay the costs of litigation itself; and the procuring of insurance cover at the latest possible stage, and without prior notice to KMS, was not consistent with the principles which underlay the Access to Justice Act 1999
27.	Secondly, the premium was plainly unreasonable. In §3.3 Chapter 14 of the Preliminary Report of Lord Justice Jackson in his Review of Litigation Costs (May 2009) the premium for large commercial cases was described as being ‘assessed on a case by case basis’; but as being ‘usually in the range of 35%-45%’. This was to be contrasted with the premium charged in the present case of 73.5%. The procuring of insurance at high rates was contrary to a more general principle against increasing costs of litigation.
28.	Mr Bacon QC, on behalf of Fox Williams, submitted that there had been no error of approach by the Master. 
29.	So far as the timing was concerned, ATE insurance premium was a recoverable cost whenever the insurance was obtained, provided the insurance was obtained before the conclusion of the proceedings. The Practice Direction dealing with the provision of information about funding arrangements and which required a notice to be served within 7 days of the funding arrangement (CPD Part 44 §19.2), had been complied with. There was now a Practice Direction which specified information which had to be provided about funding arrangements (CPD Part 44 §19.4(3)); but this had not been in force in December 2008, and did not have retrospective effect. Fox Williams had taken the decision that it did not wish to go into a trial entirely self-insured and there was no basis for saying that such an approach was unreasonable.  
30.	As to the reasonableness of the premium, it would have been open to KMS to challenge the amount of the premium before the Master; but there had to be at least some evidential basis for the challenge. There had been no such evidential basis before the Master. At §2.11 Chapter 9 of the Final Report of Lord Justice Jackson in his Review of Litigation Costs (December 2009) figures of 90% and 95% had been quoted as premiums in Chancery Litigation.
31.	Mr Bacon included a passage in his skeleton argument which, he contended, justified the amount of the Premium. 
A very crude but useful cross check of the premium is to apply the following formula to the premium. Assuming, as the court is entitled to do, a 50% chance of the insurer having to pay out £130,000 he will need a basic burn premium of £65,000. To that figure he is entitled to brokerage/commissions (20% at least) and profit (again 20% at least). Taking those figure into account, a premium of £91,000 would be arrived at. To that figure one would add 5% IPT giving a figure of £95,550. The very premium charged in the present case.
Discussion and Conclusion on Issue 1
32.	I have been referred to a number of cases in which the Court of Appeal and the House of Lords have considered the costs of legal expense insurance: Callery v. Gray No.1 [2001] 1 WLR 2112 (CA), Callery v. Gray No.2 [2001] 1 WLR 2142 (CA), Callery v Gray (Nos 1 & 2) [2002] 1 WLR 2000 (HL); Rogers v Merthyr Tydfil County Borough Council [2007] 1 WLR 808 (CA).
33.	So far as material to this case these cases suggest the following approach.
34.	On the proper construction of s.29 of the Access to Justice Act 1999 and the applicable Civil Procedure Rules, ATE insurance premium can in principle be recovered as part of a party’s costs, see Callery v. Gray No.1 (CA) above, at [100]. In that case the Court did not feel able to express any view on the reasonableness of ATE premium; and for that reason, directed an inquiry before Master O’Hare, following which the Court would give a further judgment. It was following the report of Master O’Hare that the Court of Appeal revisited the question of the reasonableness of ATE premium in Callery v. Gray No.2 (above).
35.	There is no presumption that the premium is reasonable, unless the contrary is shown. Master O’Hare, who had investigated premiums for different classes of business, concluded that ‘it was reasonable to presume as a starting point that a premium was reasonable unless the contrary was shown.’ The Court of Appeal in Callery v. Gray No.2 rejected this approach at [69].
We do not think 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.’
36.	Two points should be noted. First, the amount of the premium in that case did not strike the Court as ‘manifestly disproportionate to the risk’ [70]; and secondly, the Final Report of Lord Justice Jackson does not suggest that an assessment of the general reasonableness of premiums for ATE insurance has become any easier. 
37.	When Callery v. Gray was considered by the House of Lords, there were expressions of concern that the new funding regime should not ‘confer disproportionate benefits on ... After the Event Insurers ...’, see for example Lord Bingham at [10], Lord Nicholls at [14-16], Lord Hope at [60]
38.	The point was expressed clearly by Lord Hoffman at [43-44]:
43 … ATE insurers do not compete for claimants, still less do they compete on premiums charged. They compete for solicitors who will sell or recommend their product. And they compete by offering solicitors the most profitable arrangements to enable them to attract profitable work. There is only one restraining force on the premium charged and that is how much the costs judge will allow on an assessment against the liability insurer.
44. Again, the costs judge has absolutely no criteria to enable him to decide whether any given premium is reasonable. On the contrary, the likelihood is that whatever costs judges are prepared to allow will constitute the benchmark around which ATE insurers will tacitly collude in fixing their premiums. In its submissions to Master O'Hare, Temple said that the court "should not arrogate to itself the functions of a financial regulator of the insurance industry": see [2001] 1 WLR 2142, 2164, para 22. I am sure that is right, because the costs judge is wholly unequipped to perform that function. But that does not mean that some form of financial regulation is not necessary. Such regulation is normally considered necessary in those parts of the economy in which market forces are insufficient to produce an efficient use of resources. And that seems to me to be the position in ATE insurance, in which the premiums are not paid either by the claimants who take out the insurance or by the solicitors who advise or require them to do so.
39.	This paradox: that the cost of premiums is only confined by the amount decided as reasonable by judges who are not in a position to decide what is reasonable, was picked up by the Court of Appeal in Rogers v. Merthyr Tydfil (above) at [116-117], under the heading, ‘Evidence justifying the ATE premium claimed.’
117 ... District judges and costs judges do not, as Lord Hoffmann observed in Callery v Gray (Nos 1 and 2) [2002] UKHL 28 at [44]; [2002] 1 WLR 2000, have the expertise to judge the reasonableness of a premium except in very broad brush terms, and the viability of the ATE market will be imperilled if they regard themselves (without the assistance of expert evidence) as better qualified than the underwriter to rate the financial risk the insurer faces. Although the claimant very often does not have to pay the premium himself, this does not mean that there are no competitive or other pressures at all in the market. As the evidence before this court shows, it is not in an insurer's interest to fix a premium at a level which will attract frequent challenges.
40.	The Court provided some assistance as to the evidence required in a passage at [117] shortly before the passage just recited.
If an issue arises about the size of a second or third stage premium, it will ordinarily be sufficient for a claimant's solicitor to write a brief note for the purposes of the costs assessment explaining how he came to choose the particular ATE product for his client, and the basis on which the premium is rated - whether block rated or individually rated.   
41.	Turning then to the first question raised on this issue: whether it was reasonable to take out insurance? I can see no basis for concluding that Fox Williams should not have taken out any insurance, or (more importantly) that they should not be able to recover the ATE insurance premium because they insured at a late stage. The timing of the Policy may (in some cases) indicate that a contractual premium was an unreasonable cost; but there is no principle that the premium on a late incepting policy is irrecoverable as an unreasonable cost, and each case is likely to depend on its facts. In the present case, it was reasonable for Fox Williams to take the view that it would be imprudent to continue to self insure, particularly in the light of the fact that KMS had instructed Leading Counsel, and the possibility that their chances of success might be reduced and exposure to costs increased.  
42.	The second question is less easy to decide. There was no material before the Master which showed that the premium was either reasonable or unreasonable in amount. There is still no such material.  The purpose of serving Points of Dispute (CPR 47.9) and a Reply (CPR 47.13) prior to a Detailed Assessment is to identify and narrow areas of dispute. It did not have this effect in the present case. The issue of the reasonableness of the premium was identified; but it did not lead to either party advancing reasoned argument supported by evidence either as to the reasonableness or the unreasonableness of the amount of the premium. 
43.	The Court of Appeal in Rogers v. Merthyr at [117] envisaged a note from the solicitor explaining how a particular ATE product came to be chosen and whether it was block rated or individually rated. However that was in the context of an issue about the size of a second or third stage payment. As matters then stood, there was no obligation on Fox Williams to provide such a note for a single stage premium. 
44.	I have concluded that in a case where the issue is raised as to the size of the premium there is an evidential burden on the paying party to advance at least some material in support of the contention that the premium is unreasonable. I have reached this conclusion in the light of the cases which I have cited, and in particular Rogers v. Merthyr. Despite the doubts about the operation of the Market, the Court of Appeal was satisfied that it was not in the insurer's interest to fix a premium at a level which would attract frequent challenges; and that a Master was not in a better position than the underwriter to rate the financial risk that the insurer faced. Where a real issue was raised the Court envisaged the hearing of expert evidence as to the reasonableness of the charge. If an issue arises, it must be raised by the paying party. This is not to reverse the burden of proof. If, having heard the evidence and the argument, there is still a doubt about the reasonableness of the charge that doubt must be resolved in favour of the paying party, see (for example) Lord Scott of Foscote in Callery v. Gray (Nos 1 & 2) at [126]. In the present case, no evidence was deployed by KMS which might have assisted the Master; and Fox Williams received no further requests for information. On the material he had it cannot be said that the Master Rogers’s conclusion on the level of premium was wrong. 
45.	At [127] Lord Scott made it clear that he envisaged that CPR Part 44.4(2)(b) should come into play in the light of particular factors which should have led to the conclusion that the premium in that case was unreasonable. In the present case, for the reasons set out in Mr Bacon’s skeleton argument at [31] above, such an approach does not assist KMS.  
46.	The recoverability of ATE premiums under a costs order is the subject of vigorous debate (see Lord Justice Jackson’s Final Report at §4.4); and this judgment should not be seen as discouraging challenges to ATE premiums on the basis of unreasonableness, for so long as such premiums may be recoverable in principle. However such challenges must be resolved on the basis of evidence and analysis, rather than by assertion and counter-assertion. The issue should be identified promptly and, where necessary, there should be directions for the proper determination of specific issues. This may involve the Costs Judge looking at the Proposal; and in the Receiving Party providing a note for a one-off ATE premium and not just for a staged premium.
47.	In the course of his submissions Mr Hill-Smith sought permission to raise a new issue about interest, in the light of the date on which the premium was in fact paid. The point was not taken in the Points of Dispute, was not taken before Master Rogers and was not the subject of the Permission to Appeal. 
The disbursements in respect of Mr Greager 

The Facts
48.	There were two issues in relation to Mr Greager’s charges: the charge-out rates and the hours charged. The Master reduced the charge-out rate from £420 to £200 per hour; and the only issue that arises on this appeal is the number of hours which were properly recoverable. 
49.	The Master allowed 60 hours of work against a claim for 82.9 hours. Of these 60 hours, 30 hours was for the preparation of Mr Greager’s witness statement.  The sum awarded was £12,000. 
The Argument
50.	Mr Hill-Smith submitted that the correct principles for the assessment of costs of a witness of fact who is a solicitor are set out in Meretz Investments NV and Britel Corporation NV v. ACP Ltd and ors [2007] EWHC 2635. In broad summary, recoverable costs cannot include the type of costs which would be incurred by any and every witness of fact: for example, the time cost of refreshing memory from a witness statement before giving evidence. It followed that the time spent on pre-reading for the purposes of giving evidence could not be recovered. He submitted that, if the Master had focussed on the fact that the only recoverable time was time spent in drafting his statement as a solicitor (and then only to the extent that drafting time was not charged by another solicitor), then he could not have allowed a period of 60 hours. He argued that the maximum which should be allowed is 10 hours in drafting the witness statement, a further 5 hours for attending court to give evidence and 1 hour for the logistics of attending.
51.	In answer, Mr Bacon QC submitted that the time-cost of a witness in preparing a witness statement is only one of the items which may be recovered under the Meretz principles, as the Master would have recognised, having acted as an assessor in that case. The Receiving Party may also recover for the costs of general assistance in the preparation of the case, work which would otherwise have been undertaken by solicitors at Fox Williams, and for time attending at Court.
Discussion & Conclusion on Issue 2
52.	The time allowed for Mr Greager preparing his witness statement was 30 hours. On the face of it this seems a long time. However, it cannot be said that the Master misunderstood the principles in Meretz.
53.	In his Judgment in Meretz at [38] Warren J set out the three tasks of a solicitor who was also a witness: (a) assistance and general preparation on the case as a solicitor, (b) producing the witness statement, and (c) cost of attendance at court. The costs incurred in relation to (a) and (c) are, in principle allowable. The Judge continued at [39]
As to (b), the position is more complex. There are, at least in theory, two components of the work involved in producing the witness statement. This can be illustrated by considering the position had Mr Hawkins not been involved, in his capacity as a practising solicitor, in preparing the witness statement but had, instead, been treated in the same way by the legal team as any other witness of fact. In that case, Mr Hawkins would have needed to spend time and effort (including, possibly, being proofed) in producing for the legal team the material for them to turn into the witness statement. The cost attributable to first component, the work done by Mr Hawkins, would not be allowable (any more than it would be allowable in the case of any other witness of fact); the cost attributable to the second component, the work done by the legal team, would be allowable.
54.	Master Rogers cited this passage in his judgment; and then analysed the work carried out by Mr Greager. He was in a particularly strong position to know the properly chargeable time spent by Mr Greager since he had managed the case from the outset; and had tried the issues in respect of which his witness statement had been deployed. He had also seen and heard Mr Greager give evidence. It was a difficult and complicated case; and Mr Greager (as the ex-partner of Fox Williams dealing with KMS at the relevant time) was best able to give instructions on the factual and legal issues. The bill of costs indicates that the chargeable hours which the Master allowed was in respect of work not carried out by anyone else at Fox Williams. 
55.	 There is a well-established principle that this Court will not permit appeals on questions which are ultimately matters of judgment for the Costs Judge, see Mealing-McLeod v. The Common Professional Examination Board [2000] 2 Costs LR 223 [4-5] and Hornsby v Clark Kenneth Leventhal [2002] 2 Costs LR 295 at 300. 
56.	In the light of the above, I am not prepared to find that the overall period of 60 hours (covering categories (a) to (c) as described in Meretz) which the Master allowed was outside the discretion available to Costs Judges in circumstances such as these. Accordingly I find against KMS on this issue.
Summary
57.	In the light of the above, the appeal is dismissed.