Guidance on proportionality at last as judges curtail ATE disputes


Etherton: Led bench

The Court of Appeal has issued long-awaited guidance on how judges should apply the proportionality test, while also looking to curtail disputes over the reasonableness of block-rated after-the-event (ATE) insurance premiums in clinical negligence cases.

The bench of Master of the Rolls Sir Terence Etherton, deputy head of civil justice Lord Justice Coulson, and Lord Justice Irwin made clear their determination to bring order to the costs process, saying “there is an absence of consistency in the way in which costs bills are assessed”.

As part of this, they commissioned Mr Justice Kerr and costs judge Master Leonard as assessors to produce a 70-page report, following a five-day fact-finding hearing, on ATE premiums in clinical negligence.

In West v Stockport NHS Foundation Trust & Demouilpied v Stockport NHS Foundation Trust [2019] EWCA Civ 1220, the claimants in each case took out block-rated ATE insurance premiums with ARAG. The policy had with a recoverable element of £5,088 including insurance premium tax.

In West, the premium was reduced to £2,600 on the basis that the premium claimed was unreasonable, and in Demouilpied, it was reduced to £650 on grounds of proportionality, with the defendants citing cheaper, supposedly comparable policies from LAMP.

Both decisions were upheld on appeal by His Honour Judge Smith in Manchester and hundreds of cases stayed pending the second appeals.

The court said there was “a clear risk” that an issue such as the recoverability of a fixed premium, which ought to be the subject of clear guidance with minimal room for debate, “is being decided on an ad hoc, case-by-case basis”.

Further, some appeared to have wrongly been the result of “the instinctive or subjective reaction of the judge undertaking the costs assessment without reference to objectively ascertained comparable policies and premiums”.

The court also expressed concerns about the NHS’s “repeated reliance on the burden of proof”. It explained: “The respondent’s strategy appears to be to offer something minimal to put the reasonableness or proportionality of the ATE premium in issue, and then assert that the burden of proof falls upon the individual claimant, who will usually be unable to deal with the wider questions that might be raised concerning the insurance market.

“On this aspect of the case at least, the respondent has access to much more information than an individual claimant, so that the respondent’s reliance on the burden of proof is potentially having a distorting effect on the costs assessment.”

The court also criticised the NHS’s use of “so-called comparables”, saying: “We consider that, when dealing with reasonableness, detailed evidence about unarguably comparable insurance policies and premiums would be admissible.

“What is not permissible is reliance on the production of a few photocopied pages of another policy which, taken as a whole, is not in fact comparable.”

Having considered existing case law, the Court of Appeal derived four key principles applicable to any consideration of the reasonableness of an ATE premium:

  • Disputes about the reasonableness and recoverability are not to be decided on the usual case-by-case basis. “Questions of reasonableness are settled at a macro level by reference to the general run of cases and the macro-economics of the ATE insurance market, and not by reference to the facts at any specific case”;
  • Issues of reasonableness go beyond the dictates of a particular case and “include the unavoidable characteristics of the ATE insurance market”;
  • District judges and cost judges do not have the expertise to judge the reasonableness of a premium except in very broad-brush terms, and the viability of the ATE market will be imperilled if they regard themselves (without the assistance of expert evidence) as better qualified than the underwriter to rate the financial risk the insurer faces;
  • It is for the paying party to raise a substantive issue as to the reasonableness of the premium which will generally only be capable of being resolved by way of expert evidence.

The court stressed that the paying party could still challenge a premium, though it was easier if the ATE policy was bespoke.

“The majority of challenges to block-rated premiums must relate back to the market in one way or another, and would therefore require expert evidence to resolve.

“In particular, it will not usually be enough for the paying party simply to give evidence that another policy was cheaper.

“It is not for district judges or costs judges to have to plough through the detail of allegedly comparable policies, still less to be required to assess the effect of any differences in content. An expert’s report would be required to the effect that the other policy was directly comparable to the policy under review.”

Further, the court said a simple comparison between the value of the claim and the amount of the premium paid was “not a reliable measure” of reasonableness.

“That would ignore the way in which the premium payable for a block-rated policy is fixed taking into account a basket of a wide range of cases. It is similar to the ‘swings and roundabouts’ comments associated with fixed costs.”

The court said judges should only allow it to be argued if there was “substantive evidence which genuinely puts in issue the reasonableness of a premium”.

It continued: “On the basis of the assessors’ report in this case, we consider that the issue of the reasonableness of ATE insurance premiums has, at least for the foreseeable future, been settled.

“That ought, therefore, to resolve the issue of their reasonableness in all or almost all of the other cases apparently waiting for the outcome of these appeals.”

The court went on to consider proportionality, finding that the post-April 2013 test engaged both rules 44.3(5) and 44.4(1), the latter requiring “all the circumstances” to be considered. This included the wider ATE market.

In relation to a block-rated ATE insurance premium which has been assessed as reasonable, it said “such a premium cannot, in our judgment, then be assessed as disproportionate”.

The court explained: “Firstly, being a block-rated policy, the amount of the reasonable premium bears no relationship to the value of the claim, much less the amount for which the claim was settled. Secondly, ATE insurance is critical to access to justice in clinical negligence claims.”

On this basis, both appeals were allowed and the full premium recoverable.

Looking more widely, the court said that, when a judge came to consider proportionality, costs which were “fixed and unavoidable, or which have an irreducible minimum, without which the litigation could not have been progressed” – such as court fees – should be left out of the calculation.

This left the costs likely to have been incurred “as a result of the exercise of judgement by the solicitor or counsel”, which were “precisely the sorts of costs which the new rules as to proportionality were designed to control”.

It then gave guidance on the “appropriate approach” to the test. First, the judge should go through the bill line-by-line, assessing the reasonableness of each item of cost.

“If the judge considers it possible, appropriate and convenient when undertaking that exercise, he or she may also address the proportionality of any particular item at the same time.

“That is because, although reasonableness and proportionality are conceptually distinct, there can be an overlap between them, not least because reasonableness may be a necessary condition of proportionality.”

That would leave a total “reasonable” figure which must then be assessed by reference to both rules 44.3(5) and 44.1.

“If that total figure is found to be proportionate, then no further assessment is required. If the judge regards the overall figure as disproportionate, then a further assessment is required.

“That should not be line-by-line, but should instead consider various categories of cost, such as disclosure or expert’s reports, or specific periods where particular costs were incurred, or particular parts of the profit costs.

“At that stage, however, any reductions for proportionality should exclude those elements of costs which are properly regarded as unavoidable, such as court fees, the reasonable element of the ATE premium in clinical negligence cases, and the like…

“The judge will undertake the proportionality assessment by looking at the different categories of costs (excluding the unavoidable items noted above) and considering, in respect of each such category, whether the costs incurred were disproportionate.

“If yes, then the judge will make such reduction as is appropriate. In that way, reductions for proportionality will be clear and transparent for both sides.

“Once any further reductions have been made, the resulting figure will be the final amount of the costs assessment. There would be no further stage of standing back and, if necessary, undertaking a yet further review by reference to proportionality. That would introduce the risk of double-counting.”

The court added that, if the reasonableness of ATE premiums became an issue again in the future “as they and the market change”, it ought to be addressed by way of a group of test cases so as to avoid it being dealt with in “an uncontrolled and unmanageable way”.

The claimants were represented by Kain Knight Costs Lawyers, instructed by Slater & Gordon, together with Nick Bacon QC and Rupert Cohen. Roger Mallalieu, instructed by Acumension, acted for the defendant trust.





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