Costs | The reasonableness of ATE premiums

Some court decisions appear to be so case specific that they can be safely ignored. However, these decisions often contain interesting nuggets of much wider application.

One such decision is the recent Court of Appeal judgment in Hawksford Trustees Jersey Ltd v Stella Global UK Ltd & Anor [2012] EWCA Civ 987. The claimant had brought a successful claim against the defendant. Prior to the trial the claimant had been unable to obtain after-the-event (ATE) insurance cover. The defendant appealed. At this stage the claimant managed to obtain ATE cover that not only provided cover in relation to the costs of the appeal but would also provide cover in relation to the costs of the original proceedings if the appeal succeeded.

The appeal failed with the claimant being awarded its costs of the appeal. The claimant sought as part of its costs of the appeal the full ATE premium. The defendant disputed recoverability of that part of the ATE premium attributable to providing cover for the costs of the original proceedings.

Recoverability of premiums is governed by s.29 of the Access to Justice Act 1999: '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 those 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.'

The defendant argued that s29 did not permit recovery of the premium relating to the claimant's costs of the trial because the cover has to be limited to the risk of incurring a liability in the proceedings (those proceedings) in which the costs order is made. In the costs order that the court was making, the relevant proceedings were the appeal, not the trial at first instance. The Court of Appeal, Lord Justice Patten dissenting, accepted the defendant's submissions and the recoverable premium was limited accordingly.

This appears to be the first time this issue has ever fallen to be determined by the courts and this no doubt reflects the rarity, and possible uniqueness, of this situation

Patten LJ expressed the view that: 'Many of these problems are likely to have been resolved by the passage of time. Costs judges have now had a decade of experience in dealing with ATE premiums as part of a bill of costs and will, as a consequence, have a much clearer idea of market rates of cover and the practices of brokers within that field. In the event, the structure of CPR Pt 44 has remained unchanged and clearly contemplates that issues of reasonableness are to be dealt with by the costs judge as part of the assessment.'

This view appears to reflect a limited appreciation of what actually happens on the coalface of costs disputes. Even if costs judges have managed to acquire adequate knowledge of such issues, their hands are largely tied by the Court of Appeal's decision in Rogers v Merthyr Tydfil CBC [2006] EWCA Civ 1134. This decision suggested that costs judges should not normally embark upon the exercise of trying to determine the reasonableness of ATE premiums. If evidence is produced showing why a particular policy was chosen, that would be sufficient to justify the premium claimed. Costs judges have generally followed this guidance leaving little or no effective control over the level of ATE premiums.

One of the factors that the other judges in Hawksford took into account, when deciding not to allow recoverability of that part of the premium relating to the costs of the original proceedings, was the issue of the other party's right to be notified as to how a claim was being funded. This includes a duty to give notice to the other side if an ATE policy is in place.

Lord Justice Rix noted that: 'The importance of fair notice being given to the other party of a potential liability in additional costs is entirely undermined if the premium which the respondent seeks to recover in the appeal, so far as it relates to costs of trial, could be recoverable. For the defendant would have incurred all the costs of trial together with its potential (but retrospective) liability for the respondent's ATE premium in ignorance, necessarily so, of what was coming round the corner when it appealed.'

Applying very similar reasoning, it is easy to see how a court might be persuaded that recoverability of retrospective success fees should equally not be allowed given the absence of earlier notification (see Solicitors Journal 156/9, 6 March 2012, 'Is it possible to recover retrospective success fees?').