UK: Claimant Recovers Full Success Fee Where ´Before The Event Insurance´ Available

Kilby v Gawith [2008] All ER (D) 248 19 May, Unreported

The facts: C had a 'before the event' (BTE) legal expenses insurance policy that entitled C to legal representation for certain insured events. If C used this policy D, who became the paying party, would incur liability for C's solicitors' fixed recoverable costs under Part 45 of the Civil Procedure Rules (CPR). C was injured in a road accident, which event was covered by the policy. However C instructed solicitors who failed to ascertain whether C had any BTE insurance. Instead of using the BTE policy, they entered into a conditional fee agreement (CFA) with C. D appealed a first instance decision to the effect that because r 45.16 was a statutory scale that excluded the courts general discretion on costs, C was entitled to recover 12.5% success fee in addition to the fixed recoverable costs.

The Law: Part 45.8 and 45.11 CPR provide for fixed percentage increase of 12.5% on top of the fixed recoverable costs entitlement for a successful claimants where the claim arises out of a road traffic accident and C has entered into a CFA.

The issue: Was C entitled to claim a success fee? D contended that the court should exercise its general discretion under CPR r 44.3 to disallow the success fee.

The decision: D's appeal was dismissed. Where C had fulfilled the statutory requirements set out in r45, he was entitled to the prescribed fees. The court had no discretion to disallow the success fee.

Comment: Whilst this ruling only concerns road traffic accident claims, insurers receive many thousands of such of claims each year. Although this appears to be a somewhat perverse decision, one that arguably offends common sense and which is also seemingly at odds with basic tenets within the CPR that encourage reasonable and proportionate costs, it is nevertheless consistent with earlier rulings. In May last year the Court of Appeal held in Lamont v Burton [2007] that even though C failed to beat a valid Part 36 offer at trial, C was nevertheless entitled to the full 100% success fee prescribed by Part 45.16. In Nizami v Butt [2006] Costs Judge Master Hurst held that even where C had failed to to undertake Sarwar enquiries into the existence BTE insurance, which invalidated C's retainer under the old CFA Regulations 2000, C was nevertheless entitled to recover the fixed costs under Part 45, including the success fee.

The rationale behind this decision is that the statutory purpose underlying the fixed recoverable costs and fixed percentages regime is to provide an agreed scheme of recovery that is certain and easily calculated. This is achieved by providing fixed levels of remuneration which may over-reward in some cases and under-reward in others, but which are intended to be fair when taken as a whole: it is a case of 'swings and roundabouts'.

C did not seek to recover any after the event insurance premium. This is probably because the case settled before proceedings were issued and before C was exposed to his opponent's costs. Had C sought to recover a premium then it D may have succeeded in a challenging at least the amount claimed for this item, notwithstanding that insurance premiums are a recoverable disbursement under Part 45.10 (2) (b).

This decision only affects road accident claims that have been settled before proceedings have been issued, where the value of the agreed damages does not exceed £10,000. Accordingly it may be possible to challenge a success fee and any ATE premium, once proceedings are issued. It is conceivable that this decision may have the unintended effect of discouraging negotiated settlements in these cases, where for example a paying party is intent on challenging a success fee or premium.

It is likely that the apparently anomalous effect of this rule may be cured if and when the Government introduces its long awaited civil process review reform.

Further analysis of this case may be merited once the full judgment transcript is published.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.