"Appearances Matter"

Sarwar v Alam 1 is the natural sequel to Callery v Gray 2 . Like its predecessor it is a low value motor claim, with unexciting facts, which has attracted a degree of attention that must surprise the protagonists very much indeed.

In this case, the issue for consideration by the Court of Appeal was the impact of before the event legal expenses insurance ("BEI"). Since 1st April 2000, a successful litigant has been able to recover the premium paid for after the event insurance ("AEI") from his opponent, subject to the court’s discretion. Under the CPR, the factors which the court may take into account in exercising its discretion include "the other methods of financing the costs which were available to the receiving party".

Defendants argued that where a claimant already had a policy of legal expenses insurance in place before the accident/event giving rise to the claim, this amounted to "another method of financing" for these purposes. Consequently, any premium paid for AEI was not recoverable. Claimants disagreed.

The Court of Appeal in Callery v Gray identified this as a topical dispute, acknowledging that 17 million British households were paying premiums for BEI.

The AEI/BEI distinction can have a significant impact on costs. Unlike the AEI premium, the BEI premium is not recoverable as costs inter partes. As the Court of Appeal acknowledged, in straightforward low value motor claims, the claimant’s costs, increased by the AEI premium, can quickly outstrip the sums in issue.

These can be stated very briefly. Muhammed Alam drove into the side of another vehicle while Imran Sarwar was travelling as a passenger in his car. Mr Sarwar was injured in the accident and brought a claim against Mr Alam, which was settled for £2,250, plus reasonable costs. Mr Sarwar sought to include in the claim for costs the premium which he had paid for an AEI policy.

During the subsequent costs-only proceedings it transpired that Mr Alam’s motor vehicle policy included legal expenses insurance. This extended to provide cover to any passenger travelling in the car who brought a claim against the driver of another vehicle or the insured driver. At first instance, the District Judge accepted the defendant’s argument that this cover was available to Mr Sarwar and disallowed the AEI premium.

The decision provoked an outraged response from the claimant’s camp. Like Callery v Gray, the case was fast-tracked to the Court of Appeal which heard representations from "interested parties" including MASS, APIL, FOIL, ABI and the "ATE grouping".

• How far is the claimant’s solicitor obliged to investigate the availability of BEI?
• If BEI is available, is it reasonable to require the claimant to use it?

The central question was whether it was reasonable for Mr Sarwar (through his solicitors) to have incurred the AEI premium, without checking that legal expenses insurance was not available to him through Mr Alam’s policy. Claimants’ solicitors had been concerned to establish the extent of the duty of investigation, especially as Mr Sarwar’s solicitors had made enquiries to satisfy themselves that he himself had no pre-existing insurance cover.

The Court of Appeal has provided some guidance for solicitors, but stressed that this is not an inflexible code, and is subject to the overriding requirement to act reasonably.

The court considered that "proper modern practice" now includes the sending of a standard form letter, requesting the claimant to bring relevant policies of insurance (which may, in time, also include those provided by credit and charge cards) to the initial meeting with his solicitor. If it is reasonably practicable, a claimant passenger should also obtain a copy of the driver’s policy (and in due course, any necessary consent).

(Incidentally, in Mr Sarwar’s case, this would have been "reasonably practicable" as he shared a house with Mr Alam.)

The Court of Appeal made it clear, however, that the cost of the search itself must be proportionate and that solicitors are not obliged to "embark on a treasure hunt" to see whether there is any relevant BEI somewhere.

The story does not end there, however, as the claimant is only obliged to avail himself of BEI if it is a reasonable alternative to other funding arrangements. The court considered that in many cases, this will be so, and the fact that the BEI policy does not allow the insured to choose his legal representative does not automatically render it unreasonable.

On the facts of Sarwar v Alam, however, the Court of Appeal accepted that BEI was not a reasonable alternative. Even if insurers had, or attempted to have, systems in place to resolve any conflict of interest, "appearances matter" and in this situation there might at least be an appearance of injustice. Mr Sarwar and Mr Alam were opponents, but the terms of Mr Alam’s BEI policy would have required Mr Sarwar to be represented by a solicitor chosen by Mr Alam’s insurer and that insurer would have reserved to itself the conduct of Mr Sarwar’s claim.

As always in this area, further guidance is still required. The Court of Appeal stressed that it was only concerned, in Sarwar v Alam, with small personal injury claims (less than £5,000) and that separate consideration will have to be given to the position in more complex and valuable cases.

Those concerned with solicitors’ professional indemnity insurance will welcome the Court of Appeal’s robust rejection of the suggestion that a claimant who finds himself unable to recover his AEI premium will have an immediate claim against his solicitor in professional negligence.

In Callery v Gray consideration of an insignificant RTA led the Court of Appeal to consider the underlying purpose of the new funding regime. In Sarwar v Alam, a similar case led the court to contemplate even wider issues: the social duty to insure and an individual’s freedom to choose his legal representation. What will the next RTA bring-judicial consideration of the meaning of life?