ATE premiums have been challenged on a case-by-case basis with results predictably varying from judge to judge. In the joint appeals of West v Stockport NHS Foundation Trust and Demouilpied v Stockport NHS Foundation Trust for the first time the matter has been considered at an authoritative level. The Court of Appeal addressed the issues of reasonableness and proportionality and the ‘proper’ approach to the assessment of costs, including ATE premiums.
Both cases were clinical negligence claims against the NHS Trust which had settled without the need for court proceedings. The dispute was on the level of the recoverable ATE premium in both of them. The West claim settled with a damages payment of £10,000 with a bill of costs at £31,714 and the ATE premium claimed was £5,088. The Demouilpied claim settled with a damages payment of £4,500, with a bill of costs served for the total of £18,376 and again a premium of £5,088. Both of the Claimants had taken out block-rated ATE policies with ARAG. This means that they were not bespoke, but had a fixed premium set by reference to an entire portfolio, rather than on their own merits. Block-rated policies generally cover many cases and are not calculated by reference to the risk of the particular case being insured.
The basis of the first instance West decision was that the premium was unreasonable. The case was not complex and the recoverability of the ATE premium was initially limited to the costs of medical reports only. The basis of the first instance Demouilpied decision was that the ATE policy was reasonable in amount, but after the proportionality test was applied it had to be reduced. It was held that the policy was disproportionate in light of the compensation targeted and the limited amount of risk involved.
In both cases the Court of Appeal had to consider on what basis those premiums could be challenged as being unreasonable or proportionate.
The Court of Appeal decision
At the first hearing before the Court of Appeal the parties accepted that further evidence would be required and the matter was referred to Kerr J and Master Leonard to consider the evidence and determine various issues.
It was held that the District Judges misjudged their approach to the assessment of the ATE premiums when applying the principles of reasonableness and proportionality. It was wrong to base an assessment on an instinctive or subjective reaction without reference to comparable premiums. Such an approach would lead to inconsistent, unexplained results, with a direct impact on the Claimant’s access to justice. The emphasis being that the exception for clinical negligence ATE premiums was meant to protect the right to recover the premium.
In respect of the reasonableness, the District Judge undertook his own calculation based on his own figures which was wrong in principle. The Court of Appeal found that any consideration of reasonableness must relate to the wider insurance market and should include general market factors, as the policies are block-rated and Costs Judges do not have the expertise to judge reasonableness of such policies without expert evidence. A challenge must be genuine. A comparison between the premium and the value of the claim is not a reliable measure of block-rated premiums in the ATE insurance market.
Another issue that the Court of Appeal had to consider was the issue of proportionality where the costs exceeded the value of the claims, partly due to the size of the ATE premiums. In Demouilpied it was held that there should have been no reduction on proportionality grounds as the premium was reasonable and was an ‘unavoidable’ cost of the litigation. The Court of Appeal concluded that, once it is found to be reasonable, a block-rated ATE premium cannot then be considered to be disproportionate.
In examining the correct approach the Court of Appeal came to the conclusion that costs which were ‘fixed and unavoidable, or which have an irreducible minimum, without which the litigation could not have been progressed, should not be considered. The Court of Appeal emphasised that leaving some costs, which are fixed and unavoidable, out of account when considering proportionality, was not reintroducing the Lowndes test of proportionality. There is a clear distinction between ‘fixed and unavoidable’ costs and the ‘necessary and reasonable’ costs provided by the Lowndes approach to proportionality.
When considering proportionality, the Judge should go through the bill line-by-line, assessing the reasonableness of each item of cost including court fees and the ATE premium. Once the assessment has been undertaken the final figure is the amount allowed. If that total figure is found to be proportionate, then no further assessment is required. The resulting assessed figure should take account of all circumstances. 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. If the judge considers the overall figure as disproportionate, then a further assessment will be required. That should not be line-by-line, but should instead consider different categories of cost, such as expert reports, or specific periods where particular costs were incurred, or particular parts of the profit costs. Once any further reductions have been made, the resulting amount will be the final figure of the costs assessment. There would be no further point of standing back and, if necessary, undertaking a yet further review by reference to proportionality. That could create a risk of double-counting. The Court of Appeal said that no paying party is automatically obligated to accept the reasonableness of whatever premium has been paid. 'The fact that ATE insurance provides access to justice does not mean that the relevant premium must automatically be regarded as reasonable’.
The impact of the decision remains to be seen in practice, however there is now greater confidence around how courts should approach block-rated premiums in future cases, since judges in lower courts are bound by this decision. We will need to see how this approach will be applied in detailed assessment. However, there is now some guidance as to how the court should deal with the test of proportionality, even if there is no guidance as to what actually is proportionate. What is proportionate to one judge might not be to another. Differentiating ‘unavoidable’ costs, such as court fees, from ‘necessary’ costs, will undoubtedly be the new battle ground.
For block-rated clinical negligence premiums, specific expert evidence must be provided if they are to be challenged.
As far as proportionality is concerned, such premiums are an unavoidable cost and are therefore ring-fenced from any further reduction.
In conclusion, if Claimants are truly to be granted access to justice, then the continued existence of an ATE market to support this type of claim is of significant importance. This decision will be good news for access to justice and a sustainable ATE market.