England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
THE HONOURABLE MR JUSTICE BURTON
[2011] EWHC 2661 (Comm)

		Royal Courts of Justice Strand, London, WC2A 2LL
		12/12/2012

Lord Justice Longmore:

Introduction

1. This appeal, about the freedom to choose one's own lawyer, concerns legal expenses insurance, an area of law which since 1987 has had a European dimension Council Directive 87/344 EEC ("the Directive") made provision for the co-ordination of laws, regulations and administrative provisions relating to legal expenses insurance. Article 4 of the Directive provides:-

"1. Any contract of legal expenses insurance shall expressly recognize that:

a) where recourse is had to a lawyer or other person appropriately qualified according to national law in order to defend, represent or serve the interests of the insured person in any inquiry or proceedings, that insured person shall be free to choose such lawyer or other person;

b) the insured person shall be free to choose a lawyer or, if he so prefers to the extent that national law so permits, any other appropriately qualified person, to serve his interests whenever a conflict of interests arises.

2. Lawyer means any person entitled to pursue his professional activities under one of the denominations laid down in Council Directive 77/249/EEC of 22 March 1977 to facilitate the effective exercise by lawyers of freedom to provide services."

2. This Directive has been superseded by the newer general Insurance Directive 2009/108/EC, in which Articles 198 - 205 provide for legal expenses insurance in the same terms. The 1987 Directive was transposed into English law by the Insurance Companies (Legal Expenses Insurance) Regulations 1990 ("the Regulations"). The equivalent of Article 4 is Regulation 6 which provides:-

"Freedom to choose lawyer

6

(1) Where under a legal expenses insurance contract recourse is had to a lawyer (or other person having such qualification as may be necessary) to defend, represent or serve the interests of the insured in any inquiry or proceedings, the insured shall be free to choose that lawyer (or other person).

(2) The insured shall also be free to choose a lawyer (or other person having such qualifications as may be necessary) to serve his interests whenever a conflict of interests arises.

(3) The above rights shall be expressly recognised in the policy."

3. The three respondents to this appeal had the benefit of legal expenses insurance ("LEI") with the appellant insurance company Equity Syndicate Management Ltd ("the insurers") and wished to bring employment and discrimination claims. The relevant terms of that insurance included the following:-

"Declaration

This is to certify that Equity Red Star at Lloyds, the underwriters, hereby agree to the extent and in the manner herein provided to indemnify the insured person against legal costs and expenses subject to the terms, limits of indemnity, exclusions and conditions herein in respect of an insured event which occurs within the territorial limits and during the period of insurance.

Definitions

COSTS and EXPENSES

Legal and professional fees for which you are responsible, including reasonable fees, costs and expenses incurred by the Appointed Representative acting for you in connection with the pursuit or defence of legal proceedings.

[There was a limitation to such costs and expenses of a maximum of £50,000, provided for by the Terms and Conditions.]

APPOINTED REPRESENTATIVE

A solicitor, firm of solicitors, barrister or any other suitably qualified person appointed to act on your behalf.

General Conditions

1. You [defined in the Definitions section as "You the insured" (plus certain dependants)] must:

1.1 Keep to the terms and conditions of this policy.

1.2 Take reasonable steps to keep any amount we have to pay as low as possible.

…

2.3 If we agree to start legal proceedings and it becomes mandatory for you to be represented by a lawyer, or there is a conflict of interest, you can choose an appointed representative by sending us the suitably qualified person's name and address. We may choose not to accept the choice of representative, but only in exceptional circumstances. If there is a disagreement over the choice of appointed representative, another suitably qualified person can be appointed to decide the matter. Before you choose a lawyer, we can appoint an appointed representative.

2.4 An appointed representative will be appointed by us and represent you according to our standard terms of appointment. The appointed representative must co-operate fully with us at all times.

…

5. If an appointed representative refuses to continue acting for you or if you dismiss an appointed representative, the cover we provide will end at once, unless we agree to appoint another appointed representative.

…

7. If we and you disagree about the choice [of] appointed representative … we and you can choose another suitably qualified person to decide the matter. We and you must both agree to the choice of this person in writing. Failing this we will ask the President of a relevant national Law Society to choose a suitably qualified person. …"

4. The insurers operated a system of panel solicitors whereby (so we were informed) solicitors to whom the insurers promised to give work agreed to charge either a fixed hourly rate or a total all-in fee irrespective of the importance or complexity of the work or of the experience or qualifications of the person carrying out the work. The insurers also had a system of standard terms of appointment for non-panel solicitors and it is these terms that are referred to in General Condition 2.4 cited above and were available to anyone who asked to see them. They provided for a fixed hourly rate of £125 per hour, later, following an ad hoc increase, rising to £139 per hour in relation to Ms Brown-Quinn and Ms Baxter, but not in relation to Ms Jones. If an insured wanted to appoint a solicitor to conduct her litigation who was not on the panel, the insurer would only agree to that appointment and be responsible for fees if the solicitor concerned agreed to these standard terms of appointment.
5. Ms Jones decided to instruct Webster Dixon, a London firm of solicitors specialising in employment and discrimination law. This firm of solicitors was not on the insurers' panel of solicitors and did not agree to limit their charges to the fixed hourly rate in the standard terms of appointment (which I shall call the "non-panel rate"). They have sought a declaration that the insurers are bound to pay their fees up to the limit of the insurance.
6. Ms Brown-Quinn and Ms Baxter were originally happy enough to use the services of McKeowns, one of the solicitors on the insurers' panel, but the individuals looking after their cases then moved to Webster Dixon. These respondents wanted the relevant individuals to continue to conduct their cases but the insurers have declined to be responsible for Webster Dixon's fees. Ms Brown-Quinn and Ms Baxter have therefore sought declarations that the insurers were bound to continue to support their cases.
7. Before Burton J the insured claimed they were entitled to recover the reasonable fees of Webster Dixon and the insurers expressly disclaimed any case that the insured were not covered if they instructed solicitors who did not accept the non-panel rate and also any case that the recoverable costs were only the non-panel rate. Their submission was that any assessment of Webster Dixon's fees and expenses should take the non-panel rate as the starting point of any assessment. The judge adopted a middle course saying that the non-panel rate was relevant on assessment as a comparator but not as a starting point. He said further that any assessment should take into account the availability of other suitable firms of solicitors who would charge less than Webster Dixon but that the following matters should also be taken into account:-

a) the location of the chosen solicitors compared to the panel solicitors;

b) their specialisation and qualification for taking on the claims;

c) the complexity of the claims;

d) the importance of the claim to the client;

e) the substance and strength of the proposed defendant to the claims; and

f) the nature of the work to be carried out e.g. whether it was appropriate to be conducted by a senior solicitor or partner of the firm.

Such an assessment would be neither an ordinary assessment taking account of those matters relevant to costs under the CPR nor an assessment adopting the non-panel rate as a starting point. He granted declarations accordingly. He also held that the position was no different for a claimant who reasonably instructed a non-panel solicitor in the middle of the case from that of a claimant who instructed such a solicitor from the outset. His decision is reported at [2012] 1 All ER 778. The insurers now appeal with the permission of this court.

The Insurers' position

8. The facts of this case have revealed that the insurers exhibit an insouciance to their obligations under the Directive and the Regulations which leaves one quite breathless. The Regulations (and the Directive) make it entirely clear that the insured's freedom to have the lawyer of his choice is to be expressly stated in the contract made with the insured. What the contracts in the present case provide in General Condition 2.3 is almost the opposite:-

"We may choose not to accept the choice of representative"

to which is then added

"but only in exceptional circumstances"

which are left completely undefined.

9. To make matters worse General Condition 5 provides that if the insured's appointed representative refuses to continue acting or is dismissed.

"the cover we provide will end at once, unless we agree to appoint another appointed representative."

This provision was highly relevant to the cases of Ms Brown-Quinn and Ms Baxter who wanted to continue to instruct the same person after that person had left the firm whom they originally instructed. That was an entirely reasonable wish on their part and yet the insurers in pre-trial correspondence relied on this clause, in clear breach of the Regulations, to argue that they would not pay any of Webster Dixon's fees, thus denying the insureds the freedom of choice the existence of which they ought to have made clear in the contract.

10. To make matters yet worse, the line adopted in the pre-trial correspondence was calculated to make both the insured and Webster Dixon think that, if Webster Dixon were instructed, the insured could not recover anything in respect of their fees, not even the non-panel rate of £125 (later £139) per hour. That, as it seems to me, was a further denial of the insured's right to choose her own solicitor.
11. It was only in the face of the judge at first instance that this latest assertion was disclaimed (see para 7 above). The other assertion in relation to what were called "transfer cases" (when the solicitor moved to another firm) was maintained throughout the trial and, even after Burton J had rejected it, it was maintained in both the original and the amended Grounds of Appeal; it was only abandoned on the morning of the hearing before the Court of Appeal.
12. In the wake of these assertions being made, only to be later disclaimed, the insurers now seek to complicate matters even further by seeking to withdraw the concession they made to the judge that the insureds were not restricted to recovery of the non-panel costs of £125 (now £139) per hour. They now wish to argue that the insureds are indeed so confined and have sought permission to amend their grounds of appeal to argue this new point on the construction of the policy.
13. It is very difficult to view all this conduct as the conduct of a reasonable and responsible insurer but, as Mr Nicholas Bacon QC for the insurers (who did not appear in the court below) said in his emollient submissions, the court's duty is to decide the parties' legal rights, whatever the distaste with which it views the behaviour of the parties in the lead-up to the hearing.

The concession

14. Mr Colin Wynter QC opposed the withdrawal of the concession and relied on most of the history of the matter as I have set it out as going to the exercise of our discretion. He could not, however, point to any prejudice on the part of the insureds or Webster Dixon even as to costs since the insurers have agreed to pay their costs of the appeal in any event. Nor could he say that preparation for the trial or evidence to be adduced at it would have been any different since it was only during the proceedings that the insurers made the concession. The course of argument would no doubt have been different but for the concession. It would have included consideration of the standard terms of appointment and this court does not have the advantage of the judge's view of the argument which the insurers now wish to put forward. But that cannot, of itself, be a reason for refusing leave for the concession to be withdrawn.
15. The law can be taken from the judgment of Nourse LJ in Pittalis v Grant [1989] QB 605, 611 C-F.

"The stance which an appellate court should take towards a point not raised at the trial is in general well settled: see Macdougall v Knight (1989) 14 App. Cas. 194 and The Tasmania (1890) 15 App. Cas. 223. It is perhaps best stated in Ex Parte Firth, In re Cowburn (1882) 19 Ch.D.419, 429, per Sir George Jessel M.R.:

"the rule is that, if a point was not taken before the tribunal which hears the evidence, and evidence could have been adduced which by any possibility would prevent the point from succeeding, it cannot be taken afterwards. You are bound to take the point in the first instance, so as to enable the other party to give evidence".

Even if the point is a pure point of law, the appellate court retains a discretion to exclude it. But where we can be confident, first, that the other party has had opportunity enough to meet it, secondly, that he has not acted to his detriment on the faith of the earlier omission to raise it and, thirdly, that he can be adequately protected in costs, our usual practice is to allow a pure point of law not raised below to be taken in this court. Otherwise, in the name of doing justice to the other party, we might, through visiting the sins of the adviser on the client, do an injustice to the party who seeks to raise it."

Bearing these considerations in mind I take the view that the insurers should be allowed to withdraw the concession. The point would, in any event, have to be decided in another case and it is sensible to decide it now.

16. On this basis there are then two questions. First it is necessary to construe the relevant terms of the policy of insurance and secondly it is necessary to decide whether the relevant terms of the policy inhibit the insured's freedom of choice in relation to their lawyer in such a way as to prevent reliance on any such relevant term.

Policy Terms

17. Mr Wynter submitted first that General Condition 2.3 draws a distinction between "lawyer" and "appointed representative" and that the first sentence of General Condition 2.4 only applied to an appointed representative leaving the insured free to appoint a lawyer of his choice whose reasonable fees would then be payable by the insurer, according to the definition of "Costs and Expenses".
18. This was not an argument submitted to the judge – indeed Mr Wynter only thought of it in the course of his submissions to us. Ingenious as it may be it cannot be right because it is only the appointed representative whom, according to the terms of the policy in General Condition 2.3, the insured is free to choose. The definition of appointed representative encompasses many kinds of "lawyer" and the term "lawyer" is, to my mind, used synonymously with the term "appointed representative" in that condition. So if the insured chooses a lawyer to act for her, that lawyer will be the "appointed representative". The insurers reserve a right not to agree to the representative appointed by the insured "in exceptional circumstances" but that undefined reservation is, as I have said, in conflict with the Regulation and the Directive and, in any event, is not relied on by the insurers in this case. The question in this case is whether the insurers are entitled to require the insured to instruct Webster Dixon on the insurers' standard terms of appointment.
19. As to that, Mr Wynter submitted that the insured could not be so required because there was no incorporation of the insurers' standard terms of appointment into the policy. They were not even annexed to the policy but only contained in the offices of the insurers and the insured could only access them by asking the insurers for them.
20. Mr Wynter could not cite any authority for his proposition that a reference to standard terms in a contract was insufficient to draw the attention of the other contracting party to the existence of such terms in such a way as to be bound by them; nor did he suggest that there was any principle whereby an insurance policy made with a consumer should be construed differently from an insurance policy with anybody else. It seems to me therefore that the reference in General Condition 2.4 to the standard terms of appointment is sufficient to bring those terms to the notice of the insured and that they are therefore part of the contract made with the insureds in this case. In practice of course, it will usually be the insured's solicitor of choice who will make any inquiry about recoverable rates or what I have called non-panel rates; unless, therefore, the Regulations prevent or inhibit contracting on those terms, those will be the rates which the insured will be entitled to recover from the insurers.
21. To the extent that insurers argued in pre-trial correspondence that they were entitled to refuse to accept the appointment of Webster Dixon unless Webster Dixon and the insured agreed the non-panel rates, that was wrong. Mr Bacon, for the insurers, expressly accepted that that argument was inconsistent with the right of the insured to instruct a lawyer of his or her choice; his submission was merely that the insurers were only bound to pay the rates set out in the standard terms of appointment. I consider that concession to have been rightly made. Although we did not receive adversarial argument on the point, it must be right that a refusal to accept the appointment of an insured's lawyer of choice on the basis that he will only be accepted if he charges no more than the non-panel rates would be a serious inhibition of freedom of choice and thus contrary to the Regulations.
22. Mr Wynter's primary argument (accepted by the judge) was that the insureds were entitled to recover Webster Dixon's reasonable fees, costs and expenses because that was how costs and expenses were defined in the policy of insurance. He submitted further that the non-panel rates should not even be a comparator but he was prepared, if necessary, to accept the judge's decision that they could be a comparator. The judge's conclusion is entirely understandable in the light of the insurers' concession made to him that the insureds were not restricted to recovering the non-panel rate. Now that we have decided that that concession can be withdrawn, the question whether the insured are restricted to recovering the non-panel rate has to be decided by the terms of the policy, not solely by reference to the definition of costs and expenses. If that were not clear enough on its own, the very first clause of the policy (entitled Declaration) ensures that all the terms and conditions are to be taken into account in order to ascertain what is and is not covered.
23. I would hold that, if one has regard solely to the terms of the policy of insurance, the insureds are entitled to recover the non-panel rate set out in the standard terms and conditions and no more; they are, however, entitled to recover at least those rates. If that means that they have to pay more to their chosen solicitors and arrange some other way to make such payment, that will then be their decision.

The Regulations

24. Do the Regulations make any difference to that conclusion? Mr Wynter submitted that they did because if an insured had to pay extra to instruct a solicitor of his choice, her freedom of choice was inhibited. Someone who had to pay more might well feel compelled to find a solicitor who would charge the non-panel rates or, worse still, a solicitor on the insurers' panel. The difficulty with this argument is that neither the Regulations nor the Directive make any reference to charging rates. The fact that some potential insureds may be unable to pay extra to secure the solicitor of their choice can hardly mean that all insureds can always choose any solicitor however expensive he may be and expect the insurers to pay.
25. Some help with this question may be gained from the jurisprudence of the European Court of Justice. In Eschig v Uniqa Sachversicherung A.G. (2009) C-119/08 the Court decided that the insurer could not insist that a litigant should join a group action rather than use a lawyer of his choice but no comment was made about the rates which the chosen lawyer proposed to charge.
26. In Stark v DAS Oesterreichische Allgemeine Rechtsschutz-Versichergung A.G. (2011) Case C-293/10, the Austrian law which transposed the Directive into national legislation provided that the insurers could limit their costs liability to the costs normally claimed by a lawyer established in the place of the court before which the relevant proceedings had been brought (provided that at least 4 lawyers had chambers there). The proceedings were brought in Vienna but the insured wished to instruct a lawyer at the place where he lived, Landeck, which was some 600 kilometres from Vienna. The case seems to have been about "ancillary services" provided by the insured's lawyer (see paras 7 and 8) rather than what we would call his profit costs and it may well have been travelling expenses which were mainly in issue. Nevertheless the court held that the provision of Austrian law was not inconsistent with the Directive. Mr Wynter sought to distinguish this case on the basis that it concerned a statutory provision rather than a term of the insurance contract. But the Court's decision would, I think, have been exactly the same if there had been a clause in the insurance contract to the same effect as the provision of Austrian law. Indeed the question posed to the Court by the Landesgericht in Innsbruck adverted to that very possibility. It was (see para 22):-

"Is Article 4(1) of Directive 87/344/EEC to be interpreted as precluding a provision such as Paragraph 158k(2) of the VersVG and a clause, based on that law, contained in the general conditions of insurance applied by a legal expenses insurer to the effect that it may be agreed in the insurance contact that the insured person may select, to represent him in judicial or administrative proceedings, only persons professionally authorised to represent parties who have their chambers at the place of the court or administrative authority before which the proceedings at first instance are to be conducted?"

27. The Court gave its answer in paragraphs 31-36 as follows:-

"31. In paragraphs 65 and 68 of Eschig, however, the Court pointed out that Directive 87/344 does not seek to harmonise completely the Member States' legal expenses insurance contracts, with the result that, as EU law currently stands, the Member States remain free to determine the body of rules applicable to those contracts, on condition that those comply with EU law, and in particular with Article 4 of Directive 87/344.

32. Accordingly, the question of the scope of the cover in respect of costs relating to the involvement of a representative, which is at issue in the main proceedings, is not the subject of an express rule in that directive. Neither the articles nor the recitals of that directive allow the conclusion to be drawn that the determination of the amount which should be paid by the legal insurance provider to cover the costs incurred by the person instructed to represent the insured person is governed by that Directive.

33. Consequently, freedom of choice, within the terms of Article 4(1) of Directive 87/344, does not mean that Member States are obliged to require insurers, in all circumstances, to cover in full the costs incurred in connection with the defence of an insured person, irrespective of the place where the person professionally entitled to represent that person is established in relation to the court or administrative authority with jurisdiction to deal with a dispute, on condition that that freedom is not rendered meaningless. That would be the case if the restriction imposed on the payment of those costs were to render de facto impossible a reasonable choice of representative by the insured person. In any event, it is for the national courts, if an action is brought before them in this regard, to determine whether or not there is any such restriction.

34. Moreover, national legislation such as that at issue in the main proceedings does not exclude the freedom of contracting parties to agree that legal expenses insurance is also to cover the reimbursement of costs relating to the involvement of representatives who are not established at the place of the court having jurisdiction, possibly against payment of a higher premium by the insured person.

35. In the present case, Mr Stark was able to choose his lawyer without opposition on the part of his insurer. Furthermore, Mr Stark would be deemed to bear only the costs relating to the distance between the chambers of his lawyer and the place of the court having jurisdiction, which, subject to the assessment to be carried out in this respect by the referring court, does not appear, as a general rule, to be such as to hinder the freedom to choose his lawyer.

36. In view of all the foregoing, the answer to the question referred is that Article 4(1) of Directive 87/344 must be interpreted as not precluding a national provision under which it may be agreed that a person covered by legal expenses insurance may select, in order to have his interests represented in administrative or judicial proceedings, only persons professionally authorised to represent parties who have their chambers at the place of the court or administrative authority having jurisdiction at first instance, on condition that, in order not to render meaningless the insured person's freedom to choose the person instructed to represent him, that restriction relates only to the extent of the cover by the legal insurance provider in respect of costs linked to the involvement of a representative and that the reimbursement actually provided by that insurer is sufficient, this being a matter for the referring court to determine."

28. One can see from this answer (in para 33) that insurers can seek to limit the costs for which they are liable to the insured provided that the freedom of choice guaranteed by the Directive:-

"is not rendered meaningless."

Para 36 then says that a provision so seeking to limit costs (at any rate to the costs of a lawyer practising in the area of the court) is not precluded unless the insured's freedom of choice is rendered meaningless which it will not be if (1) the "restriction relates only to the amount of the cover by the legal insurance provider in respect of costs linked to the involvement of a representative" and (2) "the reimbursement actually provided by that insurer is sufficient, this being a matter for the referring court to determine". If one reads this paragraph as a whole, it must mean that any alleged insufficiency of remuneration has to be such as to render the insured's freedom of choice meaningless before any provision as to reimbursement of a solicitor's costs and expenses in the contract can be struck down.

29. A court determining whether the remuneration offered by the insurance policy is so insufficient as to render the insured's freedom of choice meaningless would have to have evidence of such insufficiency before it could avoid or strike down any provision in an insurance contract relating to the level of costs and expenses payable in respect of a solicitor's services. In this case the evidence is meagre in the extreme. All this court knows is that McKeowns who were panel solicitors were originally prepared to act for panel rates of remuneration in relation to both Ms Brown-Quinn and Ms Baxter. We were not directed to any evidence before the judge that solicitors (other than Webster Dixon) were not prepared to conduct the cases of the insureds for the non-panel rates of £125 (rising to £139) per hour. In the absence of such evidence it does not seem to me to be possible to say that the insurers cannot rely on their terms of their contract restricting the insured's indemnity to the non-panel rate. It is not enough merely to point to rates set out in the HM Courts and Tribunals Service publication "Guideline Rates for Summary Assessment".
30. It may be said that it would be difficult for an individual insured to obtain such evidence but the problem is only likely to surface after the individual insured has been to see a solicitor and a discussion about how any potential litigation is to be paid for has already occurred. In such circumstances a solicitor will already be involved and, if the requisite evidence is available, it will not be too difficult for that solicitor to find it.

Conclusion on the Appeal

31. I would therefore set aside the order of the judge and declare that the defendant insurers are obliged to pay the appropriate non-panel rates to their insureds but no more.

The position of Ms Jones

32. At the time when permission to appeal was granted by (as it happens) myself, the insurers also wished to appeal on a specific ground relating to Ms Jones namely that she should have been the appropriate claimant not Webster Dixon suing in their own name. This was ventilated before the judge but (as he recorded) once the insurers appreciated that only declaratory relief was sought, they did not press the matter. I refused permission to appeal on this ground but directed that the application could be orally renewed at the hearing of the appeal. It was so renewed but I would still refuse permission because the matter was not pursued before the judge and it is too late to resurrect the point now.

Overall conclusion

33. It is quite wrong that, despite the warning shot delivered to legal expenses insurers by this court in Sarwar v Alam [2002] 1 WLR 125 para 44, insurers should many years later be issuing policies which do not comply with the Regulations. General conditions 2.3 and 5 are in breach of the Regulations in the ways I have explained and must be either deleted or comprehensively re-drafted.

Lord Justice Lloyd:

34. I agree.

Lord Justice McFarlane:

35. I also agree.