England and Wales High Court (Senior Courts Costs Office) Decisions

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Cite as: [2002] EWHC 9003 (Costs)

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This judgment has been obtained from the Supreme Court Costs Office pages on the HM Courts Service web site. The citation used by BAILII is not an officially approved citation.

		BAILII Citation Number: [2002] EWHC 9003 (Costs)
		Case No: MC 003838

IN THE SUPREME COURT COSTS OFFICE
FROM THE MACCLESFIELD COUNTY COURT

Supreme Courts Costs Office
Cliffords Inn
Fetter Lane
London
EC4A 1DQ

28 February 2002

B e f o r e :

SENIOR COSTS JUDGE HURST
KAREN JENNIFER TILBY
- and -
PERFECT PIZZA LTD
Mr Marc Willems (instructed by Amelans for the Claimant)
Mr Robert McGinty (instructed by Rollingsons for the Defendant)
JUDGMENT
____________________

	KAREN JENNIFER TILBY	Claimant
	- and -
	PERFECT PIZZA LTD	Defendants

____________________

HTML VERSION OF JUDGMENT
____________________

Senior Costs Judge : Hurst

THE BACKGROUND

The Claimant Karen Tilby was injured in a road traffic accident on 22 April 2000 when a vehicle driven by an employee of the Defendant company was in collision with the rear of the vehicle in which the Claimant was travelling. She sustained a whiplash injury from which she has since recovered. She consulted solicitors and on 19 May 2000 a letter of claim was sent to the Defendants. On 24 May 2000 she entered into a conditional fee agreement with her solicitors and on 1 June 2000 took out an after the event insurance policy with Temple Legal Protection Ltd. The policy is dated 1 June 2000.

The claim was settled for £2,000 on 22 October 2000 without proceedings ever being commenced. The Defendants agreed to pay the Claimant's reasonable costs, which were claimed at a total of £6,160.90. This figure includes the sum of £367.50 in respect of the insurance premium (£350 plus £17.50 IPT). The parties were unable to agree the costs and costs only proceedings were commenced in the Macclesfield County Court which were subsequently transferred to the Supreme Court Costs Office to be dealt with.

The Defendants have mounted a considerable attack against the level of the Claimant's costs but this decision deals only with the question of the after the event insurance premium.

THE CFA AND ATE INSURANCE POLICY

The conditional fee agreement entered into by the Claimant is itself the subject of dispute by the Defendants. For the purpose of this decision I am however treating it as being a valid agreement. The agreement sets out:

"What is covered by the agreement

· your claim against Mr Wesley Gregory for damages for personal injuries suffered on 22/04/2000

· any appeal by your opponent.

· any appeal you make against an interim order during the proceedings.

· any proceedings you take to enforce a judgment, order or agreement."

It is the Claimant's case that the last category of proceedings is sufficiently wide to encompass the costs only proceedings.

Attached to the agreement are Law Society conditions which form part of the agreement. The conditions explain some of the words used in the agreement, including:

"(o) Win: your claim for damages if finally decided in your favour whether by a court decision or an agreement to pay damages. "Finally" means that your opponent:

· is not allowed to appeal against the court decision; or

· has not appealed in time; or

· has lost any appeal."

The conditions continue:

"4. If you win:

· You are then liable to pay all our basic charges and success fee ...

· normally you will be able to recover part or all of our basic charges, success fee and disbursements from your opponent;

· if you and your opponent cannot agree the amount, the court will decide how much you can recover. If the amount agreed or allowed by the court does not cover all our basic charges and disbursements you pay the difference.

· If the court carries out an assessment of our charges you agree that the reasons for setting the success fee at the amount stated may be disclosed to the court and any other person required by the court;

· If the court carries out an assessment and the court disallows any amount of the success fee the percentage (sic) on the ground that it is unreasonable in view of what we knew or ought to have known at the time, that amount ceases to be payable under this agreement unless the court is satisfied that it should continue to be payable.

...."

Finally paragraph 7(b)(iv) provides:

"We can end this agreement if you do not pay your insurance premium when asked to do so."

The insurance policy from Temple Legal Protection Ltd provides:

"... the insurers will indemnify the insured on the terms contained in this certificate of insurance."

The Schedule to the certificate defines the legal action as "personal injury claim against Perfect Pizza Limited" and the period of insurance "from: 01/06/00 to: the conclusion of the legal action".

The policy goes on to explain the insured risks, indicating that the insurers will indemnify the insured for her opponent's costs if she becomes liable to pay them; and for her own disbursements, in the event that she becomes liable to pay the opponent's costs; or, following commencement of proceedings and with the prior approval of the insurers, the legal action is settled without the Claimant's disbursements being paid by the opponent. The policy goes on to define the meaning of "disbursements" as follows:

"Fees and expenses including the premium and mediators fees, which are not the subject of any contingent or conditional fee agreement paid by the Appointed Legal Representative on behalf of the Insured to any third party other than to counsel in connection with the Legal Action but not including:

(1) any VAT to the extent that the Insured can recover such VAT from HM Customs & Excise; and

(2) any disbursements which the Court orders the Opponent to pay to the Insured."

"Legal action" is defined as: "The action described in the Schedule and any appeal made by the Opponent".

The conditions attached to the policy contain two clauses which are relevant for the purposes of this decision.

"5. Payment of costs

(a) Insurers shall not be liable to make any payment under the certificate until the conclusion of the Legal Action, unless the Court shall have ordered the Insured to pay any Opponent's costs before that date.

(b) The Insured will promptly provide Insurers with full details of Disbursements and Opponent's Costs and shall, if requested by the Insurers, have such Opponent's Costs and/or Disbursements assessed or otherwise reviewed by an appropriate body. Insurers will be entitled to conduct any assessment or review and the Insured will provide such assistance as Insurers require.

6. Assessment of premium

If, in any process of assessment, the Opponent is successful in any challenge to the cost of the premium then it is agreed that the premium which was payable at the conclusion of the Legal Action shall be reduced to the amount which was approved or allowed on assessment. It is agreed by the Insured that the Insurer shall have the right to make any representations to the Court or the Opponent as may be necessary in this matter. Any such challenge must be immediately notified by the Insured to the Insurer. "

An invoice from Temple Legal Protection Ltd dated 1 June 2000 and addressed to the Claimant sets out the amount due in respect of the premium and insurance premium tax totalling £367.50. At the foot of the invoice it states:

"Payment to be made upon conclusion of the case."

THE ISSUE

It is the Defendants' case that the insurance premium is not recoverable as a matter of law because the contract of insurance constitutes an agreement for credit in respect of payment of the insurance premium and the necessary statutory requirements have not been met. In a letter of 9 November 2000 the Claimant's solicitors wrote to the Defendants' insurers stating:

"The client has not paid the insurance premium as the same only becomes payable when the insured risk arises. Since the insured risk only arose after the matter had been settled and at that point your client became liable for the premium the client has not been liable to pay the same."

In Mr McGinty's submission, in the ordinary course of insurance business such a premium would be payable as soon as the insurance was taken out. To delay payment of the insurance premium until the conclusion of the case is to grant the Claimant credit. Mr McGinty submits that this agreement for credit is an agreement regulated by the Consumer Credit Act 1974, that it has not been properly executed and is therefore unenforceable. The Claimant's position is that this is not a credit agreement, that the insurance policy is akin to a no win no fee agreement and the Claimant, having succeeded in her claim, is notionally liable for the premium which is therefore recoverable from the Defendants. Although Mr McGinty's primary argument is that the period of credit began on inception of the policy, his secondary position is that it began once the "conclusion of the case" had been reached and that the statutory requirements still apply. His position is that the case was concluded when the damages were agreed. Mr Willems argues that the terms of the CFA and the insurance policy taken together make it clear that the cover extends to cover the costs only proceedings.

THE LAW

Section 8 of the Consumer Credit Act 1974 is in the following terms:

"8. Consumer Credit Agreement

(1) A personal credit agreement is an agreement between an individual ("the debtor") and any other person ("the creditor") by which the creditor provides the debtor with credit of any amount.

(2) A consumer credit agreement is a personal credit agreement by which the creditor provides the debtor with credit not exceeding £25,000.

(3) A consumer credit agreement is a regulated agreement within the meaning of the Act, if it is not an agreement ("an exempt agreement") classified in or under Section 16."

Section 9 of the 1974 Act defines credit as including:

"A cash loan, and any other form of financial accommodation."

In order for a credit agreement to be an exempt agreement it must comply with Article 3(1)(a) of the Consumer Credit (Exempt Agreements) Order 1989, SI 1989/869. The exemption applies to:

"An agreement for fixed sum credit under which the total number of payments to be made by the debtor does not exceed four and those payments are required to be made within a period of 12 months beginning with the date of the agreement."

Mr Willems conceded that if the insurance policy is indeed a credit agreement it is not exempt and does not comply with the Consumer Credit (Agreement) Regulations 1983. The question to be decided therefore is whether or not the ATE policy is a credit agreement.

Professor Goode in "Consumer Credit Law and Practice" deals with the ingredients of credit. He suggests that credit involves:

"(a) the supply of a benefit;

(b) attracting a contractual duty of payment;

(c) in money;

(d) the duty to pay being contractually deferred;

(e) for a significant period of time after payment has been earned;

(f) such deferment being granted by way of financial accommodation."

(paragraph 24.8, page IC/494)

Professor Goode states the general principle as follows:

"debt is deferred, and credit extended, whenever contract provides for the debtor to pay, or gives him the option to pay, later than the time at which payment would otherwise have been earned under the express or implied terms of the contract."

Professor Goode goes on to explain that where a contract provides for the debtor to pay later this means:

"... we must use some common sense and treat a debt as deferred only where the contractual period of deferment is significant, that is, where payment is not to be made on the same occasion (in a broad sense) as that of the purchase to which it relates."

He also points out that unless the contract otherwise provides, payment is earned when the benefit is supplied. It is a question of construction of the contract as to what constitutes a supply for this purpose or exactly what the supplier has to do by way of performance before he becomes entitled to payment (ibid paragraph 24.25 page IC/497 and paragraph 24.70 page IC/518).

Mr McGinty referred me to Dimond v Lovell [2000] All ER 2 898 HL, arguing that the payment of the premium in these proceedings at the conclusion of the case was similar to the provision in the hire agreement in Dimond v Lovell, that:

"The lessor would allow the hirer credit on the hire charges until such time as the claim for damages had been concluded."

Mr Willems argued that Dimond v Lovell concerned itself with damages, and therefore had no application to costs. That is a submission which I reject since the principles to be applied in deciding whether or not the agreement is a credit agreement remain the same. The Consumer Credit Act point requires me to consider the position between the parties to the relevant contract, not the position between the parties to the litigation.

It is worth remarking that Lord Hobhouse in his speech in Dimond v Lovell ([2000] All ER 2 898 HL, at 913) expressed the view that the test formulated by Professor Goode might not always be a satisfactory one to apply since he could envisage many commercial agreements containing provisions which could be said to postpone (or advance) the time at which payment has to be made.

THE DEFENDANT'S SUBMISSIONS

Mr McGinty argued that payment of the premium would ordinarily have been due when the insurance policy was taken out. To allow the Claimant to pay at the conclusion of the case was therefore to provide her with credit. He relied on the finding of the House of Lords in Dimond v Lovell, that the agreement under which payment of the hire charges was to be made at the conclusion of the case was provision of credit. His other arguments concerned the failure of the agreement for insurance to comply with the various statutory requirements for consumer credit. On those arguments there is no dispute.

CLAIMANT'S SUBMISSIONS

Mr Willems argued that the contract of insurance was not a credit agreement. The Claimant was buying a service, ie protection in respect of the risk of having to pay the opponent's costs and, in certain circumstances, her own disbursements including the premium. He submits that the service was provided throughout the case and was co-terminous with it. He further argues that the case does not conclude until the related costs only proceedings have themselves been concluded.

Referring to the work by Profession Goode, he submitted that payment of the premium had not been earned until the conclusion of the case, and he relied on a further passage in Professor Goode's book (paragraph 24.10, page IC/494) where it states:

"... if the recipient of the benefit has no duty to pay for it, then he is not a debtor and it cannot be said that credit is being extended to him."

Thus, in this case, although the Claimant has a potential liability to pay the premium in the event of success in her claim, she is under no duty to pay it until the case has concluded.

Mr Willems also relied on the example of disbursements paid by a solicitor during the course of proceedings. The client is ultimately liable to pay these disbursements but is under no duty to pay until a bill has been delivered. Similarly if an expert defers payment of fees until the end of the case that could not amount to a credit agreement. Mr Willems argues that the ATE premium should be treated in the same way. Although I accept his submission in relation to the treatment of solicitor's disbursements, it is not possible to treat the ATE premium as a solicitor's disbursement since clearly the solicitor does not pay it.

Mr Willems's other main submission was that the contract of insurance was a no win no fee agreement and could not therefore be a credit agreement in any circumstances. The position under the ATE policy is that if the Claimant is unsuccessful she has to pay nothing at all, the policy itself covers the risk of losing. If she is successful she will, assuming the Defendant is good for the money, recover damages and costs including her insurance premium which she is liable to pay to the insurers. The insurance policy recognises the possibility of the premium being reduced on assessment and provides, in the event of such a reduction, that the Claimant would only be liable for the reduced amount. Mr Willems argued that for credit to be provided there has to be a debt and that what is being dealt with here is a contingent liability which can only arise on the happening of the contingency ie success in the case and the final agreement or assessment of the costs, including the ATE premium.

CONCLUSIONS

Put shortly Mr McGinty's case is that it is normal practice in insurance business to pay the premium when the insurance is taken out. Whilst this contention may be true in respect of before the event insurance, such as household or motor insurance, after the event insurance is an entirely new product in respect of which, in my view, there is as yet no established normal business practice.

The introduction of recoverable insurance premiums under the Access to Justice Act 1999 has, with effect from 1 April 2000, opened up an entirely new sector of insurance business. The range of insurance policies available and the premiums payable under those policies are extremely wide (see the Report of Master O'Hare, Costs Judge, in Callery v Gray (No.2) [2001] 4 All ER 1). Litigants in general might be put off litigating if they had to pay significant amounts of money, such as insurance premiums at the outset of their claim. Equally solicitors do not as a general rule fund disbursements and insurance premiums pending the successful outcome of claims. Recognising this, the after the event insurance providers have developed products, such as the Temple policy in this case, which do not require any payment from either the client or the solicitor until the conclusion of the case. If the claim is unsuccessful no money at all is payable. If the claim is successful the claimant is under a duty to pay the insurer the agreed premium or, if that premium is reduced on assessment, the reduced figure.

After the hearing the Defendant, with leave, served a further witness statement of Darren Mendel in support of the submission that it is proper practice, where a claim is funded with the assistance of an ATE insurance policy, for the premium to be paid at the outset by the Claimant; or with the assistance of a bank loan; or by means of a regulated credit agreement. The Claimant, having considered that evidence, elected not to serve any evidence in reply.

Mr Mendel suggested that there were three common methods of dealing with ATE insurance premiums: (i) paid in advance by the Claimant personally; (ii) paid by means of a bank loan obtained by the Claimant; and (iii) where credit has been granted in respect of the premium payment subject to a regulated credit agreement. Seven examples were given: one in respect of payment by the Claimant personally, and one where the Claimant had obtained a loan in order to be able to pay the Claims Direct premium. The other five cases all involved regulated credit agreements. Of these one was a Claims Direct premium, although it is not entirely clear whether this was paid by means of a personal loan from Claims Direct (which is the form of a consumer credit agreement) or by means of some other form of personal loan. It is worth noting that the Claims Direct insurance premium is the subject of a number of test cases yet to be resolved, and that one of the points in issue is whether the premium loan agreement is valid. Two further policies were Law Club Legal Protection policies, both the subject of regulated credit agreements. Other policies were with Accident Protect and NIG Corporation. The NIG policy was said to support the Defendant's case that such policies require payment at the outset and for the actual payment to be made, unless credit has been afforded and therefore subject to a regulated credit agreement. The Defendant further submitted that the procedure adopted by the Claimants' insurer in this case was not the procedure adopted by the majority of insurers, ie. allowing the Claimant to defer payment of the insurance premium until the end of the case without any regulated credit agreement.

Notwithstanding the examples which have been produced by the Defendant I am not persuaded that there is, as yet, any normal insurance business practice which requires the after the event insurance premium to be paid at the inception of the policy. In my view this area of insurance is still in its infancy and the practice and procedure is developing. It is clear that insurers would not use consumer credit agreements unless they had been advised that their particular agreement fell within the statutory framework. In this case Temple have been advised that their scheme does not fall within the statutory framework and that therefore a consumer credit agreement is not required. For the reasons which I have already given I am of the view that there is no deferment of the payment of the premium unless it is deferred beyond the conclusion of the case for a significant period.

Mr McGinty argues that the case is concluded when the claim for damages is finally agreed in the Claimant's favour. Mr Willems, in support of his argument that costs only proceedings precede the conclusion, relies upon the duration of the conditional fee agreement which he submits covers enforcement proceedings. The assessment of costs is not an enforcement proceeding but, until costs are assessed, the agreement to pay costs cannot be enforced. By commencing costs only proceedings the Claimant will obtain a detailed assessment of her costs which will result in a final certificate and that certificate will be enforceable in the same way as any other judgment for a civil debt.

In support of his argument that the legal action concluded when the claim for damages was finally agreed, Mr McGinty draws attention to paragraph 6 of the policy (set out in paragraph 12, above) which he says makes it clear that the premium has become payable before the costs have been assessed. The crucial words are:

"... the premium ... which was payable at the conclusion of the Legal Action shall be reduced ... (emphasis is added)."

This, argues Mr McGinty, indicates that the legal action has been concluded, the premium has become due and payable and the Claimant has therefore been granted a significant period of deferment thereby bringing the agreement within the ambit of the Consumer Credit Act. I do not accept this submission, which is essentially based on a poorly drafted phrase in the policy. In my judgment the words "which was" are mere surplusage and should be ignored. What was intended by the policy and by the draftsman in drafting Clause 6 in the way he did was to refer to:

"...the premium payable at the conclusion of the legal action ..."

At most the words "which was" draw attention to the change in premium only; they do not indicate any passage of time after the time for payment of the premium.

I have not found this point an easy one to decide. I do however accept Mr Willems's argument that, taken together, the insurance policy and the conditional fee agreement make it clear that the insurance cover extends to all necessary steps in relation to resolving the Claimant's claim, including her claim to be paid her reasonable costs. In those circumstances I find that the Temple insurance policy is still in force, the case not yet having been concluded. Since the Claimant has been successful in her claim for damages she is now aware that she will be liable to pay Temple Legal Protection Ltd £367.50 upon the conclusion of the case. That is once the costs have been finally assessed.

Given the finding which I have made in respect of the policy itself it is not necessary for me to deal with Mr Willems's submission that the contract of insurance is in fact a no win no fee agreement.

For the reasons given I find that the after the event insurance policy in this case is not a credit agreement and is therefore not caught by the provisions of the Consumer Credit Act 1974 or the Regulations made under it.

PTH\26\Tilby v Perfect Pizza