Case No: A2/2016/0926 & A2/2017/0112

Neutral Citation Number: [2017] EWCA Civ 1941
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM  LIVERPOOL COUNTY COURT & NORWICH COUNTY COURT
HIS HONOUR JUDGE PEARCE & DISTRICT JUDGE ROGERS
A05LV835 & B00NR492
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 28 November 2017

Before :
LORD JUSTICE LEWISON
LORD JUSTICE BEATSON
and
MR JUSTICE HILDYARD

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Between :

	PETERBOROUGH & STAMFORD HOSPITALS NHS TRUST	Appellant	
	- and -		
	MARIA McMENEMY	Respondent	
	
And between		
	
MICHAEL REYNOLDS	
Appellant	
	- and -		
	NOTTINGHAM UNIVERSITY HOSPITALS NHS FOUNDATION TRUST

	Respondent	

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Mr Roger Mallalieu (instructed by Acumension Ltd) for the Appellant
Mr Nicholas Bacon QC & Mr Rupert Cohen (instructed by Just Costs Solicitors as agents for Fletchers Solicitors) for the Respondent

Mr Nicholas Bacon QC  & Mr Rupert Cohen (instructed by Just Costs Solicitors as agents for  Ashton KCJ Solicitors) for the Appellant
Mr Roger Mallalieu (instructed by Acumension Ltd) for the Respondent

Hearing dates : 17th & 18th October 2017

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Judgment
Lord Justice Lewison: 
1.	These two appeals concern the recovery of After the Event (“ATE”) insurance premiums in clinical negligence cases. In each case the claimant took out ATE insurance as soon as solicitors were instructed. In the event both claimants settled by accepting an offer of compensation before any proceedings were issued and before any expert report was commissioned. Under the terms of each policy the claimants would have no personal ultimate liability to pay the premium. If the claim succeeded, the expectation was that it would be paid by the unsuccessful defendant. If the claim failed, or not all the premium was recovered from the defendant, the insurers would bear the loss. In effect, therefore, although the point may arise in the case of privately treated patients, the contest is between insurers and the NHS.
2.	In its latest consultation paper on Introducing Fixed Recoverable Costs in Lower Value Clinical Negligence Claims, the Department of Health has said that the annual cost of clinical negligence claims in the NHS in England has risen from £1.2bn in 2014/15 to £1.5bn in 2015/16 and legal costs were 34% of the 2015/16 expenditure. In 2015/16, claimant recoverable costs were 220% of damages awarded in claims between £1,000 and £25,000. We were also told that in the year 2015/16 some 15,000 claims for clinical negligence were made against the NHS.
McMenemy v Peterborough & Stamford NHS Trust
3.	Ms McMenemy suffered a miscarriage in February 2013. In April 2013 she underwent a scan at Peterborough City Hospital and was told there was no retained product. A routine scan on 20 June 2013 revealed some retained product and on 21 June 2013 she had an operation to remove this. Due to the delay she suffered continuous bleeding and prolonged pain, and her depressive symptoms were exacerbated. 
4.	On 3 July 2013 Ms McMenemy instructed solicitors and on 5 July 2013 entered into a Conditional Fee Agreement. On 2 August 2013 her solicitors wrote to the Trust. They explained that they were acting for Ms McMenemy “in relation to a potential clinical negligence case” and set out brief details of the case. The letter also requested her medical notes. On 8 August 2013 (before receipt of the medical notes) she took out an ATE insurance policy with ARAG. The total premium including insurance premium tax (IPT) was £6,042, of which £5,088 (including IPT) was stated to be “recoverable from your opponent whilst the remainder is to be paid out of your damages.” The balance covered own disbursements and the risk of having to pay opponent’s costs. The insurance premium itself was also insured in the event that the claim was successful but the insurance premium could not be recovered in full. Otherwise the premium was to become due “at the end of your claim provided you are successful.” 
5.	Ms McMenemy’s solicitors received her medical notes in September 2013. They sent a letter of claim to the Trust’s solicitors on 28 March 2014 together with a Part 36 offer of £5,000. She had not received any expert medical advice in relation to her claim at that stage. The letter said that the Trust’s breaches of duty had caused loss in two respects: she had undergone a surgical intervention which would have been unnecessary and she had suffered unnecessarily prolonged pain and suffering. On 14 May 2014 the Trust admitted breaches of duty, causation in relation to the prolonged period of pain and suffering but not in relation to the allegation that she would have avoided surgical intervention; and made a Part 36 offer of £2,000. On 2 July 2014 the Trust made a further Part 36 offer in the sum of £2,500 which Ms McMenemy accepted on 8 July 2014. She had still not received any expert medical advice.
6.	Ms McMenemy’s bill of costs was served on 24 September 2014 totalling £15,795 including disbursements and VAT, of which £5,088 was the recoverable element of the ATE insurance premium. The Trust served points of dispute to which Ms McMenemy responded. The bill was provisionally assessed by DDJ Davies on 30 March 2015 with the premium allowed in full.
7.	The Trust requested an oral hearing pursuant to CPR 47.15(7) solely in respect of the premium. On 17 July 2015 the matter came before DDJ Holligan who found in favour of the Trust, considering that it was unreasonable for the policy to have been taken out when it was, before Ms McMenemy’s solicitors had seen her medical records to confirm the facts, and therefore before there could be any assessment of risk. Given that finding the Deputy District Judge did not go on to consider whether the amount of the policy was reasonable. 
8.	On 15 October 2015 Ms McMenemy was given permission to appeal on the ground that the Deputy District Judge had been wrong to hold that she should have waited to ascertain the level of risk before taking out an ATE policy. 
9.	HHJ Pearce heard the appeal on 15 February 2015 and allowed it. He held that the premium was recoverable in principle and remitted the case to a regional costs judge for consideration of the amount recoverable. 
Reynolds v Nottingham University Hospitals Foundation Trust
10.	On 23 October 2013, Mr Reynolds suffered a fractured ankle. He was admitted to the Queen’s Medical Centre in Nottingham and discharged on 26 October 2013. On 5 November 2013 he returned to hospital in severe pain and was advised to elevate his leg. On 15 November 2013 he suffered further severe pain and shortness of breath, and on re-attending the hospital was diagnosed with a pulmonary embolism. As the blood clot had moved from his calf to his lung he also suffered a chest infection and pneumonia. He remained an in-patient until 26 November 2013. He suffered breathlessness well into 2014 and suffered from discomfort, worry and stress. In January 2014 he wrote to the hospital complaining of the failure to diagnose the pulmonary embolism on 5 November 2013. Two letters in response from the Trust dated 17 and 18 February 2014 were sent. The first of these letters included the following:
“I am very sorry that the senior house office (sic) failed to neither identify the DVT nor request diagnostic test to rule out or confirm such a diagnosis.”
“Dr Petrie [the attending SHO on 5 November 2013] is very sorry that Mr Reynolds had come to potentially avoidable harm, due to him making an incorrect clinical diagnosis. Dr Petrie would like to offer you both his unreserved apologies for the subsequent suffering that Mr Reynolds has endured…
11.	The second said:
“As your complaint is well founded we would like your written agreement to publish the enclosed summary on the Trust’s internet site.”
12.	Mr Reynolds instructed solicitors in March 2014, took out ATE insurance with ARAG on 5 August 2014, and entered into a Conditional Fee Agreement on 7 August 2014. As in McMemeny the total premium was £6,042 (including IPT) of which £5,088 was said to be recoverable “from your opponent”. The remainder was payable out of damages. The wording of the two policies is not identical but the overall effect of the policy was the same.
13.	Mr Reynolds’ solicitors obtained his medical records on 18 September 2014. On 7 November 2014 they sent a letter to the Trust notifying it of the potential claim and also wrote to a potential expert inquiring about obtaining an expert report on the issue of causation. The instruction did not proceed as the expert was unavailable. On 25 November the NHS Litigation Authority replied on the Trust’s behalf, saying that they would investigate. Mr Reynolds’ solicitors responded by saying that their letter of 7 November “was not a formal Letter of Claim”, but was intended to reduce the cost of investigation. They invited an early admission of liability “to save the cost of obtaining further evidence”. On 26 January 2015 the Trust admitted breach of duty and causation and made a Part 36 offer in the sum of £10,000. On 16 February 2015 the Trust made a further Part 36 offer in the sum of £12,500 which Mr Reynolds accepted on the following day, 17 February 2015. Mr Reynolds did not in fact commission any expert report; and in the light of his solicitors’ correspondence did not make any formal Letter of Claim.
14.	On 10 August 2015 Mr Reynolds served a Bill of Costs in the sum of £13,215.68, including the ATE insurance premium of £5,088. On 2 September 2015 the Trust served points of dispute challenging the recoverability of the premium including on the basis that it was unreasonably and unnecessarily incurred because liability and causation were both indefensible; the amount of the premium was disproportionate; and comparables showed insurance could have been obtained for less. Mr Reynolds served detailed Replies on 18 September 2015.
15.	The Bill was provisionally assessed on 24 November 2015 with the premium allowed in full. On 17 December 2015 the Trust requested an oral hearing pursuant to CPR 47.15 to address the premium and other aspects. On 15 February 2016 DJ Rogers held that it was unreasonable to have insured against the cost of expert reports on the question of liability but that it would have been reasonable to insure against the cost of reports on causation. However, he declined to attempt to apportion the premium and thus disallowed the whole of it. 
16.	HHJ Moloney QC granted permission to appeal on 22 June 2016 on the basis that Mr Reynolds would either apply for the appeal to be heard by the Court of Appeal or that it would be stayed pending the disposal of the appeal in McMenemy. On 26 October 2016 I directed that the appeal proceed in the Court of Appeal and be heard with McMenemy.
The previous regime
17.	In view of the claimants’ reliance on cases decided before the introduction of Qualified One Way Costs Shifting (“QOCS”) and the defendants’ reliance on the changes brought about by QOCS it is necessary to say something about the previous regime. Following the withdrawal of legal aid for many cases of personal injuries, a claimant who wished to pursue such a claim would enter into a conditional fee agreement (a “CFA”) with his or her lawyers. The basic principle was “no win no fee;” but in the event of success in the claim the lawyers would be entitled to an uplift called a “success fee”. A claimant’s disbursements, such as the cost of experts, would be recoverable from an unsuccessful defendant as part of the costs of the action. But in the event that the action failed, they would have to be borne by the unsuccessful claimant. Moreover, if the claim failed the unsuccessful claimant would usually also have to pay the successful defendant’s costs and disbursements. Given the high costs of litigation that outcome could be disastrous for claimants without extensive means so many claimants took out ATE insurance policies. The costs of such policies were recoverable under section 29 of the Access to Justice Act 1999 which provided:
“Where in any proceedings a costs order is made in favour of any party who has taken out an insurance policy against the risk of incurring a liability in those proceedings, the costs payable to him may, subject in the case of court proceedings to rules of court, include costs in respect of the premium of the policy”
18.	Paragraph 11. 10 of the Costs Practice Direction then in force provided:
“11.10 In deciding whether the cost of insurance cover is reasonable, relevant factors to be taken into account include: (1) where the insurance cover is not purchased in support of a conditional fee agreement with a success fee, how its cost compares with the likely cost of funding the case with a conditional fee agreement with a success fee and supporting insurance cover; (2) the level and extent of the cover provided; (3) the availability of any pre-existing insurance cover; (4) whether any part of the premium would be rebated in the event of early settlement; (5) the amount of commission payable to the receiving party or his legal representative or other agents.”
19.	It was against that background that ATE insurance was developed; and it was against the same background that the courts decided cases as they did. There were a number of different kinds of ATE insurance available in the market. Some insurers distinguished between different kinds of case (e.g. road traffic accidents as against occupational diseases) and between different levels of claim (e.g. fast track as opposed to multi-track); but at least in the early days insurers did not distinguish between litigants who had borderline cases and litigants who had strong cases. Policies which did not differentiate between strong cases and borderline cases were characteristic of insurers who gave delegated authority to solicitors to issue policies: see Master O’Hare’s report at [14] and [16] appended to the judgment of the Court of Appeal in Callery v Gray (No 2) [2001] EWCA Civ 1246; [2001] 1 WLR 2142. In addition, some insurers offered policies under which the premium was payable in stages according to the progress of the individual case. These policies were in aggregate more expensive than policies taken out at the time when solicitors were first consulted: Rogers v Merthyr Tydfil County BC [2006] EWCA Civ 1134; [2007] 1 WLR 808. 
Recoverability of ATE premiums under the old regime
20.	The leading case is Callery v Gray [2001] EWCA Civ 1117; [2001] 1 WLR 2112, a decision of a strong Court of Appeal (Lord Woolf CJ, Lord Phillips MR and Brooke LJ). The decision was upheld by a majority in the House of Lords ([2002] UKHL 28; [2002] 1 WLR 2000) largely on the ground that the Court of Appeal was the right court to rule upon matters of civil procedure. The facts are adequately summarised in the headnote:
“In each case the claimant suffered minor injuries in a road traffic accident and instructed solicitors to claim damages from the defendant under a conditional fee agreement, with an agreed success fee of 60% in the first case and of 30% in the second case. In the first case the claimant also paid £350 for after the event insurance to cover the costs he would be liable to pay if the proceedings failed. Both claims settled quickly, without proceedings being issued, and the defendants agreed to pay the claimants damages and reasonable costs.”
21.	Although it is not clear from this report whether the policies in issue covered the claimants’ own disbursements or only the legal costs of the opposing party, it is clear from the later round of the same litigation that own disbursements were indeed covered by the policies: Callery v Gray (No 2) at [19]. The issues before the court were (a) the appropriate level of success fee, (b) the recoverability of the ATE insurance premium and (c) the stage at which it was appropriate to enter into a CFA and take out ATE insurance. It is only the third of those issues with which we are concerned. At [91] the court held that from the viewpoint of both the claimant and his solicitor, it would normally be reasonable for a CFA to be concluded and ATE cover taken out on the occasion that the claimant first instructs his solicitors. At [93] the court held:
“Including success fees in recoverable costs has the general effect of shifting from the legal aid fund to defendants, or their insurers, the costs incurred by litigants whose claims fail. In the first instance the claimants' solicitors shoulder the risks in relation to these costs, in exchange for uplift. But the fact that the uplift in successful cases is transferred to the unsuccessful defendants results, if one takes a global view, in the burden of unsuccessful claimants' costs being born by unsuccessful defendants.”
22.	At [94] the court held:
“Permitting ATE insurance premiums to be recovered as costs has the effect of shifting to unsuccessful defendants the costs which the insurers will have to pay to successful defendants. Under the old regime successful defendants would not normally recover their costs where claims were legally aided. Thus, in bearing the burden of meeting ATE insurance premiums, defendants in general are paying for cover that will ensure that their costs are paid if they succeed.”
23.	The essence of the decision is contained in the following paragraphs of the court’s judgment:
“[98] The defendants contend, however, that it is unjust to saddle defendants with the costs of the ATE insurance premiums and success fees without giving them a fair chance to identify those cases where liability and quantum is not disputed so that success is assured.
[99] We see the force of this submission, but we have concluded that, at least in the circumstances of the two appeals, the prejudice to defendants is not as clear as is suggested and that it is outweighed by the legislative policy and by a number of practical considerations. Thus:
(i) If the new regime is to achieve its object, the legal costs of claimants whose claims fail should fall to be borne by unsuccessful defendants in the manner described in paragraph [93] above. On these appeals the court has to decide whether to permit liability for success fees to be apportioned in relatively small amounts among many unsuccessful defendants, or to insist on an approach under which they will be borne in much larger amounts by those unsuccessful defendants who persist in contesting liability.
(ii) If the latter alternative is adopted, the defendants who contest liability will not share liability for costs in a manner which is equitable. Where there is a strong defence which it is reasonable to advance, a larger uplift will be appropriate than where a defendant unreasonably persists in contesting liability despite the fact that the defence is weak. Thus the more reasonable the conduct of the defendant, the larger the uplift that he will have to pay if his defence fails.
(iii) In relation to claims arising out of road accidents, where defendants will be insured, the same insurers will often be sharing the costs involved, whether in the form of many uniform small uplifts or fewer large uplifts.
(iv) So far as insurance premiums are concerned, these will produce cover which benefits the defendants, for they will ensure that costs are awarded against unsuccessful claimants and that such awards are satisfied.
(v) Defendant interests, with the assistance of the court, should be able to restrict uplifts and insurance premiums to amounts which are reasonable having regard to overall requirements of the scheme. In saying this we are contemplating a position where there will be adequate data to enable informed judgment of the amount of uplift and the size of insurance premium that are reasonable in circumstances such as those before the court. We are well aware that that position has not yet been reached and that, on these appeals, we are faced with doing our best on very sketchy data. We have had particular regard to the fact that the representations and evidence submitted after the hearing have not been tested or analysed in the course of oral argument.
(vi) Claimants naturally want to know at the outset that a satisfactory arrangement to cover the costs of litigation has been made which provides sufficient protection for them, no matter what the outcome.
(vii) Claimants incur liabilities for costs to their legal advisers as soon as they give them instructions. Once a defendant starts to incur costs in complying with a protocol, the claimant will be exposed to liability for those costs if proceedings are commenced.
(viii) Solicitors and claims managers are anxious to be able to offer legal services on terms that the claimant will not be required to pay costs in any circumstances. This will assist access to justice.
(ix) There is the overwhelming evidence from those engaged in the provision of ATE insurance that unless the policy is taken out before it is known whether a defendant is going to contest liability, the premium is going to rise substantially. Indeed the evidence suggests that cover may not be available in such circumstances.
[100] For these reasons we have concluded that where, at the outset, a reasonable uplift is agreed and ATE insurance at a reasonable premium is taken out, the costs of each are recoverable from the defendant in the event that the claim succeeds, or is settled on terms that the defendant pay the claimant's costs.”
24.	As Mr Mallalieu correctly submitted on behalf of the defendants, the global approach adopted by the Court of Appeal, essentially as a matter of policy, departed from the usual approach to the assessment of recoverable costs. The usual approach was described by Lord Scott in his dissenting speech in Callery v Gray at [114]:
“The correct approach for costs assessment purposes to the question whether an item of expenditure by the receiving party has been reasonably incurred is to look at the circumstances of the particular case. The question whether the paying party should be required to meet a particular item of expenditure is a case specific question. It is not a question to which the macro economics of the ATE insurance market has any relevance. If the expenditure was not reasonably required for the purposes of the claim, it would, in my opinion, be contrary to long-established costs recovery principles to require the paying party to pay it.”
25.	Lord Hoffmann agreed with this description at [35] and added:
“Once one invokes a global approach designed to produce a reasonable overall return for solicitors, one moves away from the judicial function of the costs judge and into the territory of legislative or administrative decision.”
26.	It is, however, clear that the departure from the usual case-by-case assessment of costs was deliberate on the part of this court and upheld by the House of Lords, despite serious reservations by Lord Hoffmann and a powerful dissent by Lord Scott. In effect, therefore, the question was settled at a macro level by reference to the general run of cases and the macro economics of the ATE insurance market, and not by reference to the facts of any specific case. 
27.	Since that landmark decision ATE insurance has been taken out at the same time as the claimant enters into a CFA with his solicitors, as Sir Rupert Jackson noted in paragraph 2.2 of Chapter 14 of his Preliminary Report on Civil Litigation Costs. 
The current regime
28.	The costs of civil litigation have been a matter of public concern for many years. One of the features that fuelled concern was the rise of ATE insurance following the severe restrictions on the availability of legal aid, and the recovery of ATE premiums from unsuccessful defendants. Sir Rupert Jackson addressed this and many other concerns in his Review of Civil Litigation Costs in December 2009. Among other things he recommended that ATE insurance premiums should cease to be recoverable from unsuccessful defendants; but that personal injury claims (including claims in clinical negligence) should be subject to QOCS. In essence this means that if a claimant succeeds, the defendant will pay his costs but that if he loses (except in limited cases) he will not have to pay the defendant’s costs. In addition general damages were to be increased by 10 per cent. Chapter 23 of his report addressed Clinical Negligence. Sir Rupert wrote:
“There are two objectives which have to be borne in mind in relation to this area of litigation. First, patients who have been injured as a result of clinical negligence must have access to justice, so that they can receive proper compensation. Secondly, this huge area of public expenditure must be kept under proper control, so that the resources of the health service are not being squandered unnecessarily on litigation costs.”
29.	Following Sir Rupert’s report, the CPR were radically revised; and in addition primary legislation was passed dealing with, among other things, the recovery of ATE insurance premiums. The recommendation that general damages be increased was effectively implemented by the decision of this court in Simmons v Castle [2012] EWCA Civ 1288; [2013] 1 WLR 1239.
30.	The provisions relating to QOCS are now to be found in CPR Part 44 Section II. CPR Part 44 rule defines the scope of QOCS, which includes claims for personal injury. Rule 44.14 (1) provides:
“(1)     Subject to rules 44.15 and 44.16, orders for costs made against a claimant may be enforced without the permission of the court but only to the extent that the aggregate amount in money terms of such orders does not exceed the aggregate amount in money terms of any orders for damages and interest made in favour of the claimant.”
31.	The exceptions are contained in rules 44.15 and 44.16. They deal with cases which are struck out as disclosing no reasonable grounds for the claim or are an abuse of process; or where the claim is fundamentally dishonest. There is, in my judgment, no reason why the court should lean in favour of protecting claimants who bring dishonest, abusive or frivolous claims. In the remainder of this judgment I use the word “claimant” to mean a claimant who brings a claim in good faith and on reasonable grounds.
32.	Accordingly, where a claimant succeeds in the claim, costs will usually follow the event, although an unsuccessful defendant may be awarded the costs of a particular issue on which it has won, or there may have been orders for costs in a defendant’s favour at some interlocutory stage. In addition where a claimant fails to beat a Part 36 offer, the defendant will be entitled to its costs incurred after the expiry of the time for acceptance of the offer. A defendant may recover those costs from the claimant up to the level of the damages awarded. But QOCS is of particular importance where a claim fails. 
33.	Sir Rupert recommended that the recovery of ATE premiums should be abolished in all cases. However in Chapter 9 Section 6 of his Final Report he made a number of other recommendations for limiting recovery of such premiums if the principle of recovery was to be maintained. These included:
i)	No ATE premium should be recoverable if liability was admitted during the protocol period;
ii)	No ATE premium should be recoverable for the risk of failing to beat a Part 36 offer; and
iii)	Premiums should be capped at 50 per cent of damages.
34.	So far as disbursements were concerned Sir Rupert said (Chapter 19, para 5.8):
“There is no justification for requiring defendants, either collectively or individually, to pay claimants’ disbursements in cases which they lose. Defendants will be making a more than sufficient contribution in such cases by bearing their own costs.”
35.	The recommendation to abolish the recovery of ATE premiums was accepted, subject to certain exceptions. None of the detailed proposals for limiting recovery were accepted. The recommendation about disbursements was also not accepted as regards clinical negligence cases in so far as defendants collectively contribute, through recovery of ATE premiums, to the payment of unsuccessful claimants’ disbursements. In the Government’s formal response to Sir Rupert’s recommendations paragraph 6 read:
“Refinement to the proposals for public policy reasons
The Government is aware of specific concerns in relation to the funding of expert reports in clinical negligence cases. These expert reports can be expensive and we need to provide a means of funding them to ensure that meritorious claims can be brought by those who cannot afford to pay for these reports upfront. To address this, the Government is making one change to Lord Justice Jackson’s key recommendations. The Government intends to have a tightly drawn power to allow recoverability of the ATE insurance premiums to cover the costs of expert reports only in clinical negligence cases. The details would be set out in regulations. The Government will continue to engage with claimant and defendant representatives and general liability insurers to ensure that joint expert reports can be commissioned wherever possible so that ATE insurance is not necessary.”
36.	Paragraph 24 also pointed out the problems in pursuing a clinical negligence claim without expert reports and concluded that ATE premiums limited to the cost of expert reports would “remain recoverable”.
37.	Section 46 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (“LASPO”) repealed section 29 of the Access to Justice Act 1999 and inserted a new Section 58C into the Courts and Legal Services Act 1990 which took effect on 1 April 2013. It provides:
“(1) A costs order made in favour of a party to proceedings who has taken out a costs insurance policy may not include provision requiring the payment of an amount in respect of all or part of the premium of the policy, unless such provision is permitted by regulations under subsection (2).
(2) The Lord Chancellor may by regulations provide that a costs order may include provision requiring the payment of such an amount where—
(a) the order is made in favour of a party to clinical negligence proceedings of a prescribed description,
(b) the party has taken out a costs insurance policy insuring against the risk of incurring a liability to pay for one or more expert reports in respect of clinical negligence in connection with the proceedings (or against that risk and other risks),
(c) the policy is of a prescribed description,
(d) the policy states how much of the premium relates to the liability to pay for an expert report or reports in respect of clinical negligence (“the relevant part of the premium”), and
(e) the amount is to be paid in respect of the relevant part of the premium.
(3) Regulations under subsection (2) may include provision about the amount that may be required to be paid by the costs order, including provision that the amount must not exceed a prescribed maximum amount.
(4) The regulations may prescribe a maximum amount, in particular, by specifying—
(a) a percentage of the relevant part of the premium;
(b) an amount calculated in a prescribed manner.
(5)     In this section—
“clinical negligence” means breach of a duty of care or trespass to the person committed in the course of the provision of clinical or medical services (including dental or nursing services);
“clinical negligence proceedings” means proceedings which include a claim for damages in respect of clinical negligence…”
38.	Regulations were first made under this section on 21 January 2013. They were The Recovery of Costs Insurance Premiums in Clinical Negligence Proceedings Regulations 2013 due to come into force on 1 April 2013 at the same time as section 58C. Regulation 2 provided:
“(1) Subject to paragraph (2), a costs order made in favour of a party to clinical negligence proceedings may include provision requiring the payment of an amount in respect of the relevant part of the premium of a costs insurance policy taken out by that party which insures against the risk of incurring liability to pay for one or more expert reports in connection with the proceedings (or against that risk and other risks).
(2) A costs order may not require the payment of an amount in respect of the relevant part of the premium which relates to the liability to pay for any expert report if—
(a) the report was not in the event obtained;
(b) the report did not relate to liability or causation; or
(c) the cost of the report is not allowed under the costs order.”
39.	However, these regulations never came into force. The 20th report of the Parliamentary Joint Committee on Statutory Instruments suggested that they were ultra vires, because they would apply to all clinical negligence claims rather than to clinical negligence proceedings of a “prescribed description” as required by section 58C (2) (a). On 26 March 2013 they were revoked by The Recovery of Costs Insurance Premiums in Clinical Negligence Proceedings (No 2) Regulations 2013 (“the No 2 Regulations”), which did come into force on 1 April 2013.  Regulation 3 of the No 2 Regulations provides:
“(1) A costs order made in favour of a party to clinical negligence proceedings who has taken out a costs insurance policy may include provision requiring the payment of an amount in respect of all or part of the premium of that policy if—
(a) the financial value of the claim for damages in respect of clinical negligence is more than £1,000; and
(b) the costs insurance policy insures against the risk of incurring a liability to pay for an expert report or reports relating to liability or causation in respect of clinical negligence (or against that risk and other risks).
(2) The amount of the premium that may be required to be paid under the costs order shall not exceed that part of the premium which relates to the risk of incurring liability to pay for an expert report or reports relating to liability or causation in respect of clinical negligence in connection with the proceedings.”
40.	The three significant changes were:
i)	The removal of the absolute bar against recovery of ATE insurance premiums in the event that the expert’s report was not in fact obtained; 
ii)	The introduction of a minimum financial value of the claim before an ATE insurance premium was capable of being recovered; and
iii)	The removal of the contemplation that the cost of the report might not be allowed under the costs order.
41.	The draft regulations were accompanied by an Explanatory Memorandum prepared by the Ministry of Justice, and laid before Parliament. That memorandum also conveys a good understanding of the policy underlying the No 2 Regulations, which had been foreshadowed in the Government’s response to Sir Rupert’s report. Paragraph 4.3 explained that section 29 of the Access to Justice Act 1999:
“… enables the costs of an insurance policy, taken out by a party to insure against the risk of having to pay their opponent’s costs and their own disbursements if they lose their case, to be recovered from the losing party should they win their case.”
42.	It is clear from this that insurance against a party’s own disbursements was always seen as one the benefits of ATE insurance. The memorandum addressed the time at which ATE insurance was taken out in paragraph 7.1:
“ATE insurance protects the claimant from having to pay certain legal costs. It is a type of insurance taken out after an actionable event has occurred. It is often taken out where a conditional fee agreement (CFA) has been entered into. CFAs are a type of ‘no win no fee’ agreement under which lawyers do not receive a fee from their client if they lose a case, but can charge an uplift (a ‘success fee’) on top of their base costs if they win. Success fees and ATE insurance add substantially to the costs payable by the losing party.”
43.	There can be no doubt that the understanding was that ATE insurance was taken out “after an actionable event”; and that often it was taken out at the same time as the CFA: i.e. when solicitors were first consulted. In paragraph 7.3 the Ministry explained the underlying purpose of the No 2 Regulations:
“However, the Government has allowed for a permanent limited exception for clinical negligence cases, where ATE insurance premiums covering the cost of expert reports will still be recoverable. This is because expert reports are often necessary to establish whether there is a case for bringing proceedings, but can be expensive. Currently ATE insurance can insure against the risk of incurring liability to pay the costs of such reports, but with the substantial withdrawal of legal aid in personal injury (including clinical negligence) cases, a funding mechanism available to claimants to purchase those reports is required. As a result, the practical effect of this exception is that it will allow claimants to purchase expert reports for clinical negligence claims and the premium in respect of incurring the costs of those reports will remain recoverable from defendants.”
44.	The key points in this paragraph are (a) that the subject of the insurance was the risk of incurring liability to pay for expert reports (rather than the risk of not being able to pass on that liability) (b) that what was required was a “funding mechanism” and (c) that the purpose of retaining ATE insurance was to enable claimants to purchase the expert reports. Paragraph 7.4 addressed the question of cost. What it said was this:
“In order to control the cost of the ATE insurance premiums, these Regulations restrict the recoverability of the insurance premium to the risk of incurring liability to pay for an expert report or reports determining liability and causation only. The responses to the Government consultation and the department’s discussions with stakeholders (see paragraphs 9.1-9.3) suggest that in order to pursue the claim, an expert report or reports establishing liability and causation only is required. By restricting the recoverability of the insurance premium to the cost of these reports (and not, for example, reports concerning quantum), claimants will still be able to progress their claim, whilst ensuring that the costs paid by defendants to cover claimants’ ATE insurance premiums are reasonable and proportionate.”
45.	The repeal of section 29 of the Access to Justice Act 1999 was only partial. Although Parliament decided that in the general run of cases such premiums should no longer be recoverable, Parliament also decided on certain exceptions from that principle, which Mr Bacon QC for both claimants described as a “carve out”. For some cases, the carve out was limited in time. Proceedings brought by an insolvent company or office holder were initially excluded from the new regime, although that exclusion came to an end in April 2016. In other cases, such as publication and privacy proceedings, and claims relating to diffuse mesothelioma the exclusion remains in force: Legal Aid, Sentencing and Punishment of Offenders Act 2012 (Commencement No 5 and Saving Provision) Order 2013, article 4. Cases of this kind are dealt with by CPR Part 48 supplemented by PD 48 which preserve the old regime.
Does the recovery of ATE premiums engage the CPR at all?
46.	One preliminary point needs to be dealt with at the outset. Mr Bacon submitted that the recovery of ATE insurance premiums under the No 2 Regulations was not subject to the CPR at all. First, the previous legislation about the recovery of ATE premiums, contained in section 29 of the Access to Justice Act 1999 permitted the recovery of ATE insurance premiums “subject to rules of court”. That phrase is absent both from section 58C and also the No 2 Regulations. The enabling legislation permitted regulations to prescribe the amount recoverable, and that is done by regulation 3 (2). The regulations could have delegated the function to a costs judge, but they did not. Second, the references to “liability incurred under a funding arrangement” formerly contained in CPR Part 43.2, which included ATE insurance premiums, have now been removed from the CPR. The definition of “costs” in CPR Part 44.1 does not extend to methods of funding. Third, whereas the previous regime included a practice direction dealing expressly with the factors to be taken into account when deciding whether the cost of insurance cover was reasonable, there is no such practice direction under the CPR as they currently stand. Thus the CPR contain no express provisions to deal with the recovery of ATE premiums in clinical negligence cases. Fourth, the notes to CPR Part 48 in Civil Procedure state at 48.0.4:
“Regulation 3 of the 2013 Regulations provides that “a costs order made in favour of a party to clinical negligence proceedings who has taken out a costs insurance policy may include provision requiring the payment of an amount in respect of all or part of the premium of that policy.” It is therefore incumbent upon the party seeking costs to request the judge to include the necessary provision when making the order. If no such provision is included in the order, the cost of the premium will not be recoverable. The Civil Procedure Rule Committee decided that there was no need for any further rules in respect of ATE premiums in clinical negligence cases.”
47.	Mr Bacon submitted that the fact that the Rules Committee saw no need for any further rules supported his submission that, as he put it, once a claimant has gone through the gateway described in regulation 3 (1) (a) and (b) the amount of the premium prescribed by regulation 3 (2) is automatically recoverable without any further control by the court. That, he said, was also supported by paragraph 7.4 of the Explanatory Memorandum which was expressed to be the mechanism by which the Government ensured “that the costs paid by defendants to cover claimants’ ATE insurance premiums are reasonable and proportionate”.
48.	What we were invited to conclude was that Parliament made a policy choice to the effect that the level of ATE premiums would be regulated, in the first instance, by the market which he said was competitive; and if the market failed to produce acceptable results further regulations could be made under section 58C.
49.	I am sceptical about the submission that ATE premiums can be controlled solely by market forces. In Callery v Gray (No 2) Master O’Hare was asked by this court to report on the ATE market. In his report at [20] he said that he was not convinced that market forces impinged upon the premium levied on the ultimate consumer and claimed by him from his unsuccessful opponents. That view was endorsed by Lord Hoffmann when the case reached the House of Lords ([2002] UKHL 28; [2002] 1 WLR 2000). As he put it at [43]:
“That seems to me obviously right. ATE insurers do not compete for claimants, still less do they compete on premiums charged. They compete for solicitors who will sell or recommend their product. And they compete by offering solicitors the most profitable arrangements to enable them to attract profitable work. There is only one restraining force on the premium charged and that is how much the costs judge will allow on an assessment against the liability insurer.”
50.	On the other hand in Rogers v Merthyr Tydfil County BC [2006] EWCA Civ 1134; [2007] 1 WLR 808 Brooke LJ said at [117]:
“Although the claimant very often does not have to pay the premium himself, this does not mean that there are no competitive or other pressures at all in the market. As the evidence before this court shows, it is not in an insurer's interest to fix a premium at a level which will attract frequent challenges.”
51.	But Brooke LJ’s observations are not in conflict with what Lord Hoffmann said. A challenge is a challenge in the course of a detailed assessment of costs; and ultimately what is allowed on such an assessment is what the costs judge will allow. In the light of those observations it seems to me to be unlikely that Parliament chose to allow the level of recoverable ATE premiums to be determined solely by such an imperfect market, with further regulation as a back-up in case of market failure. 
52.	 If Mr Bacon’s submission is right, it would mean that ATE insurance premiums are not subject to scrutiny by the court at all, with the consequence that (to paraphrase Sir Rupert) “this huge area of public expenditure [cannot] be kept under proper control”. However, in my judgment it is not right. First, neither section 58C nor the No 2 Regulations expressly empower the court to make a costs order at all. They presuppose that the court has such a power, and merely state what such an order may include. The court’s power to make an order for costs is contained in section 51 of the Senior Courts Act 1981 which says that “subject to rules of court” costs are in the discretion of the court. Second, regulation 3 does not say that ATE insurance premiums are recoverable. It merely says that a costs order may include them. Clearly, then, the court has a discretion. How is that discretion to be exercised if not in accordance with the CPR? Third, most cases settle: often by the claimant’s acceptance of a Part 36 offer. Where a claimant accepts a Part 36 offer in due time he is entitled to his costs up to the time of acceptance. CPR Part 36.13 (3) provides that those costs are to be assessed on the standard basis if not agreed. That assessment must take place within the confines of the CPR. Fourth, I am not impressed by the submission based on the detailed definition of “costs” in CPR Part 44.1. In the first place, as Mr Bacon fairly acknowledged, the definition says that costs “includes” certain categories of expense. Second, as Mr Mallalieu pointed out in reply, the definitions apply “unless the context otherwise requires”. In a context in which the No 2 Regulations state expressly that ATE premiums may be included in a “costs order” it is an inevitable consequence that either the definition of costs in the CPR must be expanded to include ATE premiums where authorised by the No 2 Regulations, or alternatively, that the context does require an expanded definition. Fifth, Parliament must be taken to know that a “costs order” is an order made under the CPR.
53.	At the hearing of the appeals Mr Bacon sought to rely on the “costs only” procedure in CPR Part 46.14 as providing the mechanism by which an ATE premium might be recovered outside the CPR. That procedure applies where, before proceedings have been started, parties have reached agreement on “which party is to pay the costs” but have not agreed the amount. In such a case a Part 8 Claim may be issued, and the court may “make an order for the payment of costs”. The flaw in this argument is that the definition of “costs” in Part 44.1 is said to apply, not only for the purposes of Part 44, but to Parts 45 to 47 as well.  So if an ATE premium is outside the scope of the definition in Part 44.1 it cannot be recovered by proceedings under Part 46.16. Nor can it be included in a detailed assessment conducted under Part 47. So in my opinion this argument runs into the sand.
54.	In written submissions filed after the hearing (and after the decision of this court in BNM v MGN Ltd [2017] EWCA Civ 1767) Mr Bacon argued that the ATE premium was recoverable, not by virtue of anything in the CPR, but simply because the No 2 Regulations said they were. This argument has some superficial attraction in the light of BNM v MGN Ltd in which Etherton MR said at [74]:
“A costs order may make provision for the recovery of such premiums, not because they fall within the ordinary meaning of the word “expenses” in the definition of “costs” in the new CPR 44.1(1) but because they are expressly made recoverable in an order for costs by the Clinical Negligence Regs.”
55.	However, it was also common ground in that case (and not doubted by the court) that the new proportionality test in CPR Part 44.3 would apply to ATE premiums in post-April 2013 clinical negligence proceedings (see para [62] below). That measure of common ground in that case necessarily presupposes that the CPR will apply to such premiums. Accordingly, once a costs order is made, its assessment must be governed by the CPR, as the court implicitly acknowledged in that case.  Nor does it seem to have been argued in BNM v MGN Ltd that in the particular context of costs orders permitted to be made by the No 2 Regulations the “context” might “otherwise require” an expanded definition of “costs”.
Does the new test of proportionality apply?
56.	CPR Rule 44.4 (1), as it stood before April 2013 provided that on an assessment of costs on the standard basis the court would only allow costs “which are proportionate to the matters in issue.”  In Lownds v Home Office [2002] EWCA Civ 363; [2002] 1 WLR 2450 this court held that if costs were necessarily incurred in the appropriate conduct of proceedings, they were proportionate. This court applied that principle to ATE premiums in Rogers v Merthyr Tydfil County BC at [105]. Lownds was heavily criticised both before and in Sir Rupert Jackson’s report in which he recommended its reversal.
57.	As a result, with effect from 1 April 2013 recoverable costs are subject to the new test in CPR Part 44.3 which provides so far as relevant:
“(1) Where the court is to assess the amount of costs … it will assess those costs:
(a) on the standard basis; or
(b) on the indemnity basis
But the court will not in either case allow costs which have been unreasonably incurred or are unreasonable in amount.
(2) Where the amount of costs is to be assessed on the standard basis, the court will –
 (a) only allow costs which are proportionate to the matters in issue. Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred; and
 (b) resolve any doubt which it may have as to whether costs were reasonably and proportionately incurred or were reasonable and proportionate in amount in favour of the paying party.
58.	CPR Part 44.3 (5) contains a list of factors which are relevant to the question of proportionality.
59.	Mr Bacon submitted that the recovery of ATE premiums in clinical negligence cases, even if the policies were taken out after 1 April 2013, continued to be governed by the old regime and were not subject to the new test of proportionality. He argued that before the changes in legislation ATE premiums were recoverable by reference to the principles for assessing costs under the old regime. Although clinical negligence claims were not exempted from the repeal of section 29 of the Access to Justice Act 1999, they were the subject of a similar carve out, in that although ATE premiums continued to be recoverable, the extent to which they are recoverable was limited by section 58C and the No 2 Regulations. Paragraph 4.2 of PD 48 refers to the No 2 Regulations and states:
“The regulations relate only to clinical negligence cases where a costs insurance policy is taken out on or after 1 April 2013, so the provisions in force in the CPR prior to 1 April 2013 relating to funding arrangements will not apply.”
60.	Mr Bacon says that that statement is simply wrong. I do not agree. The scope of CPR Part 48 (on which PD 48 comments) is clearly demarcated by CPR Part 48.1 (1). It applies only to “pre-commencement funding arrangements”; that is to say a funding arrangement entered into before the coming into force of sections 44 and 46 of LASPO as regards particular types of proceedings. Those types are those which were the subject of the temporary “carve out” under the transitional provisions. Clinical negligence claims were not among them. They were to be a permanent exception to the abolition of the right to recover ATE premiums and were the subject of their own legislative provisions. 
61.	In addition, it is important to note, as Mr Mallalieu submitted, that claimants whose claims fall within CPR Part 48 will not enjoy the benefit of QOCS. Claimants in clinical negligence cases, by contrast, will.
62.	I conclude therefore that the new test, including the provisions about proportionality, apply to post-April 2013 clinical negligence claims. As I have said, this was common ground between counsel in BNM v MGN Ltd (at [68] and [74]) and nothing in the judgment of Etherton MR casts doubt on that measure of agreement.
Does Callery v Gray still apply?
63.	The real question under this head is whether this court should now depart from the policy choice made in Callery v Gray in the light of the changed legal landscape; and in particular (a) the introduction of QOCS, (b) the restrictions on recoverability of ATE premiums limited to certain expert reports and (c) the new test of proportionality.
64.	Mr Mallalieu did not argue that any of the reasons given by the Court of Appeal in paragraph [99] of Callery v Gray were inapplicable in that changed legal landscape, with the exception of reason (iv). Since the introduction of QOCS except in rare cases defendants will not recover their costs against unsuccessful claimants in so far as they exceed damages. By definition the damages can be used to satisfy costs orders to that extent. Thus ATE insurance will not, in general, provide a fund out of which the costs of successful defendants will be met. However, he did argue that the remaining reasons ought to be given less weight. His primary argument, however, was that we should depart from the decision to decide the question on a macro level and return to the conventional approach to assessing the reasonableness (and now proportionality) of costs on a case by case basis. This, he argued, was the consequence of the case-specific concept of proportionality of costs which had reversed the position taken in Lownds. 
65.	The test of reasonableness that was to be applied was one of objective reasonableness. The question to be posed was: objectively considered, by reference to the facts and circumstances of the specific case before the court as they were or should have been reasonably perceived at the time in question, was the premium a reasonable and proportionate expense to incur? In answering that question it is necessary to ask four further questions:
i)	How likely is it that the claimant will need to incur the cost of an expert’s report?
ii)	If such a report is likely to be needed how much will it cost?
iii)	In all the circumstances how likely is it that the claimant will either not bring a case at all in the light of the report, or if the case is started that it will be lost?
iv)	In the light of the answers to these questions, what will ATE insurance cost?
66.	Mr Mallalieu acknowledged that in answering these questions it was not appropriate to use hindsight, but he emphasised that they must still be answered by reference to the facts of an individual case. Where, as here, the claims are of low value, expert reports are unlikely to be needed, and it is highly likely that the claims will succeed, it is unlikely to be reasonable or proportionate to take out ATE insurance except at very modest cost. The modesty of the cost of ATE insurance was a feature that the Court of Appeal emphasised in Callery v Gray at [100] and was an integral part of their reasoning.
67.	The difficulty with this argument, however, is that it was precisely the same argument as insurers advanced in Callery v Gray at [87] and was rejected by the court at [98] and [99) (which I have quoted). In that case the court accepted that entering into a block-rated ATE policy at the same time as entering into a CFA was a reasonable way to conduct litigation.
68.	As Mr Bacon submitted, premiums payable under block-rated policies are assessed by reference to a basket of cases, and premiums are kept lower than they might otherwise be by requiring all claimants of the relevant class to take out such policies. Although it is fair to say that the advantage to defendants discussed in reason (iv) of the Court of Appeal’s reasoning no longer applies to the same extent, there is still some advantage in the “swings and roundabout” approach. Although with the benefit of (impermissible) hindsight the premiums look large in each of the two cases under appeal, it must be borne in mind that the same level of premium applies in cases worth many hundreds of thousands of pounds; and that, in addition, insurers need to cover the cases in which a medical report is obtained but is unfavourable with the result that the case is dropped. The introduction of QOCS has not changed the position of an unsuccessful claimant as regards his own disbursements. There is still a real incentive for a claimant to insure against the possibility of an adverse costs order even in a case in which he is successful in order to avoid the risk that part of the damages designed to compensate him for pain and suffering or proven financial loss will be swallowed up in paying legal costs. 
69.	Mr Bacon also relies on a passage in Cook on Costs (2016) para 9.16, discussing the limitation to expert reports on liability and causation, which largely mirrors the Explanatory Memorandum to the No 2 Regulations. The editors say:
“The limitation [to expert reports] shows the rationale of the Government behind this exception to the ending of recoverability. Invariably, the questions of breach of duty (rather than 'liability') and causation are investigated first in potential clinical negligence claims. If they can be established then issues regarding quantum can be pursued. The idea of being able to insure the early reports is intended to assist parties to investigate claims without having to expose themselves to a costs risk of unsupportive medical evidence. The theory therefore is that everyone can take out insurance, investigate their claim and then either pay for the medical evidence from the insurance if it cannot be pursued or claim the cost of the insurance from the defendant in due course if it is pursued.” (Emphasis added)
70.	Mr Bacon also pointed out that the ATE policies in these appeals (and probably most ATE policies) covered not only the cost of expert reports on liability and causation, but also other disbursements. In the event of a successful claim these would, in principle, be recoverable from the unsuccessful defendants. But in the event that the claim failed, and absent ATE insurance, the claimant would have to pay both the costs of any expert reports but also any other disbursements. This is recognised by section 58C (2) (b) itself which refers to “a costs insurance policy insuring against the risk of incurring a liability to pay for one or more expert reports in respect of clinical negligence in connection with the proceedings (or against that risk and other risks).”
71.	He argued that it would be impractical and/or more expensive for a claimant to take out two ATE policies, one at the time of instructing solicitors to cover general disbursements and another at a time when experts were instructed. It was reasonable to take out ATE insurance at the time when solicitors were first instructed. It must therefore also be reasonable to take out a policy that covers the cost of expert reports as part of the same policy. 
72.	In addition section 58C (2) (b) deals with insuring against “the risk of incurring a liability to pay” for expert reports. That risk materialises as soon as a potential claimant instructs solicitors. Even if (contrary to the Explanatory Memorandum accompanying the No 2 Regulations) that phrase is interpreted as meaning “a liability to pay that cannot be passed on to the opposing party” (as in Callery v Gray (No 2) at [59] and [60]), the risk still materialises at the time of instructing solicitors because a subsequently commissioned expert’s report may not support the claim.
73.	Although put in rather apocalyptic terms, Mr Bacon also submitted that if the reasonableness and proportionality of an ATE premium had to be decided on a case by case basis there would be a proliferation of challenges up and down the country. In the case of low value claims (which were the particular focus of Mr Mallalieu’s attack) the costs of a disputed assessment might well exceed the amount of the insurance premium in dispute. That would simply replicate the mischief which Callery v Gray was intended to prevent.
74.	Although there is undoubted force in Mr Mallalieu’s submissions I have not been persuaded that we should depart from the policy decision taken in Callery v Gray and examine the reasonableness of taking out ATE insurance on a case by case basis. Nor am I persuaded that the new proportionality test requires a case by case approach. It is clear from the Government’s formal response to Sir Rupert Jackson’s recommendations that “for reasons of public policy” the Government decided to exclude ATE insurance premiums relating to the cost of expert reports in clinical negligence cases from the general abolition of their recovery. The concern was that claimants might not be able to afford the “upfront” costs of such reports, and thus that access to justice might be unduly restricted. 
75.	 Section 58C (2) (d) expressly requires a qualifying policy to apportion the premium between the recoverable and the non-recoverable elements. Although the first set of regulations would have barred recovery where no report was in fact obtained, that obstacle was removed from the No 2 Regulations. Nor did the Government accept Sir Rupert’s recommendation that there should be a breathing space equivalent to the protocol period during which the taking out of ATE insurance would be premature. The Government knew, as Sir Rupert had reported and as the case law made clear, that ATE policies were taken out at the same time as a potential claimant entered into a CFA, and must have intended not to disturb that practice. That, as it seems to me, was also recognised by the Explanatory Memorandum accompanying the No 2 Regulations.
76.	For these reasons, in addition to those advanced by Mr Bacon, I consider that it is still permissible for ATE insurance to be taken out as soon as a claimant enters into a CFA.
77.	The case law has also emphasised that costs judges do not have the expertise to second guess the insurance market, still less to deconstruct a policy that is offered as a package into its constituent parts: Rogers v Merthyr Tydfil at [117]. The only inroad into that principle is section 58C (2) (d) which requires the insurer to make that apportionment. The District Judge in Mr Reynolds’ case was wrong, in my judgment, to find that although it was reasonable to take out ATE insurance against the cost of reports on causation it was unreasonable to insure against the cost of reports on liability. There was simply no evidence on which he could have come to the conclusion that any such limited ATE insurance was available in the market. 
78.	I have said that a number of different forms of ATE insurance have been identified in previous cases. It may well be that it would be open to a defendant to argue that it was unreasonable or disproportionate to take out one kind of ATE insurance rather than another. The old practice direction directed consideration to the question whether any part of the premium would be rebated on early settlement, and it may be that it would be unreasonable in some cases to take out a single premium policy rather than one with stage payments; or one with the possibility of rebated premiums. But those questions go more to whether the amount in question was reasonable or proportionate rather than to the question of principle whether ATE insurance may be taken out at all at the outset. Questions relating to quantum are not before us and are, we were told, due to be considered by this court in another test case.
79.	I think that it is unfortunate that the Rules Committee took the view that there was no need for rules or practice directions dealing with the recovery of ATE insurance premiums in clinical negligence cases; and would invite them to reconsider the question. At the moment, however the pieces of the jigsaw puzzle are manoeuvred they do not all fit properly.
80.	However, for the reasons I have given, I would dismiss the appeal of Peterborough & Stamford NHS Trust; and allow that of Mr Reynolds.
Lord Justice Beatson:
81.	I agree.
Mr Justice Hildyard:
82.	I also agree.