SCCO Ref: 0207520
Claim No: LB 002944
Neutral Citation Number: [2003] EWHC 9006 (Costs)
IN THE HIGH COURT OF JUSTICE
SUPREME COURTS COST OFFICE
FROM LAMBETH COUNTY COURT
Supreme Courts Cost Office
Clifford Inn
Fetter Lane
London
EC4A 1DQ
Date: 18 February 2003
Before :
CHIEF MASTER HURST, SENIOR COSTS JUDGE
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Between :
 	VERONICA PIRIE	Claimant	
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 	MRS DOREEN VIOLET AYLING	Defendant	
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Mr Hopton (solicitor) (instructed by Messrs Sherringtons) for the Claimant
Mr Gibbs (costs draftsman) (instructed by Eversheds) for the Defendant
Hearing dates : 30 January 2003
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Judgment

Chief Master Hurst
 
1.	This short issue concerns the recovery of an after the event insurance premium in accordance with Section 29 of the Access to Justice Act 1999. On 1 December 1997 the Claimant was involved in a road traffic accident in which she sustained personal injuries. Proceedings were commenced in the Lambeth County Court and, following a Part 36 payment on behalf of the Defendant, the Claimant accepted the sum of £13,000 paid into court on 3 January 2002. The Claimant accordingly became entitled to her costs on the standard basis in accordance with CPR Part 36.13. 
2.	The only matter covered by this decision is the ATE insurance premium which is claimed at £2,600, namely 20% of the damages recovered. 
3.	The Claimant entered into a contract of insurance which commenced on 27 March 2001. Her solicitors were named in the schedule as the "Nominated Representative" and the Defendant was named as the "Opponent". The policy is headed "Costs Support Legal Expense Indemnity" and the policy states that this is "administered by Premier Writers Ltd … on behalf of London & Edinburgh Insurance Company Limited …" Under the terms of the policy the insurer agreed to indemnify the insured in accordance with the terms of the policy in relation to the proceedings stated in the Schedule. In the schedule there is no reference to proceedings save the name of the opponent. Under the heading "Definitions" the following appears: 
"PREMIUM
The premium is 20% of damages awarded."
This information is also contained in the Schedule.
4.	The limit of indemnity is stated to be £10,000. The extent of the cover is described as follows: 
"LEGAL COSTS
The Insurer shall indemnify the Insured from the Date of Commencement of the following: legal costs and fees payable by the Insured to the Named Opponent under any order of the Court made in the Proceedings. 
DISBURSEMENTS AND COUNSEL’S FEES
The Insurer shall indemnify the Insured from the Date of Commencement of the Policy in respect of the following:
(i) Disbursements and Counsel’s Fees incurred by the Nominated Representative on behalf of the Insured in the Proceedings, and 
(ii) Disbursements and counsel’s Fees payable by the Insured to the Named Opponents under any order of the Court made in the Proceedings …"
5.	The Defendant now objects to paying the premium of £2,600 on the basis that it is champertous and that therefore nothing should be allowed in respect of it. Alternatively, it is submitted that this method of calculating the premium is entirely inappropriate as is the quantum of the premium in a case of this nature. It is submitted by the Defendant that the appropriate premium would be no more than £350 (the level of premium allowed by the Court of Appeal in Callery v Gray (No.2) [2001] EWCA Civ 1246). 
6.	The Defendant relies on the decision of the Court of Appeal in R (Factortame) v Secretary of State for Transport [2002] EWCA Civ 932. In that case the Master of the Rolls explained the law relating to champerty and maintenance as follows: 
"31 Champerty is a variety of maintenance. Maintenance and champerty used to be both crimes and torts. A champertous agreement was illegal and void, involving as it did criminal conduct. Ss. 13(1) and 14(1) of the Criminal Law Act 1967 abolished both the crimes and the torts of maintenance and champerty. S.14(2) provided, however:
"The abolition of criminal and civil liability under the law of England and Wales for maintenance and champerty shall not affect any rule of that law as to the cases in which a contract is to be treated as contrary to public policy or otherwise illegal."
Thus, champerty survives as a rule of public policy capable of rendering a contract unenforceable. 
32. ‘A person is guilty of maintenance if he supports litigation in which he has no legitimate concern without just cause or excuse’ – Chitty 28th Ed. Vol.1 17-050. Champerty ‘occurs when the person maintaining another stipulates for a share of the proceeds of the action or suit’ – ibid 17-054. Because the question of whether maintenance and champerty can be justified is one of public policy, the law must be kept under review as public policy changes. As Danckwerts L.J. observed in Hill v Archbold [1968] 1 QB 686 at 697:
"…the law of maintenance depends upon the question of public policy, and public policy …is not a fixed and immutable matter. It is a conception which, if it has any sense at all, must be alterable by the passage of time."
…….
34. The introduction of conditional fees shows that even this requirement [the exclusion of contingency fees] of public policy is no longer absolute. …..
35. In Trepca Mines Ltd (No.2) [1963] 1 Ch 199 at p.219 Lord Denning MR observed:
"The reason why the common law condemns champerty is because of the abuses to which it may give rise. The common law fears that the champertous maintainer might be tempted, for his own personal gain, to inflame the damages, to suppress evidence, or even to suborn witnesses. These fears may be exaggerated, but, be that so or not, the law for centuries had declared champerty to be unlawful, and we cannot do otherwise than enforce the law; and I may observe that it has received statutory support, in the case of solicitors, in section 65 of the Solicitors Act 1957." 
7.	Later in the judgment Lord Phillips MR dealt with what Lord Mustill had said in Giles v Thompson [1994] 1 AC 142 when he was considering whether the mischief against which public policy was directed had been established in that case. The judgment continues: 
"42. … [Lord Mustill] observed at p.161:
"It is sufficient to adopt the description of the policy underlying the former criminal and civil sanctions expressed by Fletcher Moulton LJ in British Cash and Parcel Conveyors Ltd v. Lamson Store Service Co. Ltd [1908] 1 K.B. 1006, 1014:
"It is directed against wanton and officious intermeddling with the disputes of others in which the [maintainer] has no interest whatever, and where the assistance he renders to the one or the other party is without justification or excuse."
This was a description of maintenance. For champerty there must be added the notion of a division of the spoils.
43. Lord Mustill held that in neither case was this mischief established. Summarising the position, he said at p.165:
"Returning to the company, is it wantonly or officiously interfering in the litigation; is it doing so in order to share in the profits? I think not. The company makes its profits from the hiring, not from the litigation. It does not divide the spoils, but relies upon the fruits of the litigation as a source from which the motorist can satisfy his or her liability for the provision of a genuine service, external to the litigation. I can see no convincing reason for saying that, as between the parties to the hiring agreement, the whole transaction is so unbalanced, or so fraught with risk, that it ought to be stamped out. The agreement is one which in my opinion the law should recognise and enforce." 
8.	Finally the Master of the Rolls pointed out: 
"85. The greater the share of the spoils that the provider of legal services will receive, the greater the temptation to stray from the path of rectitude."
9.	There is, in my judgment, no need to go beyond those statements of the law to see immediately that the agreement for the insurance premium to be 20% of any damages awarded is not champterous. There is no danger (as envisaged in Lord Denning MR in Trepca Mines Ltd) that the insurer might be tempted for his own personal gain to inflame the damages, to suppress evidence or even to suborn witnesses. Furthermore, paraphrasing Lord Mustill in Giles v Thompson, the company makes its profits from the insurance not from the litigation, it does not divide the spoils but relies upon the fruits of the litigation as a source from which the insured can satisfy her liability for the premium in return for the provision of a genuine service, namely the ATE insurance cover which is external to the litigation. 
10.	Whilst it is no doubt true that the greater the share of the spoils that the provider of legal services will receive the greater temptation to stray from the path of rectitude; in this case there is simply no opportunity for the insurer to act otherwise than as the risk bearer. 
11.	In those circumstances I have no hesitation in stating that the agreement to pay a premium of 20% of the damages is not champertous. 
12.	It is now necessary to consider whether the claim for a premium of £2,600 is reasonable and proportionate. It is in my judgment open to an insurer to calculate and charge premiums on whatever basis best suits its business. The question which I have to decide is what amount ought reasonably to be payable by the paying party in accordance with Section 29 of the Access to Justice Act 1999. That Section provides: 
"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 the costs in respect of the premium of the policy."
The CPR deal with the position as follows:
"CPR 43.2(1)(a): "Costs" includes: any additional liability incurred under a funding arrangement …
(k) "Funding arrangement" means an arrangement where a person has – 
… 
(ii) taken out an insurance policy to which Section 29 of the Access to Justice Act 1999 (Recovery of the insurance premium by way of costs) applies …
(m) "Insurance premium" means a sum of money paid or payable for insurance against a risk of incurring a costs liability in the proceedings, taken out after the event that is the subject matter of the claim; …
(o) "Additional liability" means the percentage increase, the insurance premium or the additional amount in respect of provision made by a membership organisation as the case may be."
13.	CPR 44.5 sets out the factors to be taken into account in deciding the amount of costs. I do not need to repeat that rule. Section 11 of the Costs Practice Direction gives guidance in respect of ATE insurance premiums: 
"11.7 …. When the court is considering the factors to be taken into account in assessing an additional liability, it will have regard to the facts and circumstances as they reasonably appear to the solicitor or counsel when the funding arrangement was entered into and at the time of any variation of the arrangement.
…
11.10 In deciding whether the cost of insurance cover is reasonable, relevant factors to be taken into account include:
(i) 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;
(ii) the level and extent of the cover provided;
(iii) the availability of any pre-existing insurance cover;
(iv) whether any part of the premium would be rebated in the event of early settlement;
(iv) the amount of commission payable to the receiving party or his legal representatives or other agents."
14.	In relation to the actual quantum of the insurance premium neither party produced any evidence as to what comparable cover was available and at what cost. In my judgment a recoverable premium based on 20% of damages awarded or agreed, whatever they may be, is inherently flawed. Had this case settled for £1,300 the premium would have been £260, a figure which in my experience is lower than that charged in many straightforward low value claims. On the other hand, had the case settled for £130,000 the premium would have been £26,000, ie more than two and a half times the limit of indemnity. On the basis of the actual settlement at £13,000 the premium of £2,600 is more than 25% of the limit of indemnity. 
15.	In my judgment a premium of 20% of damages, whatever they may be, is likely to be unreasonable in all simple road accident cases in which the compensation payable exceeds about £2,000. In such cases ATE insurance with a greater limit of indemnity than is provided here is available for around £400 including insurance premium tax. 
16.	In the absence of any submissions or evidence as to the availability of any other suitable ATE insurance policies, other than the concession by the Defendant that the appropriate premium should be no more than £350, I allow that figure plus IPT making a total of £367.50. 
 
PTH\41\Pirie v Ayling