Two cases were heard by the Court of Appeal at the same time. Both related to clinical negligence claims which had settled without the need for court proceedings. The dispute centred on the level of the recoverable ATE premium in each case. It will be recalled that ATE premiums in clinical negligence claims remained recoverable from defendants post LASPO.
The first case (West) concluded with a damages payment of £10,000. The ATE premium claimed was £5,088 in a total bill of costs of £31,714.44. The second case (Demouilpied) concluded with a damages payment of £4,500. A bill of costs was presented totalling £18,376.36 and the recoverable element of the premium was again £5,088.
The ATE policies taken out were block-rated policies. This means they were not bespoke, but had a fixed premium set by reference to a wide "basket" of cases, rather than on their own merits.
Decision on the ATE premiums
Reductions had been sought by the defendants on the basis that the premiums were excessive and disproportionate. The judges at first instance in each of the cases had reduced the premiums and these decisions were upheld in the first joint appeal before His Honour Judge Smith. The Court of Appeal has now allowed the claimants' appeal, giving the following guidance on how to deal with the assessment of the premiums.
• The Lownds test of proportionality is no longer good law. An item of costs can be reduced even if it was necessary. However, in relation to ATE premiums, Rogers v Merthyr Tydfil is still relevant – that a judge should not interfere with a premium in absence of any strong expert evidence.
• A paying party is not bound to agree the reasonableness of an ATE premium sought.
• Bespoke premiums are much more open to challenge, i.e. along the lines that the level of risk had wrongly been assessed.
• Block-rated premiums are much more difficult to challenge and must relate back to the ATE market in some way. A party will not just be able to offer up evidence that a comparable premium was cheaper elsewhere. An expert's report will be required that the policy was directly comparable to the policy being challenged.
• A comparison between the value of the claim and the amount of the premium is not a reliable measure of reasonableness in block-rated premiums.
• The Court of Appeal believes the argument in relation to the reasonableness of premiums has been put to bed for the foreseeable future.
• A block-rated premium which has been determined to be reasonable cannot then be considered to be disproportionate and subject to any further reduction. Block rated premiums will not bear a relationship to the value of the claim.
Proportionality under LASPO
The Court of Appeal then went on to consider the issue of proportionality more broadly, and that when undertaking this exercise there are elements which should be removed from that part of the assessment.
They said there were certain costs which were unavoidable or which have "an irreducible minimum, without which the litigation could not have been progressed". An example was given of court fees.
The Court of Appeal said that when considering proportionality:
• First, the judge should go through the bill line-by-line, assessing the reasonableness of each item of cost. If the judge considers it possible, appropriate and convenient when undertaking that exercise, he or she may also address the proportionality of any particular item at the same time.
• At the conclusion of the line-by-line exercise, there will be a total figure which the judge considers to be reasonable (and which may, as indicated, also take into account at least some aspects of proportionality). That total figure will have involved an assessment of every item of cost, including court fees and the ATE premium.
• The proportionality of that total figure must be assessed by reference to both r.44.3(5) and r.44.4(1). If that total figure is found to be proportionate, then no further assessment is required. If the judge regards the overall figure as disproportionate, then a further assessment is required. That should not be line-by-line, but should instead consider various categories of cost, such as disclosure or expert's reports, or specific periods where particular costs were incurred, or particular parts of the profit costs.
• At that stage, however, any reductions for proportionality should exclude those elements of costs which are properly regarded as unavoidable, such as court fees, the reasonable element of the ATE premium in clinical negligence cases, and the like.
• The judge will undertake the proportionality assessment by looking at the different categories of costs (excluding the unavoidable items noted above) and considering, in respect of each such category, whether the costs incurred were disproportionate. If yes, then the judge will make such reduction as is appropriate. In that way, reductions for proportionality will be clear and transparent for both sides.
• Once any further reductions have been made, the resulting figure will be the final amount of the costs assessment. There would be no further stage of standing back and, if necessary, undertaking a yet further review by reference to proportionality. That would introduce the risk of double-counting.
We will need to see how this approach is applied in detailed assessments. It is likely to add time to a detailed assessment as parties calculate how much is still allowed in these 'categories' and then determine areas of the bill which remain disproportionate. How will judges approach phasing? Will they look at the phases of the budget or will they look at specific periods of time?
Without knowing how a bill will be assessed and which costs will remain disproportionate it will be difficult to prepare submissions ahead of time. It seems likely that more hearings will be adjourned for parties to go away, make the appropriate calculations and prepare further submissions. This will almost certainly be the case in provisional assessments which will most likely need two 'hearings'. It will be impossible for a party to make submissions and replies on the remaining issue of proportionality ahead of time.
For now though, we have some guidance as to how the court should deal with the test of proportionality, even if there is no guidance as to what actually is proportionate. The problem remains, what is proportionate to one judge might not be to another.