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Press Release: Kain Knight Costs Lawyers, acting for ARAG PLC, have succeeded in the Court of Appeal...

Kain Knight Costs Lawyers, acting for ARAG PLC, have succeeded in the Court of Appeal following a judgment that provides eagerly awaited clarity and guidance on:

(i) how lower Courts should approach the reasonableness and proportionality of block-rated after the event (ATE) insurance premiums; and

(ii) how to apply the ‘new’ (post 1 April 2013) proportionality test generally in claims for costs.

In West v Stockport NHS Foundation Trust & Demouilpied v Stockport NHS Foundation Trust [2019] EWCA Civ 1220, the court allowed two appeals by claimants, who brought claims in clinical negligence, against costs assessments of ARAG’s block-rated Post-LASPO ATE insurance premiums. The claimants were successfully represented by Nick McDonnell (Costs Lawyer and Director) and Gary Redfern (Senior Costs Draftsman and Negotiator) both from the Manchester office of Kain Knight Costs Lawyers together with Leading Costs Counsel Nick Bacon QC (4 New Square) and Costs Counsel Rupert Cohen (Landmark Chambers).

In particular, the court considered the proper application of the principles of reasonableness and proportionality in the assessment of block-rated ATE premiums, and whether the judges at first instance, and on first appeal, had fallen into error when determining the amounts recoverable. The Court of Appeal found that they had.

Post 1 April 2013, ATE premiums are still recoverable where the premium “…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.” ARAG is a market leader in the clinical negligence ATE insurance industry and has, since its inception, been committed to enabling access to justice to those claimants who, without ATE insurance, would be unable to bring claims. In its ruling, the Court of Appeal made it clear that access to justice must be the starting point for any debate about the recoverability of ATE insurance premiums.

In bringing the claims, the claimants took out block-rated ATE Insurance premiums with a recoverable element in both cases of £4,800 plus Insurance Premium Tax (IPT). The assessments first came before the Courts in early/mid 2016. In West, the premium was reduced to £2,600 (including IPT) on the grounds that the premium claimed was unreasonable. In Demouilpied, the premium was reduced to £650 (including IPT) on the grounds that the premium claimed was disproportionate. Following those assessments, hundreds of cases proceeded to be stayed pending the outcome of the appeals resulting in millions of pounds in perfectly valid ATE premiums being unpaid.

The premium reductions were initially upheld, on first appeal, by HHJ Smith in the County Court at Manchester. However, upon filing second appeals in the Court of Appeal, the Court directed that the insurance market must be considered and ordered that there be a fact-finding hearing. Evidence was subsequently heard by the Assessors (Mr Justice Kerr and Master Leonard) over five days between 1 to 8 April 2019.

The Assessors proceeded to prepare a 70 page report of their findings (annexed to the final judgment) to assist the Court of Appeal in determining the appeals. The appeals then came before The Master of the Rolls (Sir Terence Etherton) and LJs Coulson and Irwin on 18 and 19 June 2019. Both appeals were successful in their entirety with unanimous decisions from all three judges who allowed the premiums in full. The judges also gave clear guidance on the proper approach to be taken when applying the ‘new’ proportionality test on costs.

Reasonableness

The Court made the following findings as to the reasonableness of ARAG’s post 1 April 2013 block-rated clinical negligence premiums:

– Any consideration of reasonableness must relate to the wider insurance market (as opposed to solely the facts and circumstances of the case);
– Accordingly, the challenges a Defendant can bring as to reasonableness are restricted;
– A challenge must be genuine;
– Expert evidence must be obtained to resolve any challenge as to reasonableness;
– A comparison between the premium and the value of the claim (either as claimed or settled) is not a reliable measure as block-rated premiums rely on the swings and roundabouts nature of the ATE insurance market;
– The Court of Appeal said their judgment should resolve the issue of reasonableness in all or almost all cases;

Proportionality

The Court made the following findings as to the proportionality of the ARAG post 1 April 2013 block-rated clinical negligence premiums and gave crucial guidance on the ‘new’ proportionality test on costs:

– The new test of proportionality requires consideration of both CPR.r.44.3(5) and CPR.r.44.4(1) the latter requiring ‘all the circumstances’ to be considered.

– ‘All the circumstances’ includes the wider ATE market;

– When a Court considers the proportionality of costs, certain ‘unavoidable’ costs should be left out of account such as Court fees and any reasonable, recoverable ATE premium.

– The new test of proportionality must be applied as follows:

– There should be a line-by-line assessment considering the reasonableness (and where appropriate and convenient, the proportionality) of each item of cost;

– At the conclusion of the line-by-line assessment there will be an assessed figure. Where that figure appears disproportionate with reference to the factors at CPR.r.44.3(5) and ‘all the circumstances’ as required by CPR.r.44.4(1) a further exercise is required;

– That further exercise requires the Court to go back and consider categories of costs (such as, for example, witness statements, expert evidence etc). Where disproportionate, appropriate reductions should be made to those categories of costs. This ensures the test applied is principled and is transparent to both parties.

– In conducting the further exercise, the ‘unavoidable’ costs must be left out of account.

– No further test should be applied on a global basis.

Commenting on the successful appeals, Nick McDonnell, Costs Lawyer and Director at Kain Knight said:

“The Court of Appeal’s judgment in these appeals provides eagerly anticipated guidance regarding, not only the proper approach to be taken as to the ‘new’ proportionality test on costs but also, crucially, the reasonableness and proportionality of ARAG’s block-rated clinical negligence premiums.

“ARAG, in pursuing these appeals, is fully committed to, and achieved, its objective of ensuring claimants have necessary access to justice where they have suffered at the hands of clinical negligence. Affected claimants, their legal representatives and providers of block-rated ATE insurance must be very happy with this decision and we are delighted that we have been able to advise and assist ARAG through this process to achieve the company’s objective.”

Please follow this link to view the Judgment:
http://kain-knight.co.uk/wp-content/uploads/2019/07/West-v-Stockport-NHS-Foundation-NHS-Trust-Demouilpied-v-Stockport-NHS-Foundation-NHS-Trust-2019-EWCA-Civ-1220.pdf

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