Hawksford Trustees Jersey Ltd v Stella Global UK Ltd [19.07.12]
Court of Appeal decides a successful claimant cannot recover the cost of after the event (ATE) insurance taken out before an appeal to cover the risk of the original ruling and costs order being reversed.
The Court of Appeal has held that an unsuccessful Appellant does not have to pay the ATE premium of the successful Respondent where the ATE policy was taken out by the Respondent after the trial at first instance and before the appeal hearing. To do so would not reflect the purpose and aims of the Access to Justice Act 1999 (the 1999 Act) or be fair.
The issues considered by the Court of Appeal in this case will be a matter of academic interest only when the recoverability of ATE premiums ends in April 2013. It may be that Lord Justices Rix and Etherton had in mind the changes to funding arrangements being introduced as a result of 'Jackson' when providing their majority decision which prevented the winning party recovering the, very substantial, ATE premium.
However, for the time being, the judgment gives the relevant legislation the intended meaning as, at the time, access to justice was by way of ATE insurance - the premium for which was recoverable from the losing party. It could not be said that the claimant in this case had been denied access to justice where it had proceeded to trial without the benefit of ATE.
Knowing the Civil Procedure Rules (CPR) requires a party to give fair notice of funding arrangements, the obtaining of ATE for the appeal in this case, which covered the costs of the initial trial, was not considered fair. As Rix LJ stated:
"… The importance of fair notice being given to the other party of a potential liability in additional costs is entirely undermined if the premium which the respondent seeks to recover in the appeal, so far as it relates to costs of trial, could be recoverable. For the defendant would have incurred all the costs of trial together with its potential (but retrospective) liability for the respondents ATE premium in ignorance, necessarily so, of what was coming round the corner when it appealed. When, however, in the course of its appeal, it learns for the first time of the ATE premium taken out in the appeal embracing cover for the costs of trial, it is too late for the defendant to do anything."
Accordingly, with the end of recoverability fast approaching this decision can be considered both timely and appropriate.
The Appellants were unsuccessful in their appeal and by judgment handed down on 1 February 2012, were ordered to pay the Respondent’s costs of the appeal on the standard basis (subject to detailed assessment).
The Appellants raised a point of principle in relation to the recoverability of the £394,638 ATE premium, which the Respondent purchased one day before the appeal hearing in November 2011. The Respondent’s costs (aside from the ATE premium) were £63,650 and the Appellants’ costs were £68,502.
The premium was payable 20 days after the "dispute" (the appeal hearing), meaning the Respondent was not obliged to fund the premium during the conduct of the appeal and had no liability to pay if the appeal had been allowed.
The case turned on the interpretation of s.29 of the Access to Justice Act 1999. The Appellant argued that s.29 does not permit recovery of the premium relating to the costs of trial because the cover has to be limited to the risk of incurring a liability in "those proceedings" in which the costs order is made.
The issue was, therefore, whether "those proceedings" referred to the appeal hearing only or to the entire case.
Lord Justice Rix held that "proceedings" could be interpreted as being either the appeal hearing only or the full proceedings. He said it is "entirely legitimate" – and may even be preferable - for the trial and appeal in the same litigation to be treated as separate proceedings for the purpose of costs, as reflected in the CPR (including with regard to making a Part 36 offer).
Considering the legislative aim of s.29, Rix LJ referred to the need to check any practices which undermined the fairness of the funding regime. He concluded "it is to be regarded as unfair for a defendant to be put in a position where he proceeds with litigation in ignorance of his potential liability for the increased costs of a claimant’s funding arrangements".
Rix LJ held the risk that trial costs might be changed by the costs order made on appeal may be a new risk – but the costs liability remain those of the trial. The costs liability of which the ATE premium has been taken out remains a costs liability in the trial.
Lord Justice Etherton agreed with Rix LJ. He said to allow otherwise would serve "retrospectively to improve the likelihood of a respondent to an appeal recovering costs at first instance in a case which he or she was prepared and able to commence or defend without insurance cover". Etherton LJ explained that the potentially dramatic rise in potential financial risk to an appellant from having to meet the costs of ATE cover taken out only on appeal "might be a deterrent to commencing proceedings or indeed defending them in the first place".
Giving the lead, but dissenting judgment, Lord Justice Patten argued that s.29 was designed to expand access to the courts via the use of conditional fee agreements (CFAs) and ATE insurance and as such, the full amount of the ATE premium falls within its terms. He was not persuaded that "proceedings" at trial and on appeal should be treated separately – confirming his belief that s.29 intended a widely framed power.
Patten LJ said he was sympathetic to the situation of the Appellants but considered they were "inherent in many aspects of the 1999 reforms" which lie behind the need for reform, as being promoted under the Legal Aid, Sentencing and Punishment of Offenders Act 2012.