A recent Supreme Court case has considered whether insurance premiums in respect of cover taken out to protect against the liability for expenses in a court action can be recovered as an expense of litigation.
The case related to an unfortunate family dispute. The pursuer provided funds to his son to purchase a property. The son proceeded to purchase the property and take title in his own name, claiming the funds were a gift. The father, whom the court sided with, advanced the funds to buy a house for him and claimed that title should be transferred into his name.
The potential cost of the Supreme Court case was significant. As a result, the father took out After the Event (ATE) insurance providing cover of up to £100,000 if he lost and was found liable for his son's legal expenses. The cost of this cover was significant in its own right at £40,000.
After finding in the father's favour the Court considered whether the ATE premium was recoverable from the son.
Only expenses which are reasonably incurred for the purposes of conducting the court action are recoverable from an opponent under an ordinary award of expenses. In the circumstances, the Court was entirely comfortable that the ATE premium was reasonably incurred but, reluctantly, came to the view that it was not incurred as part of the conduct of the court action. It was an ancillary expense.
This is not a surprising decision as the law in this area was relatively settled. However, the rules in relation to expenses are relatively rarely considered in the Supreme Court and this decision provides certainty that ATE premiums are not recoverable unless there is a change in the law, which seems unlikely to happen any time soon given the recommendations of the Taylor Review.
The cost of litigation can be a major factor in determining how to pursue litigation. ATE insurance is one way in which the cost risk of litigation can be managed. Such risk can also be managed by agreeing e.g. fixed or speculative fees with your solicitor. We at MacRoberts are committed to exploring various funding options with our clients.