- The Claimant
Karen Tilby was injured in a road traffic accident on 22 April 2000 when a
vehicle driven by an employee of the Defendant company was in collision with
the rear of the vehicle in which the Claimant was travelling. She sustained a
whiplash injury from which she has since recovered. She consulted solicitors
and on 19 May 2000 a letter of claim was sent to the Defendants. On 24 May
2000 she entered into a conditional fee agreement with her solicitors and on 1
June 2000 took out an after the event insurance policy with Temple Legal
Protection Ltd. The policy is dated 1 June 2000.
- The claim was
settled for £2,000 on 22 October 2000 without proceedings ever being
commenced. The Defendants agreed to pay the Claimant's reasonable costs, which
were claimed at a total of £6,160.90. This figure includes the sum of £367.50
in respect of the insurance premium (£350 plus £17.50 IPT). The parties were
unable to agree the costs and costs only proceedings were commenced in the
Macclesfield County Court which were subsequently transferred to the Supreme
Court Costs Office to be dealt with.
- The Defendants
have mounted a considerable attack against the level of the Claimant's costs
but this decision deals only with the question of the after the event
insurance premium.
THE
CFA AND ATE INSURANCE POLICY
- The conditional
fee agreement entered into by the Claimant is itself the subject of dispute by
the Defendants. For the purpose of this decision I am however treating it as
being a valid agreement. The agreement sets out:
"What is covered by the agreement
· your
claim against Mr Wesley Gregory for damages for personal injuries suffered on
22/04/2000
· any
appeal by your opponent.
· any
appeal you make against an interim order during the proceedings.
·
any proceedings you take to enforce a judgment, order or
agreement."
- It is the
Claimant's case that the last category of proceedings is sufficiently wide to
encompass the costs only proceedings.
- Attached to the
agreement are Law Society conditions which form part of the agreement. The
conditions explain some of the words used in the agreement, including:
"(o) Win: your claim for damages if finally decided in your
favour whether by a court decision or an agreement to pay damages. "Finally"
means that your opponent:
·
is not allowed to appeal against the court decision; or
·
has not appealed in time; or
·
has lost any appeal."
- The conditions
continue:
"4.
If you win:
·
You are then liable to pay all our basic charges and success fee
...
·
normally you will be able to recover part or all of our basic charges, success
fee and disbursements from your opponent;
·
if you and your opponent cannot agree the amount, the court will decide how
much you can recover. If the amount agreed or allowed by the court does not
cover all our basic charges and disbursements you pay the
difference.
·
If the court carries out an assessment of our charges you agree that the
reasons for setting the success fee at the amount stated may be disclosed to
the court and any other person required by the court;
·
If the court carries out an assessment and the court disallows any amount of
the success fee the percentage (sic) on the ground that it is unreasonable in
view of what we knew or ought to have known at the time, that amount ceases to
be payable under this agreement unless the court is satisfied that it should
continue to be payable.
...."
- Finally
paragraph 7(b)(iv) provides:
"We
can end this agreement if you do not pay your insurance premium when asked to
do so."
- The insurance
policy from Temple Legal Protection Ltd provides:
"... the insurers will indemnify the insured on the terms contained in
this certificate of insurance."
The
Schedule to the certificate defines the legal action as "personal injury claim
against Perfect Pizza Limited" and the period of insurance "from: 01/06/00 to:
the conclusion of the legal action".
- The policy goes
on to explain the insured risks, indicating that the insurers will indemnify
the insured for her opponent's costs if she becomes liable to pay them; and
for her own disbursements, in the event that she becomes liable to pay the
opponent's costs; or, following commencement of proceedings and with the prior
approval of the insurers, the legal action is settled without the Claimant's
disbursements being paid by the opponent. The policy goes on to define the
meaning of "disbursements" as follows:
"Fees and expenses including the premium and mediators fees, which are
not the subject of any contingent or conditional fee agreement paid by the
Appointed Legal Representative on behalf of the Insured to any third party
other than to counsel in connection with the Legal Action but not including:
(1)
any VAT to the extent that the Insured can recover such VAT from HM Customs
& Excise; and
(2)
any disbursements which the Court orders the Opponent to pay to the
Insured."
- "Legal action"
is defined as: "The action described in the Schedule and any appeal made by
the Opponent".
- The conditions
attached to the policy contain two clauses which are relevant for the purposes
of this decision.
"5.
Payment of costs
(a)
Insurers shall not be liable to make any payment under the certificate until
the conclusion of the Legal Action, unless the Court shall have ordered the
Insured to pay any Opponent's costs before that date.
(b)
The Insured will promptly provide Insurers with full details of Disbursements
and Opponent's Costs and shall, if requested by the Insurers, have such
Opponent's Costs and/or Disbursements assessed or otherwise reviewed by an
appropriate body. Insurers will be entitled to conduct any assessment or
review and the Insured will provide such assistance as Insurers
require.
6.
Assessment of premium
If,
in any process of assessment, the Opponent is successful in any challenge to
the cost of the premium then it is agreed that the premium which was payable
at the conclusion of the Legal Action shall be reduced to the amount which was
approved or allowed on assessment. It is agreed by the Insured that the
Insurer shall have the right to make any representations to the Court or the
Opponent as may be necessary in this matter. Any such challenge must be
immediately notified by the Insured to the Insurer. "
- An invoice from
Temple Legal Protection Ltd dated 1 June 2000 and addressed to the Claimant
sets out the amount due in respect of the premium and insurance premium tax
totalling £367.50. At the foot of the invoice it states:
"Payment to be made upon conclusion of the case."
THE
ISSUE
- It is the
Defendants' case that the insurance premium is not recoverable as a matter of
law because the contract of insurance constitutes an agreement for credit in
respect of payment of the insurance premium and the necessary statutory
requirements have not been met. In a letter of 9 November 2000 the Claimant's
solicitors wrote to the Defendants' insurers stating:
"The client has not paid the insurance premium as the same only becomes
payable when the insured risk arises. Since the insured risk only arose after
the matter had been settled and at that point your client became liable for
the premium the client has not been liable to pay the same."
- In Mr McGinty's
submission, in the ordinary course of insurance business such a premium would
be payable as soon as the insurance was taken out. To delay payment of the
insurance premium until the conclusion of the case is to grant the Claimant
credit. Mr McGinty submits that this agreement for credit is an agreement
regulated by the Consumer Credit Act 1974, that it has not been properly
executed and is therefore unenforceable. The Claimant's position is that this
is not a credit agreement, that the insurance policy is akin to a no win no
fee agreement and the Claimant, having succeeded in her claim, is notionally
liable for the premium which is therefore recoverable from the Defendants.
Although Mr McGinty's primary argument is that the period of credit began on
inception of the policy, his secondary position is that it began once the
"conclusion of the case" had been reached and that the statutory requirements
still apply. His position is that the case was concluded when the damages were
agreed. Mr Willems argues that the terms of the CFA and the insurance policy
taken together make it clear that the cover extends to cover the costs only
proceedings.
THE
LAW
- Section 8 of the
Consumer Credit Act 1974 is in the following terms:
"8.
Consumer Credit Agreement
(1)
A personal credit agreement is an agreement between an individual ("the
debtor") and any other person ("the creditor") by which the creditor provides
the debtor with credit of any amount.
(2)
A consumer credit agreement is a personal credit agreement by which the
creditor provides the debtor with credit not exceeding £25,000.
(3)
A consumer credit agreement is a regulated agreement within the meaning of the
Act, if it is not an agreement ("an exempt agreement") classified in or under
Section 16."
- Section 9 of the
1974 Act defines credit as including:
"A
cash loan, and any other form of financial accommodation."
- In order for a
credit agreement to be an exempt agreement it must comply with Article 3(1)(a)
of the Consumer Credit (Exempt Agreements) Order 1989, SI 1989/869. The
exemption applies to:
"An
agreement for fixed sum credit under which the total number of payments to be
made by the debtor does not exceed four and those payments are required to be
made within a period of 12 months beginning with the date of the
agreement."
- Mr Willems
conceded that if the insurance policy is indeed a credit agreement it is not
exempt and does not comply with the Consumer Credit (Agreement) Regulations
1983. The question to be decided therefore is whether or not the ATE policy is
a credit agreement.
- Professor Goode
in "Consumer Credit Law and Practice" deals with the ingredients of credit. He
suggests that credit involves:
"(a) the supply of a benefit;
(b)
attracting a contractual duty of payment;
(c)
in money;
(d)
the duty to pay being contractually deferred;
(e)
for a significant period of time after payment has been earned;
(f)
such deferment being granted by way of financial accommodation."
(paragraph 24.8, page IC/494)
- Professor Goode
states the general principle as follows:
"debt is deferred, and credit extended, whenever contract provides for
the debtor to pay, or gives him the option to pay, later than the time at
which payment would otherwise have been earned under the express or implied
terms of the contract."
- Professor Goode
goes on to explain that where a contract provides for the debtor to pay later
this means:
"... we must use some common sense and treat a debt as deferred only
where the contractual period of deferment is significant, that is, where
payment is not to be made on the same occasion (in a broad sense) as that of
the purchase to which it relates."
- He also points
out that unless the contract otherwise provides, payment is earned when the
benefit is supplied. It is a question of construction of the contract as to
what constitutes a supply for this purpose or exactly what the supplier has to
do by way of performance before he becomes entitled to payment (ibid paragraph
24.25 page IC/497 and paragraph 24.70 page IC/518).
- Mr McGinty
referred me to Dimond v Lovell [2000] All ER 2 898 HL, arguing that the
payment of the premium in these proceedings at the conclusion of the case was
similar to the provision in the hire agreement in Dimond v Lovell, that:
"The lessor would allow the hirer credit on the hire charges until such
time as the claim for damages had been concluded."
- Mr Willems
argued that Dimond v Lovell concerned itself with damages, and therefore had
no application to costs. That is a submission which I reject since the
principles to be applied in deciding whether or not the agreement is a credit
agreement remain the same. The Consumer Credit Act point requires me to
consider the position between the parties to the relevant contract, not the
position between the parties to the litigation.
- It is worth
remarking that Lord Hobhouse in his speech in Dimond v Lovell ([2000] All ER 2
898 HL, at 913) expressed the view that the test formulated by Professor Goode
might not always be a satisfactory one to apply since he could envisage many
commercial agreements containing provisions which could be said to postpone
(or advance) the time at which payment has to be made.
THE
DEFENDANT'S SUBMISSIONS
- Mr McGinty
argued that payment of the premium would ordinarily have been due when the
insurance policy was taken out. To allow the Claimant to pay at the conclusion
of the case was therefore to provide her with credit. He relied on the finding
of the House of Lords in Dimond v Lovell, that the agreement under which
payment of the hire charges was to be made at the conclusion of the case was
provision of credit. His other arguments concerned the failure of the
agreement for insurance to comply with the various statutory requirements for
consumer credit. On those arguments there is no dispute.
CLAIMANT'S SUBMISSIONS
- Mr Willems
argued that the contract of insurance was not a credit agreement. The Claimant
was buying a service, ie protection in respect of the risk of having to pay
the opponent's costs and, in certain circumstances, her own disbursements
including the premium. He submits that the service was provided throughout the
case and was co-terminous with it. He further argues that the case does not
conclude until the related costs only proceedings have themselves been
concluded.
- Referring to the
work by Profession Goode, he submitted that payment of the premium had not
been earned until the conclusion of the case, and he relied on a further
passage in Professor Goode's book (paragraph 24.10, page IC/494) where it
states:
"... if the recipient of the benefit has no duty to pay for it, then he
is not a debtor and it cannot be said that credit is being extended to
him."
- Thus, in this
case, although the Claimant has a potential liability to pay the premium in
the event of success in her claim, she is under no duty to pay it until the
case has concluded.
- Mr Willems also
relied on the example of disbursements paid by a solicitor during the course
of proceedings. The client is ultimately liable to pay these disbursements but
is under no duty to pay until a bill has been delivered. Similarly if an
expert defers payment of fees until the end of the case that could not amount
to a credit agreement. Mr Willems argues that the ATE premium should be
treated in the same way. Although I accept his submission in relation to the
treatment of solicitor's disbursements, it is not possible to treat the ATE
premium as a solicitor's disbursement since clearly the solicitor does not pay
it.
- Mr Willems's
other main submission was that the contract of insurance was a no win no fee
agreement and could not therefore be a credit agreement in any circumstances.
The position under the ATE policy is that if the Claimant is unsuccessful she
has to pay nothing at all, the policy itself covers the risk of losing. If she
is successful she will, assuming the Defendant is good for the money, recover
damages and costs including her insurance premium which she is liable to pay
to the insurers. The insurance policy recognises the possibility of the
premium being reduced on assessment and provides, in the event of such a
reduction, that the Claimant would only be liable for the reduced amount. Mr
Willems argued that for credit to be provided there has to be a debt and that
what is being dealt with here is a contingent liability which can only arise
on the happening of the contingency ie success in the case and the final
agreement or assessment of the costs, including the ATE premium.
CONCLUSIONS
- Put shortly Mr
McGinty's case is that it is normal practice in insurance business to pay the
premium when the insurance is taken out. Whilst this contention may be true in
respect of before the event insurance, such as household or motor insurance,
after the event insurance is an entirely new product in respect of which, in
my view, there is as yet no established normal business practice.
- The introduction
of recoverable insurance premiums under the Access to Justice Act 1999 has,
with effect from 1 April 2000, opened up an entirely new sector of insurance
business. The range of insurance policies available and the premiums payable
under those policies are extremely wide (see the Report of Master O'Hare,
Costs Judge, in Callery v Gray (No.2) [2001] 4 All ER 1). Litigants in general
might be put off litigating if they had to pay significant amounts of money,
such as insurance premiums at the outset of their claim. Equally solicitors do
not as a general rule fund disbursements and insurance premiums pending the
successful outcome of claims. Recognising this, the after the event insurance
providers have developed products, such as the Temple policy in this case,
which do not require any payment from either the client or the solicitor until
the conclusion of the case. If the claim is unsuccessful no money at all is
payable. If the claim is successful the claimant is under a duty to pay the
insurer the agreed premium or, if that premium is reduced on assessment, the
reduced figure.
- After the
hearing the Defendant, with leave, served a further witness statement of
Darren Mendel in support of the submission that it is proper practice, where a
claim is funded with the assistance of an ATE insurance policy, for the
premium to be paid at the outset by the Claimant; or with the assistance of a
bank loan; or by means of a regulated credit agreement. The Claimant, having
considered that evidence, elected not to serve any evidence in reply.
- Mr Mendel
suggested that there were three common methods of dealing with ATE insurance
premiums: (i) paid in advance by the Claimant personally; (ii) paid by means
of a bank loan obtained by the Claimant; and (iii) where credit has been
granted in respect of the premium payment subject to a regulated credit
agreement. Seven examples were given: one in respect of payment by the
Claimant personally, and one where the Claimant had obtained a loan in order
to be able to pay the Claims Direct premium. The other five cases all involved
regulated credit agreements. Of these one was a Claims Direct premium,
although it is not entirely clear whether this was paid by means of a personal
loan from Claims Direct (which is the form of a consumer credit agreement) or
by means of some other form of personal loan. It is worth noting that the
Claims Direct insurance premium is the subject of a number of test cases yet
to be resolved, and that one of the points in issue is whether the premium
loan agreement is valid. Two further policies were Law Club Legal Protection
policies, both the subject of regulated credit agreements. Other policies were
with Accident Protect and NIG Corporation. The NIG policy was said to support
the Defendant's case that such policies require payment at the outset and for
the actual payment to be made, unless credit has been afforded and therefore
subject to a regulated credit agreement. The Defendant further submitted that
the procedure adopted by the Claimants' insurer in this case was not the
procedure adopted by the majority of insurers, ie. allowing the Claimant to
defer payment of the insurance premium until the end of the case without any
regulated credit agreement.
- Notwithstanding
the examples which have been produced by the Defendant I am not persuaded that
there is, as yet, any normal insurance business practice which requires the
after the event insurance premium to be paid at the inception of the policy.
In my view this area of insurance is still in its infancy and the practice and
procedure is developing. It is clear that insurers would not use consumer
credit agreements unless they had been advised that their particular agreement
fell within the statutory framework. In this case Temple have been advised
that their scheme does not fall within the statutory framework and that
therefore a consumer credit agreement is not required. For the reasons which I
have already given I am of the view that there is no deferment of the payment
of the premium unless it is deferred beyond the conclusion of the case for a
significant period.
- Mr McGinty
argues that the case is concluded when the claim for damages is finally agreed
in the Claimant's favour. Mr Willems, in support of his argument that costs
only proceedings precede the conclusion, relies upon the duration of the
conditional fee agreement which he submits covers enforcement proceedings. The
assessment of costs is not an enforcement proceeding but, until costs are
assessed, the agreement to pay costs cannot be enforced. By commencing costs
only proceedings the Claimant will obtain a detailed assessment of her costs
which will result in a final certificate and that certificate will be
enforceable in the same way as any other judgment for a civil debt.
- In support of
his argument that the legal action concluded when the claim for damages was
finally agreed, Mr McGinty draws attention to paragraph 6 of the policy (set
out in paragraph 12, above) which he says makes it clear that the premium has
become payable before the costs have been assessed. The crucial words
are:
"... the premium ... which was payable at the conclusion of the
Legal Action shall be reduced ... (emphasis is added)."
This, argues Mr McGinty, indicates that the legal action has been
concluded, the premium has become due and payable and the Claimant has
therefore been granted a significant period of deferment thereby bringing the
agreement within the ambit of the Consumer Credit Act. I do not accept this
submission, which is essentially based on a poorly drafted phrase in the
policy. In my judgment the words "which was" are mere surplusage and should be
ignored. What was intended by the policy and by the draftsman in drafting
Clause 6 in the way he did was to refer to:
"...the premium payable at the conclusion of the legal action
..."
At
most the words "which was" draw attention to the change in premium only; they
do not indicate any passage of time after the time for payment of the
premium.
- I have not found
this point an easy one to decide. I do however accept Mr Willems's argument
that, taken together, the insurance policy and the conditional fee agreement
make it clear that the insurance cover extends to all necessary steps in
relation to resolving the Claimant's claim, including her claim to be paid her
reasonable costs. In those circumstances I find that the Temple insurance
policy is still in force, the case not yet having been concluded. Since the
Claimant has been successful in her claim for damages she is now aware that
she will be liable to pay Temple Legal Protection Ltd £367.50 upon the
conclusion of the case. That is once the costs have been finally
assessed.
- Given the
finding which I have made in respect of the policy itself it is not necessary
for me to deal with Mr Willems's submission that the contract of insurance is
in fact a no win no fee agreement.
- For the reasons
given I find that the after the event insurance policy in this case is not a
credit agreement and is therefore not caught by the provisions of the Consumer
Credit Act 1974 or the Regulations made under it.
