Recovery of After the Event (ATE) insurance – a failed ambush

Just imagine the following scenario.

I won a trial in the High Court and was awarded costs.

The opponent appealed.

Having won the trial at the first instance; I was more than confident with my prospects of  success in defending the appeal proceedings.

To up the pressure on the opponent, I took out a deferred premium ATE policy a day before the appeal was originally due to be heard and duly notified the opponent. The ATE insurers, who previously refused to cover me for the trial, were now more than happy to provide cover for not just the appeal costs but also the trial costs were I to lose the appeal proceedings. As it turned out, I successfully defended the appeal. My costs for the appeal were estimated at £63,000, but as the ATE policy also covers the trial costs, the ATE premium is £394,000. My opponent had a great shock when I claimed the premium and I had to disclose the terms of the ATE policy and gave a breakdown of the cover.

Will I recover the cost of the ATE premium from the opponent? One might think so, as section 29 of Access to Justice Act 1999 allows recovery of insurance premium. It states “where in any proceedings a cost order is made in favour of any party who has taken out an insurance policy against the risk of incurring a liability in those proceedings”. However, the majority of the Court of Appeal gave a negative answer to the question in the recent case of Hawksford Trustee Jersey Ltd v Stella Global UK Ltd and another (2012).

Background

In Hawksford, the parties disputed the interpretation of the wording in section 29. The issue was whether the ATE cover was for the risk of incurring a liability in “those proceedings” where a costs order was made.

The Appellant argued that the proceedings in which the relevant costs order falls to be made are the appeal and the recoverable premium must therefore be limited to cover for the risk of incurring a costs liability in those proceedings. Moreover, they said the rules for notice of funding (under CPR 44) (which do not deal with the case where no ATE cover for the trial is taken out until the appeal) would be undermined if it were possible to obtain and recover the costs of cover against adverse trial costs at the appeal stage.

Hawksford, on the other hand, argued that “proceedings” in s.29 should be given a wide and flexible meaning which embraces both the appeal and hearing below, particularly given that where the court of appeal dismisses the appeal and upholds the order of the judge below including the costs order in favour of a party and in allowing the premium it would be similarly exercising the trial judge’ powers, so that the costs order and the costs of incurring a costs liability would arise in the same proceedings.

The court by majority (LJ Patten dissenting) disagreed with Hawksford and took the view that the Appellant’s interpretation of s.29 is more consistent with the statutory objective. First of all, they said Hawksford’s interpretation would dramatically change the “costs dynamic” between the parties and could be unfair against an appellant who unsuccessfully fights first instance proceedings in the knowledge that the opponent does not have the benefit of ATE cover and who then appeals with a real prospect of success but then finds themselves potentially exposed to that liability “round the corner” in the event that their appeal fails.

They held that although the premium is a cost incurred at the appeal stage, it arises out of a policy “against the risk of incurring a costs liability in the trial proceedings”, not in the appeal proceedings.It may be true that the risk of reversal of costs liability at trial is a new risk arising out of the appeal but it is a risk which relates to the costs liability of the trial, to a “liability in those [trial] proceedings”. So, it was held that the premium could only be justified to the extent that it related to liability for the costs of the appeal – the premium related to the trial costs is not recoverable.

The future

From April 2013, following the Jackson’s costs reform, ATE premium will cease to be recoverable. However, as the change is not intended to operate retrospectively, issues relating to recovery of ATE premium may continue to arise in old style CFAs. It is unusual for ATE policy taken out in appeal stage to also cover the trial costs.

For those who have taken out such policy for appeal in similar situation and now faced with the prospect of unrecoverable premium, it may be worth reviewing the cover with the insurers on the light of this development.

If you have any questions please contact Edwin Coe Litigation & Dispute Resolution team.

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