Conditional fees and premiumsIn Callery v Gray (2001) The Times, 17 July CA (currently subject to a petition for permission to appeal to the House of Lords on which a determination is likely to be announced on or about 3 December 2001) the Court of Appeal considered four main questions: the time at which it is appropriate to enter into a conditional fee agreement (CFA) and take out an after-the-event (ATE) policy; the reasonableness of the success fee when a claim is quickly resolved without the need for court proceedings; whether the claimants are entitled to recover an ATE premium where there has been no need to commence proceedings; and the reasonableness of ATE premiums.After a hearing at which representatives of interested bodies were also allowed to make representations the court found:-- It is in principle permissible for a claimant to enter into a CFA with a success fee and to take out ATE insurance when he first consults his solicitor and before the solicitor writes a letter of claim and receives the prospective defendant's response;-- In relation to modest and straightforward claims for compensation resulting from road traffic accidents where a CFA is agreed at the outset, 20% is the maximum uplift that can reasonably be agreed, and;-- ATE premiums are in principle recoverable as part of a claimant's costs despite the claim being resolved without proceedings.The court requested a costs judge to investigate and report on the reasonableness of ATE premiums.

It also considered that it is open to a solicitor and to a client to agree a two-stage success fee at the outset of proceedings.

It gave an example of an uplift agreed at 100% subject to a reduction to a maximum of 5% should the claim settle before the end of the period fixed by a pre-action protocol.

Such an uplift would normally reflect the risks of the case.

The court suggested that once the data become s available, consideration will need to be given to the question whether the requirement to act reasonably mandates the agreement of a two-stage success fee in a case where a CFA with a success fee is agreed at the outset.The Court of Appeal subsequently held in Callery v Gray (No 2) [2001] EWCA Civ 31 July that the words 'insurance against the risk of incurring a costs liability' in section 29 of the Access to Justice Act 1999 meant 'insurance against the risk of incurring a costs liability that cannot be passed on to the opposite party'.

In the particular case, the small element of cover for 'own costs insurance' could be regarded as falling within the description of insurance against the risk of liability within section 29 and the premium of £350 was held to be reasonable.

The circumstances in which and the terms upon which 'own costs' cover would be reasonable in relation to other policies so that the whole premium could be recovered as costs would have to be determined by the courts when dealing with individual cases.Unsuccessful extractionIn Bensusan v Freedman [2001] All ER (D) 212 (Oct) the Senior Costs Judge allowed a success fee of 20% as against the 50% claimed in a case where, during the course of dental treatment, a reamer fell onto the claimant's tongue, and was involuntarily swallowed.

The reamer was passed naturally during the next few days and the claimant suffered no injury other than the shock and upset.

The claim settled quickly without proceedings.

The full text of the judgment is available on the Supreme Court Costs Office (SCCO) page of the Court Service Web site.

The judgment also deals with the issues of instructing distant solicitors, issuing in distant courts, the appropriate grade of fee earner and the procedure in costs-only proceedings.Before-the-event coverThe claimant was a passenger who suffered personal injuries in a road traffic accident for which the driver of the car in which he was travelling was responsible.

He took out ATE insurance in respect of the claim which he then made.

The claim settled early for a relatively small sum without the need to commence proceedings.Costs-only proceedings were commenced during the course of which the defendant's insurers disclosed that the defendant's policy contained a provision for legal expenses insurance which might have covered a claim against the insured driver made by a passenger in the car.In Sawar v Alam [2001] All ER (D) 44 (Sept) the Court of Appeal made it clear that it was dealing only with a relatively small personal injuries claim in a road traffic accident.

It was not concerned with claims which looked likely to exceed £5,000, nor with any other type of before-the-event (BTE) claim.The appeal judges stated: 'We have no doubt that if the claimant possesses pre-existing BTE cover which appears to be satisfactory for a claim of that size, then in the ordinary course of things that claimant should be referred to the relevant BTE insurer .

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In our judgment, proper modern practice dictates that a solicitor should normally invite a client to bring to the first interview any relevant motor insurance policy, any household insurance policy and any stand-alone BTE insurance policy belonging to the client and/ or any spouse or partner living in the same household of the client.'The court went on to say that if the motor accident claim is likely to be less than about £5,000 and there are no features of the cover which make it inappropriate, the solicitor should refer the client to the BTE insurer without further delay.

A solicito r is not obliged to embark on a treasure hunt in case by chance an insurance policy belonging to a member of the client's family contains relevant BTE cover.

Motor insurance often contains provision for BTE cover for a claim brought by a passenger and a solicitor should ordinarily ask the client passenger to obtain a copy of the driver's insurance policy if reasonably practicable.

Whether this is reasonably practicable depends on the facts.The Court of Appeal allowed the appeal on the ground that the policy did not provide the claimant with appropriate cover in the circumstances of this case.Representation arranged by the insurer of the opposing party, under a policy to which the claimant had never been a party and of which he had no knowledge at the time it was entered into, and where the opposing insurer through its chosen representative reserved to itself the full conduct and control of the claim, was not a reasonable alternative to representation by a lawyer of the claimant's own choice, backed by an ATE policy.The court suggested that the position might be different if BTE insurers financed a transparently independent organisation to handle such claims, and made it clear in the policy that this was what they were doing.

It stressed that its guidance should not be treated as an inflexible code, and that the overriding principle was that the claimant, assisted by their solicitor, should act reasonably.Claims Direct casesThe whole Claims Direct scheme is currently under scrutiny and is the subject of 23 test cases which have been brought with a view to identifying points of principle for decision by the Senior Costs Judge.

In a number of the cases -- and in a separate case in the SCCO in which judgment has been reserved -- the point has been taken that the agreements entered into by the client in relation to litigation funding come under the Consumer Credit Act 1974 and because of perceived irregularities may be unenforceable.

The issues are likely to go to the Court of Appeal for decision and guidance.

The test cases are expected to be heard in the early part of 2002.ProportionalityIn an appeal going to the Court of Appeal in February 2002, the Home Office is arguing that the proportionality test should be applied both item by item and globally.

The respondent argues that item by item is correct but global is not.

The agreed damages were £3,000 and the costs claimed £17,000 plus.