Callery: Law Lords warn of abuse by solicitors

The House of Lords last week failed to give personal injury lawyers the certainty they craved over costs, but did provide insurers and their solicitors with hope over the way judicial thinking is going.

The Lords dismissed the appeal against the Court of Appeal's decision in Callery v Gray on the basis that it should be that court which monitors and controls the development of an evolving practice area such as conditional fee agreements (CFAs) and after-the-event insurance (ATE).

Last year, the appeal court ruled that a 350 premium from Temple Legal Protection and 20% success fee for Manchester firm Amelans were reasonable in a simple road traffic accident claim.

It also said that claimant solicitors were justified in signing up a client to a CFA and ATE product at the earliest opportunity.

However, the law lords expressed concern over potential abuse of the system by claimant solicitors - and some cast doubt on the contention that the ATE market would collapse if insurance was not taken out at the start of each case.

Lord Scott dissented with the other four judges over two issues: he said ATE should not be taken out before it is known whether there will be a dispute; and he argued that the premium should be set on a case-by-case basis.

He said 350 was too much for a straightforward case like this.

The senior law lord, Lord Bingham, said there was 'obvious force' in the arguments that 20% was too much given the 'minuscule risk of failure', that it would have been reasonable to wait for the insurer's response before obtaining ATE cover, and that the premium was 'unreasonable and disproportionate'.

Lord Hope said: 'The costs incurred in this case by way of the success fee and ATE premium do appear at first sight to be wholly out of line with what the case required.'

There was no consensus on possible solutions, with Lord Hoffman suggesting that legislation to impose fixed costs may ultimately be needed.

The Civil Justice Council is currently examining fixed costs.

Professor John Peysner of Nottingham Law School, who is spearheading this work, said that overruling the Court of Appeal would have led to the collapse of the ATE market.

'There will be trouble ahead,' he warned.

'This is an invitation to more satellite litigation.'

He called on the parties to last year's mediation over personal injury litigation - which failed because they were all awaiting the Callery ruling - to resume their efforts.

Both Forum of Insurance Lawyers president Tim Wallis and Association of Personal Injury Lawyers president Patrick Allen backed this idea.

Mr Allen added that he welcomed the judgment for bringing some certainty to the personal injury field.

Andrew Parker, the partner at Beachcroft Wansbroughs who acted for the insurer in Callery, said: 'It is disappointing that, although the House of Lords recognised the problem, they felt they should not intervene,' he said, adding that further litigation was inevitable.

Amelans partner Andrew Twambley said the ruling was a victory for claimants.

He said the recent rise in ATE premiums could cause further litigation, but argued that success fees were now more settled.

Neil Rose