Hurst deals big blow to costs negotiators

The defendant insurance industry suffered a major blow last week after the senior costs judge ruled that costs negotiators' agreements with insurers to take a cut of costs saved - which he said can encourage the 'over-vigorous' pursuit of costs cases - grant them no rights of audience and are anyway unlawful.

Chief Master Hurst's ruling in Ahmed v Powell is a triumph for the claimant's solicitors, high-profile Manchester firm Amelans, which has campaigned against the use of costs negotiators.

The judgment makes bad reading for City-based Beachcroft Wansbroughs, which acted for insurer Allianz Cornhill in the case.

It was found to have allowed the use of its name in the costs proceedings without providing any services to its client.

Master Hurst gave permission to appeal on the grounds that this is an issue of public importance.

He recommended that the appeal be expedited.

The costs-only proceedings arose out of a road traffic case and focused on Allianz Cornhill's use of NL Grant Legal Costs Management (now called Liberata General Insurance Services).

Grants' original agreement with Cornhill was that it would be paid a percentage of savings on costs achieved.

This was changed in 2001 to commission at a set rate, provided that Grants achieved a monthly average gross saving of a given percentage on claimants' costs over a 12-month period for a guaranteed number of cases.

Between 1 January 1999 and 4 October 2002, Grants dealt with 27,700 cases for Cornhill, saving costs of 20.8 million.

Grants' cut was not disclosed.

Cornhill's panel solicitors are under standing instructions to refer costs to Grants once a case settles, although the solicitor remains on the court record.

In finding that Grants had no rights of audience, Master Hurst rejected submissions that the company was employed by, or the agent of, Beachcrofts.

Grants was employed by Cornhill, he found, while 'the normal process of lawyers advising the client and taking the client's instructions and then delegating their function to a costs specialist is entirely absent'.

He found: 'It is abundantly clear that Grants were attempting to run the detailed assessment proceedings without reference to the defendant's solicitors...

I am driven to the regrettable conclusion that Beachcroft Wansbroughs were not supplying any services to the defendant; they were merely allowing the use of their name in the detailed assessment proceedings.'

The judge found Grants' terms of remuneration to be champertous.

Champerty is the common law principle which forbids those not directly involved in litigation from benefiting financially from its outcome.

'It seems to me that savings achieved on behalf of a losing insurance company is in fact a very significant element of the proceeds of litigation and Grants' remuneration is a share of that element,' he said.

Master Hurst said there was a 'very real concern' that arrangements like this lead to costs issues being pursued 'over vigorously and therefore disproportionately and in breach of the overriding objective'.

Amelans partner Andrew Twambley said: 'This is the final nail in the coffin of costs muppets.

Even though it is a great victory for claimants, it is a great victory for the profession as a whole because the work will now go back to solicitors.'

Beachcrofts partner Andrew Parker, a former president of the Forum of Insurance Lawyers (FOIL), said the ruling ignored the real problem of claimant solicitors 'pursuing excessive claims for costs'.

He said Beachcrofts had seen nothing wrong in its arrangements with Cornhill and Grants.

But he said: 'I have to accept what is said in the judgment.'

Liberata spokesman Jeremy Reynolds said: 'Our terms of business with our clients are in the process of immediate adjustment.'

It is thought that changes to the basis of remuneration and instruction will be key parts of this.

FOIL president Jason Rowley said that while costs negotiators had served a purpose in highlighting claimant lawyers' 'excesses', he would welcome a return to the traditional method of dealing with costs.

David Marshall, vice-president of the Association of Personal Injury Lawyers, said costs negotiators add little, except for raising the temperature between the sides.

It is better to deal with defence solicitors rather than costs negotiators, he added, because they know why certain costs have been run up.

Neil Rose