Callery v Gray (Russell v Pal Pak Corrugated Ltd)

An after-the-event insurance premium reasonably incurred before substantive proceedings may be recovered in costs-only proceedings. Rule 44.12A permits recovery of the costs that would have been recoverable had substantive proceedings been issued, including a premium recoverable under section 29 of the Access to Justice Act 1999.

In modest, straightforward road-traffic personal-injury claims, it is normally reasonable at the first consultation to enter a conditional fee agreement and obtain insurance. The arrangements must nevertheless reflect the risk known or reasonably knowable at that time. Where an outset agreement contains no special risk feature, a 20% uplift is the maximum reasonable success fee. A two-stage success fee is permissible and may better reflect the risk where settlement occurs during the protocol period.

Two defendants appealed costs-only decisions arising from modest personal-injury claims following road-traffic accidents. Each claimant had entered a conditional fee agreement with a success fee, and the claims settled during the pre-action protocol period without substantive proceedings.

In Callery v Gray, the Chester County Court had upheld a district judge’s allowance of a 40% success fee and an after-the-event insurance premium. The defendant challenged both the recoverability of the premium in costs-only proceedings and the level of the uplift.

In Russell v Pal Pak Corrugated Ltd, the Liverpool County Court had reduced a claimed 30% uplift to 20%. The common issues were whether funding arrangements could reasonably be made before the defendant’s substantive response, and what success fee was reasonable in straightforward road-traffic claims.

1. The Callery appeal was allowed in part and the Russell appeal was dismissed. The court reduced the success fee in Callery v Gray from 40% to 20%. It upheld the 20% success fee in Russell v Pal Pak Corrugated Ltd. The question of the reasonable amount of the after-the-event premium was reserved for a report by a costs judge.

2. Section 29 of the Access to Justice Act 1999 permits recovery of an after-the-event premium in costs incurred in substantive proceedings, including a premium obtained in contemplation of those proceedings before they begin. Rule 44.12A of the Civil Procedure Rules provides a costs-only mechanism for recovering the costs which would have been recoverable had substantive proceedings been commenced. It follows that a reasonable premium may be included where the substantive dispute has settled before issue.

3. For modest and straightforward road-traffic personal-injury claims, it is normally reasonable for a claimant, when first instructing solicitors, to conclude a conditional fee agreement and obtain after-the-event cover. The statutory scheme requires the success fee and premium to reflect the risk of failure as it appeared, or should reasonably have appeared, when the arrangement was made. It does not require a claimant to delay until the defendant’s response is known.

4. The court accepted that the regime transfers to unsuccessful defendants part of the cost of unsuccessful claims. That consequence follows from the legislative policy of preserving access to justice after the withdrawal of legal aid. Early insurance can spread risk and keep premiums affordable; it also protects defendants who succeed against insured claimants.

5. For an outset conditional fee agreement in this class of claim, and absent a special feature creating material concern that the claim may fail, 20% is the maximum reasonable uplift. The guidance was based on limited data and should be reviewed when better evidence becomes available. A two-stage fee, with a higher uplift if the claim does not settle during the protocol period and a modest rebate if it does, is legally permissible and may more closely reflect the individual risk.

6. On assessment, the court must assess reasonableness by reference to information available when the funding arrangement was made, rather than hindsight. Additional liabilities are considered separately from proportionality of base costs. An appellate court should not interfere with the assessing judge’s broad discretion unless the judge was clearly wrong.

• Court of Appeal: In Callery v Gray (Russell v Pal Pak Corrugated Ltd), [2001] EWCA Civ 1117, the court reduced Callery’s recoverable success fee to 20%, dismissed the Russell appeal, and reserved the question of the reasonable insurance premium.
• Chester County Court: His Honour Judge Edwards dismissed the defendant’s appeal from District Judge Wallace’s costs-only order in the Callery claim.
• Liverpool County Court: His Honour Judge Marshall Evans reduced the claimed success fee in the Russell claim from 30% to 20% in costs-only proceedings.