Callery v Gray

The House of Lords considered whether items arising from the new post-1999 funding regime for personal injury litigation — notably a claimant's success fee under a conditional fee agreement (CFA) and the premium for after-the-event (ATE) insurance — are recoverable from a losing defendant as part of costs. The court confirmed that, as a matter of principle, rules enacted by Parliament (in particular section 58A of the Courts and Legal Services Act 1990 and section 29 of the Access to Justice Act 1999) permit a court to include a reasonable success fee and a reasonable ATE premium in an award of costs. The House emphasised that assessment must be case-specific and governed by CPR rules (in particular Rule 44 and the Costs Practice Direction), and that district and costs judges (with guidance from the Court of Appeal) are primarily responsible for calibrating what is reasonable and proportionate. The Court of Appeal's provisional guidance (including a 20% guideline for simple road-traffic claims) was not disturbed by the majority; one Law Lord would have disallowed the particular ATE premium on the facts.

This appeal arose from a commonplace road traffic personal injury claim in which the claimant entered a conditional fee agreement and, at the same time, purchased an after-the-event insurance policy. The claimant settled liability and damages out of court but the parties could not agree the amount of costs. In "costs only" proceedings the district judge allowed a substantial success fee and the ATE premium as a disbursement. The defendant appealed; the Court of Appeal reduced the success fee and approved in principle the recoverability of ATE premiums, postponing detailed assessment of the premium to a costs judge. Master O'Hare reported and the Court of Appeal thereafter held the premium not manifestly disproportionate.

Nature of the claim/application: assessment of recoverable costs under a settlement which left only quantification unresolved; in particular whether a success fee and an ATE insurance premium taken out at the outset were reasonable and recoverable from the defendant.

Procedural history: summary assessment by District Judge Wallace; appeal to circuit judge (Judge Edwards QC); appeal to the Court of Appeal resulting in two judgments ([2001] 1 WLR 2112 and [2001] 1 WLR 2142) which (i) endorsed in principle recovery of reasonable success fees and ATE premiums and (ii) fixed provisional guidance on success fees (20% for modest straightforward claims) and remitted the premium quantum for inquiry; final appeal to the House of Lords ([2002] UKHL 28).

Issues framed by the court: (i) whether a success fee under a CFA agreed at the outset is recoverable and on what basis it should be assessed; (ii) whether an ATE premium taken out at the time of first instruction (before the defendant's response was known) is recoverable and whether the premium in the case was reasonable; (iii) how the court should apply CPR Rule 44 and the Costs Practice Direction in assessing additional liabilities.

Court’s reasoning: the majority placed weight on statutory policy enacted in the Access to Justice Act 1999 and on the role of the Courts and Rules in permitting recoverability of reasonable additional liabilities. The House stressed that assessment of reasonableness is case specific, to be carried out under CPR Rule 44 and the Costs Practice Direction by costs judges with guidance from the Court of Appeal. The majority declined to interfere with the Court of Appeal's provisional approach and reductions of uplift to 20% in simple claims. A single Law Lord dissented on the particular ATE premium, considering it unreasonable and inappropriate to require defendants to bear the cost of insurance taken out in circumstances where litigation was highly unlikely.

Appeal dismissed. By majority the House declined to overturn the Court of Appeal's approach: Parliament had authorised the recovery of reasonable success fees and ATE premiums and their assessment must be case-specific under CPR Rule 44 and the Costs Practice Direction; the Court of Appeal's provisional guidance (including a 20% ceiling for modest straightforward road-traffic claims) and its conclusion that an ATE premium could in principle be recoverable were upheld. One Law Lord would have disallowed the particular ATE premium as unreasonable on the facts.

Costs assessed by District Judge Wallace (Macclesfield County Court); appeal to circuit judge (Judge Edwards QC) dismissed; appeal to Court of Appeal disposed in two judgments: Callery v Gray [2001] 1 WLR 2112 (success fee issue; provisional guidance including 20% for modest claims) and Callery v Gray (No 2) [2001] 1 WLR 2142 (ATE premium inquiry and guidance); final appeal to House of Lords [2002] UKHL 28 (appeal dismissed by majority).