Callery v Gray

Under the funding regime created by the Access to Justice Act 1999, it may ordinarily be reasonable for a personal injury claimant to enter a conditional fee agreement and obtain after-the-event insurance when first instructing solicitors. A reasonable success fee and reasonable insurance premium may consequently be recovered from a defendant, although each remains subject to assessment and judicial control.

The Court of Appeal has primary responsibility for supervising developing civil practice. The House of Lords should be slow to disturb provisional procedural guidance where experience and reliable evidence remain limited. Courts must preserve access to justice while preventing disproportionate costs and unfair burdens on defendants and their insurers.

Callery v Gray arose from a straightforward road traffic accident claim which settled before substantive proceedings for £1,500 plus reasonable costs. The claimant had entered a conditional fee agreement providing for a success fee and had obtained after-the-event insurance before the defendant's insurers responded to the claim.

A district judge reduced the contractual success fee from 60% to 40% but allowed the insurance premium. A circuit judge dismissed the defendant's appeal. In Callery v Gray [2001] 1 WLR 2112, the Court of Appeal reduced the success fee to 20% but held that reasonable funding liabilities incurred at the outset were recoverable in principle. In Callery v Gray (No 2) [2001] 1 WLR 2142, it upheld the insurance premium.

The defendant appealed concerning the timing and amount of the premium, the appropriate success fee and whether those liabilities should be assessed by reference to the individual claim or wider funding considerations.

1. Disposition. Lord Bingham, Lord Nicholls, Lord Hoffmann and Lord Hope dismissed the appeal. Lord Scott would have allowed it only by disallowing the after-the-event insurance premium and associated tax. The appeal was therefore dismissed by a majority of four to one.

2. Appellate restraint. Lord Bingham held that responsibility for monitoring and harmonising developing civil practice rests primarily with district and costs judges, circuit judges and the Court of Appeal. Lord Nicholls and Lord Hope adopted his reasoning, while Lord Hoffmann reached the same conclusion independently. Because the funding regime was new, reliable evidence was sparse and the Court of Appeal's guidance was expressly provisional, the House should not intervene unless an exceptional basis for doing so was established.

3. Funding arrangements at the outset. Lord Hope concluded that the practical considerations accepted by the Court of Appeal supported permitting a claimant to obtain after-the-event insurance when first consulting a legal representative. Delaying cover could substantially increase premiums or impair availability. Lord Bingham and Lord Nicholls adopted Lord Hope's reasons. A reasonable success fee agreed at the outset and a reasonable premium incurred at that stage could therefore remain recoverable, subject to assessment. Lord Hoffmann was not satisfied that the Court of Appeal's decisions were wrong, although he expressed substantial reservations.

4. Control of recoverability. Lord Bingham emphasised that the regime must promote access to justice without giving disproportionate benefits to practitioners or insurers or imposing unfair burdens on defendants. Lord Hope held that early insurance was not automatically recoverable in full. Its reasonableness and amount remained subject to supervision in individual cases, and unreasonable conduct could be penalised through costs assessment.

5. Scope of section 29. Lord Hope accepted that section 29 of the Access to Justice Act 1999 permitted recovery of the part of a premium covering a costs liability which could not be passed to the opposing party. That construction had not been challenged before the House, but Lord Hope expressly regarded the Court of Appeal's conclusion as sound.

6. Reservations and dissent. Lord Hoffmann considered that market forces did not adequately restrain success fees or premiums and doubted whether individual costs assessments could resolve the resulting systemic questions. Fixed costs or other legislative regulation might be preferable. Lord Scott dissented on the premium: he considered that recoverability had to be tested solely by the needs and risks of the particular claim, making insurance obtained when litigation was highly unlikely an unreasonable expense.

• House of Lords: In Callery v Gray [2002] UKHL 28, the defendant's appeal was dismissed by a majority of four to one.
• Court of Appeal: In Callery v Gray [2001] 1 WLR 2112, the court reduced the success fee from 40% to 20% but upheld the recoverability in principle of reasonable funding liabilities incurred at the outset. In Callery v Gray (No 2) [2001] 1 WLR 2142, it dismissed the appeal concerning the insurance premium.
• Chester County Court: Judge Edwards QC dismissed the defendant's appeal on the success fee and insurance-premium issues.
• Macclesfield County Court: District Judge Wallace reduced the success fee from 60% to 40% and allowed the insurance premium as a disbursement.