KA-2023-000225 - [2025] EWHC 1605 (KB)

In Herbert v HH Law Ltd. [2019] 1 WLR 4253. the Claimant sought an assessment under section 70 of the 1974 Act of her former solicitors' bill. Two principal issues arose before the Court of Appeal: the proper approach to a success fee under a Conditional Fee Agreement and whether the premium for an ATE insurance policy was to be treated as a solicitor’s disbursement or merely an entry in the client cash account.

On the second of these issues, the Master of the Rolls, Sir Terence Etherton, giving the lead judgment, undertook a detailed analysis of what constitutes a solicitor's disbursement. He referred to established case law, which distinguished between professional disbursements in a bill of costs and cash payments made by a solicitor as agent for the client and held that an ATE insurance premium did not fall within the definition of a solicitor's disbursement. He reasoned that the premium was paid pursuant to a contract of insurance between the insurer and the client, with the solicitor acting as the client's agent. The client’s liability to pay the premium arose from the insurance contract, not the retainer with the legal representative. Furthermore, unlike court fees or counsel's fees, a solicitor is not obliged to pay an ATE premium irrespective of being put in funds by the client. The Court also found no established custom within the solicitors' profession of treating ATE premiums as solicitor's disbursements in solicitor and client assessments.

The practical consequence of the decision in Herbert is that the ATE insurance premium is deemed to be an item in the cash account, reflecting a payment made on behalf of the client, rather than a component of the solicitors’ bill subject to assessment under section 70 of the 1974 Act. The Court of Appeal explicitly recognised that this would prevent a client from challenging the amount of the ATE premium through the "convenient mechanism" of a Solicitors Act assessment and noted that if this outcome was considered unsatisfactory, the Solicitors Regulation Authority and the Law Society could consider ways to bring ATE premiums within the definition of a solicitor's disbursement.

The decision in Herbert has a direct bearing on the Appellant's Part 18 requests concerning the disputed cash account in the present case. Since the ATE premium relating to the underlying personal injury claim is to be placed within the cash account, as Herbert dictates, then the scope for challenging the amount of that premium within the section 70 assessment proceedings is significantly curtailed. The focus of a section 70 assessment is on the reasonableness of the solicitor's bill of costs, which, following Herbert, does not include the ATE premium.

However, since the determination of the "result of the cash account" is a step required of the Costs Judge following the detailed assessment of the solicitor's bill, as referred to at paragraph 6.19 of the Practice Direction to Part 46, this raises the question of the extent to which disputed items within the cash account, such as the ATE premium, can be scrutinised. Whilst Herbert prevents a direct challenge to the quantum of the premium within the section 70 assessment, a dispute may arise concerning the accuracy of the cash account itself, for example, if there is a contention that the amount recorded as paid is incorrect or if there are undisclosed payments or commissions related to the ATE policy.

Subsequent cases such as Edwards v Slater and Gordon UK Ltd. [2022] EWHC 1091 (QB) and Brown v JMW Solicitors LLP [2022] EWHC 2848 (SCCO) have grappled with the issue of whether a Costs Judge can still investigate matters related to the ATE premium through the cash account, particularly in cases of alleged secret commissions. It was suggested in argument that there is some tension between the Costs Judge's decision in Brown, which, it was said, favoured a restrictive approach, in contrast to the decision in Edwards, which endorsed a broader scope of inquiry into the cash account to ensure accuracy and fairness.

Edwards & Ors v Slater and Gordon UK Ltd. [2022] EWHC 1091 (QB), was a conjoined appeal heard by Ritchie J concerning several solicitor own client costs assessments. These claims challenged deductions made by the Defendant from the Claimants’ damages. The appeals arose from case management decisions made by the Costs Judge. In the Edwards claims, the Costs Judge ordered standard disclosure relating to the pleaded issues, rejected the Defendant’s applications for a stay of the proceedings and for security for costs, and ordered the Defendant to pay the costs of those applications. In the related case of Raubenheimer v Slater and Gordon UK Ltd. [2022] EWHC 1091, the Costs Judge had refused the Claimant’s application for an order for replies to Part 18 requests. The Defendant appealed the orders made in Edwards, and the Claimant appealed the refusal of the Part 18 application in Raubenheimer.

A central issue in the appeals was the power of a Costs Judge to order disclosure in Part 8 SOCA proceedings. The Defendant argued that CPR Part 31, concerning disclosure, did not apply to Part 8 claims. Ritchie J rejected this contention, noting that there was no express rule in Part 8 dispensing with Part 31. He concluded that the CPR generally, and the Solicitors Act 1974 at section 68(2)(c), supported the power of the Costs Judge to order a solicitor to deliver documents relevant to the assessment. He found the Costs Judge was correct to conclude that Part 31 applied to the Part 8 claims.

Ritchie J allowed the appeal in Raubenheimer, finding that the Costs Judge had fallen into error in refusing to order replies to the Part 18 requests concerning the cash account and potential undisclosed commissions. He concluded that the cash account could not be signed off in a SOCA if disputed, and such disputes needed resolution before the final SOCA order could be made. He considered that the Part 18 requests should be answered to properly facilitate the efficient handling of the next case management hearing, allowing the Costs Judge to gain a proper understanding of the issues and the parties to consider their positions. Ritchie J noted that the information sought could help the Claimants to determine the extent of any potential issue and the Defendant to consider settling the claims.

It was a feature of the case that Elite Insurance, the ATE insurer, had entered administration so that the routine handling of queries and information requests was no longer conducted by the insurer itself. The communications obtained by the Claimants' legal representatives from the administrators of Elite Insurance provided evidence that supported their suspicions of “secret commissions”. These communications revealed details of a "claims handling commission of GBP 30.00" and a "claims fund contribution of GBP 176.13" that would fall due in relation to one of the claims. This information suggested financial benefits accruing as a result of the ATE policy, which were not apparent on the face of the Defendant's cash account. Warby LJ, when refusing permission to appeal the order made by Ritchie J in Edwards, noted that the Claimant suspected secret commissions and "that there was evidence to support such suspicions".

As Costs Judge Rowley (the same costs judge as in the present case) observed in Brown when distinguishing the Edwards case:

"The fact that the insurer had gone into administration meant that a third party was answering the Claimant’s lawyer’s questions rather than the insurer itself. The commercial arrangements between an ATE insurer and other parties would be confidential where the insurer was a going concern and, as such, less likely to be discussed with external law firms".

He added:

"The evidence obtained by the Claimant’s lawyers must, it seems to me, be unlikely to be obtained in most cases."

It was argued in Brown, that a claimant's entitlement to Part 18 requests should not depend on the "fortunate" circumstance of an insurer's insolvency for information about potential commissions be obtained. However, Costs Judge Rowley's reasoning in Brown, where he refused to order Part 18 replies relied heavily on the absence of any concrete evidence of payments in that particular case, contrasting it with the evidence that had come to light in Edwards due to the administration. His reasoning was, as he put it, that “he who asserts must prove” so that the client had to have evidence that an undisclosed commission had been received for such an order to be made.