Case No: B3/2001/1617
Neutral Citation Number: [2001] EWCA Civ 1401
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHESTER COUNTY COURT
Judge Halbert
District Judge Wallace
Royal Courts of Justice
Strand, 
London, WC2A 2LL

Wednesday 19th September 2001

B e f o r e :

THE MASTER OF THE ROLLS
LORD JUSTICE BROOKE
and 
LORD JUSTICE LONGMORE
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	IMRAN SARWAR	Appellant/
Claimant	
	-	and –
-			
	MUHAMMAD ALAM	Respondent/
Defendant	

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(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
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Representations: (i)  The parties

Geoffrey Nice QC and Nicholas Bacon (instructed by Messrs Amelans for Imran Sarwar)
Peter Birts QC and Peter Goodbody (instructed by David Higginson for Muhammad Alam)

(ii)  Other interested parties

Richard Drabble QC & (Mr A Cooke) (instructed by The Law Society)
Stephen Irwin QC & (Miss O Hocdsworth) and Richard Hermer (instructed by the Association of Personal Injury Lawyers (APIL))
John Leighton-Williams QC (instructed by Messrs Barlow Lyde & Gilbert for the Association of British Insurers (ABI))

Anna Guggenheim QC (instructed by A E Wyeth & Co for the Forum of Insurance Lawyers (FOIL))

Benjamin Williams (instructed by Messrs Colman Tilley Tarrant Sutton for the Motor Accident Solicitors Society (MASS))

Peter Birts QC (instructed by Messrs Beachcroft Wansbroughs for the Liability Insurers Group)

Philip Brook-Smith (instructed by Messrs Rowe Cohen for the ATE Group)
Jeremy Stuart-Smith QC (instructed by Messrs Lyons Davidson for DAS Legal Expenses Insurance Co Ltd)

Jeremy Morgan (instructed by Messrs Russell Jones & Walker for the TUC)
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Judgment
Summary

(This summary forms no part of the judgment of the court)

This is another appeal concerned with the new arrangements for financing the cost of personal injuries litigation which came into effect last year.  Legal aid is now no longer available for most litigation of this type.  In Callery v Gray, the Court of Appeal was concerned two months ago with issues relating to the appropriate size of a success fee in a conditional fee agreement made in connection with a small claim for personal injuries suffered in a road traffic accident which was settled quite quickly without any need to bring court proceedings.  In that case a passenger in a car had made a claim against the driver of the other car involved in an accident.  The court was also concerned with the appropriateness of taking out “after the event” (“ATE”) insurance in connection with such a claim, and the reasonableness of the ATE premium claimed in that case.

The present appeal is concerned with a similar claim brought by a passenger against the driver of the car in which he was travelling.  The courts below had disallowed the recovery of an ATE premium on the grounds that the claimant ought to have inquired into the availability of “before the event” (“BTE”) legal expenses insurance which formed part of the cover provided by the driver’s insurance policy, and then made use of that cover.  This policy covered the costs and expenses of both sides in a claim brought by a passenger in the car against the insured driver himself up to a limit of £50,000. 

The Court of Appeal allowed the appeal on the grounds that the policy did not provide the claimant with appropriate cover in the circumstances of this case.  Representation arranged by the insurer of the opposing party, to which the claimant had never been a party, and of which he had no knowledge at the time it was entered into, and where the opposing insurer through its chosen representative reserved to itself the full conduct and control of the claim, was not a reasonable alternative to representation by a lawyer of the claimant’s own choice, backed by an ATE policy (paras 52-58).

The court suggested that the position might be different if BTE insurers financed some transparently independent organisation to handle such claims, and made it clear in the policy that this is what they were doing (para 53).

The court said, however, that if a claimant making a relatively small (ie under about £5,000) claim in a road traffic accident had access to pre-existing BTE cover which appeared to be satisfactory for a claim of that size, then in the ordinary course of things he/she should be referred to the relevant BTE insurer (para 41-43).  The court gave guidance as to the nature of the inquiries a solicitor should make in this class of case into the availability of BTE cover and the insurance policies and other documents the solicitor should ask the client to produce (paras 45-49).  It stressed, however, that this guidance should not be treated as an inflexible code, and that the overriding principle was that the claimant, assisted by his/her solicitor, should act in a manner that was reasonable (para 50).

INDEX

Part 									    Paragraph
  1	Introduction								  1
  2	The facts of the case							  5
  3	The judgments in the courts below					  8
  4	Funding options and the solicitor’s duty to the client			11
  5	The intervenors in the appeal						18
  6	LEI/BTE insurance							20
  7	The practice of an LEI insurer					27
  8	The CIS/DAS arrangements						33
  9	The conflicting concerns about BTE cover				39
10	The appropriateness of BTE cover for small accident claims	41
11	Proper practice for a solicitor inquiring about BTE cover		45
12	Motor accident claims where the passenger blames the driver	52
13	The concerns of the ATE Group and the TUC			59
14	How this judgment fits in with the judgment in Callery		60
15	Why we differ from the judge						61

Lord Phillips MR : This is the judgment of the court.
	1.  Introduction
1.	This case is a natural sequel to Callery v Gray  [2001] EWCA Civ 1117 (“Callery”).  Like Callery, it is concerned with a claim by a passenger who suffered personal injuries in a road traffic accident. The passenger instructed the same firm of solicitors as Mr Callery, and he also took out “after the event” (“ATE”) insurance.  As in Callery the claim was settled for a comparatively small sum at an early stage, without the need to institute legal proceedings.  The defendant’s insurers agreed to pay costs, but disputed the recoverability of the ATE premium.  There was no dispute as to the reasonableness of the premium, if recoverable.
2.	Here the similarities end.  The disputes in Callery were concerned with the amount of the solicitors’ success fee and with issues relating to the ATE insurance taken out by the claimant, including the amount of the ATE premium (for that issue, see Callery v Gray [2001] EWCA Civ 1246 (“Callery (No 2”)).  This case is concerned with “before the event” (“BTE”) insurance, which did not feature in Callery.  
3.	Another distinguishing feature of the present case is that Mr Sarwar’s claim was against the driver of the car in which he was travelling as a passenger, and not against the driver of a different car.  The present dispute arose during the costs-only proceedings when Mr Alam’s insurers disclosed for the first time that their client’s motor insurance policy contained a provision for legal expenses insurance (“LEI”) which might have covered a claim made by a passenger in their insured’s car against their insured driver.  Both the district judge and the judge on appeal held that this BTE insurance was available to Mr Sarwar, and they disallowed the cost of his ATE premium on those grounds.  Mr Sarwar now appeals.
4.	Judge Halbert made his ruling in this case on 5th July 2001, between the conclusion of the hearing in Callery and the delivery of the judgment on 17th July.  Its importance was identified during the course of the inquiry conducted by Master O'Hare in Callery at the request of the court, and on the last page of his report (which is annexed to the judgment in Callery (No 2)) he revealed that he had received a submission to the effect that Judge Halbert’s decision had significantly altered the dynamics of the legal expenses insurance industry.  The point we now have to decide did not arise for decision in either of the Callery judgments, but once the court became aware of it, arrangements were made to expedite the hearing of the present appeal, for which Brooke LJ granted permission, as a second appeal, on 26th July.  He also granted permission for a number of interested parties to intervene in the appeal.  Master O’Hare was invited to assist the court as an informal assessor on the appeal, and we benefited from the advice he gave us.
2.  The facts of the case
5.	The facts of the case can be stated briefly.  Mr Sarwar and Mr Alam live at the same address in Ashton-under-Lyne.  The accident occurred on 22nd February 2000 when Mr Alam drove his car out of a side road onto a main road, colliding with another car as he did so.  Liability was admitted three months later.  Mr Sarwar instructed Messrs Amelans who wrote a letter before action on 15th March.  It appears that Mr Alam did not forward this letter to his insurers.  On 21st March Mr Sarwar told his solicitors, on inquiry, that he was not aware that any LEI policy was available to him.  He then took out an ATE policy, and on 3rd April his solicitors told Mr Alam’s insurers (of whose identity they were now aware) of the existence of this policy.  About three weeks later they also sent them a copy of their original letter before action.  On 30th October Mr Sarwar’s claim was settled for £2250 together with reasonable costs.  On 15th November a costs-only Part 8 claim was made pursuant to CPR 44.12A.
6.	Mr Alam possessed a motor vehicle policy issued by the Co-operative Insurance Society Ltd (“CIS”).  Section H of this policy reads, so far as is material:
“For the purposes of this Section
(1)	‘We’, ‘us’ and ‘our’ means DAS Legal Expense Insurance Company Limited, who administer this insurance on behalf of CIS.
(2)	‘Insured Person’ means you and, with your agreement…
(ii)  any passenger
whilst in or on the Insured Vehicle.
If any accident occurs which results in ..
(2)  …  injury to an Insured Person 
and we accept that there is reasonable prospect of a successful recovery against the negligent party we will at your request:
(i)  negotiate to recover the Insured Person’s uninsured losses and costs 
	(ii)  pay costs and expenses incurred with our consent together with third party costs for which the Insured Person is responsible
…
We will not ..
(b)	pay more than £50,000 in respect of all claims under this Section, including the legal costs of an appeal or of defending an appeal, arising from any one accident. 
If claims from more than one Insured Person are involved the insurance will apply to the aggregate amount and in priority to you.
Note
1.	We will be entitled to the full conduct and control of any claim or legal proceedings.
2.	We will be entitled to appoint a legal representative where we regard it as necessary.  An Insured Person may choose an alternative legal representative only where –
(i)  we decide to commence legal proceedings or
(ii)  there is a conflict of interest
Any dispute as to the choice of legal representative or the handling of a claim will be referred to an independent arbitrator who will normally be the President of the Law Society.
3.	An Insured Person must not settle a claim without our agreement.”
7.	We will describe the relationship between CIS and DAS in paragraphs 33-34 below.
3.  The judgments in the courts below
8.	District Judge Wallace held that this cover was available to Mr Sarwar, and that the premium for the ATE policy was prima facie not allowable because it was in effect double insurance.  He considered that the BTE cover was entirely adequate for the purposes of this action, had Mr Sarwar known about it, and he did not think the defendant’s insurers could be blamed for not mentioning the existence of the pre-existing LEI cover when they were notified of the ATE cover, because by that time the liability for the ATE premium had already been incurred.
9.	Judge Halbert considered that the core of the matter centred round the lack of any knowledge on the part of Mr Sarwar and his solicitors that any pre-existing LEI cover existed.  He said that the principal question he had to decide was whether it was unreasonable for a claimant passenger to incur the cost of ATE insurance without checking whether the driver’s policy provided LEI cover for his passengers.  He considered that it was not reasonable to incur this expense without making such a check.  If the driver of another vehicle had hit Mr Alam’s car, it would be very obvious that Mr Alam’s policy should be checked to see if Mr Sarwar could make a claim under it, and he did not think that the fact that the driver of the car was the defendant should change the position.
10.	The judge went on to reject the claimant’s contentions on a number of other issues which arise again for consideration on this appeal.  The gist of his decision was to the effect that it was clearly desirable that unnecessary premiums were not paid by litigants, that the primary responsibility for checking whether BTE insurance existed lay with those representing the claimants, and that in the context of this case (as opposed to what he described as a “complex or serious case”) a sensible claimant would have used the BTE policy rather than incur an additional insurance premium.
4.  Funding options and the solicitor’s duty to the client
11.	This is a challenge to the exercise of a discretion in the lower courts on an appeal in costs-only proceedings.  The principles on which the lower court must approach an issue of this kind are clearly set out in CPR 44.4 and 44.5 in these terms:
“44.4	(1)  ..the court will not … allow costs which have been unreasonably incurred …
(2)  ..the court will … (b) resolve any doubt which it may have as to whether costs were unreasonably incurred … in favour of the paying party.
44.5	(1)	The court is to have regard to all the circumstances in deciding whether costs were
		(a)(ii)  proportionately and reasonably incurred
	(3)	The court must also have regard to:
		(a)  the conduct of all the parties …
(b)  the amount or value of any money or property involved ..”
12.	Material provisions of the Practice Direction to CPR Part 44 are all set out in paragraphs 32 and 33 of Lord Woolf CJ’s judgment in Callery and it is not necessary to set them out again here.  “The availability of any pre-existing insurance cover” is one of five relevant factors specifically identified in paragraph 11.10 of the Practice Direction as appropriate to take into account in deciding whether the cost of insurance cover is reasonable, but this is not an exhaustive list.  The governing rule is CPR 44.5(1), which imposes a duty on the court to have regard to all the circumstances in deciding whether any item of costs was proportionately and reasonably incurred.
13.	As the judge rightly pointed out, the central question in this appeal is whether it was reasonable in all the circumstances for Mr Sarwar, acting on his solicitor’s advice, to incur the cost of the ATE premium without making any further inquiries into the possible existence of BTE cover.  A solicitor’s duty when he is first instructed by his client is set out in the Solicitors’ Costs Information and Client Care Code 1999.  This Code is given teeth by Rule 15 of the Solicitors’ Practice Rules 1990 (as amended) which provides that
“Solicitors shall:
(a)   give information about costs and other matters … in accordance with a Solicitors’ Costs Information and Client Care Code made from time to time by the Council of the Law Society.”
14.	Paragraph 4(j) of the Care Code is headed “Client’s ability to pay”.  It provides, so far as is material, that:
“The solicitor should discuss with the client how, when and by whom any costs are to be met, and consider:
(i)   whether the client may be eligible and should apply for legal aid …
(ii)  whether the client’s liability for their own costs may be covered by insurance;
(iii) whether the client’s liability for another party’s costs may be covered by pre-purchased insurance and, if not, whether it would be advisable for the client’s liability for another party’s costs to be covered by after the event insurance …
(iv)  whether the client’s liability for costs (including the costs of another party) may be paid by another person eg an employer or trade union.”
15.	We were told by Mr Drabble QC, who appeared for the Law Society, that the new code was approved by the Council of the Law Society in December 1998 at a time when the premium for ATE insurance could not be recovered from the other side.  The code is clearly concerned with the protection of the client, and paragraph 4(j) does not purport to impose new duties of inquiry on solicitors other than those suggested by the fairly simple language used.
16.	Mr Cockx, who is a partner in Messrs Amelans, made a telephone attendance note of a discussion with Mr Sarwar on 21st March 2000.  The note reads:
“Discussing funding with client and various options available.  
Advising him of the changes due [to] the Access to Justice Act.  Discussed the benefit of taking out a ATE policy to protect him against the payment of other side’s costs.
Client advised that he did not have the benefit of any other Legal Cover and wished to take out a policy with Temple Legal Protect.  Will send out a copy.”
17.	It should be observed that Mr Cockx would have realised that he was handling a comparatively small passenger claim in which liability was unlikely to be in issue.  He was charging £150 per hour for his time, and he noted that this attendance consumed an hour of his time.  He would have been aware of the provisions of CPR 44.5, with its reference to proportionality as well as reasonableness.  He would not have had the benefit of the advice contained in the Practice Direction to CPR Part 44, which had not yet been published.  Furthermore, the Conditional Fee Agreements Regulations 2000 had only been laid before Parliament 11 days earlier and were not yet in force.  Paragraph 4(2)(c) of these regulations includes, among the matters which a legal representative must tell his client before a CFA is made:
“whether the legal representative considers that the client’s risk of incurring liability for costs in respect of the proceedings to which the agreement relates is insured against under an existing contract of insurance.”
	5.  The intervenors in the appeal
18.	We received representations on this appeal from bodies representative of the great majority of the insurers and solicitors who have an interest in the outcome of this appeal, and from the Trades Union Congress (“TUC”).  In addition to the Law Society, the intervenors included the Motor Accident Solicitors’ Society (“MASS”), whose 175 member firms handle about 500,000 motor accident claims each year; the Association of Personal Injury Lawyers (“APIL”), whose membership includes about 5,000 solicitors, barristers, legal executives and academics who are predominantly concerned with injured claimants; and the Forum of Insurance Lawyers (“FOIL”), whose members act predominantly or exclusively for liability insurers.  
19.	So far as insurance interests are concerned, in addition to the Association of British Insurers (“ABI”), which represents over 400 insurance companies, we also received submissions from the ATE Group (which contains 15 ATE insurance interests) and the Liability Insurers’ Group (whose members represent 88% of the total gross premium value of the motor insurance market and about 75% of the general liability market).  The ultimate BTE insurer in this case, DAS Legal Expenses Insurance Ltd (“DAS”), chose to be separately represented.
6.  LEI/BTE insurance
20.	Legal expenses insurance was first developed in Europe.  Over the years a positive view has grown up there that people have a social duty to insure themselves, in advance whenever possible, against life’s adverse events, particularly if this result can be achieved at a modest premium.  At the start LEI was offered independently of any other insurance business, but with the opening up of the insurance market in the 1980s other insurance companies wished to offer LEI as well.  This meant that a closer association developed between companies which offered LEI and other general insurance providers.  Concerns about possible conflicts of interest led to the making of an EEC Directive in 1987 and the introduction of statutory regulations pursuant to that directive in this country three years later.  We will refer to the terms of these regulations in paragraphs 24-25 below.
21.	In this country LEI has for the most part been sold with other insurance, typically motor and household policies.  Its use has grown considerably over the last ten years.  In Callery Lord Woolf CJ noted at para 18 that in 1998 the Government disclosed that over 17 million people were now paying premiums for BTE cover at a trivial annual cost to themselves, and that the Government was then keen to encourage the wider use of LEI.  We were told that BTE insurance is now available in at least five main ways: as part of a motor insurance policy; as part of a household insurance policy; as part of an employment package (or of the benefits of membership of a trade union or a professional body); as part of a credit card agreement or charge card service; or by being sold directly as a stand-alone policy (for which, unless there are any unusual features, the cost is unlikely to exceed £20).
22.	The ABI told us that BTE insurance features most commonly as part of a motor insurance policy.  Such insurance typically, but not invariably, includes cover to enable passengers in the insured vehicle to bring an action either against another driver or against their own driver.  In 1999 23.5 million motor vehicles were licensed, and 9.9 million BTE motor polices were sold.  This represents a 42% penetration.  This market has grown significantly in the last two years, and continues to do so.
23.	Some of the purposes of Council Directive 87/344/EEC may be divined from two paragraphs of its preamble:
“Whereas, in order to protect insured persons, steps should be taken to preclude, as far as possible, any conflict of interests between a person with legal expenses cover and his insurer arising out of the fact that the latter is covering him in respect of any other class of insurance … or is covering another person and, should such a conflict arise, to enable it to be resolved;
…
Whereas the interest of persons having legal expenses cover means that the insured person must be able to choose a lawyer or other person appropriately qualified according to national law in an inquiry or proceedings and whenever a conflict of interests arises …”
24.	It is unnecessary to refer to the text of the directive because so far as is material it is faithfully reproduced in the Insurance Companies (Legal Expenses Insurance) Regulations 1990.  Regulation 5 offered a LEI insurer three ways of conducting its business lawfully.  The method adopted in the present case is described in regulation 5(3) in these terms:
“The company shall entrust the management of claims under legal expenses insurance contracts to an undertaking having separate legal personality, which shall be mentioned in the separate policy or section referred to in regulation 4.
If that undertaking has financial, commercial or administrative links with another insurance company which carries on one or more other classes of general insurance business, members of the staff of the undertaking who are concerned with the processing of claims, or with providing legal advice connected with such processing, shall not pursue the same or a similar activity in that other insurance company at the same time.”
25.	Regulation 4 prescribes that if LEI cover is provided under a policy relating to one or more other classes of general insurance business, it must be the subject of a separate section of the policy relating to that cover only, which must specify the nature of the LEI cover.  Regulation 6, for its part, is headed “Freedom to choose lawyer” and provides that:
“(1)	Where under a legal expenses insurance contract recourse is had to a lawyer (or other person having such qualifications as may be necessary) to defend, represent or serve the interests of the insured in any inquiry or proceedings, the insured shall be free to choose that lawyer (or other person).
(2)	The insured shall also be free to choose a lawyer (or other person having such qualifications as may be necessary) to serve his interests whenever a conflict of interests arises.
(3)	The above rights shall be expressly recognised in the policy.”
26.	It appears that the Insurance Ombudsman has consistently interpreted regulation 6(1) as meaning that the obligation to permit the insured to select a lawyer of his choice is triggered at the time when efforts to settle a claim by negotiation have failed and legal proceedings have to be initiated.
7.  The practice of an LEI insurer
27.	The ABI showed us a statement by Mr Ross Clark, who is the underwriting and claims manager of First Assist Group Ltd (“FGL”).  This company was formed in 1997 following the merger of two major insurance companies which had each had its own wholly owned subsidiary handling its LEI business.  FGL is one of the largest LEI providers in this country, and since March 1999 it has also been involved in ATE business to an increasing extent.  In the BTE market it handles 40,000 motor uninsured loss recovery claims a year, of which 10,000 involve personal injury.  He showed us his company’s policy booklet, which sets out the extent of the cover provided in simple, intelligible language.  FGL is separately managed from its parent, with its own employment contracts and premises, and it also undertakes independent claims handling work on LEI cases for other insurers.
28.	Mr Clark said that FGL adopts the method of conducting its business which is permitted by regulation 5(c) of the 1990 regulations.  This has led to FGL supporting claims made against its parent company.  When legal representation is required, or when a conflict of interest arises, it is the company’s practice to recommend firms of solicitors to LEI claimants.  The overwhelming majority of these claimants are content to follow FGL’s recommendations: they generally want appropriate representation, rather than the services of a particular solicitor.
29.	He said that the LEI insurer has a vested interest in ensuring that the cases which it funds, and for which it bears the adverse costs risk, are properly conducted.  Solicitors recommended by LEI insurers are invariably firms with extensive relevant experience and substantial resources to handle the range of actions introduced to them.  Those firms (who are sometimes referred to as “panel” solicitors) in turn have an interest in meeting the insurer’s service standards.  He was not aware of any evidence to suggest that solicitors chosen by claimants achieved better settlements for their clients than those achieved by panel solicitors.  He said that the practice adopted by BTE insurers of monitoring the costs charged by the solicitors representing the claimant has the obvious advantage that the cost to the paying party is generally proportionate and is kept as low as is reasonably practicable.
30.	He also observed that the need to reconcile conflicts of interest was not new to insurance companies.  Nor was it limited to LEI.  He said that the Norwich Union, which insures about 25% of vehicles on the road, is the largest motor vehicle insurer.  He suggested that it was likely that it would be insuring both the vehicles involved in an accident in just over 6% of all claims.  Typical claims handling procedures would ensure that the handling of each side of the dispute was kept separate, and that the individuals responsible for handling each claim were prevented from acting together to influence its outcome.  Other conflicts of interest might occur where a company insures the defence of one family member against each other.
31.	FGL’s experience is that substantial numbers of claims are made by passengers against their drivers, using the cover available to them under the driver’s BTE policy.  The company creates separate claims for the driver and each passenger and handles them independently.  Mr Clark estimates that 100 accidents giving rise to uninsured loss recovery claims will produce 125 separate legal claims, the extra 25 being claims made by passengers.  In most cases it is readily apparent which driver is responsible for the accident.
32.	He believes that it is already well known in the market that certain motor insurers include BTE cover for all their policyholders and usually for their passengers, too.  He thinks it would be very useful for BTE providers to collaborate to produce a database accessible to claimants’ representatives which would identify the motor policies in which BTE cover of different kinds is available.  Details of this cover could perhaps be integrated in a database already used by the ABI through its website which gives comparable details in relation to the companies who are participants in a market agreement concerned with credit hire and courtesy car arrangements.
8.  The CIS/DAS arrangements
33.	Turning to the facts of the present case, we have set out in paragraph 6 above the terms of the BTE cover provided by Mr Alam’s motor insurance policy.  We were told that CIS first added this type of cover to their motor insurance policies in September 1999, and they used DAS as their LEI provider.  DAS is a specialist LEI insurer.  It is an entirely separate company from CIS.  It does not provide or sell any form of motor liability insurance.  On the other hand, it provides both BTE and ATE legal expense insurance.  So far as BTE cover is concerned, it is the leading provider of this type of insurance in this country, providing 6.1 million policies, of which 3 million are for motor legal expenses.
34.	The commercial arrangements between CIS and DAS are founded on a reinsurance agreement whereby CIS ceded to DAS by way of reinsurance 100% of the risk undertaken by CIS in the LEI section of its policies.  Under this agreement CIS agreed that it would notify all legal expenses claims to DAS and that DAS should administer this insurance on CIS’s behalf.  It was a term of the agreement that all settlements made by DAS (as administrators of the insurance) were unconditionally binding on CIS.  As reinsurers, DAS agreed to follow the fortunes of CIS.  The agreement contained provisions whereby DAS received its 100% quota share of the premiums set out in a schedule.  DAS paid CIS a commission at an agreed rate on the profits of the business ceded, calculated in accordance with agreed principles.
35.	None of the matters relating to DAS and its relationship with CIS that are set out in the two preceding paragraphs of this judgment are apparent on the face of the policy.  Section H of the policy merely provides that DAS will administer the legal expenses insurance on behalf of CIS. The reader of the policy is left with the impression that DAS is merely a manager of this particular aspect of CIS’s business.
36.	During the course of the hearing we made a number of inquiries about the way in which DAS conducted its business.  About 80% of the motor claims DAS handles are damage only claims, and DAS employs about 150 in-house staff (who include a relatively small number of lawyers) to deal with such claims.  The remaining 20%, which include personal injury claims, will typically be placed with a panel firm of solicitors at an early stage.
37.	DAS uses the services of 52 panel firms of solicitors, with 60 offices in England and Wales.  In the part of the country with which this claim is concerned, there are panel firms in Chester, Wrexham, Manchester and Liverpool.  DAS expects that if distance causes a problem, the solicitor would travel to see the client.  In answer to a question posed by the court, DAS says that it frequently provides indemnity to persons for whom English is not the language of choice, as evidenced by the appointment of interpreters for which the company pays.
38.	About seven years ago senior representatives of DAS had a meeting with the former insurance ombudsman, at which two principles emerged, which DAS has followed ever since.  The first was that if there was a disagreement between DAS and the insured as to the prospects of the claim, DAS would take counsel’s opinion and would follow it.  The second was that regulation 6(1) of the 1990 regulations (as it now is) required freedom of choice of lawyer at and from the time that proceedings are issued.  It has been DAS’s experience that very few complaints are made about freedom to choose a lawyer.  Of those that are made, the great majority appear to DAS to have been generated by the solicitor who runs the risk of not being instructed.
9.  The conflicting concerns about BTE cover
39.	The issues at the heart of this appeal are of great concern not only to the immediate parties but also to all the intervenors.  Liability insurers believe that if BTE cover is available for these small motor accident claims the claimants should use it, and should not saddle them with the cost (upheld in Callery) of an ATE premium and a success fee uplift.  BTE insurers wish to hold onto and expand their business.  ATE insurers are worried that if they lose business to BTE insurers, their premiums may have to rise or they may have to go out of business altogether.  While wishing to hold the ring between the different insurance interests which are members of the Association, the ABI believes that in a case like the present the BTE insurer should be given precedence.  It believes, however, that there is a market for both BTE and ATE insurance, which should complement but not duplicate each other, and that each should be allowed to develop in response to public demand.
40.	APIL and MASS both considered that ATE insurance was the appropriate choice in a case like the present, and they were supported in this respect by the Law Society.  FOIL was inclined to take the opposite view.  The TUC was concerned that nothing should be decided which might detract from the services trade unions provide for their members through their panel solicitors.  These solicitors are now assisting trade union members through collective conditional fee agreements, using either an ATE insurance policy taken out in the member’s name under section 29 of the Access to Justice Act 1999 or arrangements sanctioned by section 30 of that Act.  The main thrust of the submissions we received from the intervenors who supported the claimant was that the instruction of a solicitor of the client’s (or the client’s union’s) choice, backed by a suitable ATE policy, not only respects the client’s entitlement to freedom of choice but is also likely to secure a better result for the client.
10.  The appropriateness of BTE cover for small motor accident claims
41.	In this case we are concerned only with a relatively small personal injuries claim in a road traffic accident.  We are not concerned with claims which look as if they will exceed about £5,000, and we are not concerned with any other type of BTE claim.  We have no doubt that if a claimant possesses pre-existing BTE cover which appears to be satisfactory for a claim of that size, then in the ordinary course of things that claimant should be referred to the relevant BTE insurer.
42.	It will be recalled that in Callery, which was an extremely simple passenger’s claim, settled for £1,500 plus costs, this court expressed concern (at para 133) that the costs of the claim exceeded the agreed damages.  In addition to disbursements of £617.50, the court allowed an ATE premium of £350 and an uplift on the solicitor’s costs, by way of a success fee, of 20%.  With the type of BTE cover with which this case is concerned (which covers both sides’ costs, where necessary) the cost of processing the claim is more likely to be proportionate to the value of the claim, since there will be no uplift and no ATE premium and the cost of the BTE premium (if identifiable) is treated as an expense incurred in the past which is irrecoverable.
43.	We received very helpful submissions from MASS, whose members (see para 18 above) collectively have vast experience in conducting personal injury claims.  The chairman of MASS told us that in her experience, formed both from her own practice and through her duties with the Society, personal interviews are not ordinarily necessary to facilitate claims of this kind.  MASS was not concerned with the idea that BTE insurers’ panel solicitors, whose offices might be a considerable distance from the claimant’s home, were inappropriate to handle run of the mill small personal injury claims.  On the other hand they considered that in larger cases, or those which raised unusual or difficult issues, it would usually be appropriate for a claimant to elect to purchase an ATE-based funding arrangement in preference to invoking a BTE policy, unless it could be shown that the latter was capable from the outset of providing what they described as a bespoke service adequate to the nature of the claim.
44.	In this case we are not concerned either with a larger case or with a case which raised unusual or difficult issues.  A judgment concerned with those types of case will have to await an appeal where an issue of this kind arises directly for decision.  During the course of the hearing, however, members of the court made critical observations from time to time about the size of some of the BTE insurers’ panels and the possible inappropriateness in these post-Woolf days of a BTE claimant being denied freedom of choice of solicitor (at any event so far as the members of the Law Society’s or some other reputable panel of approved personal injury solicitors are concerned) at the time the procedures in a pre-action protocol come to be activated.  We also saw correspondence (which DAS’s representatives sought to explain away) that left us uneasy about the terms on which DAS is in practice willing to allow a claimant’s solicitor of choice to act for their insured.  We do not have to decide any of these matters on the present appeal, however.  We only mention them because Mr Leighton-Williams QC, for the ABI, told us that insurers welcomed the opportunity afforded by litigation of this type to learn which business practices would be likely to be welcome to a court and which would not.
11.  Proper practice for a solicitor inquiring about BTE cover
45.	In our judgment, proper modern practice dictates that a solicitor should normally invite a client to bring to the first interview any relevant motor insurance policy, any household insurance policy and any stand-alone BTE insurance policy belonging to the client and/or any spouse or partner living in the same household as the client. It would seem desirable for solicitors to develop the practice of sending a standard form letter requesting a sight of these documents to the client in advance of the first interview.  At the interview the solicitor will also ask the client, as required by paragraph 4(j)(iv) of the client care code (see para 14 above) whether his/her liability for costs may be paid by another person, for example an employer or trade union.
46.	If these simple steps are taken, they ought to reduce the burden and extent of the inquiries about which some of the intervenors expressed concern.  The solicitor will then be able to read through the policy, and if BTE cover is available, if the motor accident claim is likely to be less than about £5,000, and if there are no features of the cover that make it inappropriate (for instance, if there are a number of potential claimants and the policy cover is only, say, £25,000), the solicitor should refer the client to the BTE insurer without further ado.  The solicitor’s inquiries should be proportionate to the amount at stake.  The solicitor is not obliged to embark on a treasure hunt, seeking to see the insurance policies of every member of the client’s family in case by chance they contain relevant BTE cover which the client might use.
47.	Now that motor insurance often contains provision for BTE cover for a claim brought by a passenger, the solicitor should ordinarily ask the client passenger to obtain a copy of the driver’s insurance policy, if reasonably practicable.  Whether it is reasonably practicable to comply with the solicitor’s request is likely to be fact-sensitive.  At one end of the spectrum is the driver who is a member of the same family or the same household (as with Mr Sarwar and Mr Alam).  At the other is the unknown driver who gave a lift to a hitchhiker who got hurt in an accident and the driver then disappeared into the night.
48.	If the solicitor sees that the BTE cover contains a stipulation, like the BTE cover in this case, that the driver should consent to its use by the passenger, the solicitor should tell the client to obtain the driver’s consent before making a claim on the BTE insurer.  It would be professionally inappropriate for the solicitor to do anything to induce the client to encourage the driver to withhold consent.  If in due course there was any evidence that this had happened the court would normally disallow both the ATE premium and any success fee claimed.  On the other hand, if the driver refuses consent for reasons of his/her own, then it is common ground that the BTE cover would not be available. 
49.	So far as credit cards and charge cards are concerned, we have received no evidence of the terms of LEI cover offered by the companies marketing these cards, and we do not know how easy it is for the cardholders to avail themselves of such cover in a case like the present. We are inclined to think that the time taken by a solicitor in assisting a client to identify and pursue such cover would at present be likely to result in this course proving more expensive than an ATE premium in this class of case. If, at some time in the future, credit card or charge card companies decide as a matter of business practice to make the extent of any BTE cover they provide readily available to solicitors (either through one of their professional journals or guides or on a publicly accessible website), then the client should also be asked to bring to the first interview any credit card or charge card belonging to him/her and/or any spouse or partner living in the same household. 
50.	The guidance we have given in this part of our judgment should not be treated as an inflexible code. The overriding principle is that the claimant, assisted by his/her solicitor, should act in a manner that is reasonable. The availability of ATE cover at a modest premium will inevitably restrict the extent to which it will be reasonable for a solicitor’s time to be used in investigating alternative sources of insurance.
51.	Mr Nice QC, for Mr Sarwar, submitted that the test of the adequacy of a solicitor’s inquiries and advice should be the same as the test applied when determining whether a solicitor has been professionally negligent. Thus the client would either recover the cost of the premium or have a claim against his/her solicitor for breach of duty. We deprecate any attempt to equate the question of reasonableness that a costs judge has to decide with the question whether the claimant’s solicitor has been in breach of duty to his/her client. If a solicitor gives advice which proves unsound, it will not necessarily follow that the advice was negligent. The advice will necessarily be based on information provided by the client. If the information is inadequate or inaccurate, the advice may prove to be unsound without any question of fault on the part of the solicitor.
12.  Motor accident claims where the passenger blames the driver
52.	We consider – and in this respect we differ from the judge – that if there is a reasonable possibility in a passenger claim that the passenger is likely to blame the driver, or the driver the passenger, then if the BTE cover resembles the cover provided by Mr Alam’s policy, it is not incumbent on the passenger to use it.  The scene we were invited to consider with favour was one in which Mr Sarwar’s solicitor was under a duty to invite his client to refer the conduct of his claim to Mr Alam’s own insurers pursuant to a policy whereby those insurers, through their chosen administrators, would be entitled to “the full conduct and control of any claim”, denying him the opportunity of instructing a suitably qualified solicitor of his own choice except in the unlikely event that legal proceedings had to be instituted.
53.	We have no doubt that in the many cases where a passenger is content with the proposed arrangements, reputable BTE insurers endeavour to follow the practices described by Mr Ross Clark and treat each claim on its own merits in a separate compartment.  It is also the case that the BTE cover in the present case contains an arbitration clause in the event of a dispute as to the handling of a claim.  (On the other hand, it contains no mention of DAS’s practice of sending the papers to independent counsel for a binding decision if the client is dissatisfied with the sum he/she is being offered).  However, in our judgment, it is not reasonable for a claimant to be required to invoke insurance cover provided by the opponent’s camp on terms such as those proffered by CIS.  If BTE insurers financed some transparently independent organisation to handle such claims, and made it clear in the policy that this is what they were doing, the position might be different, but we do not see any such transparency or independence in the CIS-DAS arrangements.
54.	Once again, we were influenced by the submissions we received from MASS.  They observed that a claimant could not be expected to rely on a BTE policy held by his opponent to fund his litigation.  They added:
“Moreover, there are obvious concerns as to conflict of interest in any case where a defendant is being sued via his own policy of insurance.  It is not enough to say that any damages recovered will be paid by a liability insurer which is a separate legal entity from the BTE insurer.  Where liability is disputed, the defendant may very well have a strong personal motivation in resisting the claim (payment of an excess; loss of a no-claims bonus; a stiff-necked refusal to accept the possibility that he drove carelessly – the last can generate remarkable passions).  Moreover, it is probable that many claimants would feel uneasy in entrusting the conduct of their claim to the insurer of the opposing party, and would distrust its advice where adverse to their private expectations.  Justice should be seen to be done, and the rules of court should support a claimant who elects to fund his claim from a source which is not only neutral and objective, but is seen to be so.”
55.	We accept these submissions.  Although as a matter of law an arbitration provision might be thought adequate to allay a claimant’s fears of receiving less than objective advice, we consider that a claimant is entitled to feel comfortable with the objectivity of the representative who is looking after his/her claim, and that the concerns which MASS identifies are reasonable concerns.
56.	We are not, however, persuaded by the Law Society’s contention that there is such a strong public interest in maintaining a client’s freedom of choice of legal adviser that this should override the appropriateness of a claim as small as that with which we are concerned on this appeal being handled by a BTE insurer with or without the assistance of a panel solicitor.  The philosophy contained in CPR1.1(2)(c), and the express provisions of CPR 44.5, require the court to ensure that no costs are incurred which are not reasonable and proportionate.  While we would not interpret the sensible non-exhaustive guidance given in paragraphs 11.7-11.10 of the Costs Practice Direction as if they were the words of a statute, they point the reader towards an inquiry into the availability of alternative funding arrangements which might be less expensive.  The same principle is now set out in regulation 4 of the Conditional Fee Agreements Regulations 2000.
57.	In R v Legal Aid Board ex parte Mackintosh and Duncan (unreported, COT 16th February 2000) the Divisional Court at paras 444-468 rejected the applicant solicitors’ contention that their clients had a common law right to representation by the solicitor of their choice notwithstanding that they were unable to pay for the solicitor’s services themselves and the limitations on the choice of a publicly funded solicitor were prescribed by Parliament.  We do not consider that it is necessary to repeat here the powerful dictum of Neuberger J in Maltez v Lewis (unreported, 27th April 1999) quoted in paragraph 459 of that judgment.  It is sufficient to record that he observed that the right of any citizen to be represented by advocates and/or solicitors of his or her choice may be cut down by circumstances.  One of the circumstances which may cut it down is the consideration that the cost of instructing a solicitor of the client’s choice (and protecting the client from the risk of paying the other side’s costs) is disproportionate to the value of the proposed claim when an alternative, reasonable, method of advancing the client’s interests with the help of an appropriately qualified lawyer is available.
58.	On the other hand we accept Mr Drabble’s submission that representation arranged by the insurer of the opposing party, pursuant to a policy to which the claimant had never been a party, and of which he/she had no knowledge at the time it was entered into, and where the opposing insurer through its chosen representative reserves to itself the full conduct and control of the claim, is not a reasonable alternative.  Mr Birts QC, for the respondent, sought to persuade us that as a matter of rationality and logic there ought to be no reasonable perception that there might be a conflict of interest in the CIS-DAS arrangements when the contractual provisions of the BTE cover are studied carefully.  We do not accept this submission.  However careful these insurers may have attempted to be, appearances matter, and appearances are very hostile to the notion that a passenger like Mr Sarwar should be obliged to go to the driver’s insurers and entrust them with the full conduct and control of his claim when he wishes to sue the driver.
13..  The concerns of the ATE Group and the TUC
59.	We have considered carefully the submissions we received from the ATE Group and the TUC. The former was naturally anxious that we should make no decision which might prejudice the development of the fledgling ATE market and drive up ATE premiums to a level which might impede access to justice.  APIL also shared this worry.  The TUC, for its part, was anxious that we should not imperil the dedicated services trade unions and their panel lawyers offer to their members.  In the context of the simple small claims with which this judgment is concerned we do not consider that either of these considerations should impel us to impose on defendants and their liability insurers a burden of costs which is disproportionate to both the value and the lack of complexity of the claim.  We accept the submission of the Liability Insurers’ Group that it is not in the interests of motorists or the general public that motor liability insurers should have to make unnecessary disbursements which raise premium costs.
14.  How this judgment fits in with the judgment in Callery
60.	We do not consider that there is anything in this judgment which is inconsistent with the judgment of this court in Callery.  In Callery Lord Woolf CJ said (at para 91) that the court considered that it would normally be reasonable for a CFA to be concluded and ATE cover taken out on the occasion that the claimant first instructed his solicitors.  In Callery the court was not invited to consider the implications of the solicitors’ client care code or the possible availability of BTE cover.  If the client is able to comply with the request contained in the suggested letter which he/she receives before the first interview (see para 45 above) then there is no reason why the course suggested in Callery should not be adopted as soon as the solicitor is satisfied that no appropriate BTE cover is available.  If this inquiry cannot be satisfactorily resolved at that first interview the steps mentioned in paragraph 91 of the Callery judgment should not be taken until such further inquiries into the availability of BTE cover as are reasonable and proportionate to the value of the claim have been concluded.
15.  Why we differ from the judge
61.	Finally, we remind ourselves that this court is not entitled to set aside the judgment of Judge Halbert unless we consider it was clearly wrong.  While we would wish to applaud the judge for an admirably clear judgment we consider that he was clearly wrong when he decided that the BTE policy provided Mr Sarwar with appropriate cover in the circumstances of this case.  We therefore allow the appeal.

Order: Appeal allowed with costs here and below; an interim payment of £30,000 be paid on account within 14 days; application for permission to appeal to the House of Lords refused.
(Order does not form part of the approved Judgment)