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URL: http://www.bailii.org/ew/cases/EWHC/Costs/2003/9020.html
Cite as: [2003] EWHC 9020 (Costs)

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This judgment has been obtained from the Supreme Court Costs Office pages on the HM Courts Service web site. The citation used by BAILII is not an officially approved citation.

 

BAILII Citation Number: [2003] EWHC 9020 (Costs)
Case No: PTH 0204771

IN THE HIGH COURT OF JUSTICE
SUPREME COURTS COST OFFICE

Supreme Courts Cost Office
Clifford Inn
Fetter Lane
London
EC4A 1DQ
15 May 2003

B e f o r e :

SENIOR COSTS JUDGE HURST
____________________

Between:
THE ACCIDENT GROUP TEST CASES TRANCHE 2 ISSUES SHARRATT
Claimant
- and -
 
LONDON CENTRAL BUS CO
& OTHER CASES
Defendant

____________________

Mr Timothy Charlton QC and Mr Nicholas Bacon
(instructed by Messrs Rowe Cohen) for the Claimants
Mr Ian Burnett QC and Mr Benjamin Williams
(instructed by Messrs Carters and Messrs Vizards Wyeth) for the 1st Defendants
Mr Andrew Neish (instructed by Messrs Beachcroft Wansbroughs) for the 2nd Defendants
Hearing dates : 25 March – 1 April 2003

____________________

HTML VERSION OF JUDGMENT
____________________

Crown Copyright ©

    TABLE OF CONTENTS

     

      Paragraph No.
    Introduction 1
    The Tranche 2 Issues 5
    The Tag Contractual Framework 16
    Agreements Between TAG and the Insurers 16
    Between TAG and LPL- 26 October 1999 16
    LPL's Binding Authority 22
    Between TAG and BESSO 5 November 2002 23
    TAG's Binding Authority 27
    Between TAG and NIG - 1 July 2001 34
    Agreements Between TAG and the Funders 36
    Between AAB (TAG) and Investec Bank (UK) Ltd – 26 November 1999 36
    Between TAG and First National Bank – 3 October 2000 39
    Between TAG and the Bank of Scotland – 15 February 2001 43
    Agreement Between TAG and the Panel Solicitor 45
    The Operating Manuals 49
    Operating Manual 1 51
    Operating Manual 2 65
    Operating Manual 3 67
    Operating Manual 4 68
    Operating Manual 5 69
    Agreement Between AIL and the Panel Solicitors 71
    Agreement Between Investec Bank and the Panel Solicitor 73
    Agreement Between Bank of Scotland and the Panel Solicitor 74
    Agreement Between the Client and TAG 75
    Agreement Between the Client and the Panel Solicitor – The Retainer 80
    The Evidence 81
    Neil Ross (C/29/659-692) 84
    The 2000 Year 84
    Lloyds 2001 96
    NIG 2001 109
    The Work Done by AIL and TAG 113
    The AIL Fee 133
    The Indemnity Principle 145
    Justin Coss (C/30/693-705) 151
    Daniel Primer (C/31/781) 161
    Gordon Blair (D/4/866-871) 190
    Stewart McCulloch (C/792-810) 198
    Referral Fees 226
    AIL Fee 229
    Robert Cowley 234
    The Live Issues 253
     
    Issue 2 - Is the whole sum payable for insurance by a Claimant under the TAG scheme properly to be regarded as a premium within the meaning of Section 29 Access to Justice Act 1999? If not, how much of the sum payable by the Claimant is such a premium? 255

     

    Issue 3 - Does the sum payable for insurance under the TAG scheme finance services or provide benefits which are collateral or extraneous to such insurance? (For the avoidance of doubt, this is intended to include the "block rating" issue.) To what extent should the cost of collateral or extraneous services or benefits be recoverable? 255
    Issue 5 - Is the premium-element of the sum claimed a reasonable and proportionate sum (a) for the benefits actually purchased, and (b) for cases of this character? 255
    Issue 6 - Of the "premium" paid by the claimant how much is retained by the underwriter, and how much is paid on to TAG or any other person by way of commission or other payment? 255
    The Submissions 261
    The 2000 Year (November 1999 to January 2001) 263
    Deductions for irrecoverable items 267
    Ring Fencing 268
    Insurance of the Cost of Funding the Premium and, Insurance of the
    Claimants' Inability to Recover the Cost of AIL's Services
    269
    Add Backs 279
    Additional Premium 280
    Commission 288
    Insurance Services 292
    2001 Lloyds 304
    Deductions for irrecoverable items 305
    Add Backs 307
    Additional Premium 307
    Commissions 312
    Insurance Services 313
    2001 NIG 314
    Deductions for irrecoverable items 315
    Add Backs 318
    Additional Premium 318
    Commissions 319
    Insurance Services 321
    The Cross Check (Issue 5) 323
    2002 and 2003 years 334
    Conclusions 335
    Issue 2 335
    Issue 3 336
    Issue 5 337
    Issue 6 338
    Issue 10 - Are all or part of the following referral fees: (i) the payment of £310 plus VAT to AIL; (ii) the payment of £385 to Mobile Doctors Ltd; (iii) the payment to Rowe & Cohen of a vetting fee. 339
    Issue 11 - If so does the solicitors agreement to pay them breach the Introduction and Referral Code? 339

     

    Issue 13 – Are the payments identified at [10] irrecoverable (in whole or in part) for any other reason? 339
    Referral Fees (issues 10 & 11) 339
    Other Reasons (issue 13) 361
    Conclusions 374
    Issue 10 374
    Issue 11 378
    Issue 13 379
    Issue 16 – Does the TAG panel solicitors obligation to reimburse any disbursements which are not recovered from the Defendant breach the indemnity principle? If so what are the consequences? 380
    Issue 17 – In some versions of the CFA, it is explicitly provided that the panel solicitor will, in successful cases, limit his fees to those recovered from the paying party. Does this breach the indemnity principle? If so what are the consequences? 380
    OM2, 3 and 4 (Issue 16) 380
    OM1 (Issue 17) 387
    Conclusions 390
    Issue 16 390
    Issue 17 391

    Chief Master : Hurst

    INTRODUCTION

  1.       Reference should be made to my judgment dated 27 November 2002 which dealt with the first preliminary issue in these proceedings, that of delegation. That judgment, at paragraphs 11 to 16, sets out the statutory framework governing conditional fee agreements and to the extent that I have already set out the relevant statutory provisions I do not propose to repeat them. At paragraphs 17 to 37 of the judgment an outline of the TAG scheme is set out. In this judgment it will be necessary to consider the scheme in far greater detail as it developed over the years from 1999 to 2001. The references which I give (eg D/34/866) are to pages in the trial bundle files A to N.
  2.       The preliminary issue which I have already decided was:
  3. "Whether under the Accident Group Scheme the Regulation 4 information is given by a "legal representative" within the meaning of Regulations 1 and 4 of the Conditional Fee Agreement Regulations 2002.
    If the answer is in the negative what are consequences of that for the Claimants claims for costs?"
  4.       Those questions were answered as follows:
  5. "Yes, where the Regulation 4 information is given by a TAG representative on behalf of the "legal representative" within the meaning of Regulations 1 and 4 of the Conditional Fee Agreements Regulations 2000.
    If the first question had been answered in the negative then the consequence for the Claimants' claims for costs would have been that they would have been irrecoverable, save for the claim for the premium which is not affected by the fact that the Regulation 4 briefing was not given by the legal representative."
  6.       That decision was appealed to the Court of Appeal and was heard over four days commencing 18 March 2003, together with five other unrelated cases all of which raised points of principle concerning CFAs.
  7. THE TRANCHE 2 ISSUES
  8.       By an order dated 27 November 2002 I ordered by consent that further issues should be tried. Those issues fall into two sections: Compliance Issues, and General Issues which are in turn sub-divided into Premium Issues, Standardised TAG Disbursements, Consumer Credit and the Indemnity Principle. With regard to the Compliance Issues it was agreed between the parties that these should be adjourned to await the outcome of the appeals currently before the Court of Appeal. Once that decision is known it will be possible to decide which, if any, of the Compliance Issues relating to TAG still need to be decided.
  9.       The issues argued in front of me were as follows:
  10. "GENERAL ISSUES
    A. Premium Issues
    1. If the CFA is unenforceable, is the ATE premium recoverable; if so, in what circumstances, and on what basis?
    2. Is the whole sum payable for insurance by a claimant under the TAG scheme properly to be regarded as a premium within s 29 Access to Justice Act 1999? If not, how much of the sum payable by the claimant is such a premium?
    3. Does the sum payable for insurance under the TAG scheme finance services or provide benefits which are collateral or extraneous to such insurance? (For the avoidance of doubt, this is intended to include the "block rating" issue.) To what extent should the cost of collateral or extraneous services or benefits be recoverable?
    4. Was it reasonable of claimants under the TAG scheme to purchase insurance costed on a block rated basis?
    5. Is the premium-element of the sum claimed a reasonable and proportionate sum (a) for the benefits actually purchased and (b) for cases of this character?
    6. Of the "premium" paid by the claimant, how much is retained by the underwriter, and how much is paid on to TAG or any other person by way of commission or other payment?
    7. Is it reasonable for the TAG scheme to be structured so that the whole of the premium is incurred immediately before any letter of claim?
    8. What premium would be reasonable in circumstances where liability is admitted before a policy is taken out?
    B. Standardised TAB Disbursements
    9. What are the financial arrangements between all parties involved in the TAG scheme? Who pays what to whom?
    10. Are all or part of the following referral fees:
    (a) the payment of £310 + VAT to AIL;
    (b) the payment of £385 to Mobile Doctors Limited;
    (c) the payment of Rowe & Cohen of a vetting fee?
    11. If so does the solicitor's agreement to pay them breach the Introduction and Referral Code?
    12. If so, what are the consequences?
    13. Are the payments identified at [10] irrecoverable (in whole or part) for any other reason?
    C. Consumer Credit
    14. Does MDL provide panel solicitors with credit under the Consumer Credit Act 1974?
    15. If so, what are the consequences?
    D. Indemnity Principle Issues
    16. Does the TAG panel solicitor's obligation to reimburse any disbursements which are not recovered from the defendant breach the indemnity principle? If so, what are the consequences?
    17. In some versions of the CFA, it is explicitly provided that the panel solicitor will, in successful cases, limit his fees to those recovered from the paying party. Does this breach the indemnity principle? If so, what are the consequences?"
  11.       The Defendants have sensibly divided the issues between them: the First Defendants arguing the Compliance Issues and the Second Defendants the General Issues. Each set of Defendants adopts and relies upon the submissions of the other in respect of each issue.
  12.       With regard to the General Issues it is no longer necessary to deal with some of these because of recent developments including the decision of the Court of Appeal in the Claims Direct Test Cases [2003] EWCA Civ 136 dated 12 February 2003; and my decisions in Claims Direct [2003] Lloyds Rep 69, and 3 January 2003.
  13.       In respect of Issue 1 the Defendants did not pursue any submission that if the CFA is unenforceable the ATE premium becomes irrecoverable by reason of the failure of the CFA.
  14.   Issue 4 relates to block rating. In the Claims Direct Tranche 1 trial no reduction was made to the premium for block rating in the absence of any sufficient evidence as to whether block rated premiums were more expensive than individually rated policies (paragraph 222). The Defendants wished to reserve their position with regard to block rating but it was recognised that in the absence of any better evidence the issue should not be argued further in these Test Cases.
  15.   Issue 6 is purely factual and will be dealt with within Issues 2 and 3.
  16.   Issue 7 was not pursued by the Defendants and in relation to Issue 8 the parties agreed that the judgment in the Claims Direct Tranche 1, paragraphs 230-231 provides the necessary guidance.
  17.   Part B of the General Issues deals with Standardised TAG Disbursements and Issue 9 asks: What are the financial arrangements between all parties involved in the TAG scheme? Who pays what to whom? These are factual issues which will in any event have to be decided when considering the other issues. No separate judgment will be required under this issue.
  18.   Issue 12 asks what the consequences are if the payment of £310 plus VAT to AIL is a referral fee and if the solicitors' agreement to pay that money breaches the Introduction and Referral Code. The Claimants accept that if they lose on those issues the fee is not recoverable. The Defendants do not contend that a finding of a breach of the Introduction and Referral Code would taint the entire retainer between a claimant and a panel solicitor and accept that the consequence would be that the referral fee itself was not recoverable against the Defendants.
  19.   Part C of the General Issues deals with Consumer Credit but the Defendants do not pursue Issues 14 and 15.
  20. THE TAG CONTRACTUAL FRAMEWORK
    Agreements Between TAG and the Insurers
    Between TAG and LPL- 26 October 1999
  21.   Before considering the remaining issues it is necessary to understand in some detail the contractual background to the TAG scheme and also to see how it developed over the years covered by the Test Cases. It will also be necessary to consider the evidence. The first agreement in time is dated 26 October 1999 between Litigation Protection Limited (LPL) and AAB Limited (later TAG) (I/43/2241) under which LPL agreed with AAB to introduce an insurance scheme underwritten by Lloyds underwriters in respect of which LPL had been appointed underwriters representatives:
  22. "A … which will provide an indemnity … for AAB clients … in relation to legal work undertaken by solicitors previously approved by AAB … prior to and/or following the issue of legal proceedings … commenced by AAB clients in connection with claims arising out of personal injuries and other ancillary losses sustained by AAB clients …"

    There is a subsequent agreement dated 28 September 2000 after AAB had changed its name to TAG (I/43/2261) which is in virtually identical terms.

  23.   The agreement states that LPL will use its best endeavours to maintain the insurance for a minimum period of 2 years and that each claim will be referred by AAB to vetting solicitors to undertake an assessment of the risk before the insurance is commenced. AAB for their part agreed to recruit and manage firms of solicitors who had been accredited following an evaluation of their case handling, general management and financial status. If the performance of any appointed representative became unsatisfactory that member could be removed from the AAB panel.
  24.   The agreement continues:
  25. "E LPL has agreed to engage AAB to undertake certain services … which will enable LPL as underwriters representatives both to introduce and to manage the necessary insurance arrangements in respect of each and every claim which is the subject matter of legal proceedings ("insurance services").
    F Investec Bank (UK) Ltd ("Investec") has agreed with LPL an insurance premium funding facility to AAB clients secured by the proceeds of the policy.
    G Initially before the insurance is commenced in relation to the legal proceedings, insurance services undertaken by AAB will be provided to underwriters on the basis that they will form part of any insurance contract subsequently entered into between the AAB client and LPL on behalf of Lloyds underwriters and will consequently be deemed to be incorporated into the insurance contract thereby providing Lloyds underwriters with a written proposal and declaration for the purposes of the insurance ("the initial insurance services").
    H After the insurance has been effected, additional insurance services will be undertaken by AAB and provided to LPL so as to enable LPL, on behalf of Lloyds underwriters, properly to manage the progress of each insurance contract during the course of the legal proceedings ("the continuing insurance services").
    I It is agreed that the consideration paid by LPL on behalf of Lloyds underwriters to AAB for providing insurance services will amount to £480 (or such higher amount as may be agreed between the parties from time to time) for each and every claim ("the premium allocation").
    J It is agreed that part of the premium allocation (£100) will be paid by LPL to AAB into a specific bank account maintained by AAB at Investec ("the retention account") on the basis that it will not be available to AAB until the liability of Lloyds underwriters has ceased.
    In consideration of the premium allocation, AAB will provide to LPL the insurance services as described below.
    The Initial Insurance Services
    The initial insurance services to be provided by AAB and its representatives will include:
    1. Arranging for the completion of the AAB application form … which will be signed by the AAB client. The AAB representative will emphasise to the AAB client the requirement for full disclosure of all material facts which will enable a proper assessment by LPL, AAB and the vetting solicitor of the insurance risk.
    2. Arranging for the completion of the credit agreement application form in respect of the premium to be paid for the insurance and arranging for this to be forwarded to Investec for processing.
    3. Collating the AAB application form, with such other documents as may be required to substantiate the claim, in order that the documentation can be forwarded to the vetting solicitor for assessment and then to the appointed representative.
    4. Obtaining such further information as may be requested by the appointed representative prior to his agreement to commence the legal proceedings.
    The Continuing Insurance Services
    The continuing insurance services to be provided by AAB and its representatives will include:
    1. Obtaining such further information, including a detailed statement of truth, and statements from witnesses and experts, as may be required by the appointed representative.
    2. Monitoring the conduct of the appointed representative during the course of the legal proceedings and reporting on same to LPL and Investec whenever it is felt that LPL and Lloyds underwriters ought to be made aware of such conduct in circumstances where due compliance with the Operating Manual agreed between all members of the AAB panel, AAB and LPL and with the terms and conditions of the insurance so far as conducting the legal proceedings with due care and diligence is concerned.
    3. In cases where there is a claim under the insurance, attending to a review by a suitably qualified costs draftsman of the appointed representatives disbursements and of the bill of costs of the opponents representatives.
    4. Providing and maintaining relevant financial information as may be required by LPL and Investec for the purposes of monitoring the overall insurance result."
  26.   The agreement goes on to deal with premium allocation providing that LPL would instruct Investec to pay AAB a proportion of the premium allocation, namely £380 in respect of those policies for which insurance had been issued during the previous week.
  27.   The agreement was to come into force on 1 November 1999 and remain in force for a period of 2 years: "thereafter the agreement will continue on an annual basis as per the agreed terms and conditions subject to either party giving the other side 6 months notice".
  28.   A new agreement was entered into on 28 September 2000 between LPL and TAG (I/43/2261) which was in virtually identical terms to the earlier agreement in respect of initial insurance services, continuing insurance services and premium allocation. The major change is at recital F (2262) which states:
  29. "First National Bank Plc ("FNB") has agreed with LPL an insurance premium funding facility ("the loan") to TAG clients secured by the proceeds of the policy."
    LPL's Binding Authority
  30.   The binding authority agreement No.711/HH025960Y (I/43/2285A-2285P) was made between the Lloyds underwriters and LPL the coverholder, the named broker being Prentis Donegan & Partners. The agreement is effective during the period from 1 January 2000 to 31 December 2000 unless cancelled or terminated. I quote selectively from the agreement:
  31. "Section 1
    Grant of Binding Authority
    The underwriters hereby authorise the coverholder:-
    1.1 to bind insurances and amendments thereto for the underwriters accounts;
    1.2 to issue the following documents evidencing cover in respect of insurances bound under the agreement:-
    1.2.1 certificates of insurance,
    1.2.2 endorsements,
    1.2.3 such other documents as may be agreed in writing by the underwriters;
    1.3 to process claims
    in accordance with the terms and conditions contained herein or agreed in writing by the underwriters and endorsed hereon.
    Section 2
    Persons Authorised to Bind
    2.1 The persons authorised to bind and who are responsible for the operation of the agreement are:- Brian Raincock.
    2.2 All documents issued in accordance with sub-section 1.2 above shall be signed by one of the individuals named in sub-section 2.1 above.
    Section 3
    Delegation of Binding Authority
    The coverholder shall not delegate any authority granted hereunder to any other person, firm or company without the prior written agreement of the underwriters which shall be endorsed hereon.
    Section 16
    Maximum Limits of Liability/Sums Insured
    The coverholder is authorised to bind insurances up to the following limits of liability or sums insured which shall not be exceeded in any circumstances
    £25,000 each case.
    Section 20
    Premiums, Deductibles and Excesses
    20.1 All premiums for insurances bound under the agreement shall be calculated as follows (incorporating any applicable deductibles and/or excesses as shown in 20.2):- £800 each case, less £480 underwriters contribution costs.
    20.2 Deductibles and/or excesses:- not applicable.
    Section 21
    Gross Income Premium Limit
    Unless otherwise agreed by the underwriters in writing and endorsed thereon the total gross premium income attaching hereunder shall not exceed £3 million.
    The coverholder shall monitor the total gross premium bound and advise the underwriters immediately when it becomes apparent that the gross premium income will be or is likely to exceed 80% of the above figure.
    Section 25
    Commission
    25.1 The coverholder's commission
    25.2 Contingent or Profit Commission in accordance with the formula as follows: (or as attached hereto) as specified in Appendix 1." (No Appendix is attached.)
    Between TAG and BESSO 5 November 2002
  32.   TAG entered into a new agreement with underwriters and with the brokers BESSO on 5 November 2002. BESSO had replaced Prentis Donegan as brokers. The agreement provides (I/43/2527):
  33. "(a) From 1 February 2001 certificates of insurance have been issued on behalf of the underwriters providing insurance under the terms of binding authorities …, TAG have been providing insurance services (as hereinafter defined) as coverholder to underwriters and from the date hereof BESSO shall provide intermediary services (as hereinafter defined) to underwriters and TAG. Underwriters, TAG and BESSO have now agreed to enter into this agreement to set out the terms on which such services are and have been provided.
    (f) This agreement is supplementary to and should be read in conjunction with binding authority agreements between underwriters and TAG. However, in the event of a conflict between the agreements the terms of this document shall prevail.
    (g) Parties to this agreement have agreed that it shall enter into effect on 1 February 2001 notwithstanding that it is executed at a later date.
    1. TAG's obligations
    1.1 TAG will provide the initial insurance services specified in the second schedule and the continuing insurance services specified in the third schedule.
    2. Underwriters obligations
    2.1 In consideration of the provision by TAG of these insurance services underwriters will pay to TAG the premium allocation specified in the fourth schedule which premium allocation shall be paid and refunded as set out in the fourth schedule and profit commission specified in the fifth schedule which profit commission shall be payable as set out in the fifth schedule."
  34.   In this document the insurance services had undergone considerable rewriting. The services include (I/43/2551):
  35. "The initial insurance services
    1. The reasonable and responsible marketing and promotion of the TAG conditional fee insurance scheme to potential TAG clients.
    2. Advising potential TAG clients, in plain language intelligible to a person with no legal training or experience of litigation, legal procedure or insurance law, of the nature of the insurance services provided by TAG and the nature of the insurance, including:
    (a) the fact that although the TAG client may be indemnified by underwriters … the TAG client will be primarily responsible for the costs of the panel solicitor appointed to represent him in the conduct of the proceedings and, if proceedings are commenced in court and are unsuccessful, responsible for the costs of the party against whom such unsuccessful proceedings have been prosecuted;
    [paragraphs (b) to (h) set out in detail the matters which must be brought to the attention of the TAG client.]
    3. Arranging for completion of the TAG application form … which will be signed by the TAG client in the presence of a TAG representative/panel solicitor.
    4. Forwarding the TAG application form, together with such other documents as may be required to substantiate the claim in accordance with the Operating Manual.
    5. Reviewing the application form and the evidence submitted in support of the claim and considering whether the claim satisfies the insurance vetting criteria set out in Appendix 3.
    6. If satisfied that the claim satisfies the insurance vetting criteria … forwarding details of the claim to the vetting solicitors with sufficient information to enable them to forward the claim to the appointed panel solicitor …
    7. Upon receipt of agreement from the appointed representative to commence the proceedings under the conditional fee agreement and an undertaking signed by the appointed representative …, and provided ten days have elapsed since the TAG client signed the application form/AIL questionnaire referred to in (3) and (4) above, the certificate of insurance will be issued by TAG on behalf of underwriters and will be sent by TAG to the TAG client.
    8. Advising the client that a certificate is not to be issued if the claim does not satisfy the insurance vetting criteria …
    The continuing insurance services
    1. Receiving underwriting assessment reports from the appointed representative from time to time during the validity of each certificate of insurance including:
    (a) reports regarding any Part 36 offer or payment …
    (b) reports from the appointed representative if at any time it appears … that the claim no longer satisfies the criteria set out in Appendix 3 …
    (c) reports from the appointed representative … that an offer should be made by the TAG client pursuant to Part 36 of the CPR;
    (d) reports from the appointed representative if … the total costs of pursuing the claim are … likely to be disproportionately high or at any event to exceed £5,000 or any additional amount of £5,000 over and above any amount previously authorised in writing by underwriters or TAG;
    (e) reports from the appointed representative if the appointed representative wishes to incur any unusual disbursements, any disbursement over £500 or any disbursement which may not be recovered from the opponent on an assessment of costs on the standard basis;
    (f) reports from the appointed representative immediately prior to the issue of a claim form;
    (g) reports from the appointed representative if the TAG client fails to co-operate …
    (h) reports from the appointed representative upon the cessation of the proceedings for any reason whatsoever.
    2. Generally monitoring the conduct of the appointed representative during the course of the proceedings … considering whether any certificate of insurance should be cancelled …
    3. Reporting on the conduct of all proceedings under any certificate of insurance to BESSO whenever it is felt that underwriters ought to be made aware of any matter relating to or affecting the claim or claims of TAG clients provided with an indemnity under the insurance.
    4. Without prejudice to the generality of the foregoing, in particular reporting to BESSO:
    (a) through a daily activations/change of fact/proceedings issued/trial date/profit costs/Part 36 offers/completed and closed case report in such format as may be agreed by the parties from time to time.
    (b) Instances where a court orders the TAG client to make a payment of interim costs prior to the conclusion of the proceedings, such reports to be provided within two working days of the order being made.
    5. Ensuring that all proceedings are being conducted by the appointed representative in accordance with the terms of the Operating Manuals …
    6. In any case where there is a claim under the insurance and TAG deem it necessary to do so, attending to a review by a suitably qualified person of the bill of costs of the opponent following the conclusion of the proceedings.
    7. In any case where a claim is resolved with the payment of damages or compensation for the TAG client ensuring that the appointed representative takes all reasonable steps to recover his costs (including disbursements) and the premium paid for the insurance in full in accordance with the terms of the insurance.
    8. Maintaining relevant financial and other statistical information …
    9. Attending monthly administrative meetings …
    10. Providing to underwriters statistical reports …" (I/2551-2557)
  36.   The fourth schedule to the agreement deals with premium allocation as follows (I/2558):
  37. "Premium Allocation
    The premium shall be £950 plus insurance premium tax at the rate from time to time in force. The premium shall be paid to BESSO.
    BESSO shall pay (or shall have paid) to the extent not already paid by Prentis Donegan & Partners Ltd:
    (a) for policies issued between 1 February 2001 and 31 December 2001 the sum of £328.50;
    (b) for policies issued between 1 January 2002 and 9 May 2002 £360.50.
    (c) for policies issued between 10 May 2002 and 23 October 2002 £370.50;
    (d) for policies issued on or after 4 October 2002 such other sum as the parties may agree from time to time;
    plus all IPT payable on the whole premium to underwriters out of which sum Prentis Donegan & Partners Ltd retained £16.50 for policies issued between 1 February 2001 and 31 December 2001 and £10.50 for policies issued between 1 January 2002 and 23 October 2002 and BESSO shall retain such sum as the parties may agree from time to time for policies issued after 24 October 2002 as brokerage. The balance shall be the "individual claim premium allocation" and shall be paid to TAG as follows:
    Individual Claim Premium Allocation
    1. The individual claim premium allocation shall be:
    (a) for policies issued between 1 February 2001 and 31 December 2002 the sum of £621.50;
    (b) for policies issued between 1 January 2002 and 9 May 2002 £589.50;
    (c) for policies issued between 1 May 2002 and 23 October 2002 £579.50;
    (d) for policies issued on or after 24 October 2002 such other sum as the parties may agree from time to time;
    for each certificate of insurance issued.
    2. Of the said sum of £621.50, £589.50, £579.50 (as the case may be):
    (a) for policies issued between 1 February 2001 and 31 December 2001 the sum of £566.50;
    (b) for policies issued between 1 January 2002 and 9 May 2002 £514.50;
    (c) for policies issued between 10 May 2002 and 23 October 2002 £464.50;
    (d) for policies issued on or after 24 October 2002 such other sum as the parties may agree from time to time
    shall be paid (or shall have been paid) by BESSO to TAG not more than one week after the issue of each certificate of insurance.
    3. [The balance of premium in respect of each policy to be paid into the appropriate retention account] In the event that any certificate of insurance is cancelled, voided or deemed under its terms to have been avoided ab initio then all premium allocation and brokerage paid in respect of that certificate shall be refunded.
    Overall Premium Allocation Refund
    In respect of certificates of insurance issued between 1 February 2001 and 31 December 2001 (inclusive) and each 12 month period thereafter, there shall be an overall premium allocation refund if the net premiums received by underwriters after deduction of brokerage and individual claim premium amount to less than 125% of the claims paid under the insurance. The overall premium allocation refund shall be calculated separately for each calculated period. The period between 1 February 2001 and 1 January 2002 shall be the first calculation period. Each subsequent 12 month period shall be a separate calculation period.
    The overall premium allocation refund shall be such amount as will mean that the net premiums received by underwriters after deduction of brokerage and individual claim premium allocation are equal to 125% of the claims paid under the insurance issued during the calculation period, provided that the overall premium allocation refund shall not be more than £238 (for policies issued between 1 February 2001 and 31 December 2001), £250 (for policies issued between 1 January 2002 and 9 May 2002), £240 (for policies issued between 10 May 2002 and 23 October 2002) or such other sum as the parties may agree from time to time (for policies issued on or after 24 October 2002) multiplied by the number of certificates of insurance issued during the calculation period or the relevant part thereof "the maximum overall premium allocation refund".
    …" (I/2558-2562)
  38.   The fifth schedule deals with profit commission, but merely states that this is as set out in binding authority XA027220a. That binding authority has not been produced.
  39. TAG's Binding Authority
  40.   The Binding Authority Agreement No.711/HH027220Z (I/43/2366-2386) was made between the Lloyds underwriters and TAG the coverholder, the named broker being Prentis Donegan & Partners. The agreement is effective during the period during 1 February 2001 to 31 January 2004 unless cancelled or terminated. The terms of the Binding Authority are, apart from some matters which I list below, identical to those in the Agreement with LPL which I have set out in paragraph 22. At paragraph 2.1 the person authorised to bind is Neil Ross, rather than Brian Raincock.
  41.   At Section 16 the maximum limits of liability/sums insured is £50,000 each case.
  42.   At Section 20.1 the premium is put at "£950 each case plus insurance premium tax of £47.50 each case, less £621.50 underwriters contribution to costs".
  43.   At Section 20.1:
  44. "The net premium will be adjusted to ensure that the cumulative paid loss ratio does not exceed 80% per annual period subject too a maximum net premium of £500 (less brokerage) per certificate issued for the relevant annual period. This will be achieved by rebating the underwriters contribution to costs. Any such adjustment shall be calculated and closed on a monthly basis.
    Retention Fund: out of the amount paid as the underwriter's contribution to costs, the coverholder shall pay £55 per certificate.
    The above amounts shall be paid into a trust account for the benefit of the underwriters as security for any amount refundable as set out under the adjustment of premium provision above. This retention fund shall form part of the annual review."
  45.   At Section 21 the gross premium income limit is put at £15 million for each annual period.
  46.   At Section 25.1 the coverholder's commission is stated to be "not applicable." Section 25.2 reads (1/43/2377):
  47. 25.2 Contingent or Profit Commission in accordance with the formula as follows: (or as attached hereto) as specified in Appendix 1."
  48.   and Appendix 1 (1/43/2381):
  49. "Appendix 1
    Profit Commission
    The Underwriters agree to pay annually an 25% Profit Commission based on the net ascertained profit from the operations of this Agreement calculated as follows:
    The first calculation of Profit Commission will be made provisionally 24 months after expiry of the Agreement year and re-calculated every subsequent 12 months until all outstanding losses have been settled."
    Between TAG and NIG - 1 July 2001
  50.   This agreement was negotiated directed between TAG and NIG (I/43/2435-2467). It is dated 1 July 2001, although the commencement dated is stated to be 1 February 2001.
  51.   The agreement provides (quoting selectively):
  52. "Background
    (a) TAG markets post event legal expenses schemes to its customers and administers such schemes. The insurer provides post event legal expenses insurance.
    (b) The insurer wishes to appoint TAG as its agent for the purposes of marketing post event legal expenses insurance underwritten by the insurer and binding the insurer to and administering such insurances on behalf of the insurer.
    3. Marketing
    TAG will market the insurance(s) as agreed between the parties in writing from time to time. TAG may appoint sub-agents for this purpose but TAG will be liable to the insurer as principal for any acts or omissions of such sub-agents.
    4. Binding Authority
    4.1 TAG will on behalf of the insurer accept for insurance all customers who are eligible for and request insurance. TAG is authorised by the insurer to –
    4.1.1 accept up to 36,000 customers for insurance in any one year;
    4.1.2 administer the insurances; and
    4.1.3 handle and settle claims up to a limit of £5,000 on the insurers behalf.
    5. Premium Rates
    5.1 The rates of premium applicable to the insurance(s) are as specified in Appendix 1 Part 5 as varied from time to time [premium rates are set at £997.50 including insurance premium tax].
    5.2 The insurer may vary any net rates of premium as specified in Appendix 1 Part 5 by such amount as it reasonably considers appropriate taking into account (amongst other things) deteriorating claims experience always provided that the insurer shall give at least 90 days notice to TAG of any such variation.
    6. Payment of the Premium Allocation
    6.1 In consideration for TAG providing the services the insurer will pay the premium allocation to TAG.
    6.2 Each working day the insurer will pay to TAG the premium allocations in respect of all insurance policies for which the insurer has received payment of the premium up to close of business on the previous working day less the insurer retention and if appropriate the funder retention.
    12. Service Levels
    TAG and the insurer will in the performance of their respective obligations comply with the agreed service level specified in the service level agreement [see below].
    Appendix 1
    Part 2 premium allocation £650
    Part 3 funder retention £100
    Part 4 insurer retention £50 [Parts 3 and 4 relate to paragraph 6.2 above]
    Appendix 2
    Service Level Agreement
    1. General Terms
    1.1 This service level agreement relates to the administration and claims handling services to be provided by TAG in respect of the insurances.
    1.2 The services described relate to insurance administration and claims work.
    1.3 Times shown as ideal objectives are the normal operating times …
    2. Services
    TAG shall provide the following services in respect of insurance:
    2.1 insurance administration, comprising:
    2.1.1 policy issue;
    2.1.2 policy processing;
    2.1.3 claims administration (where relevant);
    2.14 creation of claims management reports.
    3. New Insurance Fulfilment
    3.1 Details of the claim will be taken down by the TAG representative who will make an initial assessment of the claim. If the representative believes that there may be a claim then they will explain the service offered by TAG, including details of the premium for TAG Protect and the funding arrangement. If the claimant is happy to proceed the claim will be sent to TAG Head Office from where it will be passed to AIL for investigation.
    3.2 TAG will request AIL to assess the claim by speaking further with the claimant and any witnesses in order to obtain full details of the claim. Once AIL has investigated the claim and believes that there is sufficient information for the vetting solicitor to assess it, TAG will collate the initial assessment, with such other documents as may be required to substantiate the claim and all relevant documentation will be forwarded to the vetting solicitors for the claim to be approved.
    3.3 If a claim is approved by the vetting solicitor, it will be referred to such panel solicitor as is agreed between TAG and the vetting solicitor based on the panel solicitor's respective capacities.
    3.4 If the claim is accepted by the panel solicitor TAG will contact the claimant and arrange to visit the claimant. The TAG representative visiting the claimant will complete the AIL questionnaire incorporating a statement of truth for signature by the claimant. The TAG representative will also arrange for the claimant to complete any related loan agreement at such meeting.
    3.5 TAG will issue evidence of insurance to the claimant, forward the loan agreement, if any, to the funder and advise the insurer that the policy has become active and is "on risk".
    3.6 TAG will write to the insured customer setting out the key terms of the arrangement including the key terms of the indemnity offered by TAG Protect and what the insured customer will be liable for on a successful claim and explain that they will have no liability on an unsuccessful claim.
    4. Claims Handling
    TAG shall:
    4.1 Obtain such further information, including a detailed statement of truth and statements from witnesses and experts, as may be required by the panel solicitor.
    4.2 Monitor the conduct of the panel solicitor during the course of the legal proceedings and reporting on same to the insurer whenever it its felt that the insurer ought to be made aware of such conduct in circumstances where due compliance with the Operating Manual agreed between all members of the TAG panel, TAG and the insurer and with the terms and conditions of the insurance so far as conducting the legal proceedings with due care and diligence is concerned.
    4.3 In cases where there is a claim under the insurance and where in its opinion it is appropriate to do so, attend to a review by a suitably qualified costs draftsman of the appointed representatives disbursements and of the bill of costs of the opponents representatives.
    5. Administrative Services
    5.1 Staff Matters
    5.1.1 TAG will provide a supervised team of trained staff to administer the insurances (including claims) to the standard set out below.
    5.1.2 …
    5.1.3 …
    5.2 Telephones
    5.2.1 TAG will provide adequate telephone lines for in-coming customer account enquiries and customer claims enquiries …
    5.2.2 …
    5.3 Customer Complaints
    5.3.1 If a complaint is received by TAG by telephone an attempt to resolve the problem will immediately be made by a member of TAG's staff.
    5.3.2 Any unresolved telephone complaint or written complaint received by TAG will be referred to the appropriate Department manager …
    [the procedure is set out]
    …"
    Agreements Between TAG and the Funders
    Between AAB (TAG) and Investec Bank (UK) Ltd – 26 November 1999
  53.   This was the first agreement set up in order to fund the payment of premiums (J/44/2574-2580). The agreement recites:
  54. "Whereas
    (a) the Bank has agreed to provide funding for clients of the firm to finance premia due in respect of their Accident Protect legal expenses insurance policy;
    (b) the firm [TAG] acts as a provider of claims management services in assisting its clients to obtain compensation for personal injuries claims;
    (c) the parties have agreed to enter into this agreement for the purpose of regulating their relationship and establishing the terms on which the Bank will provide its services to the firm's clients."
  55.   There then follows a series of definition, including:
  56. "1.7 "Credit transaction" means a transaction involving the provision of credit facilities to a client to enable the client to pay for the premium due under a policy."
  57.   There is no definition of "disbursement". The agreement continues:
  58. "2. General Obligations of the Bank
    2.1 The Bank shall ensure that at all times when it is providing funding to clients it holds all appropriate licenses … relative to granting credit and administering credit transactions and banking facilities to clients.
    2.2 The Bank will use its best endeavours to provide the firm with credit and ancillary documentation for the purpose of credit transactions which conform with all requisite statutory and regulatory requirements so as to be enforceable against the relevant client if duly completed and validly executed.
    2.6 The Bank will open and maintain an account designated "litigation protection IBA No.2 account" into which it will pay the premium and insurance premium tax advanced to a client under a credit transaction.
    2.7 On receipt of valid instructions … from [LPL] acting on behalf of the underwriters of the policy the Bank will, within 48 hours of receipt of such instructions pay to the firm the premium allocation [£480] less the premium retention [£100].
    3. Warranties and Undertakings by the Firm
    3.1 The firm warrants that:
    3.1.1 the appointed representative has entered into an agreement with the firm …
    3.1.2 the vetting solicitor have entered into an agreement with the firm …
    3.1.3 the firm has entered into an agreement with [LPL] …
    3.2 The firm hereby undertakes and agrees that it will use its best endeavours to ensure that the parties to the agreements … above meet their duties and obligations under such agreements …
    3.3 The firm undertakes and agrees to observe and perform all its duties and obligations in respect of its agreement with [LPL] …
    4. Credit Transactions
    4.1 When introducing a client to the Bank, the firm shall be deemed to warrant to the Bank that:
    4.1.1 the client has the benefit of a policy of legal expenses insurance; and
    4.1.2 the client has signed an application form … and
    4.1.3 the client has signed an AAB service agreement and declaration … and
    4.1.4 the claim is a bona fide claim;
    4.1.5 the claim has been accepted in writing by an appointed representative and the appointed representative is in receipt of a signed conditional fee agreement pursuant to Section 58(1) of the Courts and Legal Services Act 1990 and a client care letter …
    4.2 The firm warrants that it will at all times and for all purposes (including the methods used to make known or available to clients funding under credit transactions) act in a lawful, proper and professional manner …
    …"
    Between TAG and First National Bank – 3 October 2000
  59.   The Agreement dated 3 October 2000 (J/44/2616-2626) between First National Bank and TAG replaced the earlier Agreement of 26 November 1999 between Investec Bank UK Limited and AAB (TAG). Investec's Special Lending Division was effectively taken over by First National Bank as from 1 December 2000.
  60.   The most significant change between the two Agreements is that in the recital to the earlier Agreement it was provided:
  61. "(a) The Bank has agreed to provide funding for clients of the firm to finance premia due in respect of their Accident Protect legal expenses policy." (2574) (emphasis added)

    Whereas under the new Agreement it states:

    "(b) The Bank has agreed to provide funding to clients of the company to finance premia due in respect of their Accident Protect legal expenses policy … and disbursements payable by the client to their appointed representative in furtherance of their claim." (emphasis added)
  62.   Disbursement is defined as follows:
  63. "1.8 "Disbursement" means any indebtedness or expenditure properly incurred and paid for by the appointed representative to a third party on behalf of the client for the purpose of furthering the client's claim."
  64.   Other provisions include:
  65. "2. General obligations of the Bank
    2.1 … the Bank shall offer to provide credit transactions to clients of the company … Finance provided by the Bank under such credit transactions may only be used by the client to pay for:
    2.1.1 premia due and payable by the client in respect of the policy; or
    2.1.2 disbursements due and payable by the client to their appointed representative.
    3. Warranties and Undertakings by the Company
    3.1 The company warrants that:
    3.1.1 the appointed representative has entered into an agreement with the company …
    3.1.2 the vetting solicitor has entered into an agreement with the company …
    3.1.3 the company has entered into an agreement with [LPL] ...
    4. Credit Transactions
    4.1 When introducing a client to the Bank, the company shall be deemed to warrant to the Bank that:
    4.1.1 the client has the benefit of a policy of legal expenses insurance; and
    4.1.2 the client has signed an application form or a questionnaire (as the case may be) …
    4.1.3 the client has signed a TAG service agreement and declaration …
    4.1.4 the claim is a bona fide claim;
    4.1.5 the claim has been accepted in writing by an appointed representative and the appointed representative is in receipt of a signed [CFA] … and a client care letter …
    …"
    Between TAG and the Bank of Scotland – 15 February 2001
  66.   A new funding arrangement was agreed on 15 February 2001 between TAG and the Bank of Scotland (K/2796/ff). This agreement provides for a panel solicitors agreement (2944) and every panel solicitor was required to enter into such an agreement (see paragraph 70).
  67.   This agreement states under the heading "Background":
  68. "(b) The Bank is prepared to enter into a loan agreement with certain claimants for the purpose of financing the cost of claims under TAG's legal expenses insurance cover scheme.
    2. Provision of Services and Loans
    2.1 TAG and the Bank agree with effect from the commencement date to provide the services in accordance with the operational service levels and the Operating Manual on the terms of this agreement.
    2.2 The Bank agrees with effect from the commencement date to make the loan available to claimants for the term in accordance with the provisions of Clauses 3.1 and Clause 5.
    [Clause 3.1 deals with the duration of the agreement.]
    4. Obligations of TAG
    4.1 TAG will promote the scheme and provide the services using all due care, skill and diligence in accordance with Best Industry Practice and in accordance with all applicable laws and Codes of Practice.
    4.2 TAG will ensure that the services are performed substantially by properly trained, experienced and supervised employees of TAG possessing suitable skills.
    4.3 …
    4.4 TAG will comply at all times with its obligations under the Operations Manual.
    5. Obligations of the Bank
    5.2 The Bank shall pay to TAG for each loan agreement upon which a draw down of funds on behalf of the claimant is made the sum of £13.10 (inclusive of any applicable value added tax) by way of commission monthly in arrears …
    5.5 The interest rate under the loan is to be set at a margin over the Bank's base lending rate and the bank shall be entitled to vary the amount of such margin upon notice to TAG in writing.
    5.7 The Bank shall be under no obligation to enter into a loan agreement with any claimant if and to the extent that the aggregate number of loans with outstanding balances at that time exceeds £33,000.
    6. Panel Solicitor
    6.1 TAG will ensure that each firm of solicitors appointed to TAG's panel of solicitors will enter into the Panel Solicitors Agreement and the solicitors indemnity and undertaking. TAG will provide the Bank from time to time with the name and address of each firm of solicitors approved for the purpose of the scheme."
    Agreement Between TAG and the Panel Solicitor
  69.   The example of the Agreement (E/1301-1305) which I quote here is the one annexed to Operating Manual 3 (OM3) but I have not been told that there have been any significant changes to it. The Agreement sets out, among other things, the duties of the parties:
  70. "Whereas:
    (a) TAG provides legal expenses insurance to persons ("claimants") who have suffered personal injury where TAG is satisfied that such persons have in their reasonable opinion a better than 50% prospect of success in a claim against a culpable third parties ("opponents") in respect of injuries sustained in an accident where damages for such injuries have a reasonable prospect of exceeding £1,500 ("a bona fide claim").
    (b) The appointed representative is a firm of solicitors which specialises in personal injury litigation and who have agreed subject to obtaining claimants instructions to act on claimants behalf in bringing a claim for damages for personal injury against opponents.
    It is agreed as follows:
    1. Duties of the Appointed Representatives
    1.1 In consideration of TAG's undertaking and agreement pursuant to Clause 2 the appointed representative undertakes and agrees with TAG that it will:
    (a) observe and perform its obligations set out in the Operating Manual …
    (b) observe and perform its obligations set out in the Accident Protect Legal Expenses Insurance Policy ..
    (c) observe and perform as obligations hereunder the obligations which are contained in or referred to in Section 5 (step by step procedure), Section 6 (panel solicitors obligations and service standards) and Section 7 (review of files – random selection) …
    (d) use the form of client care letter and conditional fee agreement, copies of which are contained or referred to in the Operating Manual …
    (e) enter into an agreement with Legal Report Services Limited (the "LRS" agreement) in the agreed form …
    (f) enter into an agreement with Rowe & Cohen solicitors … in the agreed form …
    (g) enter into an agreement with [AIL] in the agreed form …
    (h) observe and perform its obligations set out in its Agreement … with First National Bank Plc or such other funder as TAG may direct …
    (i) assess every bona fide claim to ensure that claimants have in their reasonable opinion a better than 50% prospect of success in a claim against an opponent in respect of injury sustained in an accident and that damages for such injuries have a reasonable prospect of exceeding £1,500;
    (j) use its best endeavours to recover from opponents all legal costs incurred, disbursements expended together with the amount of the premium, loan interest and any charges the claimant has paid to purchase the policy;
    (k) notify the third party and/or the third parties insurers (if applicable) of the existence of the policy and that the claimant's claim will include the costs of paying the premium for the policy;
    (l) allow TAG, LPL and/or the funders to have full access to the claimant's file of papers subject to the claimant's authority to do so.
    2. Duties of TAG
    2.1 TAG will provide such claims management services on behalf of the claimant, the underwriters and underwriters representatives and the appointed representatives, as set out in the Operating Manual …
    2.2 TAG will provide the vetting solicitor with details of the appointed representatives eligibility to be a member of the TAG approved panel of solicitors to enable the vetting solicitor to refer bona fide claims to the appointed representative from time to time."
  71.   Paragraph 1.1(1) which I have quoted above refers to the obligations set out in the Accident Protect legal expenses insurance policy. The policy wording can be found in OM2 at J/44/2741. The policy provides, under the heading "Conditions" (J/44/2744):
  72. "1. Compliance
    (b) The assured and the appointed representative shall conduct the proceedings with due care and diligence and shall take all reasonable steps to minimise or avoid the costs and expenses payable under the policy … In conducting the proceedings, compliance by the appointed representative with the terms of the TAG Operating Manual shall be a condition precedent to any liability of the underwriters to make payment under the policy so that, whilst underwriters will be prepared to provide an indemnity to the assured notwithstanding non compliance by the appointed representative with the terms of the TAG Operating Manual, underwriters will be entitled to make a recovery of any payment made in these circumstances from the appointed representative.
    2. Arrangements with Funders
    (b) In addition to making available loan facilities to the insured in respect of the payment of the premium, funders have made arrangements to provide loan facilities to the appointed representatives in respect of own disbursements including counsel's fees to the extent of the investigation costs.
    (c) If at the conclusion of the proceedings, an amount of damages and costs is either awarded to the assured by order of the court as a result of the outcome of the proceedings or becomes payable to the assured by the opponent pursuant to a settlement entered into as part of the terms of a compromise, discontinuance or withdrawal of the proceedings, such amount of damages and costs shall first be used to discharge the loan together with related interest made by the funders in respect of the premium and own disbursements including counsel's fees and thereafter the loan together with the related loan interest made by the funders to the appointed representative in order to fund own disbursements including counsel's fees to the extent of the investigation costs.
    3. Conditional Fee Agreement
    The assured and the appointed representative shall ensure that the [CFA] entered into meets with the requirements [of Section 58 of the CLSA 1990] …"
  73.   The remaining conditions (4 to 11) deal with Progress of Proceedings, Payment, Subrogation, Fraud, Policy voidable, Arbitration, Jurisdiction and Communications.
  74.   Finally the policy provides (2747):
  75. "EXCLUSIONS
    No indemnity under this insurance shall be provided by the underwriters in respect of:
    (1) Own disbursements including counsel's fees where these are payable by the opponent …
    (2) Proceedings where the assured is … entitled to indemnity under any other insurance …
    (3) Proceedings which have been conducted in such a manner that, in the reasonable opinion of the underwriters, their position as insurers has been prejudiced as a result of the delay or other default by the assured or the appointed representative …
    (4) Proceedings which are compromised … or discontinued or withdrawn by the assured unless the prior written consent of the underwriters has been obtained …
    (5) Proceedings where it is discovered during the course of the proceedings that the opponent is not insured in respect of the outcome of the proceedings except in respect of own disbursements including counsel's fees incurred before discovery and of the premium and loan interest."
    The Operating Manuals
  76.   There were a total of five Operating Manuals which were in use as follows:
  77.   The Operating Manuals developed as the TAG scheme developed. I set out below the basic scheme in OM1 and will identify the developments as they occur in subsequent manuals.
  78. Operating Manual 1
  79.   OM1 (D/40/1049-1136) describes Key Personnel at AAB (TAG), LPL, Investec Bank UK Ltd and vetting solicitors, Messrs Rowe & Cohen of Manchester. The manual sets out the roles of the claims manager (1059) as follows:
  80. "The Role of the AAB Claims Manager
    The claims manager provides initial insurance services to the client and continuing insurance services once a claim has been accepted by the panel solicitors.
    The Initial Insurance Services
    The initial insurance services to be provided by AAB and its representatives will include:
    1. Arranging for the completion of the AAB application form which will be signed by the AAB client. The AAB representative will emphasise to the AAB client the requirement for full disclosure of all material facts which will enable a proper assessment.
    2. Arranging for the completion of the consumer credit agreement application form in respect of the premium to be paid for the insurance and arranging for this to be forwarded to Investec Bank (UK) Ltd for processing.
    3. Instructing Accident Investigations Ltd (AIL) to investigate the claim further and provide initial vetting services.
    4. Collating the AAB application form, with such other documents as may be required to substantiate the claim, in order that the documentation can be forwarded to the vetting solicitor for assessment who will then refer the case to the panel solicitor who is appointed to conduct the legal proceedings (as defined in the policy).
    5. Obtaining such further information as may be requested by the panel solicitor prior to his agreement to commence the legal proceedings.
    6. Keeping the client informed of the progress of the case prior to acceptance and the outcome of the investigations.
    The Continuing Insurance Services
    The continuing insurance services to be provided by AAB and its representatives will include:
    1. Advising the client of acceptance of the case and issuing the necessary insurance documentation. Assisting in obtaining such further information, including a detailed statement of truth, statements from witnesses and experts, as may be required by the panel solicitor ("appointed representative").
    2. Monitoring the conduct of the appointed representative during the course of the legal proceedings. Reporting on same to LPL. Reporting to LPL whenever it is felt that the underwriters ought to be made aware of such conduct in circumstances where due compliance with the procedures agreed between the panel solicitors, AAB and LPL and their terms and conditions of the insurance so far as conducting the legal proceedings with due care and diligence is concerned.
    3. Providing ongoing assistance to the client when requested by them during the course of the legal proceedings.
    4. In cases where there is a claim under the policy, attending to a review by a suitably qualified costs consultant of the panel solicitors disbursements and, where appropriate, of the opponents representatives.
    5. Providing and maintaining relevant financial information as may be required by LPL for the purposes of monitoring the overall insurance result."
  81.   The Manual then deals with the role of the vetting solicitors and at Section 5 sets out the Step by Step Procedures. 30 steps are detailed. So far as relevant for the purpose of this judgment they are as follows:
  82. "Step by Step Procedure
    1. AAB currently have 25 teams of three who will run a stand in various shopping malls, etc.
    2. A member of the public attends at the stand and completes an [AAB] application form which includes a statement of truth.
    3. At this point the Consumer Credit Agreement ("CCA") will also be completed. All staff will be fully trained in explaining this and in addition, the literature on the stand and which is to be taken away by the prospective client will fully explain the CCA and what the next procedure will be. This will include details of how AAB will revert back to the client on whether the client has an acceptable claim. The client signs the Consumer Credit Agreement (which is witnessed by the AAB consultant), the application form contains the statement of truth and the AAB Service Agreement and Declaration.
    4. The client will be handed a green copy of the CCA which includes explanatory notes on the CCA, a copy of the AAB Service Agreement and Declaration and an Accident Protect Legal Expenses Insurance Policy wording.
    5. The application form, the AAB Service Agreement and Declaration and the CCA are then submitted to AAB who allocate a claims manager and a dedicated claims number.
    6. The claims manager will undertake an initial vetting of the claim to decide whether or not further investigations are needed. If acceptable acknowledgement letter (1) will be sent. If unacceptable acknowledgment letter (2) will be sent.
    7. Acceptable claims are then passed by AAB to AIL with instructions for AIL to investigate the claim. The file will consist of the application form, a signed copy of the CCA and a copy of the AAB Service Agreement and Declaration.
    8. …
    9. AIL contact the client and complete a questionnaire with more detailed information of the accident, circumstances and losses sustained. AIL return the file to AAB having also provided their recommendations on liability and quantum.
    10. AAB then can submit the application form and questionnaire, together with a photocopy of the CCA to the vetting solicitor together with the referral bordereau.
    11. The vetting solicitor will vet the case to ensure that it has more than a 50% chance of success and that the personal injury has an apparent value of more than £1,500. If, in their opinion it does, the case is then referred by the vetting solicitor to the panel solicitor as per the referral bordereau.
    12. The panel solicitor has 48 hours within which to accept the case subject to receipt of the client's instructions. On acceptance by the panel solicitor, the client care letter must immediately be sent to the client. At this point the case is classified as being retained awaiting instructions. Upon receipt of instructions, including the signed questionnaire, the case is then deemed as accepted. The panel solicitor must send a specific written acceptance letter to AAB by fax which must be signed by an authorised signaturory of the practice and should include details of the client reference and the name of the fee earner.
    13. By using the referral bordereau the panel solicitor advised AAB at 48 hours of which claims are acceptable and which are not.
    19. Once confirmation of instructions has been received by the panel solicitor from the client, the evidence of insurance will be issued by AAB. This will have the signature of Brian Raincock, managing director LPL, who has the authority to sign on behalf of the underwriters.
    20. The original evidence of insurance will be forwarded to the client and a copy will be sent to LPL as well as the panel solicitor.
    21. At this point the AAB screen will show the policy as being active. A file will be generated by AAB which will be e-mailed to LPL on a daily basis. This will alert LPL the policy is on risk. The information will be e-mailed to LPL daily and will comprise of batches of new cases and updates on other cases. Investec will also receive this information which initiates the CCA procedure.
    22 – 30 [These paragraphs deal with consequential matters and in particular how settled cases, failed cases and Part 36 offers are to be dealt with]."
  83.   Section 6 of OM1 sets out the Panel Solicitors' obligations and service standards, including:
  84.   So far as relevant this Section provides:
  85. "6(ii) Obtaining Reports and Authorisation Levels
    (a) Single Disbursements
    (1) If a single disbursement exceeding £500 is to be incurred authorisation must be sought from the relevant claims manager. If the single disbursement is less than £500 no authorisation is required.
    (2) …
    (3) AAB's written authority is required prior to incurring the disbursement.
    (b) Profit Costs
    6(iii) Incurring Disbursements
    See above Section 6(ii)(a) for single disbursement authorisation levels.
    AAB require panel solicitors to use specific medical agencies. Referrals must be notified to AAB immediately …"
  86.   Section 7 deals with the intention of LPL randomly to check ten files per week from each panel solicitor.
  87.   Section 8 contains specimen documents, namely: the claim and information pack (D/40/1084-5) ; application form (1086-1088); CCA (1089); AAB Service Agreement and Declaration (1090) and policy wording (1091-1098). Also set out in Section 8 are specimen forms and standard letters: AIL questionnaire (1100-1111); standard acknowledgement letters from AAB (1112-1113); referral bordereau (1114); client care letter (1115-1118) and the CFA (terms and conditions) (1119-1127).
  88.   Where a claim is accepted a letter is sent to the Claimant from AAB (1112) which states:
  89. "To give your claim the best opportunity we will require more in-depth information regarding your accident so we will refer your claim to [AIL] to investigate. They will be contacting you in the near future to complete a questionnaire. They will need information about the circumstances of your accident, who you feel was at fault and the reasons why. They will endeavour to collate as much evidence as possible giving your claim the best opportunity of success. It will be of great assistance if you could have any details regarding you accident no matter how unimportant you feel the information is, ready in anticipation of the investigations team call."
  90.   A letter is also sent by AAB to AIL (1113):
  91. "Please undertake all investigation work necessary relating to this claim on behalf of the panel solicitor who will be instructed, if appropriate to handle this claim."
  92.   The panel solicitor is then required to write to the client in the terms of the draft client care letter (1115):
  93. "We understand from [AAB] that you would like us to act on your behalf in accordance with your claim for damages for an injury sustained on the above date.
    To enable us to deal with your claim efficiently we would be obliged if you would (1) sign the enclosed copy of this letter and return it to us. Please note that we have enclosed with this letter our Form of Conditional Fee Agreement (Terms and Conditions) ("the Terms and Conditions"). This letter, together with the enclosed terms and conditions, forms the basis of the agreement between us. Please make sure that you understand this letter and the enclosed terms and conditions before signing and returning the letter to us; (2) sign the enclosed Accident Investigation Questionnaire which contains a Statement of Truth … and return it to us."
  94.   The CFA under the heading "Paying Us" states (1119):
  95. "If you win the case, you are liable to pay own disbursements, basic costs and a success fee. You may be able to recover our disbursements, basic costs and our success fee from your opponent. If you are not able to recover these fees from your opponent you may be able to recover your disbursements under the policy. For full details, see Conditions 4 and 6 and details of insurance. Please note that if you are unable to recover the basic costs and any success fee from your opponent we will not seek to recover these from you."
  96.   Under the heading "Success Fee" (1126) the CFA states:
  97. "We have taken into account the factors referred to Clause 3(11) above and the fact that you have agreed to purchase the policy and accordingly we have determined to apply a success fee of:
    The total of the success fee will not be more than 25% of the damages or settlement you win."
  98.   Under the heading "Own Disbursements" (1126) the CFA states:
  99. "We will not ask you to pay own disbursements until the conclusion of your case. However, it is anticipated that these will be met by your opponents under the policy as explained above."
  100.   Under the "Explanation of Words Used" "own disbursements" are described as follows (1121):
  101. "Payments we make on your behalf to others involved in the case. These may be: court fees; expert fees; accident report fees; investigation fees; official search fees; travelling expenses; fees for barristers may also be counted as own disbursements …
    You have to pay all own disbursements, whether you win or lose. However, there are three exceptions to this:
  102.   Section 9 deals with Medical Disbursement Company (MDL) service level agreement and medical reporting procedures.
  103. Operating Manual 2
  104.   The second Operating Manual is dated 1 October 2000 (J/2699-2793). The role of the AAB claims manager described in OM1 becomes the role of TAG, but the initial and continuing insurance services remain virtually identical (2710/11). The step by step procedures have been somewhat expanded and deal separately with telephone reported claims (2722) and non telephone reported claims (2717/20). The procedure relating to incurring disbursements is greatly expanded:
  105. "6(iii) Incurring Disbursements
    (a) Disbursement Funding
    (i) Arrangements have been made with the funders for the client to fund disbursements ("funded disbursements") properly incurred by the panel solicitor on behalf of the client up to a maximum of £1,200.
    (ii) Under the facility referred to in (i) above the clients indebtedness to AIL will automatically be paid by the funders (and debited to the client's loan) following acceptance of the claim by the panel solicitor and inception of the client's loan with the funders.
    (iii) The panel solicitor may upon written application to TAG enclosing evidence of disbursements incurred, request reimbursement of such further disbursements provided the same exceed in aggregate £150. The panel solicitor must utilise Form TAG SF2 an example of which is contained in Section 8(b).
    (b) Repayment of Disbursements to Client in Successful Cases
    (i) The panel solicitor undertakes that where they recover any funded disbursement (in whole or in part) they will remit such disbursements to the funders on behalf of the client.
    (ii) In circumstances where the panel solicitor fails to recover a funded disbursement, either in whole or in part, the panel solicitor undertakes to remit from their own resources the unrecovered disbursement or proportion thereof to funders in accordance with their obligations hereunder …
    TAG stipulate panel solicitors must used authorised medical agencies. Referrals must be notified to TAG immediately …" (J/2727)

    At this time the funders were First National Bank Plc.

  106.   Part 6(v) of OM2 sets out what is to happen in various circumstances including:
  107. "(c) Third party challenge to additional liabilities (as defined by Part 43.2(1)(o) CPR) and disbursements.
    (i) ….
    (ii) …
    (iii) The panel solicitor should only incur disbursements which are recoverable from the paying party. It is an express condition of the agreement between TAG and the panel solicitors that any disbursements incurred on behalf of clients are reasonable in amount and the panel [solicitor] has warranted that the same are recoverable from a culpable third party.
    (iv) In a case where a claim for costs is made against a culpable third party and the panel solicitor fails to recover a disbursement then the panel solicitor undertakes:
    (a) in the case of funded disbursements, to refund to the funders on behalf of the client the disbursement or the proportion thereof which has not been recovered; and
    (b) in the case where the disbursement or the proportion thereof is not a funded disbursement not to seek recovery from the client." (J/2730/31)
    Operating Manual 3
  108.   OM3 is dated 1 February 2001 (E/1308/1482). The initial and continuing insurance services remain as before (1319-1320). The step by step procedures for telephone and non telephone reported claims remain to all intents and purposes the same (1326-1330). The provisions with regard to disbursement funding remain similar, save that at paragraph 6(iii)(a)(3) panel solicitors are permitted to apply for reimbursement of disbursements which exceed an aggregate of £100 (E/1338). The provisions relating to third party challenge to additional liabilities remain the same (1341).
  109. Operating Manual 4
  110.   OM4 is dated 23 February 2001 (F/1484-1593). By this time the funders are the Bank of Scotland. The initial and continuing insurance services remain substantially the same (1496/97) as do the step by step procedures. The provisions relating to incurring disbursements remain substantially the same, but at paragraph 6(iii)(a)(3) it is explained that payment of any disbursement will be arranged with the funders and TAG will forward the monies on a monthly basis if the request is accepted by both TAG and the funders (1515). The provision with regard to third party challenge to additional liabilities remains the same (1518).
  111. Operating Manual 5
  112.   OM5 was published on 19 November 2001 (F/160/3). Since OM5 is after the period covered by any of the Test Cases and since it has not been referred to in any detail by either party it is not necessary here to set out its terms. I have set out elsewhere those elements, such as the AIL agreement, which are of relevance to the matters in issue.
  113.   On 27 February 2002 TAG sent out a letter with OM5 (C/32/830B). The letter points out that the AIL fee has been increased to £320 plus VAT with effect from 1 March 2002. The accompanying pages set out the various changes which have been made to OM4.
  114. Agreement Between AIL and the Panel Solicitors
  115.   This example of the Agreement between AIL and the panel solicitors appears as Schedule 4 to the agreement between TAG and the panel solicitors which I have just quoted (E/1474-1478) (see para 45). The Agreement recites the duties of AIL and the appointed representative and sets out various other terms and conditions:
  116. "Whereas:
    2. AIL undertakes investigatory works on behalf of TAG's approved panel of solicitors ("the solicitors") against payment of a fixed cost of £310 plus VAT … per claim investigated and which is passed to the appointed representative in accordance with the appointed representatives agreement with TAG ("investigated claim").
    3. The appointed representative is a firm of solicitors which specialises in personal injury litigation and which is a member of TAG's panel of solicitors.
    It is agreed as follows:
    1. Duties of AIL
    1.1 AIL will on behalf of the appointed representative investigate claims referred to AIL by TAG and, as far as they are able so to do, ascertain:
    (a) all necessary information regarding claimants;
    (b) all relevant information regarding the circumstances surrounding the claims;
    (c) all relevant information regarding the liability of any third party, such third parties details and details of such third parties insurers;
    1.2 AIL will also, if considered necessary, obtain:
    (a) photographs of the locus in quo or of the claimant's injuries;
    (b) witness statements;
    (c) detailed statements from the claimants;
    (d) locus reports
    2. Duties of the Appointed Representative
    2.1 The appointed representative hereby appoints AIL as its agents for the purpose of investigating, collating and assessing information regarding claims passed to AIL by TAG and, in particular, to do so prior to the appointed represent