Callery v Gray

Factual and Procedural Background

The Respondent, a passenger injured in a routine road-traffic collision, instructed solicitors immediately after the accident. On the same day he:

• Entered into a Conditional Fee Agreement (CFA) with a 60 % success uplift.
• Purchased “after-the-event” (ATE) insurance for a premium of £350 to cover both adverse costs and his own unrecovered disbursements.

The Appellant’s insurer admitted negligence within weeks and the parties settled damages at £1,500. Costs remained disputed:

• District Judge reduced the uplift to 40 % but allowed the full ATE premium.
• Circuit Judge dismissed the Appellant’s appeal.
• The Court of Appeal further reduced the uplift to 20 % yet confirmed recoverability of the premium and offered provisional, practice-based guidance to costs judges.

The Appellant obtained permission to appeal to the House of Lords, challenging both the timing and quantum of the uplift and premium.

Legal Issues Presented

1. Whether, in a straightforward, low-risk personal-injury claim, it is reasonable and therefore recoverable for a claimant to obtain ATE insurance before the defendant has even responded, and whether the premium itself is proportionate.
2. Whether the success-fee uplift under a CFA should be assessed case-by-case (risk in the individual claim) or globally (across the solicitor’s portfolio), and whether a 20 % uplift is excessive in a claim that was virtually certain to succeed.
3. The proper institutional role: should the House of Lords intervene in developing costs practice, or should supervision be left to the Court of Appeal and specialist costs judges?

Arguments of the Parties

Appellant's Arguments

• The claim was “very, very low risk”; any uplift above a nominal figure was unjustified.
• Purchasing ATE insurance before receiving the defendant’s response was premature; the premium was an unnecessary and disproportionate burden on liability insurers.
• The emerging funding regime fosters abuse: claimants operate in a “cost-free, risk-free zone,” giving them no incentive to moderate costs.
• The House should issue guidelines to curb excessive uplifts and premiums.

Respondent's Arguments

• Early CFAs and ATE policies are integral to the Access to Justice Act 1999’s objective of broadening access and shifting costs from the legal-aid fund to wrong-doers and their insurers.
• ATE insurers require “the many to pay for the few”; premiums would rise sharply, or cover would disappear, if policies were delayed until liability was admitted.
• The Court of Appeal’s 20 % cap and its practice guidance strike an appropriate, provisional balance that should not be disturbed at this early stage of the regime.

Table of Precedents Cited

Court's Reasoning and Analysis

Four members of the Appellate Committee (Judges Bingham, Nicholls, Hoffmann and Hope) formed the majority; Judge Scott delivered a partially dissenting opinion.

• Institutional Competence: The majority held that monitoring the new funding regime is primarily for the Court of Appeal and costs judges, who can react “with speed and sensitivity” to market developments. The House should intervene only in exceptional circumstances, which this appeal did not present.
• Early-Stage Evidence: Reliable data on success-fee levels and ATE premiums remain sparse; hard-and-fast rules would be premature.
• Success Fee: A 20 % uplift, though generous for a near-certain claim, was within the provisional ceiling set by the Court of Appeal. The majority accepted the Court of Appeal’s “global” approach—permitting modest uplifts in low-risk cases to subsidise representation in riskier ones—pending fuller market evidence.
• ATE Premium: Despite misgivings about proportionality, the majority deferred to the Court of Appeal’s factual finding that the £350 premium was not “manifestly disproportionate.” They stressed the need for ongoing vigilance but declined to upset the provisional guidance.
• Dissent (Judge Scott): Concluded that purchasing ATE cover before any real prospect of litigation was unnecessary and therefore irrecoverable; the premium should have been disallowed. He would nevertheless have left the 20 % uplift undisturbed.

Holding and Implications

APPEAL DISMISSED.

The House affirmed the Court of Appeal’s decision to:

• Allow recovery of the £350 ATE premium obtained at the outset.
• Limit the recoverable success-fee uplift to 20 % in a straightforward road-traffic claim.

Implications:

• Costs judges should continue to apply the Court of Appeal’s provisional caps while gathering empirical data.
• The decision signals judicial reluctance at the highest level to craft detailed costs rules, leaving refinement to the lower appellate courts and, if necessary, to legislative or regulatory intervention.
• No new precedent was set on the substantive law of costs; the ruling largely endorses existing procedural supervision mechanisms.