Case No: PTH 0204771
Neutral Citation Number: [2003] EWHC 9020 (Costs)
IN THE HIGH COURT OF JUSTICE
SUPREME COURTS COST OFFICE
Supreme Courts Cost Office
Clifford Inn
Fetter Lane
London
EC4A 1DQ
Date: 15 May 2003
Before :
SENIOR COSTS JUDGE HURST
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Between :
THE ACCIDENT GROUP TEST CASES
TRANCHE 2 ISSUES
 	SHARRATT 	Claimant	
 	- and -	 	
 	LONDON CENTRAL BUS CO
& OTHER CASES	Defendant	
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- - - - - - - - - - - - - - - - - - - - -
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
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Judgment

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.	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.	2.      The preliminary issue which I have already decided was:
"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?"
3.	3.      Those questions were answered as follows:
"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."
4.	4.      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.
THE TRANCHE 2 ISSUES
5.	5.      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. 
6.	6.      The issues argued in front of me were as follows:
"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?"
7.	7.      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. 
8.	8.      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.
9.	9.      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.
10.	10.  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. 
11.	11.  Issue 6 is purely factual and will be dealt with within Issues 2 and 3.
12.	12.  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.
13.	13.  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. 
14.	14.  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.
15.	15.  Part C of the General Issues deals with Consumer Credit but the Defendants do not pursue Issues 14 and 15.
THE TAG CONTRACTUAL FRAMEWORK 
Agreements Between TAG and the Insurers
Between TAG and LPL- 26 October 1999
16.	16.  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: 
"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.
17.	17.  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. 
18.	18.  The agreement continues:
"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."
19.	19.  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.
20.	20.  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". 
21.	21.  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:
"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
22.	22.  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:
"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
23.	23.  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):
"(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."
24.	24.  In this document the insurance services had undergone considerable rewriting. The services include (I/43/2551):
"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)
25.	25.  The fourth schedule to the agreement deals with premium allocation as follows (I/2558):
"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)
26.	26.  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. 
TAG’s Binding Authority 
27.	27.  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.
28.	28.  At Section 16 the maximum limits of liability/sums insured is £50,000 each case.
29.	29.  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".
30.	30.  At Section 20.1:
"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."
31.	31.  At Section 21 the gross premium income limit is put at £15 million for each annual period. 
32.	32.  At Section 25.1 the coverholder’s commission is stated to be "not applicable." Section 25.2 reads (1/43/2377):
25.2	Contingent or Profit Commission in accordance with the formula as follows: (or as attached hereto) as specified in Appendix 1." 
33.	33.  and Appendix 1 (1/43/2381):
"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 
34.	34.  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.
35.	35.  The agreement provides (quoting selectively):
"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
36.	36.  This was the first agreement set up in order to fund the payment of premiums (J/44/2574-2580). The agreement recites:
"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."
37.	37.  There then follows a series of definition, including:
"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."
38.	38.  There is no definition of "disbursement". The agreement continues:
"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
39.	39.  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. 
40.	40.  The most significant change between the two Agreements is that in the recital to the earlier Agreement it was provided:
"(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)
41.	41.  Disbursement is defined as follows:
"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."
42.	42.  Other provisions include:
"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
43.	43.  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). 
44.	44.  This agreement states under the heading "Background":
"(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 
45.	45.  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:
"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."
46.	46.  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):
"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] …"
47.	47.  The remaining conditions (4 to 11) deal with Progress of Proceedings, Payment, Subrogation, Fraud, Policy voidable, Arbitration, Jurisdiction and Communications.
48.	48.  Finally the policy provides (2747):
"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
49.	49.  There were a total of five Operating Manuals which were in use as follows:
•	§         OM1	November 1999 to September 2000 (D/40/1049-1136)
•	§         OM2	October 2000 to January 2001 (J/2699-2793)
•	§         OM3 	February 2001 (E/1308-1482)
•	§         OM4	February 2001 to November 2001 (F/1484-1593)
•	§         OM5 From approximately October 2001 (F/1603-1759)
50.	50.  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.
Operating Manual 1
51.	51.  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:
"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."
52.	52.  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:
"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]."
53.	53.  Section 6 of OM1 sets out the Panel Solicitors’ obligations and service standards, including:
o	                            i.            change of fact
o	                        ii.            obtaining reports and authorisation levels
o	                    iii.            incurring disbursements
o	                        iv.            issuing court proceedings
o	                            v.            notification of events, eg Part 36 offers/client refusing to co-operate
o	                        vi.            settlement/claims procedures.
54.	54.  So far as relevant this Section provides:
"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 …"
55.	55.  Section 7 deals with the intention of LPL randomly to check ten files per week from each panel solicitor.
56.	56.  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).
57.	57.  Where a claim is accepted a letter is sent to the Claimant from AAB (1112) which states:
"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."
58.	58.  A letter is also sent by AAB to AIL (1113):
"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."
59.	59.  The panel solicitor is then required to write to the client in the terms of the draft client care letter (1115):
"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."
60.	60.  The CFA under the heading "Paying Us" states (1119):
"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."
61.	61.  Under the heading "Success Fee" (1126) the CFA states:
"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: 
o	                                o            0% of the basic costs
The total of the success fee will not be more than 25% of the damages or settlement you win."
62.	62.  Under the heading "Own Disbursements" (1126) the CFA states:
"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."
63.	63.  Under the "Explanation of Words Used" "own disbursements" are described as follows (1121):
"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: 
•	§         if you win, we may be able to recover on your behalf the money for own disbursements from your opponent or, if these are not recoverable from your opponent and they have been reasonably incurred, then, we will make a claim under the policy; 
•	§         if you lose, then we will make a claim under the policy."
64.	64.  Section 9 deals with Medical Disbursement Company (MDL) service level agreement and medical reporting procedures. 
Operating Manual 2
65.	65.  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: 
"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.
66.	66.  Part 6(v) of OM2 sets out what is to happen in various circumstances including: 
"(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
67.	67.  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). 
Operating Manual 4
68.	68.  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). 
Operating Manual 5
69.	69.  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.
70.	70.  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.
Agreement Between AIL and the Panel Solicitors
71.	71.  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:
"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 representative commencing to act on behalf of any claimant to enable the appointed representative to consider whether he wishes to act on behalf of such claimant; 
2.2	in consideration of AIL observing and performing its obligations under clause 1 hereof and its obligations under this agreement, the appointed representative hereby agrees to pay £310 plus VAT … for undertaking investigatory services in relation to investigated claims in respect of which the appointed representative is retained to act on behalf of a relevant claimant;
2.3	the appointed representative shall make payment to AIL of £310 plus VAT … for undertaking investigatory services in relation to investigated claims in respect of which the appointed representative is retained to act on behalf of the relevant client (which the appointed representative acknowledges is a reasonable sum in relation to AIL’s such services).
2.4	The payment shall be made within 14 days of an invoice being raised (as set out in the appointed representatives agreement with TAG). 
2.5	For the avoidance of doubt an invoice will be raised 14 days after the appointed representative has confirmed that he has received confirmation of instructions from a claimant in accordance with the appointed representatives agreement with TAG; 
2.6	it is hereby acknowledged by the appointed representative that once a claimant has confirmed his or her instructions for the appointed representative to act there will be no refund of the AIL fee under any circumstances.
… " (1474/75)
72.	72.  A new form of AIL agreement was introduced in November 2001 by OM5 (F/1812). This agreement states:
"Whereas
…
2.	AIL undertake investigatory works as instructed by claimants at a fixed cost (the "investigation fee") of £315 plus VAT … 
3.	The appointed representative is a firm of solicitors which specialised in personal injury litigation and which is a member of TAGs panel of solicitors and has agreed with TAG to comply with the procedures set out in its Operating Manual [OM5].
4.	It is envisaged that the said sum of £315 plus VAT … will be funded by a credit transaction. "Credit transaction" means a transaction involving the provision of credit facilities to a claimant to enable the claimant to pay for the premium due under a policy and/or disbursements due by the claimant to his appointed representative or incurred by the claimant including, but not limited to the investigation fee.
5.	The appointed representative agrees (and undertakes hereunder, for the benefit of claimants for whom the appointed representative has agreed to act to recover the investigation fee save where the claimants claim for personal injury is unsuccessful.
It is agreed as follows:
1.	Duties of AIL
AIL will on behalf of claimants investigating claims referred to AIL by TAG and, as far as they are able to do so ascertain: 
[relevant information]
… 
2.	Duties of Appointed Representative
2.1	Subject to paragraph 2.2 the appointed representative hereby undertakes to recover the investigation fee from a opponents of claimants for whom he acts."
Agreement Between Investec Bank and the Panel Solicitor
73.	73.  Initially under the TAG scheme disbursements were funded by Investec Bank. The recital states (D/40/1163)
"(b)	The firm is a member of a panel solicitors of [AAB] for the conduct of personal injury litigation.
(c)	The Bank has agreed to enter into funding arrangements with the firm to satisfy certain invoices raised upon the firm by [AIL] 
…
2.	Definitions
…
7.6	"Invoice" means any invoice issued by AIL upon the firm in respect of claim investigatory services and being in the sum of £310 plus VAT.
…
4.	The Facility
The Bank agrees to provide the firm with a facility up to the maximum limit set out in the schedule … for the settlement of invoices in accordance with this agreement.
5.	Utilisation 
5.1	Utilisation of the facility shall be conducted as follows: when AIL raise an invoice, subject to clause 5.2 below, the Bank shall settle the same on behalf of the firm and shall debit the account of the firm and the bank in the sum of £310 plus VAT for each invoice. 
5.2	The Bank shall be under no obligation to settle any invoice but shall notify the firm if it does not do so. Without prejudice to the generality of the foregoing the Bank shall be under no obligation to settle any invoice where the debit balance on the account referred to at clause 5.1 exceeds the facility limit set out in the schedule (or where such settlement would cause the limit to be exceeded). 
6.	Repayment
Subject to clause 8 the firm shall repay the Bank £310 plus VAT in respect of each invoice paid by the Bank under clause 5.1 on the date falling 12 months from the date of the invoice or if earlier upon receipt of funds in respect of the settlement of a particular claim for which that invoice relates."
Agreement Between Bank of Scotland and the Panel Solicitor 
74.	74.  The agreement with the panel solicitor states: 
"Whereas … 
(c) 	the Bank has entered into credit agreements with clients (as defined below) to fund personal injury litigation, insurance policy premia and disbursements;
now it is agreed as follows: 
1.	Definitions
… 
1.3	"Disbursement" means any indebtedness or expenditure properly incurred and paid for by the firm to a third party on behalf the client for the purpose of furthering the client’s action.
…
2.	Acknowledgment
The firm acknowledges that the Bank will provide funding to clients of a kind referred to in recital (c) above and, notwithstanding any rights the Bank may have against clients or any security it may hold in respect of the same, is entitled to rely on the proceeds of actions or payments under policies to obtain repayment of such advanced to clients under its credit agreements. The firm acknowledges that the terms of the policies contain certain exclusions of liability on the part of the insurance company to make payment.
3.	Duty of Care 
…
The firm also acknowledges that it will conform and comply with the terms of all its obligations and instructions under any arrangement or agreement with TAG that agreement has annexed to it OM3."
Agreement Between the Client and TAG
75.	75.  When the AAB application form was in use (D/40/1087) the client was required to declare: 
"1.	That the information in this form is true to the best of my knowledge, information and belief and I request that [AAB] deal with this matter on my behalf.
2.	I understand that the information in this form may be used as a basis for court proceedings and for an application for a legal expenses insurance policy.
3.	I have carefully read and understood the AAB service agreement and declaration enclosed with this form."
76.	76.  The AAB Service Agreement and Declaration (D/40/1090) reads:
"This information form is designed to ensure that you understand the proposals [AAB] are providing under this arrangement and is also intended as a guide for future reference.
Your signature below confirms that you have carefully read and understand the form and that you have retained a copy.
Please keep the form safe for future reference.
I understand that:
(1)	If my application is accepted by AAB and evidence of insurance is issued, that AAB will assist me with my claim;
(2)	…
(3)	AAB will undertake whatever action is necessary to ascertain whether or not I have a claim that in their opinion has a reasonable prospect of success;
(4)	…
(5)	if AAB do not accept my application and do not issue evidence of insurance, the loan agreement with Investec Bank (UK) Ltd which I have signed will be cancelled automatically;
(6)	if my claim is successful my appointed solicitor will attempt to recover the amount of premium, loan interest and any charges I have paid to purchase the insurance policy from my opponent in addition to my compensation;
(7)	if my claim is successful but my appointed solicitor fails to recover all or any part of the balance outstanding on my loan, then the money I receive for my compensation will first be used to discharge my obligations under the loan. If the compensation I receive is less than the balance outstanding on my loan, then my liability to repay such outstanding balance will be indemnified, in so far as provided by, and subject to, the terms of the Accident Protect legal expenses policy ("the policy");
(8)	if my claim is successful, the policy, subject to compliance with its terms and conditions, provides for deficiency of damages cover which will guarantee a minimum sum of £500 damages being retained by myself after the deduction of any obligation under the loan and/or the policy provided my damages exceed this amount; 
(9)	if my claim is not successful I will be indemnified, … against my liability to pay my own disbursements and counsel’s fees …, my opponent’s legal costs and the outstanding balance on the loan made available to me to purchase the policy.
Declaration
I agree that if AAB accepts this claim: 
(1)	I will pay the premium of £840 [including IPT] for the policy; 
(2)	as I will borrow the money to pay the premium from Investec Bank UK Ltd I hereby irrecoverably and unconditionally authorise any solicitor appointed to act on my behalf to [deal with the money as provided by the funding agreement]."
77.	77.  The remainder of the declaration contains matters which are not relevant for the purpose of this decision. The declaration is signed by the client and dated.
78.	78.  In 2001 when a TAG claim application form was completed the client was required to sign a declaration as follows:
"I understand and agree that:
… 
4.	I would like and hereby instruct [AIL] to investigate and obtain further information surrounding the circumstances of my accident. I understand that the cost of the investigation will be a fixed fee of £364.25 and that such fee will form part of my claim.
5.	In the event that evidence of insurance is not issued then TAG will not seek to enforce liability to pay the premium and Accident Investigations Limited will not require me to pay their fee.
…" (D/35/928)
79.	79.  The client was also required to sign a TAG Service Agreement and Declaration (D/35/930) which in part reads as follows:
"This document is designed to ensure that you understand the proposals [TAG] are providing under this arrangement and is also intended as a guide for future reference. 
Your signature below confirms that you have carefully read and understood the form and that you have retained a copy. 
Please keep the form safe for future reference.
I understand that
… 
5.	If TAG accept my application I understand that they will (and I hereby confirm that I have instructed them so to do):
(a)	recommend a solicitor to act on my behalf;
(b)	arrange for my claim to be investigated by [AIL] for a fixed fee (the "investigation fee") of £376 (inclusive of VAT) to provide sufficient information to enable my solicitor to present a claim to my opponent and arrange for my claim to be funded by a suitable bank or other financial institution ("the funder").
6.	If my claim is successful the solicitor recommended by TAG to act on my behalf will attempt to recover from my opponent (in addition to my compensation) the premium I have paid to purchase the TAG project legal expenses insurance policy, any disbursements that have been incurred on my behalf and the investigation fee from my opponent. I understand that I will still have to pay the loan interest, which will be deducted from my compensation.
7.	If my case is successful but the solicitor recommended to act on my behalf fails to recover all or any part of the balance outstanding on my loan, then the money I receive from my compensation will first be used to discharge my obligations under the loan. If the compensation I receive is less than the balance outstanding on my loan, then my liability to repay such outstanding balance will be indemnified, in so far as provided by, and subject to, the terms of my legal expenses insurance ("the policy").
8.	If my case is successful, the policy, subject to compliance with its terms and conditions, provides "deficiency of damages" cover which means that I will receive a minimum of £500 after the deduction of monies due under the loan provided my damages originally exceeded this amount.
9.	If my case is not successful I will be indemnified … against my liability to pay my own disbursements and counsel’s fees (as defined in the policy), my opponents legal costs and the outstanding balance on the loan made available to me to purchase the policy and disbursements (if applicable).
10.	This policy contains and embodies the entire agreement between the claimant and TAG no variation or waiver of the terms of this agreement is valid unless in writing signed by a duly authorised employee of the Accident Group Limited. 
Declaration
I agree that I will be bound by and will comply with the terms and conditions of the policy. I agree that I will pay the premium of £997.50 (including insurance premium tax) for the policy, a copy of which is available upon request. In the event that a certificate of insurance is not issued solely on the grounds of liability and/or quantum (meaning the amount of the case) then TAG will not seek to enforce my liability to pay the premium. 
If TAG accepts this case, I further understand and agree that:
1.	If I borrow the money to pay the premium and disbursements (if applicable) from the funder I hereby irrevocably and unconditionally authorise any solicitor recommended to me by TAG to act on my behalf to:
(a)	pay any monies received by me as a result of the legal action being pursued by me and insured under the policy (save where monies are received in respect of a prior obligation to pay credit hire or repair charges) to the funder and that the funder will then deduct and keep the amount outstanding under my loan agreement with them and deal with any balance (and interest on that balance) according to my instructions.
(b)	The loan includes the premium, investigation fee of £376 (inclusive of VAT), interest, and any other expenses incurred by my solicitor on my behalf; …
…
I have carefully read and understood this document before signing it. By signing, I agreeing to be bound by its terms." (D/35/928 FF)
The declaration is signed by the client and dated.
Agreement Between the Client and the Panel Solicitor – The Retainer
80.	80.  The retainer between the client and the panel solicitor is controlled by the requirement that each panel solicitor should utilise the form of client care letter and CFA set out in the appropriate Operating Manual. I have already set out at paragraphs 59 - 63 those parts of the client care letter and CFA which are relevant for the purpose of this judgment. In addition I set out the sequence of events between client and panel solicitor at paragraphs 21 to 27 and 30 to 32 of my earlier judgment.
THE EVIDENCE
81.	81.  The evidence called by the Claimants in this case was provided by: Mr Neil Ross, Legal Director of the Accident Group since 1 April 2000 and Operations Director for TAG since 31 January 2001; Mr Justin Coss, Managing Director of Lawbridge Underwriting Ltd a wholly owned subsidiary of the Amulet Group Ltd, which is itself the holding company of TAG. Mr Coss had been employed by Lawbridge since April 2002; Daniel Primer, Director of Catlin Underwriting Agency Ltd, managing agents for syndicates 1003/2003 at Lloyds; Mr Gordon Blair, Amulet Group Finance Director whose responsibilities include all aspects of finance and accounting for TAG; and Mr Stewart McCulloch, Partner in the firm of Mace & Jones solicitors and Head of their Personal Injury Department. The majority of the cases selected for the TAG Test Cases are cases dealt with by Mr McCulloch’s firm and for which he is personally responsible. 
82.	82.  The Defendants called Mr Robert Cowley, who is employed by Norwich Union Insurance as Head of Actuarial (Intermediary Business) and who is a Fellow of the Institute of Actuaries. It was accepted by the Claimants that Mr Cowley was not giving expert evidence since he was giving evidence of fact, namely the figures produced when utilising data from the B & W Deloittes Reports commissioned by TAG.
83.	83.  It is necessary to summarise the evidence of each witness before proceeding further.
Neil Ross (C/29/659-692)
The 2000 Year
84.	84.  Mr Ross confirmed that in about November 1999 the AAB (TAG) scheme was launched and cases began to flow through. The premium was set at £800 plus IPT, the cost of TAG providing the insurance services was agreed at £480 with £100 being retained as premium retention. The risk premium was therefore £320 (including LPL’s commission and Prentis Donegan’s brokerage totalling £112) leaving a net premium of £208. He explained that the premium retention was required as security in case the venture failed and there was a run off. He confirmed that there is still a retention fund in place, although about two thirds of the fund has been released to TAG. 
85.	85.  Mr Ross was the only person giving evidence who was in a position to speak about the original insurance scheme and the original terms. He confirmed that Mr Primer of Catlin Agencies was not himself directly involved in November 1999. Mr Ross’ dealings were with Ian Thompson of Catlin, with Brian Raincock of Litigation Protection Ltd (LPL), with Richard Barnes of Investec Bank and he also obtained advice from Anthony Dennison of Rowe & Cohen.
86.	86.  Mr Ross was aware that LPL was a company that offered legal expenses insurance products and was also aware that they were broking insurance arrangements for Claims Direct Ltd. Mr Ross approached Mr Raincock and, once the scheme was put in place, he met Ian Thompson and Ian Hacker of Alleghany who were both Lloyds underwriters. He referred to a fax from Mr Raincock of 21 December 1999 (I/43/2245). This confirmed the business was now coming through although it was only three months since the scheme had been set up. The fax continues:
"Cover/Debit Note
This is being specially produced and will be with you shortly. What we have will not provide the information that you require. 
Policy Document
The final version has now been agreed by underwriters and has therefore been "scratched off" and is ready for use.
Premium Allocation
You expressed an unwillingness to accept that the additional £10 imposed by underwriters to extend the cover to include "positive deficiency of damages up to £500" [ring fencing] should be shared between us.
I have been back to underwriters who are adamant that this should stand, a view point with which I cannot disagree. You also expressed a view on what you called "our commission" and described it as "more than enough". I am sorry but I do not accept this – our share of the total premium is relatively modest when viewed in the totality and in particular our intellectual contribution.
We must insist therefore that the additional £10 demanded (quite understandably) by underwriters is divided equally between us.
I intend to process the current business on this basis accepting that it may need a meeting to achieve final resolution. Having said that I have an outstanding issue with Gary over Investec’s £20 fee and maybe we should resolve both matters at the same time. This will not happen before the New Year, however, and I suggest that we arrange to meet then."
87.	87.  Mr Ross was essentially relying on Mr Raincock’s expertise. He did not receive any actual insurance document in any form until November 2000 and spent most of the year 2000 chasing Mr Raincock for some sort of document. 
88.	88.  Mr Ross was taken by Mr Neish to the binding authority (D/43/4485(c)) under which the underwriters authorise LPL as coverholder –
"…
1.3	to process claims
in accordance with the terms and conditions contained herein or agreed in writing by the underwriters and endorsed hereon."
89.	89.  Mr Ross did not agree that LPL processed claims, saying that the reality of the situation was that for every failed case, the whole file of papers came in from the solicitor and would be reviewed by TAG. 
90.	90.  He was taken to the agreement dated 26 October 1999 between LPL and AAB (I/43/2241) and particularly paragraph 3 of the Continuing Insurance Services. Mr Ross suggested that this was part of the function of processing a claim. He expressed surprise that the agreement did not contain full detail of what it was the underwriters were paying TAG to do and suggested it did not reflect the reality of the situation and the intention of the situation.
91.	91.  The overall price of £800 (plus IPT) had to be agreed with the underwriters themselves because an element of the insurance was insuring the premium itself and there had to be an agreement as to what the gross price of the premium was to be in order that the underwriters could arrive at their risk premium. The final decision as to the premium to be charged was agreed in discussions with Mr Raincock in which Mr Ross’ managing director, Mr Langford, was involved. Mr Ross thought there was "an awful lot of guesswork in terms of the costings of the services that we were going to provide." 
92.	92.  Mr Ross was asked about the coverholder’s commission (I/43/2285/M). Section 25.2 of the Agreement refers to commission: "as specified in Appendix 1", but no Appendix 1 has been produced. Mr Ross was asked if he could confirm that it was £78 per head at that stage. He replied that there was confusion as to what the commission was during 2000. He knew that the premium was inclusive of brokerage but "we were never very comfortable hence why we were chasing documents, as to what the exact breakdown was. We knew that it was around £112". Because Mr Ross had not seen the binding authority and did not see it until November 2000 he was not aware that there was a gross premium income limit. (See Section 21, I/43/2285K) Because of his later experience he was however able to confirm that the £3 million limit would have been divisible by the figure of £320 (the risk premium inclusive of brokerage) to calculate the number of policies which could be sold (i.e. 9375). When it became apparent that there was such a limit, and that the company was approaching the limit, TAG became dissatisfied with Mr Raincock and subsequently other arrangements were made. Mr Ross confirmed that for the 2000 year there was no contractual entitlement on behalf of underwriters to any further premium than the £320 per case.
93.	93.  On 5 April 2000 a meeting took place at the offices of Prentis Donegan & Partners attended by Mr Ross and his finance director Alan Cartwright, together with a representative of Prentis Donegan (Charles Knight) and Mr Raincock and others from LPL. The underwriters Ian Hacker and Ian Thompson also attended. Mr Ross stated that the premium allocation split had already been agreed and could not remember whether it was discussed again at that meeting. He knew that it was £320 inclusive of brokerage and that the underwriters contribution to costs was £480.
94.	94.  In a letter dated 12 March 2001 (I/43/2390) Mr Ross wrote to Rupert Aitken at Alleghany Underwriting Limited setting out the premium split agreed at a meeting with LPL in mid January 2000. The premium of £840 was made up of £40 IPT, £480 to AAB (TAG) (£400 for the insurance services provided to underwriters and £80 for commission), £242 premium to underwriters and £78 commission to LPL. Mr Ross’ contemporaneous note of the meeting (I/2392) has the words "assessment and monitoring £400" next to the figure of £480 to AAB. The note of Mr Hoddes who also attended the meeting, (I/2393) refers to a £400 assessment/monitoring charge and £75 commission. Whilst his note of the LPL commission is £83. The total figure in each note is £840. Mr Ross was unable to confirm whether the £80 described in his letter as being "for commission" was commission for bringing cases into the scheme. Mr Ross said this was never clarified and certainly never agreed. 
95.	95.  In a letter of 7 August 2000 from Mr Ross to Mr Raincock of LPL (I/2258) he wrote: 
"The only issue which I am undecided on is with regard to the level of commission we are receiving and which has to be detailed to the other side if proceedings are issued. I realise most of our costs is for providing post and pre insurance services on behalf of the underwriters but I recall there being a small element of commission. What are your views here? A commission could be challenged."
No response was received from Mr Raincock
Lloyds 2001
96.	96.  Mr Ross explained that there was negotiation during 2000 which was finalised around January 2001. The business was growing fast and towards the end of 2000 Mr Raincock informed Mr Ross that there were immediate capacity problems which he was able to resolve with short term solutions. When the business projections for 2001 were given to Mr Raincock he was unable to provide the capacity for the whole year. As a result of LPL’s failure to provide the necessary capacity they dropped out and Prentis Donegan took over and negotiated terms with Lloyds for 2001. 
97.	97.  On 17 January 2001 Prentis Donegan faxed Mr Ross offering TAG, as the coverholder, terms which included the following (I/2290/91):
"Interest: conditional fee insurance scheme
Limit: £50,000 each case
Policy wording: to be drafted by Berrymans including deficiency in costs limit £500 each case [ring fencing] – wording as previously provided.
Claims: Coverholder to have settlement authority of up to £5,000 each claim.
Premium income limit: £20 million based on 60,000 policies
Premium: £345 (including PDP brokerage of £18) with swing adjustment on 125% paid loss load up to a maximum £550.
In lieu of LOC underwriters to have charge on £100 per case upon release from retention fund. (Terms to be agreed.)
Profit commission: 25% to TAG
…" 
98.	98.  By this time Mr Primer of Catlin had become more directly involved. Although Mr Ross had conversations with Mr Primer and Mr Aitken of Alleghany they preferred to negotiate through Prentis Donegan.
99.	99.  The details relating to swing premium were not finally agreed but on 25 January 2001 Prentis Donegan sent to Mr Ross a copy of the placing slip (I/43/2294-2299). This confirmed TAG as the coverholder and also provided details of the proposed swing premium and retention fund (2297).
100.	100.                      The period of the placing slip is stated to be: "36 months from 1 February 2001 inclusive" (2295).
101.	101.                      Mr Ross confirmed that the risk premium including brokerage of £16.50 amounted to £328.50. 
102.	102.                      On 9 February 2001 Prentis Donegan sent to Mr Ross the final placing slip, the terms with regard to premium had been somewhat altered as follows (I/43/2317):
" "Premium" - £950 each case plus IPT of £47.50 each case less £621.50 each case underwriters contributions to costs. 
The net premium will be adjusted to ensure that cumulative paid loss ratio does not exceed 80% per annual period subject to a maximum net premium of £550 per certificate issued for the relevant annual period. This will be achieved by rebating underwriters contributions to costs. Any such adjustment shall be calculated and closed on a monthly basis.
Retention fund: out of the amount paid as underwriters contributions to costs, the coverholder shall pay £55 per certificate.
The above amounts shall be paid into a trust account for the benefit of underwriters as security for any amount refundable as set out under the adjustment of premium provision contained herein. This retention fund shall form part of the annual review."
103.	103.                      That slip was signed by four Lloyds underwriter and ultimately by six, including Catlin, Alleghany and Goshawk.
104.	104.                      LPL dropped out of the picture, but Mr Ross confirmed there was no formal agreement replacing the agreement which TAG had had with LPL but the insurance services were provided in the same way as they had been before. A new Operating Manual was issued, OM3 (E/1308). Mr Ross confirmed that a copy of OM3 would have gone to Prentis Donegan, who would in turn have shown it to the underwriters. OM4 is dated 23 February 2001 (F/1484-1593). The initial and continuing insurance services remained substantially the same (1496/97). Mr Ross was responsible for the production of both OM3 and OM4. He did not agree that the insurance services were designed to dovetail with the step by step procedures in OM4 (F/1503) in that the step by step procedures were not written by reference to the insurance services. Whilst the insurance services provisions had remained the same, the step by step procedure had very much altered with operational changes.
105.	105.                      With regard to the agreement entered into with BESSO on 5 November 2002 (I/43/2527) (see para 23) which is said to be effective from 1 February 2001, Mr Ross explained that TAG had attempted to have a service contract with its underwriters from the beginning of 2001 onwards. The agreement went through various drafts but the basic agreement appears to have come from the lawyers for the underwriters. Mr Ross confirmed that the services being provided by TAG to underwriters were the same as under the Operating Manuals, although now set out in the later agreement in rather more detail.
106.	106.                      The BESSO agreement required TAG, as part of the initial insurance services, to undertake: "the reasonable and responsible marketing and promotion of the TAG conditional fee insurance scheme" (2551). Mr Ross agreed that TAG was advertising the whole of the scheme and not just the insurance product. He suggested there was only one product and that insurance was an integral part of that product. The Lloyds underwriters required to be informed of the different routes to market and of any major changes to those routes. TAG had to have permission to use the Lloyds brand name. The various routes to market used by TAG included direct TV advertising and brand advertising of the TAG name as a backup to other routes to market, such as stands in shopping centres and door to door canvassing, there was also newspaper advertising and some radio advertising. Mr Ross was unable to say what the cost of marketing was.
107.	107.                      Under the agreement with LPL, although it was Mr Raincock who was authorised to issue the certificate of insurance and to sign it, Mr Ross explained that the certificate was a computer standard form into which would be inserted the relevant details and that form had on it Mr Raincock’s electronic signature. The actual issue of the document was from the TAG system from their offices. Mr Ross confirmed that the underwriters knew about this and did not complain. 
108.	108.                      Although under the Binding Authority in force from 1 February 2001 (I/43/2366) Mr Ross was the person authorised to bind, and the only person authorised to sign documents issued, he stated that he never in fact signed certificates. This was done by Mark Langford the Chairman. This was again done by means of an electronic signature.
NIG 2001
109.	109.                      At the beginning of February 2001 TAG arranged underwriting capacity with NIG which was formalised in an agreement dated 1 July 2001. TAG began issuing polices with NIG from the beginning of February, with whom a policy wording had been agreed, and the premium allocation was as set out in the formal agreement of 1 July 2001 (I/43/2435) (see para 34). Prentis Donegan & Partners had nothing to do with this agreement which was directly negotiated between TAG and NIG. There is therefore no brokerage element in the premium. Different types of cases were allocated to the Lloyds policies and to the NIG policies. It was important for TAG to be able to identify which cases were with which underwriter, not only for reporting purposes but also because there were different terms relating to premium allocation. Once there was computer software in place the individuals who activated the cases and put them on cover would select the underwriter. This was done on a purely random basis. 
110.	110.                      Under the Agreement with NIG the premium was £950 plus IPT, of which NIG received £300. Although there was provision for additional premium in the agreement (paragraph 5.2, I/43/2441) NIG did not give notice of any variation of premium during the 2001 year. The premium allocation went up to £450 in the last four months of 2002. The £450 applied only to cases going forward. TAG were authorised to handle and settle claims up to £5,000.
111.	111.                      Mr Ross confirmed that "New Insurance Fulfilment" in Appendix 2 of the Agreement (T/43/2452) was intended to be the equivalent of initial insurance services. He suggested that the services set out at paragraph 3.2 and 4.1 (2453) were designed to take place after the case had been activated and AIL were not any longer in the loop. He suggested that under paragraph 3.2 what was happening was the collation of information rather than the obtaining of information. He did not think that there were many occasions where a solicitor, once a claim was accepted, would come back to TAG to obtain witness statements. He thought it was probable that the solicitor would manage that work. 
112.	112.                      The NIG Agreement (I/43/2435) was drafted by NIG’s lawyers. AIL investigates the claim in accordance with paragraph 3.2 of the Service Level Agreement (2453) but does nothing within the NIG Service Level Agreement. The situation is no different to that under the Lloyds cover.
The Work Done by AIL and TAG
113.	113.                      Mr Ross confirmed that the teams running stands in various shopping malls were referred to as "exhibition consultants" and were employed by TAG. He was shown a copy of a computer screen print-out (B/21/408A). This sets out in various columns activities undertaken in respect of claims and states the company carrying out the act, the date when it was done, a brief description of what was done and the time taken. The first line therefore shows that AIL, on 4 October 2000, interviewed the client at an exhibition stand for 30 minutes. Mr Ross explained (transcript day 2, page 36, line 25):
"We were trying to develop a system whereby different areas of business – there was time recording put against the different aspects of the scheme so with regard to AIL you can see upwards of 10 or so different activities and Accident Advice Bureau activities."
114.	114.                      He was asked why it was that the task of interviewing the client at the exhibition stand was being attributed to AIL rather than TAG. He replied (day 2, page 37, line 21):
"That is more a deficiency of this time recording system which has had a lot of failings with regard to being inputted correctly and being correctly written in the first place, programming errors, wrong usage, under usage and so on."
He then confirmed that the individual who had put in the information had automatically applied AIL against that area of work where it should not have been.
115.	115.                      In relation to the Step by Step Procedure (D/40/1066) Mr Ross stated that the reference to a "claims manager" at steps 5 and 6 was incorrect (day 2, page 40, line 25):
"I think to be honest about this description there was no claims manager as such and this step by step procedure is quickly amended when Operating Manual 2 comes out. The reality was that the claim would come into the office and would receive a very high level vetting of what I would describe as an inputting stage, inputting that claim onto the system and then would be passed to AIL to carry out the investigation."
116.	116.                      By "high level" vetting Mr Ross meant "superficial", looking for very obvious deficiencies, such as being outside the limitation period. He explained that the people employed by AIL as investigators were a different type of person to the exhibition consultants. They were an internal team of people and a different quality of individual. He characterised an exhibition consultant as carrying out a sales role, whereas the investigators carried out an investigation role which attracted, for example, retired policemen. Mr Ross did not really know how exhibition consultants were paid, suggesting that they might have been given a salary and a commission for productivity but he confirmed that they were not franchisees. 
117.	117.                      At paragraph 77 of his witness statement (C/29/681) Mr Ross explained how: 
"The investigator contacts the claimant, usually by telephone and completes a detailed questionnaire which contains a statement of truth specifically designed to the category of claim (road traffic, employers liability or public liability). The investigator will determine whether or not or one of his colleagues should meet with the claimant to obtain further information or take photographs."
118.	118.                      He was asked whether this equated to the Initial Insurance Services (D/40/1060). He did not think that they were identical and pointed out that paragraph 4 of the Initial Insurance Services (collating the AAB application form and other documents) was not part of the investigation process carried out by AIL. Mr Ross also pointed out that, in slip and trip cases, photographs were obtained, sometimes by AIL, sometimes by TAG. There was a separate photography team but sometimes TAG would arrange for the photographs to be taken. 
119.	119.                      The arrangement in the TAG office in Old Trafford was that both TAG and AIL occupied the same one storey building. There was a separate room for the AIL people and a main office for the TAG people, both were on the same floor. He confirmed that the room was a sort of call centre room with banks of desks, with phones and computer screens. He confirmed that the AIL investigator filled in the AIL questionnaire (D/40/1100 ff) whilst speaking to the client over the telephone.
120.	120.                      Once the questionnaire had been filled in TAG employees would keep the client informed of the progress of the case. This would be done by administrative staff who would have to deal with the processing of the case through the system and also communicating with the client by standard letter or by taking phone calls dealing with the progress of the case. The TAG Customer Services Department helped with complaints and customer enquiries even after the claim had been accepted by the panel solicitors. He stated (day 2, page 51, line 18):
"… by virtue of the type of individual who are clients, they tended to quite often be more comfortable contacting us for an update on the progress of their claim or if they had received a communication from the solicitor that they did not understand or whether they felt the case was not progressing quickly enough. There were many occasions when we would deal with customer enquiries after acceptance."
121.	121.                      The AIL role generally finished when the case was passed for final vetting. Mr Ross pointed out that sometimes the vetting solicitors Rowe & Cohen would ask for further information and the case would be referred back to AIL for further work to be done. Mr Ross suggested that "an awful lot of cases" came back with a request for further information from the vetting solicitors.
122.	122.                      Mr Ross was asked whether it was correct that the costs of the investigation by AIL were not included within the cost of providing the insurance services (C/29/679 para 69). He confirmed that it was correct. He said that after the case had been accepted by the panel solicitor, if assistance was needed beyond acceptance of the case, then it was more likely to be TAG that would provide that assistance rather than the AIL part of the business. TAG does not invoice the panel solicitors for doing any of that work because it is effectively part of the Continuing Insurance Services being provided. Mr Ross was adamant that after acceptance of a case by a panel solicitor TAG would certainly be carrying out further work but he confirmed that TAG would not be obtaining statements of truth, witness statements and expert’s reports. He explained (transcript day 2, page 60, line 10):
"We are not saying that under the insurance services the actual investigation is being done. That is completely separate. That is Accident Investigations Ltd. It is important for the underwriters and the insurers that the process, if you like, of an investigation in terms of gathering information, is done. It is that service that we are being paid for, ensuring that a full investigation is being carried out and information is being collated and then vetted, rather than the actual investigation, the actual information gathering, which is done by Accident Investigations."
123.	123.                      It was suggested to Mr Ross that the agreement with LPL (I/43/2241 FF) did not reflect the position as he related it. He pointed out that this was very early on at the beginning of the scheme and that as time went by the documents caught up with the reality. Mr Neish pointed out that in the agreement of 28 September 2000 between LPL and TAG (I/43/2261 FF) similar provisions appeared. Mr Ross stated (day 2, page 64, line 5):
"It does not accurately reflect what is meant by the statement "obtaining such further information including a detailed statement of truth, and statements from witnesses and experts as may be required by the appointed representative. That is not in my view reference to the actual investigation work by AIL."
He denied that TAG was charging underwriters for exactly the same work as was being charged to the panel solicitors.
124.	124.                      It was put to Mr Ross that the duties of AIL under its agreement with the panel solicitor (E1474-1478) (see para 71) were to all intents and purposes the same as the continuing insurance services to be provided by TAG under its agreement with LPL. He disagreed, suggesting that the insurance services provided by TAG identified in the agreement with LPL (I/43/2262 at eg, para 1.4) were not designed to mean that it was the detailed investigation, obtaining photographs, etc, which was carried out by AIL. 
125.	125.                      Under the Agreement of 26 October 1999 between AAB (TAG) and LPL (I/43/2241) (see para 16) Mr Ross said that TAG undertook Initial Insurance Services 1 and 2 but that in respect of 3 AIL did some of the work collating, having carried out their investigation. He confirmed that the function of AIL was the actual investigation. Initial Insurance Service 4 was again a TAG function. TAG had a team who could obtain the further information requested by the panel solicitor.
126.	126.                      With regard to monitoring the conduct of panel solicitors (in accordance with paragraph 2 of the continuing insurance services in OM1 (D/40/1061)) (see para 51), Mr Ross explained that TAG had a team of solicitor auditors that would remove solicitors from the panel who were not up to scratch. Any change would be communicated to the underwriters. Originally there were two individuals doing this. The team had now grown to 15. The monitoring was done on an ad hoc basis. He was unable to identify in any detail the way in which monitoring of panel solicitors was carried out. 
127.	127.                      In relation to continuing insurance service 3 "providing on-going assistance to the client" (D/40/1061) this was described by Mr Ross as the continuing support to the client in relation to attending medical examinations or in respect of letters received by a client which they are confused about. TAG provide explanations and assistance. He felt that they needed to do a lot of work with regard to supporting the clients through the process. He confirmed that there was a high failure rate early in the process in terms of what he called "voided cases".
128.	128.                      In respect of continuing insurance service 4 (D/1061) this service was provided when there was a claim under the policy. There would be a full review of the case analysing the work done and the amount involved. Details of the analysis were fed through to the underwriters on a regular basis. If there was a claim for costs which warranted further investigation a costs consultant would be appointed to review the costs. This was done on an ad hoc basis.
129.	129.                      Continuing insurance service 5 (D/1061) "providing and maintaining relevant financial information" was undertaken by means of a regular monthly development report setting out the position of the cases, the details of claims ratios, the amount of claims costs that have been paid. It gave details of the successful cases. The system started with closed case and claim information from the start and has developed and improved over the years. Information was given to the underwriters on a daily basis through computer link.
130.	130.                      With regard to the Continuing Insurance Services he confirmed that AIL had no involvement with the solicitors at all in terms of gathering information after the case had been activated. At the stage of the Continuing Insurance Services no work is conducted by AIL only by TAG.
131.	131.                      The insurance services set out in the BESSO agreement are very much more detailed than in the earlier agreements. Nonetheless Mr Ross confirmed that the intention always was that AIL would gather the information and carry out the investigation, whereas TAG’s vetting processes and procedures were to carry out the vetting and the filter of cases going through the system. 
132.	132.                      With regard to the Agreement dated 5 November 2002 (I/43/2527) which was stated to be effective from 1 February 2001 Mr Ross agreed that TAG was acknowledging by the Agreement, in relation to Initial and Continuing Insurance Services, that TAG had performed their services as required by the Agreement as from that date. He confirmed that AIL played no part in either the Initial or Continuing Insurance Services described in that Agreement.
The AIL Fee
133.	133.                      Mr Ross’ evidence is to the effect that the AIL fee of £310 plus VAT was in respect of investigatory work undertaken by AIL on behalf of the claimant rather than on behalf of the panel solicitor. The fee has increased to £320 plus VAT (£376) with effect from May 2002. 
134.	134.                      In relation to AIL Mr Ross asserted that the claimant was fully aware of and agreed to be responsible for the AIL investigation fee. The panel solicitor does not contract with AIL to pay the fee, except that in the early scheme the fee was paid by the panel solicitor as a disbursement on behalf of the claimant. As the AIL fee is paid by the claimant through a loan, the claimant is liable for the interest accruing on the loan once the AIL invoice is discharged, and remains liable for the interest regardless of success or failure of the action. By the time the AIL invoice is rendered the investigation works have been completed. The claimant pays AIL’s fee at the outset and Mr Ross asserted that the claimant’s liability for the fee is discharged by way of the loan or by the claimant direct. If there was no loan, the outcome of the case has no bearing on the claimant’s responsibility to discharge the fee (see Mr Ross’ witness statement C/29/661 at para 8).
135.	135.                      AIL were instructed to carry out the investigation work by means of a standard letter (F1571) delivered to them (internally through the office) in respect of the relevant case.
136.	136.                      In accordance with step 6 of the step by step procedures (non telephone reported claims) (step 4 of telephone reported claims) AIL contact the client and complete a questionnaire with more detailed information of the accident, circumstances and losses sustained. AIL return the file having also provided their recommendations on liability and quantum. Mr Ross explained there was effectively a standard form that would be used. If there was information that the case was not fit to go further that would be the recommendation. It was ultimately the vetting solicitors who would decide on liability and quantum but if something obvious came up during the investigation showing that the claim was without merit it would be stopped at that point. 
137.	137.                      The vetting is carried out by Rowe & Cohen who charge a fee of £45 to the panel solicitor. The panel solicitor has had no contact with AIL. 
138.	138.                      Mr Ross agreed that the pro forma agreement between the solicitors and TAG was used until a new form of agreement came into effect with OM5 in approximately November 2001. Mr Ross accepted that in paragraph 8 of his witness statement he was dealing with the position as it now is. He said he was seeking to clarify the intention, (day 2, page 134, line 14):
"… the investigation services were a necessary function of the scheme and … the scheme did not simply refer the panel solicitor to a name and address of a client but to enable the client’s claim to be considered properly and the investigation fee was charged but paid by the client, an intention really on behalf of the claimant as opposed to a claimant going directly to a solicitor and spending some time giving detailed information regarding the circumstances of an accident which I am not sure would happen before [or] after a retainer but that was always the intention as opposed to it being a claim by the solicitor for the referral of the case."
139.	139.                      Mr Ross agreed that under OM5 the provisions relating to AIL were entirely different. The pro forma agreement (F/1812) recites:
"2.	AIL undertake investigatory work as instructed by claimants at a fixed cost … of £315 plus VAT … 
… 
5.	The appointed representative agrees (and undertakes hereunder) for the benefit of claimants for whom the appointed representative has agreed to act to recover the investigation fee (save where the claimant’s claim for personal injuries is unsuccessful)."
140.	140.                      The duties of AIL include:
"1.1	AIL will on behalf of claimants investigate claims referred to AIL by TAG and as far as they are able to do so ascertain: [relevant information]"
141.	141.                      The duties of the appointed representative include:
"2.1	Subject to paragraph 2.2 the appointed representative hereby undertakes to recover the investigation fee from opponents of claimants for whom he acts; 
2.2	the appointed representative shall not be required to recover the investigation fee from opponents of claimants in cases where the claimant’s case has been unsuccessful …" (F/1813)
142.	142.                      Mr Ross explained that it had been the intention all along that the investigation costs were a disbursement of the claimants payable by the solicitor and that the original contract had not accurately reflected that. Mr Ross thought this was another example of the documentation catching up. He stated (day 2, page 137, line 17):
"The intention of the scheme had always been that this was a disbursement incurred on behalf of the claimant, paid by the solicitor on behalf of the claimant and in November 2000 it was decided that the payment of that would move from the panel solicitor to the claimant. It is correct to say that the paperwork with regard to that probably took another 12 months to catch up."
143.	143.                      He stated that although payment of AIL fee was originally funded directly between the funders and the panel solicitors the intention was that the payment was made on behalf of the claimant and would be recoverable at the conclusion of the claim. When the funding arrangements were altered to provide the client with a loan this was a reflection of the situation.
144.	144.                      Mr Ross was of the view that the requirement in the AIL agreement (E/1475) that the solicitors should pay £310 was a mistake, or an oversight, or a failure to catch up. He thought that the problem was considered around the summer of 2001 which led to the change in November 2001.
The Indemnity Principle
145.	145.                      Mr Ross agreed that panel solicitors, in return for the volume of work sent to them by TAG, had to agree to use the standard form of CFA. He accepted that the panel solicitors do not get the work unless they agree to comply with the terms of the Operating Manual. 
146.	146.                      It is clear from Mr Ross’ evidence that he, and no doubt others in the company, were feeling their way at first with the TAG scheme. Mr Ross appears to have operated for a considerable period on what he hoped was the agreed position. Thus, although the initial agreement with LPL is dated October 1999, it was not until November 2000 that he received details of the insurance cover under which the company was operating. It was at that time that the capacity problems were revealed. In his evidence Mr Ross expressed surprise that a number of the documents did not appear to reflect the scheme as he had understood it to be operating. Since however, TAG has signed up to the various agreements which I have set out, TAG must be taken to have agreed that its scheme would operate in accordance with those agreements even though, as in the case of the BESSO agreement, it was not finally signed until some 19 months after it was said to have come into force. There appears to have been a level of naivety on the part of those involved in TAG who appear to have felt that they could run the TAG scheme as they thought appropriate with no great regard to the terms subsequently agreed. One specific instance which demonstrates this is the TAG binding authority under which Mr Ross is the only person authorised to sign. Something which apparently he never did. 
147.	147.                      In relation to the arrangements for the 2000 year, it does seem clear that it was agreed in January 2000 that the amount payable to TAG would be £480. Of that £480, I find that £80 was paid to TAG as introducer’s commission. The remaining £400 is recorded in two independent but contemporaneous notes as relating to "assessment and monitoring". When asked about this Mr Ross was somewhat vague as to what it might mean. It seems to me, given the background, that "assessment" can only mean vetting and "monitoring" must mean monitoring the performance of panel solicitors, and I so find.
148.	148.                      In respect of the Lloyds 2001 year, and the BESSO agreement under which TAG was required to carry out marketing and promotion, Mr Ross had no idea of the cost of marketing, notwithstanding that this was said to have been carried out since 1 February 2001. 
149.	149.                      So far as NIG 2001 year is concerned it is clear that the amount paid to TAG from February 2001 until September 2002 was £650, thereafter the premium allocation was altered giving £450 to NIG and £500 to TAG.
150.	150.                      In relation to the work done by AIL, I find that AIL carried out a limited investigation role separate from the work undertaken by TAG. There is some overlap between the original questionnaire obtained by the exhibition consultant (a TAG employee) and the application form completed by AIL (usually by means of a telephone call). AIL also carried out some collating work similar to that required by Initial Insurance Service 3. I also find that AIL do nothing in the case after it has been accepted by the panel solicitor.
Justin Coss (C/30/693-705)
151.	151.                      Mr Coss became involved in ATE legal expenses insurance when he was litigation risks underwriter at XL Brockbank which he joined in May 1999 initially as an in-house legal adviser. The syndicate was involved in the Accident Line scheme endorsed by the Law Society and administered by Abbey Legal Protection Ltd. Abbey possessed claims statistics relating to ATE insurance of cases dealt with on CFAs from 1995 onwards. The previous underwriter of the Abbey scheme had realised a significant loss despite large gross premium increases in both 1997 and 1999. Since the statistics which had been accumulated applied to the period before the advent of recoverable success fees and ATE premiums no great reliance could be placed upon them.
152.	152.                      In about January 2001 Mr Coss was approached by Prentis Donegan as a result of which XL Brockbank participated as one of the underwriters of TAG’s 2001 Lloyds facility. In March 2002 Mr Coss was appointed managing director of Lawbridge with overall responsibility for the Amulet Group’s insurance affairs.
153.	153.                      Realising that there was no formal, comprehensive, external analysis of claims statistics he instructed B & W Deloitte (BWD) to undertake a full actuarial review of TAG’s claims statistics. The first report was dated 1 July 2002 (M/3333-3366). A second report was produced on 3 March 2003 (M/3366-3417). The second report is an analysis based upon data as at 31 October 2002. The purpose of these reports was to give some certainty to underwriters in fixing premium for risk. Prior to the preparation of these reports no adequate statistics were available. The report sets out (M/3355) a summary of results as at May 2002, tabulated on a monthly basis from December 1999. The table shows the number of cases activated and the net premium per case. It also shows the number of claims to date and the ultimate failure rate. Similar information is provided in the second report (M/3387). The second report, sets out a summary of results for TAG business at table 1 (M/3371). The ultimate failure rate is shown to average 31.6% and the burn per case averages £625. Mr Coss explained that "scheme 1" covered the period from December 1999 to January 2001 and "scheme 2" February 2001 to May 2002. 
154.	154.                      With regard to the reference to "burning cost before interest" and "burning cost after interest" (M/3355) these figures were inserted at Mr Coss’ specific request since he wanted to negotiate with underwriters to achieve the lowest possible net premium figure. He wanted to be able to discount the net premium to take into account the fact that underwriters earned investment income on premiums received before any claims came to fruition. This approach came to nothing since the underwriters did not take into account investment income in calculating their premiums.
155.	155.                      Having obtained the BWD report Mr Coss instructed several specialist Lloyds brokers to canvass the insurance market with a view to acquiring suitable underwriting capacity. Since joining Lawbridge he has approached in excess of 100 underwriters in various markets. It became clear to him that ATE business was not an attractive proposition to most underwriters because of the statistical uncertainty and losses sustained by certain insurers. There was also the problem of what he called "reputational issues of being associated with an industry that has received considerable publicity" (C/30/698 para 15). 
156.	156.                      Mr Coss explained (C/30/699, paras 18 & 19) that an additional facility was agreed with Catlin during October 2002 providing for a risk premium of £550 plus IPT (inclusive of £10.50 brokerage payable to BESSO) and a swing premium of up to £275 (in respect of potential losses). In addition it was a term of the agreement that for each new policy written £150 would be paid to the underwriter to offset losses in relation to the 2000 year Lloyds facility. The 2000 year was underwritten as to 45.5% by Catlin. The additional premium of £150 agreed in October 2002 was attributable only to Catlin’s participation. The 2002 facility enabled TAG to underwrite 20,000 policies, meaning that the payment of £150 per policy produced approximately £3 million. Mr Coss suggested that this was distributed "as to approximately £248 over 12,080 polices which represents 45.5% of the 26,550 policies underwritten by TAG on behalf of Lloyds in 2000". He suggested that this effectively meant that Catlin would receive £456 per policy excluding brokerage, while the other underwriters would receive £208 per policy. This arrangement reduced Catlin’s predicted ultimate loss ratio from 268% to approximately 134%. 
157.	157.                      In the 2001 year Goshawk contributed 35% to the overall Lloyds capacity. It was a term of the Lloyds renewal under the 2003 facility that £70 per policy (a total of £1.75 million) would be paid to Goshawk in respect of their participation in the 2001 Lloyds facility. Mr Coss said this meant that Goshawk would receive effectively £635 per policy excluding brokerage of £16.50 per policy, whilst the other Lloyds underwriters would receive £550 per policy excluding brokerage. Mr Coss went on to detail the other arrangements which he had made and was in process of making for the 2003 renewal. 
158.	158.                      Annexed to the second BWD report is a summary of average cost comparison and analysis. This was apparently produced separately from the report (M/3406). The table sets out a total cost of some £2,045 made up of a number of elements, the biggest of which is £997.50 return of premium (premium to TAG). Also included was the return of the AIL fee, £376, interest on the premium and AIL fee, disbursements and third party costs and disbursements. Mr Coss agreed that underwriters would decide on premium globally based on whatever statistics were available. Underwriters would be aware of the cost to them, it would merely be the frequency of claims which would change. Mr Coss suggested that some 40% of the 2000 cases were still live and for later years the majority of cases were still live. 
159.	159.                      Mr Coss confirmed that the loss experience adjustment in the 2000 agreement (C/30/723) was arrived at in a similar context to the agreement to pay Goshawk additional amounts, ie TAG were approaching them for additional capacity. During the negotiations with Catlin and Goshawk these payments were often referred to as "premium" even though it might not have been written down using that word. 
160.	160.                      Mr Coss’ evidence was entirely factual and I accept those facts as given in evidence.
Daniel Primer (C/31/781)
161.	161.                      Mr Primer explained that the syndicate which he represents was one of the first to participate in the ATE market and his agency was involved in discussions with Brian Raincock of LPL. At first these discussions were dealt with by Jamie Lewis and then by Ian Thompson. He (Primer) assumed personal responsibility for the account during 2000. 
162.	162.                      As with any new project predictability of the TAG scheme was very uncertain. The likely underwriting results were extremely difficult to project. Underwriters tried to estimate and anticipate "burning cost" per policy and added a margin for error, overhead and profit. Although they looked at Law Society data which indicated a high rate (95%) of success in personal injury claims the burning costs were roughly estimated: 
"the arithmetic therefore was done on the assumption that the figures could and would be readjusted as and when more information became available and claims were being experienced." (C/31/783 para 6)
163.	163.                      The TAG scheme was judged on its own merits and on the assumption that there would be a failure rate of no more than 4% to 6%. Underwriters were attracted to the CFA based scheme since this would give solicitors a better incentive to succeed. Underwriters loss experience for the 2000 year was projected to settle at a loss ratio for underwriters in excess of 250% (this figure is reduced to 150% after further payments had been made to underwriters by TAG). Mr Primer thought TAG’s failure rate to be in excess of 30%. 
164.	164.                      The value of services provided by TAG was never precisely quantified. The split of premium between the parties reflected an arms length negotiation.
165.	165.                      The premium paid by the policy holders, originally £800 plus IPT for 2000 and thereafter £950 plus IPT, is the amount that underwriters are insuring. Mr Primer explained that the larger the premium the more expensive underwriters claims costs would be. The cost of the premium is indemnified, thus the claim costs increase.
166.	166.                      The premium allocation agreed was based on underwriters best estimate of the ultimate burning cost together with an understanding between the parties that future allocation would reflect actual underwriting results in the scheme. In the 2000 year it was agreed that underwriters would retain £320 of the premium (including £112 brokerage and commission), the remainder was retained by TAG. In December 2000 underwriters share of premium was increased to £275 (brokerage and commission was reduced to £45). 
167.	167.                      At paragraph 16 of his witness statement Mr Primer deals with the fact that he felt the risk premium being retained was insufficient (C/31/787):
"Prior to the February 2001 renewal I had formed the opinion that the risk premium retained by underwriters was significantly unrealistic and insufficient to either pay for claims or generate any profit. I was also interested in formalising the underwriter’s partnership with TAG by creating a "swing premium" mechanism whereby the underwriters would receive by way of refund from TAG an additional premium allocation to the extent justified by underwriting performance. For the 2001 underwriting it was agreed that there would be an initial premium allocation to underwriters of £328.50 per policy including £16.50 brokerage to the Lloyds broker. Up to an additional £238 per policy making a total of £566.50 would be payable to the underwriters to the extent necessary to cap the underwriters loss ratio at 80% …"
168.	168.                      Mr Primer was of the opinion that the risk premium for 2001 would increase from the initial £328.50 to £566.50 including brokerage of £16.50. The risk premium for January to October 2002 was agreed at £360.50 with a "swing premium" to a maximum of £610 per policy including £10.50 brokerage. The premium was further re-adjusted in October 2002 to £539.50 with a swing premium to a maximum of £825 per policy including £10.50 brokerage. The October 2002 slip (C/30/718) for the period 24 October to 31 December 2002 authorises TAG as the coverholder. The gross premium is set at £950 plus IPT of £47.50, brokerage to BESSO Ltd of £10.50, underwriters contribution to costs £400, the net premium payable to underwriters being £539.50 per certificate. The Agreement continues:
"Loss Experience Adjustment: In addition to the premium specified, coverholder shall pay to underwriters an amount equal to £150 times the number of certificates declared hereto. For underwriters accounting purposes, the loss experience adjustment shall receive a separate reference and shall be paid in accordance with an endorsement to be agreed between underwriters and BESSO." (723)
169.	169.                      Mr Primer thought that about 21,000 certificates were issued and after cancellation was expecting a figure in the region of 18,000 producing a figure of about £2.8 million. The entire amount was paid to the underwriters 2000 year of account. 
170.	170.                      Mr Primer explained that when TAG approached him for additional capacity in Autumn 2002 he was looking at a very unfavourable result for the 2000 year. He informed TAG that if they wanted additional capacity they had to demonstrate their commitment to the partnership by making good the significant hole in the 2000 year. The figure of £150 per certificate was arrived at after negotiation. Underwriters did not pay the money back to the existing 2000 reference but established a new reference: 
"that was still attached to the 2000 year of account and in Lloyds parlance the Catlin underwriters, the names for the 2000 year, are the people who took benefit of that payment." (transcript day 3, page 7, line 14)
171.	171.                      Jamie Lewis was the person at Catlin who set the original premium. He left Catlin’s employment at the end of 1999 and Ian Thompson who was his assistant probably signed the slip.
172.	172.                      Mr Primer confirmed that Mr Lewis and Mr Thompson had been involved in negotiation with Mr Raincock in connection with Claims Direct but Mr Primer was of the view that there was an absolute lack of statistical data which was why the 25% margin was added because there was so much uncertainty as to the underlying performance of the books: 
"we had some very broad assumptions, we expected a percentage of cases to fail, 4% to 6% that sort of range, we made some assumptions as to what the average claims cost would be and wanted to have a cushion about that so that there would be some profit in it for us." (day 3, page 20, line 8)
Underwriters were hoping to achieve at least a 20% to 25% profit margin.
173.	173.                      Because of the uncertainty in the class of business being undertaken, and because the insurance product which underwriters were providing was absolutely integral to the product that TAG was hoping to sell, Mr Primer intended to take full commercial advantage of the leverage he had in underwriters importance to TAG’s business. The parties viewed this as a partnership with a great deal of uncertainty. Over time things would become clearer and the parties would have to agree to sit down and talk, to reallocate, readjust and consider the premium. He confirmed that there was no contractual entitlement under the 2000 contract to take any more money. He hoped to achieve some payback either by increasing premiums on subsequent years or by way of the mechanism which was actually adopted in 2002 which was to make a payment back to the 2000 year.
174.	174.                      At the very end of 2000 Prentis Donegan and LPL agreed to change the financial terms (ie, reduce them) because TAG had consumed all its capacity and underwriters agreed to meet the request for additional capacity and an extended contract period on the basis of changed financial terms. This adjustment was effectively to reflect the changed role and responsibilities as they evolved. LPL and PDP had done a great deal of work at the outset but accepted that since the account was picking up in terms of numbers the same amount per unit was not justifiable. 
175.	175.                      In the original 1999 negotiations there was no attempt to price the services to be provided by TAG precisely, but from their own experience underwriters knew what levels of expense were appropriate.
176.	176.                      In relation to the 2000 binder (I/43/2285A) Mr Primer confirmed that there was no review provision for adjusting premium nor was there any addendum to allow underwriters to adjust premium to cap their exposure to claims. The only agreement to readjust the 2000 result was the one that was made in late 2002. The only change at the end of 2000 was when the commission payable to the brokers and LPL was reduced. Ultimately, because LPL dropped out and TAG became the coverholder, the commission of £112 per unit dropped to £16.50.
177.	177.                      Mr Primer did not think there was any reason why either he or Jamie Lewis should have seen a copy of the agreement between TAG and LPL but he confirmed that he would have seen the master policy in various stages and as a lawyer would typically be involved in looking at wordings on new products. (I/43/2269)
178.	178.                      On 10 January 2001 Mr Primer e-mailed Neil Ross. He explained that he handled the renewal and by this stage he had effectively taken over the account from Ian Thompson. At the end of the e-mail Mr Primer was seeking some assurance that TAG had the wherewithal to manage the extremely rapid and significant growth which was being projected. He wished to be confident that he was dealing with a company that was going to be there in the future to fulfil its obligations to underwriters. 
179.	179.                      Mr Primer was taken to the placing slip (I/43/2315) which is stated to run for 36 months from 1 February 2001 subject to annual resigning. He confirmed that Catlin signed for 2002. There was a further contract running from 24 October 2002 which was extended to the beginning of February 2003. At the time of giving evidence Catlin had not renewed for the 2003 year. The 2001 contract made provision for a swing premium. (I/43/2317) He had concerns enough about the uncertainty of the performance of the contract that he wanted to build up some protection for underwriters in the event that TAG performed less well than projected. 
180.	180.                      He explained that the copy document exhibited in the bundle has an endorsement (I/43/2317) under the heading "premium", that the net premium would be adjusted subject to a maximum premium of £550. Mr Primer had endorsed "(less bkg)" but another underwriter Goshawk, who had the largest share on the slip, insisted on the removal of that endorsement which effectively produced a higher maximum swing of £566.50 (ie, £550 plus brokerage of £16.50).
181.	181.                      Mr Primer was asked about "loss experience adjustment" (C/30/723) set out in the placing slip for 24 October to 31 December 2002. TAG were running out of capacity and required greater capacity. Mr Primer stated that underwriters were in a strong commercial position. This was demonstrated by the provision in the slip (720):
"No cases will be assigned to the bottom 20% of coverholders solicitors panel "league table" as at 31 October 2002, without underwriters prior written consent."
182.	182.                      Mr Primer explained (day 3, page 38, line 17): 
"That meant that as the scheme was maturing we were getting more data and were able to apply – if you look at the first slip there is a lot more underwriting discipline that is reflected. What that particular paragraph is about is that TAG maintains statistics … what sort of success rates they have and by looking at that league table you can see there is a number of solicitors whose performance is not very good and we said as underwriters we are not happy to have those solicitors continuing to handle cases because they are giving us bad results."
183.	183.                      This was not resisted by TAG. It was an additional protection for underwriters. Underwriters imposed an additional requirement for each and every failed case for which underwriters are obliged to indemnify and assure, that TAG was required to reimburse them: the underwriters contribution to costs; an amount equal to the AIL fee; an amount equal to the claim support services fee; and, to medical referral fees. Underwriters average claims costs were accordingly reduced by those amounts.
184.	184.                      Mr Primer asserted that TAG showed a willingness to bear some more of the costs involved in running the scheme. He confirmed that this arrangement did not appear in any other agreements with TAG but suggested that its economic impact was similar to having a swing premium provision. 
185.	185.                      He confirmed that the loss experience adjustment was not a premium under the October 2002 slip but it was ultimately counted as premium to the 2000 year. When TAG approached Catlin for further capacity for the 2002 year Mr Primer discussed the situation with the chief underwriter who told him they were not interested unless TAG wished to make good the hole in the accounts for 2000. He confirmed that the payment of £150 per case was not paid under a contractual entitlement under the 2000 policy. It was only Catlin which received the payment. 
186.	186.                      Mr Primer suggested that the risk premium for 2000 was Catlin’s percentage share of £208 which was variable during the course of the year plus £150. He stated (day 3, page 47, line 24):
"We received £2.7 million during the 2000 year which reflected our percentage of all business written, plus the additional £3 million or thereabouts, as reflected in this contract. So our total premium for TAG for the 2000 year, all of which is called risk premium, whatever, our premium, our accounted premium, is £5.7 million, and that is the amount that we use in all of our accounting, recording and reserving."
187.	187.                      Of the money received some came from the contract that was written in 2002 but it was always earmarked and intended for 2000. Mr Primer did not know how TAG had handled this payment on their own balance sheet or where the money came from.
188.	188.                      The Catlin line in relation to the 2000 year was initially 50% and then as other underwriters came in down to 45%. When the additional £150 per case was paid (roughly £3 million) Catlin created for accounting purposes an underwriting reference. The reference was a 2000 year account reference. This was a different reference to the existing 2000 contract. 
189.	189.                      Mr Primer is an experienced professional who gave his evidence in an entirely straightforward manner. I accept what he says. In my judgment, for reasons which appear below, the additional payments to Catlin for the 2000 year and to Goshawk for the 2001 year are not recoverable from the paying parties as premium.
Gordon Blair (D/4/866-871)
190.	190.                      Mr Blair has been finance director of the Amulet Group since November 2001. He produced the audited accounts for TAG and AIL for the year ending 31 August 2002 (D/34/880-907). TAG’s profit before tax was £17.8 million on a turnover of just over £181 million, a profit margin of 9.8%. AIL made a profit of £84,000 on a turnover of £56.4 million a profit margin of 0.15%. TAG’s administrative expenses amounted to £61.2 million. 
191.	191.                      Mr Blair stated that he had undertaken a review of the level of cost included in that figure for TAG providing initial and continuing insurance services. He did this by extracting from the administrative expenses elements that were not connected to the provision of those insurance services including (868 para 8):
"•	expenses of claims allocation teams
•	expenses of post acceptance disbursement funding team
•	expenses relating to collection and dispatch of files to external vetting solicitors including IT costs, support and staff costs, etc
•	25% of the cost of panel liaison consultants, this element being referable to "process chasing" in relation to solicitors 
•	other miscellaneous expenses not connected to the provision of insurance services."
192.	192.                      He bore in mind the detail of TAG’s contractual obligations in providing the insurance services to underwriters based on information given to him by the executives. In Mr Blair’s calculation the cost of providing initial and continuing insurance services amounts to £55.487 million. This is the administrative cost only and does not include any profit element. Mr Blair explained the amount charged by TAG at paragraph 11 of his witness statement (868):
"The cost of initial and continuing insurance services per case handled by TAG has been calculated at £310.33. This calculated is based upon an equal distribution of the AE cost across the number of accepted cases handled by TAG in the relevant period. This does not include allowance for void cases which are cases abandoned by the client. These cases involve a substantial proportion of initial and insurance services but are subsequently abandoned beyond acceptance. The percentage of cases which fail in this way amount to 13%. If the cost of initial and continuing insurance services is spread across the remainder of the accepted cases handled during the period, the total AE cost per case for insurance services amounts to £356 per case."
193.	193.                      In respect of AIL Mr Blair put the cost per case at £266.77 without any profit element. He suggested that an appropriate profit element would be up to 20%. Mr Blair explained that although the Test Cases fall between November 1999 and November 2001 he had used, in arriving at his figures, the accounts up to the end of August 2002. He said that the business had been developing quite rapidly from a small company into a sizeable organisation. The accounting systems in place in the earlier years were fairly basic accounting systems which did not provide the type of analysis and detail to perform the type of exercise which he had now carried out. 
194.	194.                      Mr Neish took Mr Blair to the accounts for the year to 31 October 2001 (now at D/34/907A-G). The earlier accounts are consolidated for both TAG and AIL. In the earlier accounts the turnover is stated to be £101.3 million with administrative expenses put at £63.15 million. These figures include the figures in respect of TAG, AIL and other subsidiaries within the Accident Group Ltd. Mr Blair thought that all the companies ran separately but that the accounts were consolidated. 
195.	195.                      In relation to his assertion that in carrying out his analysis he had had in mind TAG’s contractual obligations to supply insurance services, he stated that he had not seen the contracts in detail nor did he know how many contracts there were during the accounting period. He bore the detail of the obligations in mind through discussing them with the executives of the business such as Neil Ross and Amanda Ashton. The analysis itself was carried out by Mr Blair’s finance team under his instructions (day 3, page 103, line 25):
"I gave instructions to the finance team to undertake an exercise, but the actual split of that exercise was in conjunction with the executives in the TAG business who understood what the contractual position was."
196.	196.                      Mr Blair confirmed that the £56 million of turnover for AIL (D/34/901) principally comprised amounts receivable from third parties for the investigation and collation of information relating to personal injury claims, ie, the various payments of £360 or £310 as the case may be. Of the gross profit of £47.7 million, £47.6 million goes to TAG and is offset against the total administration expenses in respect of a number of administrative functions including the provision of premises and other resources provided by the Amulet Group. There are apparently no contractual documents governing this arrangement.
197.	197.                      Whilst I do not doubt the accuracy of the figures which Mr Blair has arrived at in carrying out the exercise which he has described, there are two reasons why it is of no assistance to me in arriving at an appropriate figure for insurance services in the context of arriving at a figure for recoverable premium. First Mr Blair described the accounting systems in use in the early part of the scheme as being fairly basic and not providing the detailed information which is available for cases after the Test Cases. Secondly, it may be that the actual cost of carrying out the insurance services is £310 but it does not follow from that that it would be appropriate to require a paying party to pay such an amount. The figures with regard to the costs of AIL serve to illustrate the difficulty. Mr Blair puts the cost per case at £266.77 without any profit element. No doubt the profit element would increase that figure to the amount actually charged by AIL. In the course of argument however Mr Charlton has accepted that the amount properly allowable in respect of the work done by AIL would be in the region of 1 hour at the relevant rates (say £100). I derive no assistance from Mr Blair’s evidence. 
Stewart McCulloch (C/792-810)
198.	198.                      Mr McCulloch is a solicitor whose firm, Mace & Jones, has been one of the Accident Group’s panel solicitors since April 2000. Such solicitors accept cases on CFA terms which carry no success fee. His firm also does other cases on CFA which carry success fees of varying amounts. He set out in his witness statement his extensive experience in carrying out risk assessments in various types of case and at paragraph 20 (C/32/799) explained that he had carried out a retrospective risk assessment of the Test Cases handled by his firm. He suggests this was done for the purpose of making a comparison under Costs Practice Direction paragraph 11.10(1). He calculates success fees ranging from 23.5% to as high as 61.5%, although from these figures is discounted the irrecoverable element. In his exhibit SDM3 (C/32/823) he has set out a comparative table. The notional success fees claimed range from 18.5% to 56.5%. The TAG premium is put at £998, save for one case (Harrison) where it is £840. This figure is compared with the products of Accident Line Protect and LPL. To the premiums quoted by these companies the notional success fee has been added in each case. In every LPL comparison the LPL premium plus the notional success fee is more than the TAG premium. In the Accident Line cases, all but two, Mellor and Ward, produce a figure greater than the TAG premium. Mr McCulloch suggests that the policy benefits offered by ALP and LPL were inferior compared to the TAG policy. 
199.	199.                      In exhibit SDM4 (C/32/824) Mr McCulloch sets out an analysis of the various insurance products available at the relevant times. 
200.	200.                      The remainder of Mr McCulloch’s witness statement deals with the use of TAG instructors and relates to the compliance issues.
201.	201.                      Mr McCulloch confirmed that his firm took between 200 and 250 cases a month from TAG. He produced a list of cases actually received by his firm between November 1999 and October 2002 (C/32/830A). He suggested that the higher level of cases appears to have been taken on from July 2001. He thought the lower level of cases in March/April was due to the fact that TAG was having difficulty with some panel solicitors during that time and he agreed to take on the handling of other firms files. Some 1600 files were taken on in this way, of which only 500 developed into claims. In the middle of 2002 large numbers of files were being received (eg, 669 in May) from solicitors who were not performing adequately. About two thirds of these files were never actioned and were closed because Mace & Jones could not receive any instructions. In addition there were some 500 other cases throughout the period where the client did not sign the CFA for one reason or another. Of a total of 5,238 clients referred to the firm by TAG Mr McCulloch estimated that 3,634 proceeded.
202.	202.                      He thought that TAG work comprised about 50% of the work of his department.
203.	203.                      In his witness statement of 30 September 2002 Mr McCulloch exhibits an agreement dated 19 November 1999 between AAB (TAG) and his firm (H/41/2057) (this is in similar form to the agreement mentioned in paragraph 45). He thought there was benefit in having cases vetted by Rowe & Cohen before they were passed to his firm because this increased the quality of the work being passed to his firm and it reduced his own time in reviewing cases.
204.	204.                      Annexed to the contract between TAG and Mace & Jones of November 1999 is a copy of OM1 with, at schedule 4, a copy of the AIL agreement (H/41/2180) (this is similar in terms to the agreement mentioned in paragraph 71 above). He confirmed that under the agreement AIL would carry out investigative work in respect of which the solicitors agreed to pay £310 plus VAT. It was a fee payable for every case referred to the firm by TAG which was accepted by his firm.
205.	205.                      Mr McCulloch explained that funding of disbursements on a large scale was not financially viable, particularly if solicitors were acting under a CFA and therefore had the risk of not being paid. At the outset the TAG scheme provided funding to solicitors through Investec Bank (H/41/2189) (see paragraph 36). Under that arrangement when AIL raised an invoice, the bank settled it on behalf of the firm and debited the account of the firm at the bank. Mace & Jones entered into such an agreement with Investec.
206.	206.                      Mace & Jones entered into a new agreement with TAG dated 1 November 2000 (H/41/2198) this was because AAB had changed its name to TAG and also there were new funding arrangements with First National Bank Ltd, OM2 became the Operating Manual. The firm again entered into an agreement with AIL. The new funding agreement (J/44/2616) between First National Bank and TAG (see paragraph 39) provided for the Bank to provide credit transactions to clients of TAG to pay for "premia due and payable by the client in respect of the policy; or disbursements due and payable by the client to their appointed representative". Mace & Jones entered into a further agreement with TAG on 29 March 2001 which reflected the change of funder to Bank of Scotland (H/41/2203).
207.	207.                      The new arrangements required the panel solicitors to enter into an agreement with TAG and in turn to operate in accordance with the provisions of OM2 (see paragraph 65). Under the new funding arrangement "the clients indebtedness to AIL will automatically be paid by the Bank and debited to the clients loan following acceptance of the claim by the panel solicitor and inception of the client’s loan with the funders." Mr McCulloch agreed that if his firm were to participate in the scheme, which included this form of funding, any disbursements recovered had to be paid straight back to the Bank for the client’s account but if the firm failed wholly or in part to recover disbursements, the firm personally undertook to repay the Bank. The client was therefore never in a position of having to pay the disbursement if it could not be recovered from the paying party. 
208.	208.                      Mr McCulloch was taken to the case of Ashmore v Mellor in which his firm had acted for the claimant (A/13/117). On 19 June 2001 an invoice was raised by AIL (129) addressed to Mace & Jones: 
"To provision of enquiry agents services, 
quantity 1, 
value £310.
To our charges in connection with liaising with claimant, obtaining information as to the date of the incident, obtaining full details, including name, address, date of birth, national insurance number and occupation of the claimant including address, department, telephone and facsimile numbers.
Obtaining full details of the relevant third party, including name, address and telephone number together with appropriate insurance details.
Providing you with information to progress the case including obtaining details of the accident, the nature and extent of the injury, details as to the hospital and general practitioner who attended, details as to the extent and nature of treatment received.
Further obtaining preliminary details as to financial losses of the claimant including loss of salary, prescription charges, travelling expenses and other losses, together with other relevant information to assist you in pursuing the claim."
209.	209.                      Below that narrative the invoice reads: 
"VAT rates 17½%, goods total £310 deliver to T Ashbourne. [The last word is misprint for Ashmore.]"
210.	210.                      VAT is then added to the figure of £310 to give an invoice total of £364.25. On the same date that amount was debited to Ms Ashmore’s account with First National Litigation Funding Plc, bringing the total debit balance on her account to £1,381.75 (134). The client had already been charged the TAG premium of £997.50 and a document fee of £20. Miss Ashmore’s account was debited with interest on a monthly basis and also with a fee for a medical report paid to MDL of £385. By the time the case was settled, on 21 June 2002, the debit balance was £1,971.43. Her case was settled for £2,000 damages leaving a balance of £28.57 due to the client. The costs claimed on behalf of the claimant amount to £4,870.86 including the TAG premium and the disbursements paid to AIL and MDL. If those items are successfully recovered the client will receive a further £1,746.75, bringing her total receipt to £1,775.32.
211.	211.                      The invoice addressed to Mace & Jones was marked "delivered to" the client because the service had been provided to Miss Ashmore. The invoice was discharged out of the client’s loan account with First National Bank. With regard to the MDL invoices one had been discharged from the client’s loan account (page 128) but the later ones appear to have been discharged by Mace & Jones (130 – 131). Mr McCulloch agreed, having considered the documents, that it appeared that the fee to MDL was paid directly by First National Bank rather than by the firm.
212.	212.                      Mr McCulloch was asked if the AIL invoice was an invoice which his firm was contractually liable to pay. He stated (day 3, page 138, line 5): 
"on the face of it, yes, but the reality of it is that the disbursement here was discharged by the client directly out of his or her loan account … 
I am not an expert in banking law, but I believe it was the client’s obligation to authorise payment of the invoice and it was paid out on account which was nominated to the client’s name, yes. It might physically have been paid by First National."
213.	213.                      He stated that his firm did not explain disbursement funding arrangements to the client since it had already been explained to them before they came to the firm. He thought that the arrangement with regard to disbursements was explained to the client by the TAG representative. There was also an explanation in the CFA (A/13/142):
"We shall attempt to recover the premium from your opponent if you win your case but the court may disallow it in whole or in part. In such circumstances the loan you have taken out to pay for the policy premium, disbursements (if applicable) and any interest and charges due and payable by you in respect of your loan will be deducted from your damages (compensation)."
He confirmed that the money did not pass through his firm but went straight from First National to AIL. He confirmed that the contract for the provision of AIL’s investigation services was not between the client and AIL but between his firm and AIL. 
214.	214.                      Mr McCulloch confirmed that the agreement of March 2001 following the change of funder to the Bank of Scotland brought with it OM3 which contains the same provisions as to funding disbursements, warranting disbursements and not pursuing clients if they could not be recovered from third parties. The AIL agreement attached to OM3 remained in exactly the same terms. 
215.	215.                      The new agreement with AIL under OM5 is completely different, there is no provision for the panel solicitors to appoint AIL their agents, nor do they undertake to pay any fee. 
216.	216.                      Mr McCulloch produced a third witness statement dated 26 March 2003 (N/1/1). He confirmed that, of the Test Cases handled by his firm, all were commenced between January 2001 and November 2001. In each case an invoice was raised by AIL in respect of investigation services (paragraph 5, page 2):
"Payment of that invoice was made by the client directly out of his or her loan account to AIL. My firm played no part in arranging for that payment to be made and indeed it can be seen from the [CFA] signed in each case that the client was aware that the investigation fee would be incurred. My firm has not made any payment to AIL in these cases."
217.	217.                      Mr McCulloch points out that, in the bills of costs prepared in each of the Test Cases, no claim has been made on behalf of his firm in respect of taking initial instructions from the client. There is usually a later attendance on the client by telephone. 
218.	218.                      Mr McCulloch suggested that the AIL invoice (A/13/129) was "addressed to the client". He stated (day 4, page 13, line 1):
"… It was paid by FNB to the order of my client."
219.	219.                      He explained that he charged the AIL fee as a disbursement in his bill because he was entitled to do that following the judgment of this court in The Claims Direct Test Cases, Tranche 2. 
220.	220.                      It was put to him that the AIL fee was not an expense incurred by the client but an expense incurred by the solicitor under the contractual arrangements. He accepted that the practical effect was that the work was carried out before he had signed the CFA and none of it was carried out after the firm had been retained. He thought however that it was the client’s own expenditure. He confirmed that he could not have ordered the work from AIL because he did not know the client or the case. He appeared to find it difficult to accept that the meaning of the contract between his firm and AIL was that the firm agreed to pay AIL for the investigatory work which it carried out. He felt that the fee of £310 was reasonable for the work carried out by AIL. 
221.	221.                      Mr McCulloch had had discussions with Mr Ross of TAG at the end of 1999 and asked him what it was that AIL was going to do. He was, at that time, looking at what TAG had to offer in the round. Mr Ross was at that time looking for sensible firms to expand the AAB business. With his third witness statement Mr McCulloch produced a schedule headed "Analysis of work carried out by AIL – TAG Test Cases" (N/2/7). The purpose of the schedule was to set out what had been provided by AIL that was on the firm’s files. He had been provided with time sheets from AIL and tried to analyse what had been done at AIL to produce the information. He used, in his analysis, the actual times on the time sheets where there were such times or if the times were unclear he inserted estimates, but in using the actual times he has rounded them up into six minute units. 
222.	222.                      It became apparent during the course of cross examination that Mr McCulloch had tried to carry out an analysis for which he did not have sufficient information. The effect of using estimated times for work which he assumed must have taken place, and of rounding up actual times, has produced a series of figures from which I can derive no assistance. It is perhaps worth mentioning that on the AIL time sheets various activities are recorded all of which are given what is clearly a standard time, also all activities are recorded even when they are abortive, for example unanswered phone calls. 
223.	223.                      What is clear from the documents produced by Mr McCulloch with his third witness statement is that the exhibition consultant completes the original questionnaire face to face with the prospective claimant. The exhibition consultant is a TAG employee and Mr McCulloch agreed that this work had nothing to do with AIL. AIL would subsequently make contact with the client, usually by telephone, and it is at that point that AIL complete the TAG application form. Some of this information has already been obtained on the questionnaire, other parts of the information are new. 
224.	224.                      Although the panel solicitor receives a copy of the AIL questionnaire, Mr McCulloch stated that there were cases where AIL had also produced a witness statement, although this does not appear to have occurred in any of the Test Cases. He could recall having seen witness statements on some five or six occasions. 
225.	225.                      In a slip and trip case (e.g. Johnson (C/28/626)) a home visit took place and photographs were taken (N/3/87 and 89).
Referral Fees
226.	226.                      Mr McCulloch was asked by Mr Neish about the Law Society’s Rules in relation to referral fees. He rejected the suggestion that he was paying a reward to TAG for them referring cases to his firm, stating that he had entered into a contract to pay for an investigation by AIL. 
227.	227.                      Asked why he agreed to set the success fee at zero he replied (day 4, page 85, line 18):
"… It was my view that working on the basis of a 0% success fee or no success fee … would maximise the client’s chances of recovering the premium in full. That has been borne out by what I have been able to achieve in my own practice over the last 2 or 3 years and because of that that meant to me that it was more likely that clients interests were not going to [be] prejudiced under this type of [CFA]; and so that fits, that is a very close fit with my outlook in terms of delivering client’s service and what happens to the client, whether I am responsible for him or not. That is the reason why primarily I was prepared to accept the situation of a 0% success rate."
228.	228.                      Whilst he was content with a zero success fee and urged TAG to retain the arrangement other panel solicitors thought otherwise. 
AIL Fee 
229.	229.                      There are no Mace & Jones Test Cases pre-dating November 2000. In the case of Johnson (C/28/637) the accident occurred in April 2000. In the service agreement and declaration (641) the client acknowledges that if the claim is not successful she will be indemnified against her liability to pay her own disbursements. Own disbursements are defined in the master policy (I/2270). The reference in that definition to "investigation costs" refers to the investigation fee charged by AIL. 
230.	230.                      From November 2000 Mr McCulloch suggested that the client became indebted to AIL by virtue of the fact that the client had asked for the investigation to be undertaken. 
231.	231.                      During the currency of the Test Cases that assertion of Mr McCulloch is simply not made out. (I express no view as to the position under OM5). Mr McCulloch, like Mr Ross, appears to have been willing to conduct cases whilst disregarding the clear contractual provisions relating to the payment of the AIL fee. His assertion that he is entitled to charge the AIL fee as a disbursement must also fail. For reasons which appear below I am not persuaded that the client ever authorised payment of the AIL fee or agreed to pay it personally. The solicitor is clearly liable to AIL for the fee under the terms of the panel solicitor’s contract with AIL. He states that he thought that the payment was the client’s own expenditure and confirmed that he could not have ordered the work because he did not know the client or the case. In any event, as appears below, in my judgment the payment to AIL is not properly a disbursement but is a referral fee. It is therefore irrecoverable under either of those heads.
232.	232.                      With regard to Mr McCulloch’s analysis of success fees and his comparative table I do not accept that this exercise provides a worthwhile comparison. All the cases listed (C/30/823), except Perkins and Johnson, are RTA cases in respect of which the maximum damages are put at £2,500. All settled before proceedings and, in the light of the judgments of the Court of appeal in Callery v Gray and Halloran v Delaney, it seems to me that the success fees claimed (between 18.5% and 31.5%) are wholly unrealistic. Applying a success fee of 5% to the largest of the profit costs estimated by Mr McCulloch, and adding a sum equal to the cost of an Accident Line Protect premium gives a figure of £442. 
233.	233.                      Another problem is the estimated level of profit costs. The Civil Justice Council under the Chairmanship of the Master of the Rolls has recently been considering predictable costs in RTA cases. The formula agreed in respect of RTA cases up to £10,000 which settle before proceedings produces figures for costs of approximately half the level sought in the comparative table (ie, £1160 to £1300). If the predictable costs figure is used for that exercise the total is even lower. On any reading, the total reached in respect of the RTA cases is less than half the premium charged by TAG. Whilst different considerations may apply in the case of Perkins, which was an industrial accident, and Johnson, which was a trip case, I am not persuaded that the level of success fee suggested (46.5% and 56.5%) is justified.
Robert Cowley
234.	234.                      Mr Cowley was called on behalf of the Defendants, his evidence being contained in two witness statements, one dated 21 February 2003 and the second 26 March 2003 (D/39/1020(a) and 1020(0)). He explained that as part of his role within Norwich Union he has from time to time assisted the claims team in clarifying or applying actuarial assessments, including some work in understanding CFAs and ATE insurance. He had seen and considered the two BWD Reports. In reaching his own conclusions he used the same assumptions as those adopted by BWD. 
235.	235.                      The first BWD report analyses claim costs for the following elements:
(i)	return of TAG premium;
(ii)	AIL fee;
(iii)	other disbursements;
(iv)	loan interest on premium/AIL fee/disbursements;
(v)	third party (ie, defendants) costs/disbursements;
(vi)	TAG "win-positive deficiency in damages" loading.
236.	236.                      The BWD report estimated the claim frequency in the Scheme 2 business as a whole to be 31.6% which Mr Cowley also adopted.
237.	237.                      Mr Cowley states, at paragraph 9 of his first statement (1020(c)):
"The [BWD] report assumes that the average cost of a claim depends upon the length of the time the claim takes to settle; it sets out the assumed average cost of each component of the claim for different delays to settlement [M/3363] and the assumed proportions of claims which are settled within those periods … these enable me to derive an overall average cost for each component of the claim. Multiplying the average claims cost by the claim frequency gives the estimated "burning cost", or expected claim cost per policy." 
238.	238.                      He points out that the most significant part of the claim costs comes from the need to cover the premium itself and any associated loan interest. The figure for defendants’ costs assessed by BWD is put at £24. 
239.	239.                      The second BWD report contains a more up to date analysis of claims in the TAG scheme and Mr Cowley produced four sets of figures which he revised to take account of the later data (see RHSC1-RHSC4, D/39/1020, (p)(q)(r)(s). Period 4 covers the months March to May 2002. 
240.	240.                      Table RHSC1 sets out the estimated average claim cost and the burning cost for each of the components of the cover listed above. The BWD report assumes that, on average, interest of 7.5% of burning cost will accrue between receipt of the premium and settlement of the claim and Mr Cowley applied this assumption in his Table 1 to produce a "discounted burning cost" for each claim component. (It was this discount that underwriters refused to accept.) The BWD assumptions produce a discounted burning cost for 2001 of £587 (£634 before discounting). The premium charged at this time was £950 plus IPT. The excess of net premium over the discounted burning cost is therefore £363 or 62% of the discounted burning cost. (The figures before discounting are £316 and 50%).
241.	241.                      Table RHSC2 was calculated by Mr Cowley using the legal assumptions (supplied by the Defendant lawyers) set out at paragraph 13 of his first statement (D/39/1020(d)):
"(a)	insurance premium against the risk of meeting the premium on losing cases is recoverable;
(b)	premium against the risk of meeting own sides disbursements is recoverable, except in respect of the fees paid to AIL; 
(c)	premium against the risk of meeting the defendant’s costs is recoverable; 
(d)	premium against the risk of meeting the loan interest, whether relating to the loan for premium or the loan if different for disbursements, is not recoverable; 
(e)	premium against the risk of the [ringfencing] clause operating is not recoverable."
Applying these legal assumptions gives a burning cost of £420 and a discounted burning cost in respect of recoverable items of £388. The burning cost itself depends on the level of the premium charged by TAG since the policy covers both repayment of the loan (ie, the premium itself) and the interest cost of funding the loan at 15.9% APR. Reducing the premium reduces the expected claim cost under the policy and vice versa. 
242.	242.                      In table RHSC3 Mr Cowley uses the assumptions in the BWD report to work out the premium which gives the same 62% margin over the discounted burning cost as the £950 TAG premium, but which applies only to the elements of the claim costs assumed to be recoverable in table 2. It will be seen from table 3 that a premium net of IPT of £139 produced a 0% margin over the discounted burning cost. To achieve the same 62% margin a premium of £311 is necessary (£327 including IPT). If the premium of £950 is adopted, the margin over discounted burning costs is shown to be 145%. The reduction from the discounted burning cost figure of £388 shown in table 2 is entirely due to the lower premium. The amounts in respect of disbursements and third party (ie, defendants costs) are unchanged. If it was assumed that the premium to cover the risk of paying the premium itself could not be recovered from the losing party, the discounted burning cost itself would then be reduced to £97. The premium required to produce a margin of 62% would then be calculated simply by adding 62% to the £97 figure. This would give a premium of £158 (£157.14 rounded up) plus IPT, a total of £166 (£165.90).
243.	243.                      With regard to table 4 Mr Cowley states (paragraph 21) (D/39/1020(e)):
"I have used period 4 as an example. The only difference between the terms of insurance in period 3 (activation months February 2001 to February 2002) and in period 4 is the level of the AIL fee as I have assumed that this element of the premium is not recoverable, this would make no difference to my figure in table RHSC3. The burning costs for periods 3 and 4, associated with the net premium of £327 and the legal assumptions at paragraph 13, are set out in table RHSC4."
244.	244.                      In addition to his witness statements Mr Cowley produced a document headed "Formula Used by Robert Cowley". This formula relates to an analysis (day 4, page 124, line 19):
"Where explicit assumptions were made around levels of brokerage and commission and expenses that might be implicit within the premium calculation."
245.	245.                      It was an analysis performed separately from the exercise set out in the tables to which I have referred. It was in fact used to produce Mr Neish’s "Calculation of level of premium based on actual underwriting results". The schedule is a spreadsheet calculated on the basis of Mr Cowley’s formula which allows any figure that is put into the spreadsheet to perform "an illustrative calculation". 
246.	246.                      Having been supplied with a lap top computer Mr Cowley altered certain of the figures on the spreadsheet. Firstly, replacing the 7.5% reduction to reflect investment income available to underwriters, and secondly increasing underwriters’ profit from 22% to 25%. This produced a total premium of £434 (see Schedule 3 of Claimant’s closing submissions). That figure was arrived at on the assumption that nothing was allowed in relation to the AIL fee and that only £30 was allowed in respect of insurance services. 
247.	247.                      Continuing the exercise at Mr Charlton’s request, Mr Cowley altered the figure in Schedule 3 for disbursements from £206 to £253 (as per his revised table 2), this produced a premium of £497. When the third party costs were increased from £24 to £77 (also in accordance with the revised table 2) the premium became £568. 
248.	248.                      When insurance services were increased from £30 to £100 the premium became £737 and if the figure was increased to £150 the premium became £858. 
249.	249.                      Mr Cowley explained the premium increases in this way (day 4, page 133, line 6):
"… because the insurance policy pays for the premium when a claim is made, as the premium goes up by £150 it goes up by the amount of the insurance services, so does the claim costs in the policy by an amount and therefore the increase in the premium is … it is a circular sort of thing."
He confirmed that his formula was to get round the circularity.
250.	250.                      Mr Charlton then asked that Mr Cowley, utilising a figure for insurance services of £100, to insert a figure of £100 for AIL, this gave a premium of £895. When the insurance services were put in at £150 the premium reached £1,015.
251.	251.                      Mr Cowley explained further (day 4, page 136, line 9):
"The particular feature of this policy is that in the event of a claim the policy pays its own premium, so the return of the premium comprises a substantial component of the claims costs. So. as the premium is increased, so the claim costs under the policy increases and so the premium must again increase to maintain a given level of profitability so there is a circular element. That means that the effect on the ultimate premium of a given increase in insurance service charge, for instance – there is a gearing up effect in terms of the impact and the overall premium charged."
252.	252.                      I found Mr Cowley’s evidence extremely helpful since he was able to illustrate very clearly the way in which the figures move as the various elements are altered. His explanation of the interrelationship between the various figures and the way in which his formula operates was not challenged and I accept it. However, before adopting it, I must decide what assumptions I should make about which parts of the actual premium are recoverable.
THE LIVE ISSUES
253.	253.                      I now turn to consider the remaining issues in turn. 
254.	254.                      I take the following premium issues together.
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?
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?
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?
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.	255.                      That the issues which I have to decide arise in the context of detailed assessment proceedings brought about as a result of costs only proceedings under CPR 44.12A. All the assessments are on the standard basis under CPR 44.4 which provides, so far as relevant:
"44.4(1)	Where the court is to assess the amount of costs (whether by summary or detailed assessment) it will assess those costs –
(a)	on the standard basis … but the court will not … allow costs which have been unreasonably incurred or are unreasonable in amount.
(2)	Whether the amount of costs is to be assessed on the standard basis the court will –
(a)	only allow costs which are proportionate to the matters in issue; and
(b)	resolve any doubt which it may have as to whether costs were reasonably incurred or reasonable and proportionate in amount in favour of the paying party."
256.	256.                      The Court of Appeal has given guidance on the correct approach to proportionality (see Home Office v Lownds [2002] EWCA Civ 365; [2002] 1 WLR 2450).
257.	257.                      The Court of Appeal in Callery v Gray (No.2) [2001] EWCA Civ 1246, [2001] 1 WLR 2142 decided that Section 29 of the 1999 Act should be interpreted so as to treat the words "insurance against the risk of incurring a costs liability" as meaning "insurance against the risk of incurring a cost liability that cannot be passed on to the opposing party" (paragraphs 59 and 60).
258.	258.                      For the purpose of this judgment I adopt the definition of premium contained in MacGillivray on Insurance Law 9th Edition 1997, Sweet & Maxwell, paragraph 72:
"Premium defined. The premium is the consideration required of the assured in return for which the insurer undertakes his obligation under the contract of insurance (Lewis Ltd v Norwich Union Fire Insurance Co [1916] AC 509, 519)."
259.	259.                      Reference has been made to my judgment and that of the Court of Appeal in the Claims Direct Test Cases [2003] EWCA Civ 136. It is important to bear in mind what Brooke LJ said:
"87.	In my judgment, in this quite exceptional case, it was inevitable that the Master should adopt this [deconstruction] approach in order to identify what should truly be treated as the premium. As this court explained in Callery v Gray (No.2) at paras 11-12: 
"It was common ground, and rightly so, that the court, when considering whether to award an insurance premium by way of costs, has to consider whether the premium is reasonable. It was also common ground that, in so far as the court finds that the premium is not reasonable, it can and should reduce it. There was debate as to the appropriate approach to the application of the test of what is reasonable. 
It is important in this context to draw a distinction between two separate matters. The first is the nature of the benefits to which the litigant is contractually entitled in exchange for the payment of the premium. This falls to be determined from the terms of the contract under which the premium is paid. Section 29 permits the recovery of a premium where this is payment for insurance against the risk of liability for costs. If payment of a so called premium buys a collateral entitlement to other benefit it is, to say the least, arguable that the premium cannot, to that extent, be recovered under Section 29. Thus the court has to consider the terms of the contract under which the premium is paid to see whether it is simply a contract of insurance against liability for costs or whether it is something other than, or additional to, that."
88.	It was not, in my judgment, the intention of Parliament when it enacted Section 29 of the 1999 Act to overload the recoverable premium by adding to the costs customarily embraced by such a premium, the costs which a company like MLSS had to incur if insurers were to accept the risk at all. I would look equally askance at the recoverability, in similar circumstances, of a premium for a fire policy which included the cost the insured had to incur in installing and maintaining a sprinkler system as a condition of his insurance cover, or a premium for a household insurance policy which included the cost of installing and maintaining a burglar alarm.
89.	The obligation which the insurer undertook under his contract of insurance with the claimant was to provide an indemnity in the event that the Claimant’s compensation claim was dismissed or was discontinued. It was not an obligation to provide the "continuing insurance services" described in the 26 August agreement. The claimant would be provided with the services in any event, whether or not the claim was unsuccessful. If, and in so far as the work done by a claims manager represented an appropriate disbursement for work a solicitor would otherwise have to perform himself, then the cost of that work would be properly recoverable as part of the solicitor’s bill."
260.	260.                      The Claimants accept that in an exceptional case dissection or deconstruction of the premium is an appropriate course. The question is whether this case is an exceptional case of the type which Brooke LJ had in mind in paragraph 87 of the judgment which I have just quoted. Mr Neish argues, and I accept, that what is exceptional about this case is that I am not dealing simply with the question of whether the recoverable premium claimed is reasonable but rather dealing with a claims management company selling a basket of services. Whilst the methods used to sell the product and the precise details of the scheme are not identical with that used by Claims Direct there are broad similarities and the insurance arrangements in particular are very similar. As Mr Neish points out this is not surprising because they appear to have been designed by Mr Brian Raincock of LPL dealing with the same underwriters: Mr Lewis and subsequently Mr Thompson of Catlin and Mr Hacker of Alleghany. In these Test Cases there is a complex contractual web in which eg, solicitors agree to do certain acts in the future on behalf of clients they do not have and agree to be liable to AIL in respect of work which they do not authorise. I add to these factors the fact that I have been told that some 250,000 cases await the outcome of the decision on these Test Cases. Mr Ross in his first witness statement (D/40/1022) states that TAG is the acknowledged market leader in the provision of ATE products to the general public to support personal injury claims. Accepted claims currently number 10,000 to 15,000 per month. According to the Datamonitor Report "Personal Injury Litigation 2001" TAG is described as having a market share of 15%. In those circumstances it is, in my judgment, correct to treat the TAG Test Cases as exceptional and to carry out an analysis to determine how much of the premium claimed is properly recoverable. 
The Submissions 
261.	261.                      Mr Neish characterises the TAG claims services as including, in addition to access to the ATE policy, a basket of services which aim to take the claimant through each stage of his or her claim from initial enquiry, through expert legal and medical assessments to the goal of compensation.
262.	262.                      In considering the questions in these issues I bear in mind what Arden LJ said in the case management appeal in the Claims Direct Test Cases, heard on 19 March 2002 [2002] EWCA Civ 428:
"44.	… I would observe that for the purposes of Section 29, it is the premium as between the claimant and the provider of the policy which is in issue. In my judgment the premium is not necessarily limited to payments paid on inception of cover, but could include any further amounts paid by or on behalf of the insured, pursuant to terms agreed with the insurer. The premium could also include sums paid to the benefit of the insurer. We are told that the insurer has, in effect, out sourced claims administration. The cost of this is borne by Claims Direct on behalf of underwriters. Any part of the sum paid by the insured which is devoted to this purpose may be capable of forming part of the premium."
The 2000 Year (November 1999 to January 2001)
263.	263.                      It is necessary to deal with the premium issues in relation to separate years of insurance, ie the 2000 year and the 2001 year. The 2001 year has itself to be considered in relation to Lloyds policies and in relation to NIG policies. 
264.	264.                      In the 2000 year the gross premium was £800 plus £40 IPT, split as to £320 risk premium and £480 payable to TAG. The £320 included £112 brokerage and commission. The Claimants suggest that the initial risk premium of £208 (£320 - £112), was not in any sense a scientific calculation of the necessary "pure" premium required by the risk, because nobody knew at the time what it should be. They argue that there was a later re-adjustment (£150 per policy) which is referable to the 2000 year of account in respect of Catlin. 
265.	265.                      The Defendants dispute that this premium re-adjustment should be brought into account for the 2000 year because, they argue that the additional premium was extracted from new cases in subsequent years. The Claimants argue that it does not matter where TAG found the funds to pay for the additional amount required by the underwriters. The question is rather: Is the additional amount properly referable to the year 2000 insurances? Mr Charlton argues that it is vital to distinguish between the source of funds to pay the additional amount on the one hand and the allocation of the additional amount to the individual covers to which they are referable. 
266.	266.                      For the reasons which appear later, I find that the additional £150 per policy is not part of the premium and I therefore do not take it into account in arriving at a figure for recoverable premium.
Deductions for irrecoverable items
267.	267.                      The Claimants accept that it may be necessary to make certain deductions from the premium to reflect three elements of the cover which the Defendants argue cannot properly be recovered as part of an insurance premium under Section 29. These are: 
i. ring fencing; 
ii. nsurance of the cost of funding the premium; 
iii. insurance of the claimant’s inability to recover the cost of AIL’s services, if this is held to be a referral fee.
Ring Fencing
268.	268.                      The Claimants accept the principle that a reduction falls to be made for this because it was the subject of a contemporary attribution of an amount within the original "pure" figure that was to be paid to underwriters. The amount attributable to ring fencing was £10 and the Claimants accept that this figure should be deducted from the £208, reducing the base risk premium to £198. 
Insurance of the Cost of Funding the Premium and, Insurance of the Claimants’ Inability to Recover the Cost of AIL’s Services
269.	269.                      Mr Neish suggests, relying on the schedules produced by Mr Cowley (D/1020P), (I am taking the figures from his revised schedules), that it would be appropriate to make a reduction of 15% of the premium in respect of insurance of the cost of funding the premium and a further 18% in respect of insurance of the inability of recover the cost of AIL’s services. On that basis he suggests that the premium should be reduced from £198 to £167 and then further reduced to £129. The Claimants criticise this arithmetical exercise suggesting that no element of the premium, whether as originally paid or ultimately received by underwriters for the 2000 year, was ever attributed to these elements of the contract of insurance. It is, they suggest, therefore wrong in principle to make a reduction in such circumstances. The Claimants also point out that Mr Cowley’s exercise was done with the benefit of hindsight (a criticism which the Defendants accept). The Claimants go on to argue that if any exercise of deduction for non qualifying elements of cover is to be done by reference to the actual results of the business it must be done by reference to what would have been a "correct" premium, otherwise underwriters, and through them claimants, will be penalised by a deduction to represent non qualifying elements in circumstances where too small a charge was being made by underwriters for actual burn cost. They do not, however, suggest what the "correct" premium should be.
270.	270.                      The Claimants further criticised Mr Cowley’s exercise because they suggest it is no more than a snapshot taken at the date of the BWD report. Mr Primer in his evidence pointed out that some 40% of cases insured in the 2000 year remain unresolved. These cases may produce losses for underwriters and because they have been running for some time, those losses may be higher on a per case basis than those which failed at an earlier date.
271.	271.                      Although Mr Neish acknowledges the limitations of his exercise in arriving at deductions of 15% for the funding element and 18% for the AIL element he suggests that these are balanced by the fact that the Defendants do not seek, for the moment, to make a deduction in respect of the cost of insuring the irrecoverable element of the premium.
272.	272.                      Mr Charlton, whilst recognising that some form of allowance needs to be made for the non qualifying elements of the cover, submits that since there is no contemporaneous evidence of how the risk was priced when it was originally taken on, the non qualifying elements can be stripped out effectively at the stage at which the cross check exercise is carried out. He expresses the fear that the production of actuarial evidence and its analysis by specialist actuaries like Mr Cowley would have the effect of making costs assessments throughout the country very much more complicated. In my view this fear is misconceived. The court will not normally be prepared to receive such evidence. Evans J in Johnson v Reed Corrugated Cases Ltd [1992] 1 All ER 169 at 183 stated:
"[Presenting] such figures requiring non expert analysis, ie by persons who are not accountants, is misconceived as a means of assisting the court in a particular case. Assessing costs is not an exact science; neither is accountancy. Treating the latter as if it were so that the results of an accountancy exercise can be used as a basis for the former, seems to me to achieve the worst of both worlds. The [Costs Judges] general knowledge and experience of local conditions and circumstances remains the only firm basis for reliable and consistent [assessment]."
273.	273.                      In this case the BWD reports (which were not produced for the purpose of this litigation) formed part of the Claimants’ disclosure. Those reports give the clearest and most accurate information available about the state of TAG’s business. Mr Cowley was called as a witness of fact, not as an expert, but he was able to demonstrate by means of his formula the inflationary spiral caused by the self insuring element of the premium. 
274.	274.                      In any event Mr Charlton accepts that the revised table 1 produced by Mr Cowley (D/1020(p)) is uncontroversial. He objects to the reduction made by Mr Cowley in respect of investment income, and it is clear from the evidence that the underwriters would not agree to such a deduction. In considering Mr Cowley’s figures it is therefore necessary to reinstate that reduction.
275.	275.                      With regard to Mr Cowley’s table 2 Mr Charlton again accepts his figures, subject to the investment income point, and also subject to the appropriate figure for AIL being included. For the reasons given below no figure for AIL should be inserted.
276.	276.                      Mr Charlton suggests that the Defendants’ closing premium schedule is in error because the schedule simply subtracts from the original premium amounts to reflect the share (ascertained with hindsight) attributable to non qualifying cover. He suggests that the proper exercise is that carried out by Mr Cowley in his revised table 2. This automatically makes an adjustment for the element of self insured premium which can no longer be claimed. The Defendants’ schedule, he argues, fails to reflect that, eg the various commissions which form part of the premium, have to be insured. In schedules 3 and 4 to Mr Charlton’s closing submissions he sets out the results arrived at by Mr Cowley during cross-examination (in each case the investment income element has been reinstated) ranging from an AIL fee of zero and charge for insurance services of £30, up to an AIL fee of £100 with insurance services of £150. These produced various figures for premium ranging from £434 to £1,015. In schedule 4 to the closing submissions Mr Charlton sets out further calculations using Mr Cowley’s model. These encompass a number of situations from AIL fee zero and insurance services £250, to AIL fee £310 and insurance services £400. The premiums thus arrived at range from £966 to £1,242. Mr Charlton explains that the figures used were put in for illustrative purposes and not as any sort of bid by the Claimants. The exercise serves to illustrate how the figure for premium moves as other figures are altered.
277.	277.                      In Mr Neish’s submission Mr Cowley was not trying to recreate the premiums for the 2000 and 2001 years by his formula, he was merely demonstrating the inflationary spiral.
278.	278.                      Mr Neish raised an additional point, namely: the cost of insuring that part of the premium charged by TAG which is itself not Section 29 premium. It is evident from the evidence of Mr Cowley that approximately half of the claims cost in the TAG cases is the payment to the claimant for the premium in failed cases. Mr Neish argues that there is an inflationary spiral in any premium which insures itself. Having raised the point however Mr Neish then stated that the Defendants did not have the materials or the analysis to deal with the point at the moment and therefore did not, in these cases, seek a specific deduction for that element. He made it clear however that this would be an issue to be decided in the future. In these cases he limited himself to arguing about ring-fencing, the premium indemnifying the cost of funding and the premium indemnifying the AIL fee. 
Add Backs
279.	279.                      Certain items need to be added to the risk premium.
Additional Premium
280.	280.                      Until December 2000 the premium, net of brokerage and commission paid to underwriters, was £208. For the months of December and January 2001 the underwriters share was increased to £275, brokerage and commission being reduced to £45. Throughout the period therefore pure risk premium plus brokerage and commission remained £320. Mr Neish’s figures, which I have already set out, are based on the original figure of £208 payable to underwriters. Carrying out Mr Neish’s suggested calculation would give at this point a figure of £174 for these two months.
281.	281.                      In his witness statement Mr Coss (C/30/699) referred to what he called loss experience additional premium (LEAP). As a term of the agreement for additional capacity in later years Catlin insisted that an extra £150 per new policy be paid to underwriters to off-set losses in relation to the 2000 year. 
282.	282.                      The Defendants argue that, since this additional £150 was not paid pursuant to any agreement to adjust the premium allocation for the 2000 underwriting year; was not a lump sum payment out of TAG’s premium allocation for 2000; and, was not specifically paid back to enhance the premium allocation received from cases written in 2000; there is no justification for it to be re-allocated to Catlin’s share of the policies written. Mr Neish argues that it was no more than a commercial side arrangement which had nothing whatsoever to do with the premiums paid by claimants in 2000 and which should therefore be ignored for the purpose of arriving at the allowable premium for the 2000 year. 
283.	283.                      Mr Charlton argues that the absence of a contractual right to adjust in the 2000 binder is irrelevant. Changes to the terms of a contract can take place either by agreement between the parties exercising a contractual right provided for in the original contract or by simple variation; that is, a subsequent agreement expressed to operate as a change to their originally agreed terms. He argues that the parties do not need a provision in their original contract to enable them to make later adjustments, all that is required is to reach an agreement that varies the original. 
284.	284.                      Mr Neish points out that neither Mr Coss nor Mr Primer gave any evidence to the effect that they had varied the 2000 contract. Mr Primer’s evidence was that he wanted this extra money to make his hole in 2000 good, and he gave that as his reason to Mr Coss. He always intended to use it to put back in the 2000 year and that that is what he did when he got it – none of that submits Mr Neish, amounts to the variation of the 2000 contract.
285.	285.                      Mr Neish argues that there were, in the case of TAG, variations to both the 2000 insurance policy and the 2001 insurance policy and every time there was a variation, as Lloyds require, there was an addendum recording the variation (see eg I/2281, addendum to cover note HH 025960Y the 2000 policy). He submits that there is no addendum to the contract recording the premium variation because there was no variation. 
286.	286.                      Mr Neish also argues that if the arrangement was that TAG would give Catlin another £150 of premium per new policy issue, in respect of which Catlin had to do nothing, the variation would be unsupported by any consideration. No further cover was granted, nor were any more policies written in respect of that year. In Mr Neish’s submission the arrangement was an entirely new contract entered into between Catlin and TAG which was not a variation of the old contract at all. The new contract was an agreement by TAG to pay £150 per new case in addition to the agreed £539 premium in return for additional capacity.
287.	287.                      In my judgment Mr Neish’s submission is correct. The additional payment of £150 per new case is not on any reading additional premium in relation to the 2000 year.
Commission
288.	288.                      The Defendants accept that it is proper to add commissions to the pure risk premium and having argued that that premium should be £129 they seek to add back the Prentis Donegan brokerage which they put at 16%, giving a gross sum figure of £153. The Defendants also accept a commission for LPL of 32.5% to carry out its duties as cover holder. They calculate the grossed up premium at £226. In addition a commission was paid to TAG in the sum of £80. The Defendants concede that it would be reasonable to allow TAG to recover an acquisition commission of about 25% (of gross risk premium i.e. £57). On that basis the Defendants suggest that the figure thus arrived at is £283. 
289.	289.                      In respect of the period December to January 2001 carrying out a similar calculation, but altering the percentages for brokerage and coverholder commission (both of which were significantly lower than previously), the figure arrived at is £257.
290.	290.                      The Claimants argue that whilst commissions need to be added back in they have been wrongly calculated as percentages by the Defendants. They argue that percentages were not used at the time that the LPL and PD commissions were actually set (at £78 and £34). They were fixed figures and should therefore remain fixed costs the whole of which should be allowed. 
291.	291.                      On the basis of Mr Charlton’s argument the figure for premium thus arrived at, including the £80 TAG commission, is £390. This figure remains constant throughout the period.
Insurance Services
292.	292.                      The initial and continuing insurance services which TAG was required to perform under its agreement with LPL of 26 October 1999 (I/43/2241) and the agreement of 28 September 2000 (I/43/2261) were very similar to those considered by the Court of Appeal in the Claims Direct Test Cases. The only material difference is that the continuing insurance services do not include the requirement that TAG should arrange for the client to attend medical examinations. In the CD Test Cases the court at first instance concluded (judgment paragraphs 189 to 193) that all of these items were properly to be regarded as insurance services except initial service 4 (obtaining further information) and continuing services 1 (obtaining witness statements) and 3 (arranging for client to attend medical examination). The Claimants accept that the same result will apply in these Test Cases but argue in respect of Continuing Service 3 (costs draftsman) that this should be regarded as a proper insurance service because, Mr Charlton submits, it is an element of the insurance claims handling service provided to underwriters and is only required to be performed "where there is a claim under the insurance". He submits that it is not a costs assessment process for the purpose of every claimant’s claim. Mr Ross dealt with this in his evidence. I accept Mr Charlton’s submission but do not think it makes any significant difference to the amount ultimately recoverable in respect of insurance services. 
293.	293.                      Although no mention is made of marketing services in the 2000 agreements Mr Charlton argues that it is clear that these were provided, for the benefit of underwriters as well as for TAG and that proper allowance should be made for them. Again I accept that submission but the real problem is, as Mr Charlton said, how to arrive at a figure for what may properly be recoverable in respect of insurance services and marketing. Mr Charlton relies on the evidence of Mr Blair whose figures I have rejected for the reasons given. Mr Primer in his evidence referred to the cost of undertaking the insurance services as a whole as running into hundreds of pounds. 
294.	294.                      Mr Neish’s primary submission is that a proper interpretation of the judgment of Brooke LJ in Claims Direct leads to the conclusion that nothing should be added to the premium for insurance services. His secondary submission is that if something is to be allowed it could not be some hundreds of pounds and should at most be a figure similar to that allowed by me in Claims Direct (£30).
295.	295.                      Brooke LJ did not alter the premium which I allowed in that case but came to the same conclusion by a different route. Mr Neish suggests that what Brooke LJ is saying at paragraph 88 of his judgment is that the insurers are undertaking the indemnity, not a basket of services, and nothing should be allowed for insurance services. He suggests that TAG should be substituted for MLSS, but in my judgment the two are not on all fours. Brooke LJ refers to "the costs customarily embraced by such a premium" but expressed the view that "the costs which a company like MLSS had to incur if insurers were to accept the risk at all" should not be added. He does not say that nothing should be allowed in respect of insurance services. I accordingly reject Mr Neish’s primary position.
296.	296.                      Mr Neish submitted that it was appropriate to distinguish the cost of providing claims management services from the costs of providing outsourced insurance services to insurers. He argued that that it was appropriate to distinguish the costs of providing claims management services from the costs of providing outsourced insurance services to insurers. As Brooke LJ stated (at paragraph 89) of the judgment the obligation which the insurer undertook "was not an obligation to provide the ‘continuing insurance services’ ". He points out that Brooke LJ stated (at paragraph 90) that he would not have been as generous as I was in attributing expenses to the insurance element. 
297.	297.                      Mr Neish submits that it is necessary to arrive at a cost per case of:
i. arranging for the completion of the TAG application form;
ii. arranging for the completion of the credit agreement form;
iii. collating and forwarding the application form and supporting documents to TAG for onward transmission to the panel solicitor;
vi. monitoring the conduct of the panel solicitor and reporting on that to LPL and/or funders; and
v. providing and maintaining relevant financial information to LPL and/or funders.
298.	298.                      These headings accurately reflect the elements of the insurance services which are recoverable. To that list I add:
vi. Attending to a review by a suitably qualified costs draftsman of the appointed representatives’ disbursements and the bill of costs of the opponent’s representatives in cases where there is a claim under the insurance.
299.	299.                      The Defendants suggest that the figure of £310 per case, arrived at by Mr Blair is in respect of all the initial and continuing insurance services and may also include marketing costs per case. It is the Defendants’ case that the proper allowable cost under this head should be £30. The same figure as I allowed in Claims Direct. At paragraph 86 of the judgment in the Claims Direct appeal Brooke LJ said this:
"In my judgment it is clear that the Master attached too much weight to the figures quoted in the prospectus about which Mr Doona was quite rigorously cross examined. The difference between the minimum fee of £395 which a panel solicitor had to pay a claims manager and the sum of £425 quoted in the prospectus as a direct cost suggests a net outlay of £30 by MLSS on each claim, but I do not consider this figure casts any particularly useful light on anything the Master had to decide. It is clear that MLSS incurred significant expense in performing the "insurance services" required of them under the 26 August agreement. The central issue under question 2 is whether the Master was entitled to lift the veil and to be influenced by what was actually being provided in return for the premium allocation paid to MLSS …"
300.	300.                      The Defendants accept that the cost of providing all of the insurance services, including those which are claims management services, would have been significantly more than £30. They note that the Court of Appeal did not disturb the conclusion in Claims Direct that only an additional £30 was attributable to insurance services and recoverable. On that basis the Defendants do not resist the addition of a further £30 to the base premium and commission referred to above. Mr Neish points to the fact that the Defendants’ approach already allows TAG significant income in respect of insurance related services, namely the LPL commission for cover holder tasks and the TAG commission.
301.	301.                      Adding this £30 to the £283 mentioned in paragraph	288 a premium figure of £313 is reached to which must be added 5% IPT (£15.65). The Defendants accordingly suggest that for this period the recoverable premium should be £329 (£328.65). For the period December 2000 to January 2001 the figure would be £301.
302.	302.                      Mr Charlton argues that the critical distinction between the Claims Direct Test Cases and the TAG Test Cases is that AIL provided the work of investigation of individual cases in return for a fee charged to clients quite separately from the premium. Whilst this type of work was regarded in the Claims Direct cases as part of the claims management services provided by MLSS which led to a reduction of the MLSS element of the premium in Claims Direct, the same is not true in the case of TAG since insurance services are provided only by TAG. The Claimants argue that it is wrong in principle simply to look for a bare cost which might be calculated, after the event, for TAG’s provision of insurance services. It is suggested that what matters is not the ultimate actual cost but the amount which underwriters were prepared to pay, namely £480. The fact that underwriters were prepared to pay £480 to TAG does not assist me in arriving at an appropriate figure to add to the basic premium figure in respect of insurance services.
303.	303.                      Mr Charlton argues that, even if it is concluded that some reduction has to be made from the figure paid to TAG out of the premium to reflect the distinction between the insurance services properly so called, and damages claim management services, there must still be allowed a significant figure for advertising expenditure. The Claimants give no suggested figures. Adopting for the moment the figure of £390, the addition of insurance services valued at £100 would produce a premium, including IPT, of £514.50 (£490 plus £24.50). Using the £30 suggested by Mr Neish gives a figure of £441 (£420 plus £21). 
2001 Lloyds
304.	304.                      During this period LPL ceased to be the coverholder and Prentis Donegan placed a binding authority with a wider Lloyds market than in 2000. Goshawk and Brockbank Syndicates participated; TAG itself became the coverholder. Because of the rapid increase in the number of cases TAG was taking on, and the need for further capacity, TAG entered into a separate arrangement with NIG (see below). The premium for both types of policies was £950 plus IPT (£997.50). In the Lloyds cases the premium paid to underwriters and brokerage amounted to £328.50 (£312 plus £16.50). £621.50 was paid to TAG as "underwriters contribution to costs". There was provision for "swing premium" which depended upon the level of losses incurred. This required TAG to pay additional premium by way of rebate of the underwriters contribution to costs. The swing was between 80% and 125% of losses but with a cap of £550 per case. The indications are, from Mr Primer, that results to date mean that this swing premium will take effect.
deductions for irrecoverable items
305.	305.                      As with the 2000 year it is necessary for some deductions to be made in respect of irrecoverable benefits. These deductions, as before, relate to ringfencing, insuring the cost of funding and insuring against the non recovery of AIL fees. 
306.	306.                      Mr Neish carried out a similar exercise to the one which I have already described in relation to the 2000 year (paragraph 267 ff). From the £312 net risk premium he has deducted £10 in respect of ringfencing, deducted a further 15% in respect of insuring the cost of funding and a further 18% in respect of insuring against non recovery of the AIL fee. This reduces the premium to £200. 
Add Backs
Additional Premium
307.	307.                      The Claimants seek to add back £85 to Goshawk policies written in 2001 (see Coss C/30/701). Mr Charlton’s argument remains the same as that in relation to Catlin in that he suggests that the absence of the right to adjust does not prevent an adjustment being made.	Mr Neish argues, for the same reasons as those put forward in respect of the 2000 Catlin policies, that there is no basis for this and that that amount is not recoverable from the Defendants.
308.	308.                      Mr Charlton points out that two changes to the contractual position have taken place, firstly TAG has an express obligation to market the scheme for underwriters (Initial Service 1), and secondly TAG was itself now the coverholder. The Defendants accept that since TAG was itself carrying out the coverholder task previously performed by LPL they would not resist the addition of 32.5% of the Section 29 risk premium (£211) being built into the 2001 Lloyds premium, giving a grossed up figure of £313 plus items mentioned below.
309.	309.                      I am unable to distinguish on the facts between the situation as it related to Catlin in the 2000 year and that which relates to Goshawk in 2001. In those circumstances, and for the same reasons, I find that nothing is recoverable in respect of the additional sum paid to Goshawk.
310.	310.                      In relation to the swing premium, Mr Neish submits that none should be allowed under Section 29 because the premium is triggered by losses. The losses which make the swing premium payable in full are sustained in respect of irrecoverable benefits, ie failure to recover the AIL fee, the cost of interest and premium losses. Mr Neish argues these are not "qualifying losses" in respect of which the Defendants are liable to pay. His alternative submission is that, if the Defendants are liable for any of the swing premium, it should be in the same ratio to the recoverable Section 29 premium as the full swing premium is to the full risk premium of £312. 
311.	311.                      In my judgment, to the extent that the swing premium is triggered by losses arising out of elements of the insurance cover in respect of which premium is not recoverable, it should not be visited against the Defendants. It is not possible, at this stage, to indicate with any certainty the extent to which swing premium will be payable as a result of losses sustained in respect of irrecoverable benefits. In those circumstances I accept Mr Neish’s alternative submission. I express the hope that it will be possible for the parties to agree a figure on that basis but, if necessary, the matter can be relisted to deal with the actual allowance to be made in respect of the swing premium.
Commissions
312.	312.                      By this time (2001 Lloyds) Prentis Donegan’s brokerage had reduced to approximately 5%, which by Mr Neish’s calculation produces a grossed up figure of £211. As I have said (paragraph 288), he also allows a commission of 32.5% for coverholders commission, which produces a figure of £313; and, although TAG did not charge an introduction commission as part of the premium allocation during this period, he conceded that it would be appropriate to allow an introduction commission of about 25%, as a recognition that TAG marketing costs would be significant and would have included marketing the ATE insurance product. The figure thus reached is £391. 
Insurance Services
313.	313.                      Both Claimants and Defendants repeat their arguments relating to insurance services and Mr Neish, for the purposes of his calculation, adds £30 producing a figure of £421, to which must be added IPT, giving a total figure of £441.05 (£421 plus £20.05). Again, Mr Charlton puts forward no figures, but, adopting his previous position, it is appropriate to reduce the premium of £312 by £10 in respect of ringfencing, giving a figure of £302. To this is added £16.50, the actual commission paid to Prentis Donegan. As to the coverholder’s commission and the TAG introductory commission, in the absence of any figures put forward by Mr Charlton I again the use the figure of £78 and £80, giving a total of £476.50. If £30 is allowed in respect of insurance services, the premium amounts to £532 including IPT (£506.50, plus £25.52). If £100 is allowed the figure is £605 (£576.50 plus £28.83).
2001 NIG
314.	314.                      Under its agreement with NIG, TAG was appointed NIG’s agent for marketing ATE insurance to be underwritten by NIG and was given a binding authority. The charge to the customer was £950 plus IPT, of which £300 was paid to NIG and £650 remained with TAG. TAG was required to carry out services described as "new insurance fulfilment services" and "claims handling services", some of which are similar to the earlier initial and continuing insurance services. TAG was also required to carry out certain "administrative services". NIG had no right to any additional or swing premium. 
Deductions for irrecoverable items
315.	315.                      Mr Neish again sought to make reductions for ringfencing, insuring the cost of funding and insuring the cost of failing to recover the AIL fee. He carried out his calculation making deductions as before from the £300 premium paid to NIG leaving a risk premium of £191.
316.	316.                      Mr Charlton argues that since there were no attributions of the NIG share of the premiums to any of these aspects no deduction should be made. He argues that this was an arms length transaction. NIG was prepared to pay £650 for the purposes of acquiring the services and the benefit of the marketing. He accepted that if any deduction was to be made it would be appropriate to deduct £10 in respect of ringfencing. 
317.	317.                      Mr Charlton also submitted that, at this point, the question being addressed is: what premium qualifies as recoverable under Section 29 based on the contractual analysis? It is only subsequently that the court has to consider whether the figure thus produced is a reasonable one. This he suggests is a matter to be considered under issue 5.
Add Backs
Additional Premium
318.	318.                      There is no provision for additional premium.
Commissions
319.	319.                      No broker was involved so there is no fee for brokerage. Mr Neish again concedes that it would be appropriate to allow 32.5% commission to TAG for performing coverholders services. This produces a grossed up figure of £283. 
320.	320.                      Mr Neish again allowed 25% as a notional introduction commission, giving a grossed up figure of £354.
Insurance Services
321.	321.                      Mr Neish again accepted that the addition of £30 per case might be added in respect of these services, giving a final figure of £384 which together with IPT totalled £403.20 (£384 plus £19.20). Again Mr Charlton produced no figures. Carrying out the exercise as before, I arrive at figures based on his arguments of £502 (£478 plus £23.90 IPT) with £30 allowed for insurance services and £575 (£554 PLUS £27.40 IPT) where £100 allowed for insurance services.
322.	322.                      I summarise the rival figures by way of a diagram:
Policy
Year	Payable by
Claimant
(including
(IPT)	Claimants’ 
Case if 
Insurance
Services 
Worth £100	Claimants’
Case if 
Insurance
Services 
Worth £30	Defendants’ 
Case	Mr Cowley’s
Cross 
Check
(see below)	
2000
Lloyds	840	515	441	330	488	
2001
Lloyds	997.50	605	532	441	480	
2001 
NIG	997.50	575	502	403	424	
 
The Cross Check (Issue 5)
323.	323.                      Costs Practice Direction paragraph 11.10 states:
"In deciding whether the costs of insurance cover is reasonable, relevant factors to be taken into account include: 
(1)	where the insurance cover is not purchased in support of a conditional fee agreement with a success fee, how its cost compares with the likely costs of funding the case with a conditional fee agreement with a success fee and supporting insurance cover;"
324.	324.                      Mr Charlton argues that since the CFA entered into by the panel solicitor has a zero success fee it is not "a CFA with a success fee". Mr Neish argues that the CFA does have a success fee but it happens to be zero. In my view Mr Neish’s approach is to be preferred. A similar situation arises in relation to VAT. Certain supplies are zero rated, others are exempt. Supplies which are exempt are not liable to VAT, those which are zero rated are liable but the rate is zero. In the end it appears to be a distinction without a difference. In my judgment the court should cross-check the premium value against alternative funding options whether or not those options fall within CPD 11.10(1).
325.	325.                      These Test Cases are all straightforward personal injury cases which settled without the necessity of proceedings. The agreed damages range from about £1,000 to £3,500. The costs (including the TAG premium) range between £2,100 and £4,800. On that basis Mr Neish does not challenge the reasonableness and proportionality of the premiums which he arrived at as a result of the exercise which he carried out. He suggests that Mr Cowley’s analysis provides a reliable basis for a reasonable cross check to be performed.
326.	326.                      Mr Charlton prefers to rely on Mr McCulloch’s notional success fee analysis to provide a cross check.
327.	327.                      Mr Charlton argues that the results arrived at by Mr McCulloch (between £765 and £1,993) are consistent with the results obtained by using the Cowley formula. The fact that Mr McCullogh was prepared to run his cases with a nil success fee was not merely because he was willing to trade away a success fee for a volume of cases but because he had in mind the paramount interests of his potential clients. Mr Charlton suggests that for cross check purposes it has to be assumed that each case does involve the solicitor in an element of risk and that is what Mr McCulloch had attempted to do in his analysis.
328.	328.                      Mr Cowley’s approach as a cross check produces, in Mr Charlton’s submission, reasonable and proportionate figures when using the figures which he (Mr Charlton) put forward as being more appropriate. Mr Charlton set out in Appendix 5 to his closing submissions the results of Mr Cowley’s exercise utilising the up to date figures for disbursements and third party costs and removing the discount from investment income. Mr Charlton also used what he described as the correct brokerage figures of £112 for the 2000 year and £16.50 for the 2001 year. He also used for the purpose of this exercise £30 in respect of insurance services. The figures so produced were £535 for 2000 and £532 for 2001. Mr Charlton pointed out that these figures were put forward simply to illustrate the incremental effect of changing some of the assumptions. He did not accept the figure in respect of insurance services and had inserted nothing in the calculations for AIL. Nonetheless given that this is part of a cross check exercise these figures must be seen against the figures produced by Mr Neish (£330 and £441) as a result of his exercise. 
329.	329.                      It does appear to me that Mr Cowley’s approach provides a useful cross check. Allowing no discount for investment income and no fee for AIL, adopting the figure of £253 for disbursements and £77 for third party costs, further allowing brokerage of £16.50, underwriters profit of 25% and TAG commission of 25%, together with £30 in respect of insurance services, a premium of £480.30 (£457.40 plus £22.90 IPT) is arrived at. Mr Charlton adopted various figures for insurance services, up to as much as £150. Given the remarks of Brooke LJ in the Claims Direct judgment I do not see how figures of this magnitude can reasonably be charged to the paying parties. As Mr Primer demonstrated in his evidence, because the account was picking up some adjustment of the brokerage and commission became justifiable and the figure for the 2000 year was reduced from £112 to £45, whilst the underwriters share increased. I have been struck by the comparatively low figures which are actually insuring the risk. As Mr Neish points out, this is an operation on an industrial scale and there are no doubt economies of scale. Brooke LJ expressed the view that in allowing the figure of £30 for insurance services in the Claims Direct cases I was perhaps being over generous. I certainly see no evidence in these Test Cases that it would be appropriate to exceed that figure. Given Mr Neish’s concession that the Defendants would accept a figure of £30, that is the figure I adopt. If the allowance for insurance services were to be reduced to £20 the premium, including IPT, would become £458. 
330.	330.                      Cross checking each year using Mr Cowley’s approach produces: for the 2000 year £488; for 2001 Lloyds £480; and, for 2001 NIG £424. 
331.	331.                      Mr Charlton’s figure for Lloyds 2000 is £441 including IPT. With brokerage increased to £112 the figure increases to £600 including IPT. It is clear from these figures that the brokerage and commission initially agreed unjustifiably over inflate the premium. 
332.	332.                      Doing the best I can from the mass of material and figures now accumulated I must now arrive at figures for each of the insurance years. Using a figure for insurance services of £30, it will be seen that Mr Cowley’s cross check figure falls between the Claimants’ and Defendants’ figures in the 2001 year and is somewhat higher than the Claimants’ figure in the 2000 year. The figures which I allow are those which appear to me reasonable and proportionate in all the circumstances. I do not say that these are the only correct figures but they are within a bracket of what I would regard as reasonable. I allow: for 2000, a premium of £450 including IPT; for Lloyds 2001 £480 including IPT; and for NIG 2001 £425 including IPT.
333.	333.                      With regard to swing premium, I have expressed the hope that the parties may be able to agree a figure, but, if the figure for swing premium is such that the total premium is outside the bracket of what is reasonable and proportionate, it will not be recoverable.
2002 and 2003 years 
334.	334.                      None of the Test Cases relate to these years and although I am not invited to make a formal finding as to the appropriate recoverable element of premium for these years it is suggested that I should record findings about the figures as they presently stand and give some indication as to what I would expect the recoverable element of the premium to be. In the absence of full argument concerning those years I do not express any view as to the recoverable element of the premium in those years, although I would expect the basic principles of what is recoverable to remain the same.
Conclusions
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?
335.	335.                      The sums payable for insurance by a Claimant under the TAG scheme (£840 and £997.50) are not properly to be regarded as premium within the meaning of Section 29 of the Access to Justice Act 1999. The amounts properly recoverable as premium from the paying parties are: for the 2000 year £450 including IPT; for 2001 Lloyds £480 including IPT; and for 2001 NIG £425 including IPT. The figure for 2001 Lloyds may alter if an adjustment has to be made for swing premium.
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?
336.	336.                      During the course of argument it was accepted that deductions should be made for ringfencing and I accepted that it was also proper to make deductions for insuring the cost of funding and insuring the cost of failing to recover the AIL fee. To that extent therefore those collateral benefits are not covered by the recoverable premium. Although the Issue states that it is intended to include the block rate issue I have heard no argument on that issue and express no view about it. 
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?
337.	337.                      For the reasons given in the judgment, the premium element of the sum claimed (i.e. the figures allowed under Issue 2), is a reasonable and proportionate sum for the benefits actually purchased and for cases of this character. 
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?
338.	338.                      The matters raised by this Issue are matters of fact which are set out in the judgment and were not in the event controversial.
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.
Issue 11 - If so does the solicitors agreement to pay them breach the Introduction and Referral Code?
Issue 13 – Are the payments identified at [10] irrecoverable (in whole or in part) for any other reason?
Referral Fees (issues 10 & 11)
339.	339.                      No submissions are made by the Defendants in respect of the payments to Mobile Doctors Ltd or to Rowe & Cohen. The only live issue is the AIL fee. 
340.	340.                      The panel solicitors were required, as a term of their agreement with TAG, to enter into an agreement with AIL under which the panel solicitor appointed AIL as its agent for the purposes of investigating, collating and assessing information regarding claims. The panel solicitor also agreed to pay the AIL fee. The panel solicitor was to be invoiced 14 days after the solicitor had confirmed that he had received instructions from the Claimant. In other words the solicitor was instructing AIL to carry out work on his or her behalf, investigating the circumstances of claims of potential clients. At this point the client would almost certainly be unknown to the solicitor, nor would there be any retainer in place. 
341.	341.                      Mr Neish argues that the agreement to pay a fixed fee to AIL (if a client was accepted) was an entry price into the TAG scheme and something which the panel solicitor was bound to pay if he wished to take on the case. 
342.	342.                      Clearly if the payment to AIL is a referral fee this amounts to a breach of the Introduction and Referral Code. Rule 2(3) of the Introduction and Referral Code provides:
"(3)	Solicitors must not reward introducers by the payment of commission or otherwise …"
343.	343.                      Mr Neish submits that the payment to AIL included the payment of a referral fee element as a reward for the introduction to the panel solicitor.
344.	344.                      Mr Charlton’s answer to that is that AIL was not an introducer and therefore whatever else the payment may have been it cannot have been a referral fee. In his submission all clients were introduced by TAG.
345.	345.                      Mr Charlton suggests that pre November 2000 the AIL fee was paid by the solicitors on the client’s behalf but after that date it was not paid by the solicitor at all and is therefore not capable of amounting to a referral fee. He argues that since credit facilities were made "to enable the client to pay for the premium due under a policy and/or disbursement" and since the AIL fee is included within the reference to "disbursements", and since the solicitors gave an undertaking to the client to recover the AIL fee, that fee cannot fall within the definition of a referral fee. In my judgment Mr Charlton’s submission on this point does not address the underlying questions, namely: who was contractually liable to pay the AIL fee, and, if it was a solicitor was the AIL fee a reward to introducers by the payment of commission or otherwise?
346.	346.                      Mr Charlton submits that for the period up to November 2000 the AIL fee was met by solicitors and was a disbursement paid on the client’s behalf. From November 2000 until the new form of client application form came into use, in about October 2001 (there may be earlier instances which are not within the Test Cases), the position was that the client paid for the AIL fee through the new First National Bank funding arrangement. At no point did any of the panel solicitors actually pay any money. From October 2001 Mr Charlton submits that the position is that the client continues to pay the AIL fee and in so doing is discharging a personal liability which he undertakes directly to AIL because of the agreement contained in the new application form to instruct AIL. Mr Charlton argues that in the first two periods the clients liability arises through the agency of the solicitor, whereas in the third period the liability arises direct without any agency of the solicitor. 
347.	347.                      He argues that, although the solicitors had a contract with AIL by which they agreed to use AIL services for which they paid personally during the first period, but for which the client paid during the second period, the fact that there was an agreement between the solicitors and AIL to pay the fee is itself insufficient to establish a breach of the Referral Code. He argues there is no breach of the Code unless and until the solicitor himself pays. 
348.	348.                      During period 1 Mr Charlton suggests that there exists a direct contractual path of liability between AIL and the solicitor on the one hand (which is undoubtedly correct) and what he describes as "another liability path" between the client and AIL, with the client’s liability arising through the agency of his or her solicitor. For the reasons given below that submission cannot succeed.
349.	349.                      In respect of period 2 Mr Charlton relies, among other things, on the fact that the solicitor never physically pays the AIL fee. The funding arrangements do not, in my judgment, convert the solicitors’ liability to pay into a disbursement, they merely enable the AIL fee to be paid out of the client’s loan account, a payment in respect of which the client may arguably not be liable. 
350.	350.                      In respect of period 3 Mr Charlton referred to the case of Burgess (A/15 and N/5). This case involved the use of the new application form. The service agreement explicitly authorises the solicitor to account for the AIL investigation fee to the bank, if it has been funded by the bank (A/1172), and the application form itself states:
"I understand and agree that … 
(9)	[AIL] will investigate and obtain further information surrounding the circumstances of my accident. I understand that the costs of the investigation will form part of my claim."
351.	351.                      Mr Charlton argues that the liability of the panel solicitor to AIL drops away with the introduction of the new application form rather than from the date of publication of OM5. That cannot in my view be correct, since the solicitor is still contractually bound to pay AIL, and the client has no contractual liability to pay.
352.	352.                      Mr Neish, referred to the case of Johnson (C/28), a case dealt with under OM1 in July 2000 (period 1). The client was told nothing about the arrangements between AIL and the panel solicitor, nor was the client told that when a panel solicitor accepted her case the AIL fee would be charged to the solicitor who would treat it as a disbursement, nor did the contract which the Claimant signed with TAG contain any contractual undertaking by the Claimant to pay AIL anything. The client care letter did set out the solicitors’ current hourly rate and mentioned disbursements such as court fees, investigation fees and expert’s fees. While it is now clear that "investigation fees" must have referred to the AIL fee, there appears to be no way in which the client could have known this or what amount was to be charged in respect of investigation. 
353.	353.                      Mr Neish argues that the position after November 2000 (period 2) was no different, since the contractual arrangement between the panel solicitor and TAG remained the same, as did the terms of the agreement between the panel solicitor and AIL. The only change was in the funding arrangement so that the funding was provided to the client rather than to the solicitor. 
354.	354.                      In relation to the period after November 2000 Mr Neish referred to the case of Ashmore (A/13), this is a case under OM4. At the outset Ms Ashmore was told no more than Mrs Johnson. OM4 sets out the arrangements in relation to funding, but this is a document governing the way in which the panel solicitors must operate, it is not a contract with the Claimant. By the time AIL wrote to TAG confirming that their investigations were complete, the client knew no more than that an accident investigator would contact her to seek more detailed information. In Mr Neish’s submission, which I accept, this work was done by AIL as agent for the panel solicitor to enable the panel solicitor to see whether or not he wished to take on the case. 
355.	355.                      When the solicitors wrote to Ms Ashmore she was told that she was borrowing from a funder who might provide her with additional funding in relation to disbursements incurred in pursuing her claim. Disbursements were said to include investigation fees. There was at no stage any explanation that the client was incurring the AIL fee. Mr Neish argues that this is not surprising since the arrangement was between AIL and the panel solicitor. Work has been done pre-retainer pursuant to that contract and for which the paying party cannot, in my view, be liable. The AIL invoice was sent to the solicitors, although the payment was now made direct to AIL out of the client’s loan account. It may be, after the introduction of OM5, that the client enters into a contract with AIL but prior to that there is no contract, even when the new form of application is used.
356.	356.                      The case of Perkins (B/18/300), which was put to Mr McCulloch in re-examination, was a case in which the new form of application form was used. It is paragraph 9 of the declaration on that form (N/108) where Ms Perkins acknowledges:
"[AIL] will investigate and obtain further information surrounding the circumstances of my accident. I understand the cost of the investigation will form part of my claim."
357.	357.                      Mr Neish submits correctly that that does not amount to a contract for the client to pay those charges. 
358.	358.                      The contract signed with TAG is still in the old form (B/18/317). It provides nothing about AIL save that the Claimant declares:
"If TAG accepts this claim I further understand and agree that … the loan includes the premium investigation fee of £364.25 (inclusive of VAT) interest and any other expenses incurred by my solicitor on my behalf."
359.	359.                      The Claimant is not agreeing that AIL are being contractually retained by her. The solicitors are invoiced in just the same way (B/18/312). Mr Neish again correctly submits that this is because the only contract which AIL have at the time is with the solicitors. The situation is similar in the case of Burgess (A/14/154, the contract is at A/14/172 and the invoice at A/14/167). It is clear that both cases are being dealt with under OM4 rather than OM5.
360.	360.                      In my judgment the solicitor is liable to pay the AIL fee during all three periods. The fact that the money is taken from the client’s loan account and paid directly to AIL is not proof of the client’s liability to AIL. It merely demonstrates a short circuiting of the true position ie, that the solicitor should pay AIL and the client, if liable, should refund the solicitor. This device is of no value or benefit to the client. It is of value to AIL since it provides automatic provision for payment. It is also of value to the solicitor in that it saves him from having to pay AIL and assists him in seeking to recover this sum from the client’s opponent.
Other Reasons (issue 13)
361.	361.                      It was not until the introduction of OM5 that the Claimant personally contracted with AIL to carry out investigatory work. OM5 was published on 19 November 2001. The Claimants’ case is that this was an instance of the documentation catching up late in the day with a change which had in fact occurred a year earlier in November 2000. Even after the introduction of OM5 it is stated that AIL will:
"investigate the case on behalf of the client/appointed representative" 
and later that:
"the client’s indebtedness to AIL will automatically be paid by the funders (and debited to the client’s loan) following acceptance of the case by the appointed representative."
362.	362.                      The new version of the agreement between AIL and the panel solicitor (see paragraph 72) provides that AIL will undertake the investigatory work as instructed by the Claimant, that the fee will be funded by a credit transaction and that:
"5.	The appointed representative agrees (and undertakes hereunder), for the benefit of the claimants for whom the appointed representative has agreed to act, to recover the investigation fee …"
363.	363.                      The panel solicitor agrees to repay the AIL fee to the funder in the event that it is not recovered from the Defendant within six months.
364.	364.                      None of the Test Cases arose after 19 November 2001. In all except three of the Test Cases the AIL fee is claimed as a disbursement. In the cases of Kennedy v Parkin (B/23) and Hawker v Viegas (C/26) costs have been claimed but no breakdown has been supplied. These are both cases under OM4, the solicitors becoming involved on 17 March 2001 and 14 May 2001 respectively. In the third case, Mathison v Sommer Allibert (B/24), the AIL fee is claimed as part of the profit costs. This again is an OM4 case, the solicitors became involved on 10 July 2001.
365.	365.                      Every operating manual from OM2 makes it clear that funding arrangements are in place:
"… for the client to fund disbursements … properly incurred by the panel solicitor on behalf of the client …"
366.	366.                      The solicitor took on an obligation to pay the AIL fee but cannot be said to have been doing so on behalf of the client. Although AIL did not invoice the solicitor until the retainer was complete that did not in my judgment convert the solicitor’s obligation to pay into a disbursement properly incurred on behalf of the client. 
367.	367.                      Mr Neish argued that much of the work appears to have predated any retainer and could not have been incurred by AIL as an agent instructed by the panel solicitor. He referred to my judgment in Claims Direct Tranche 2:
"81	Other questions arise when one considers the nature of the MLSS invoice. In my judgment the invoice, which is sent as soon as the panel solicitor has accepted the case, can refer only to future work, ie to work done after the solicitor has been retained. In order for a disbursement to be recoverable it must have been made by the solicitor on the client’s behalf or be an out of pocket expense of the client personally (see Re: Remnant [1849] 11 Beav 603 at 611; Re: Buckwell & Berkeley [1902] 2 Ch 596 CA and Brown v Barber [1913] 2 KB 533). In the Claims Direct Test Cases no client has ever been called upon to pay the MLSS fee. Indeed the client does not even know of the existence of MLSS. 
82.	Solicitors can only pay disbursements as agent for a client if they are authorised to do so by the client. Prior to the acceptance of the case by the solicitor there is no client and therefore no authority. It is quite clear therefore that any recoverable element of the £395 plus VAT could only be in respect of work undertaken by the claims manager after the case has been accepted. It may well be that, once the case has been accepted, the claims manager carries out work, on the instructions of the solicitor, for which it is appropriate to make a charge, the cost of which may be recoverable as a disbursement. On the evidence before me, applying the above principles, none of the cases contain details of work which would bring the amount properly chargeable near to the figure of £395 plus VAT."
368.	368.                      In relation to pre November 2000 cases Mr Charlton argues that the AIL fee was incurred by the solicitor on behalf of the individual claimants. This was on the basis that the solicitor appointed AIL as its agent for the provision of investigatory works in consideration of the payment of £310 plus VAT. That provision was contained in OM1 and remained the same throughout, save that in OM3 one of TAG’s roles in relation to initial insurance services included the instruction of AIL on behalf of clients and the solicitor. I have already indicated the problem in relation to that arrangement, namely that the solicitor has taken on an obligation to pay AIL the investigation fee but has done so before there is any retainer. It may be that the client is liable to the solicitor under the terms of the retainer for that fee, but since it is not a disbursement properly so called it is not, in my judgment, recoverable from the paying party. The argument that it is a fee properly paid by the client, and therefore recoverable as such, also fails because what the client is in effect doing is reimbursing the solicitor for a liability incurred by the solicitor without any authority from the client. In my view, if the client objected to paying this amount to the solicitor, it would be disallowed on an assessment between solicitor and client. 
369.	369.                      It is indeed part of Mr Charlton’s submission that the services rendered by AIL are all performed prior to the retainer of the solicitor by the client and provided "for the purpose of validating the arguability of the client’s case before the solicitor". 
370.	370.                      Mr Charlton argues that it was in November 2000 that disbursement funding was introduced within the TAG scheme and clients were enabled to pay the AIL fee through this funding. He sought to show by reference to the Test Cases (Schedule 1 to his opening submissions) that the AIL fee had been "incurred by the clients" by referring to the loan account statements which had had these amounts debited to them (save in the case of Pollock). In my view that exercise does no more than demonstrate the way in which the bank had dealt with the client’s loan account but does not overcome the position clearly set out in contractual documents from which it can be seen, without any doubt, that it was the solicitor who incurred the obligation to pay and who was invoiced for the amount due. It was not until the introduction of OM5 in November 2001 that some attempt appears to have been made to make the client primarily liable for the AIL fee. Mr Charlton’s suggestion that OM5 was merely an instance of the documentation catching up with the reality does not alter the contractual situation which applied in relation to the Test Cases. Indeed it was not until 27 February 2002 that TAG sent out a letter explaining the changes brought about by OM5. I find that OM5 came into operation on 19 November 2001. Any application forms completed prior to that date, even if in the so called new form, are dealt with under the terms of OM4.
371.	371.                      As I have already indicated the contractual obligation to pay was upon the solicitor. What happened in fact after November 2000 was that, rather than the solicitor paying the AIL invoice, the money was deducted from the client’s loan account by the bank and paid direct to AIL. For the reasons I have given this did not render it a disbursement. 
372.	372.                      Mr Neish accepts that the MDL fee is recoverable as a disbursement because it is incurred post retainer. 
373.	373.                      The Claimants recognise that the AIL work will not be allowed in full on a between the parties assessment. Mr Charlton accepts that the amount properly allowable in respect of the work done by AIL will be in the region of 1 hour at the relevant rates. Mr Neish suggests no more than half an hour.
CONCLUSIONS
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.
374.	374.                      The payment of £310 plus VAT paid to AIL which is passed on to TAG is a referral fee.
375.	375.                      Although payment of the AIL fee is made direct to AIL in every case, it is clear from the evidence of Mr Blair that the turnover of AIL (£56 million in the year ended 31August 2002) (D/34/901) is comprised mainly of the AIL fees received. After deducting the cost of sales, the bulk of the remaining gross profit is paid to TAG as administrative expenses (for 2002: gross profit £47.78 million, amount paid to TAG as administrative expenses £47.69 million. In 2001: turnover £24.5 million, gross profit £22.10 million, administrative expenses paid to TAG £21.93 million). It is clear from this that TAG is receiving the great majority of the AIL fees and that money is, in my view, a referral fee paid to TAG as the introducer. The fact that the money passes through the hands of AIL, a company exclusively linked with TAG, does not prevent it from being a referral fee. Equally, the fact that the solicitor has not physically paid AIL, the money having been removed from the client’s loan account, does not mean that the solicitor is not liable to AIL and is in fact making the payment notwithstanding that money from the client’s loan account is paid direct to AIL.
376.	376.                      The matter is in my view put beyond doubt by the agreement between TAG and First National Bank of 3 October 2000 (see paragraph 39) (J/44/2616 to 2626). That agreement recites that the bank has agreed to provide funding to clients "to finance … disbursements payable by the client to the appointed representative …" The general obligations of the bank provide: 
"2.1	… the bank shall offer to provide credit transactions to clients of the company … finance provided by the bank … may only be used by the client to pay for: 
…
2.1.2	disbursements due and payable by the client to their appointed representative."
 
377.	377.                      This is another instance of participants in the TAG scheme operating in a way which they find convenient, whilst ignoring the clear contractual provisions upon which the scheme is based.
Issue 11 - If so does the solicitors agreement to pay them breach the introduction and referral code?
378.	378.                      The solicitors are in breach of the Introduction and Referral Code and the fee paid is not recoverable.
Issue 13 – Are the payments identified at [10] irrecoverable (in whole or in part) for any other reason?
379.	379.                      The payment to AIL is not a disbursement paid by the solicitor on the client’s behalf, nor is it expenditure authorised by the client on his or her own behalf. No part of the fee paid to AIL is recoverable as a disbursement.
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?
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?
OM2, 3 and 4 (Issue 16)
380.	380.                      Issue 16 relates to Test Cases covered by OM2, 3 and 4, Issue 17 relates only to those covered by OM1. In relation to Issue 16 Mr Neish referred to OM2 (J/44/2730, see paragraph 65) under which the panel solicitor is required only to incur disbursements which are recoverable from the paying party. It is said to be an express condition of the agreement between TAG and the panel solicitor that any disbursements are reasonable in amount and that the panel solicitor has warranted that the disbursements are recoverable. If the solicitor fails to recover a disbursement the solicitors undertake either to refund the funders on behalf of the client, or if the disbursement has not been funded, not to seek recovery from the client. Identical provisions are contained in OM3 and OM4. Furthermore on the standard disbursement funding request form TAG SF2 (J/44/2774) the solicitor confirms that the disbursement has been remitted and that the details shown are correct. The declaration continues:
"I confirm that the client understands this disbursement will be added to their loan for the premium (and any other disbursements already incurred if applicable).
I understand that in the event of a successful case if this disbursement is not recovered it will be repaid to the client by ourselves."
381.	381.                      Mr Neish argues that this amounts to an arrangement between the panel solicitor and TAG that the solicitor will not pursue the client, pursuant to any rights he would otherwise have to do so, for any disbursements in excess of those which can be recovered from the paying party. This he suggests is a straightforward breach of the indemnity principle. 
382.	382.                      Mr Charlton argues that the undertaking given by solicitors to remit from their own resources an amount equivalent to the unrecovered disbursements does not alter or undermine the client’s liability to pay the full amount of the disbursements. He argues that clause 4 of the CFA ensures that the client remains liable for the full amount of disbursements incurred whether or not recovered in full from the paying party. Clause 4 explains:
"What happens if you win.
If you win:
•	§         You are then liable to pay all our basic charges, our disbursements and success fee …
•	§         Normally you will be entitled to recover part or all of our basic charges, our disbursements and success fee from your opponent.
•	§         If you and your opponent cannot agree the amount, the court will decide how much you can recover. If the amount agreed or allowed by the court does not cover all our basis charges and our disbursements then you pay the difference …"
383.	383.                      Mr Neish sought to rely on the decision in Customs & Excise Commissioners v Vaz [1995] STC 14 in which MacPherson of Cluny J held that an arrangement under which a client’s fees and expenses were to be payable only if the client was successful and would equal the costs received, was a breach of the indemnity principle. That decision was given in 1994 before legal representatives were allowed to enter into conditional fee agreements. Although the agreement under consideration in Vaz was not made by a legal representative, it is my view that the provisions of Section 58 of the Courts and Legal Services Act 1990 are sufficiently wide (provided all the statutory requirements are complied with) to enable legal representatives to enter into just such an agreement. Section 58 provides:
"(2)	For the purpose of this Section and Section 58A-
(a) 	a conditional fee agreement is an agreement with a person providing advocacy or litigation services which provides for his fees and expenses, or any part of them, to be payable only in specified circumstances …"
384.	384.                      There appears to be no reason why the circumstances specified should not be the recovery of those costs and/or disbursements from the paying party. I am reinforced in that view by the fact that the Civil Procedure Rules Committee has recently agreed to amend CPR 43.2 to insert:
"(3)	In Parts 44 to 48 costs are recoverable where –
(a)	advocacy or litigation services are provided to a party under a conditional fee agreement (within the meaning of Section 58 of the Courts and Legal Services Act 1990); and
(b)	the client is only liable to pay his legal representatives fees and expenses to the extent that those costs are –
(i)	received from another person; or
(ii)	ordered or agreed to be paid to the client."
385.	385.                      This Rule is not yet in force. In my view, when it is in force it will not alter the law. It will merely clarify it. In addition to the rule change, an amendment to the CFA Regulations is envisaged which will make very much simpler the steps required to be taken by a legal representative when entering into a CFA under which, in certain circumstances, the client’s liability for fees and expenses is limited to costs recovered. Also the amendment to Section 51 of the Supreme Court Act 1981 by Section 31 of the Access to Justice Act 1999 will be implemented. This also, in my judgment will not alter the law. CFA’s of all types have been regularly used and regularly upheld in all courts, including the House of Lords, without this amendment being implemented.
386.	386.                      On that basis therefore Mr Neish’s submission fails. I should however make it clear that the enforceability of the CFA depends upon compliance with the statutory requirements.
OM1 (Issue 17)
387.	387.                      Between April and August 2000 the form of CFA in use provided (D/40/1119):
"(d)	Paying us
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 from your opponent you may be able to recover your disbursement under the policy … 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."
388.	388.                      Mr Neish argues that this is an agreement with the client that the client will not be pursued further than the extent to which those costs can be recovered. 
389.	389.                      In essence this is the same point as that under Issue 16, and for the reasons which I have given Mr Neish’s submission must fail.
CONCLUSIONS
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?
390.	390.                      The TAG panel solicitors obligation to reimburse any disbursements which are not recovered from the Defendant is not a breach of the indemnity principle.
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?
391.	391.                      The provision in some versions of the CFA that the panel solicitor will in successful cases limit his fees to those recovered from the paying party is not a breach of the indemnity principle.
 
PTH\44\Accident Group Tranche 2