Horwich Farrelly achieves success in first stage of battle against ‘£400 club’

Horwich Farrelly has obtained a decision on three cases heard at Cardiff County Court last month, which opens the door for the potential recovery by insurers of hundreds of thousands of pounds paid in Stage 1 Claims Portal fees to the so-called £400 club.

When the Portal was launched, whenever a claimant solicitor submitted a Claims Notification Form (CNF) at Stage 1 and the insurer admitted liability, then the insurer was obliged to pay the Stage 1 fixed costs of £400.

However, between 2010 and 2013 Horwich Farrelly says that a significant number of claims were submitted where the Stage 1 costs were paid, but where the claim didn’t progress beyond Stage 1, creating the ‘£400 club’.

Following concern that the loophole was being used to push speculative and fraudulent claims, the rules were changed in 2013 so that Stage 1 costs were only payable upon receipt of the Stage 2 settlement pack. However, prior to the amendment insurers had paid large amounts of Stage 1 costs on claims that were never progressed. A number of claimant solicitors have always contended that, under the rules prevailing at the time, they were entitled to retain the Stage 1 costs on these claims.

In reaching his decision and ordering reimbursement of the Stage 1 costs on three claims District Judge Phillips focused on the fundamental principles of the Portal.

He made the point that, despite the wording of the Pre-Action Protocol at the time: “The whole system [the Portal process] is based upon the premise that there will be a claim made for personal injury, and that any claim will proceed from Stage 1 to Stage 2.

“I also note that the Protocol has since been amended so that now Stage 1 costs are only paid when the settlement pack is submitted as part of Stage 2. This reinforces my conclusion that it was always the intention that Stage 1 costs would only be paid on the basis that the claim proceeded to Stage 2”

He went on to say that: “In a case where for whatever reason, the claim is not proceeded with, then in my judgment any Stage 1 fixed costs must be repaid.”

Horwich Farrelly has taken on the challenge of recovering these payments, as Patrick McCarthy, Horwich Farrelly partner, explained.

“We have believed for some time that Stage 1 costs are an interim payment which, if a claim is not pursued, should be recoverable, and have been working to test and challenge perceptions to the contrary,” he said.

“Our specialist Recoveries Team has been running an initiative that combines both debt recovery techniques and test litigation, and the success at Cardiff County Court is an important first step in the right direction.”

Given the potential significance of his judgment, DJ Phillips gave the claimant solicitors in these cases leave to appeal, with the matter being ‘leapfrogged’ to the Court of Appeal.

“If the Court of Appeal agrees with DJ Phillips, insurers will be able to pursue recovery of those Stage 1 costs paid where a claim was not subsequently pursued” added McCarthy.

“£400 may seem a relatively small amount in claims terms, but the high number of claims involved means that a huge amount of money could be owed to motor insurers. According to the published Claims Portal statistics, over 2.3m CNFs were submitted to the Portal between 2010 and 2013, and around 20% of the related claims appear to have remained ‘in the system’ i.e. they haven’t been settled or moved out of the Portal process.

“Even if only a small proportion of these are part of the ‘£400 club’ the total Stage 1 fees involved across the industry could run to tens of millions of pounds. Working closely with our clients, we will continue to fight to get back what is owed to them – we may have won our first battle, but the war is far from over.”

Mark Dugdale