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Sam_Claydon_phA majority of the Supreme Court has ruled that a successful claimant’s right, under the pre-Jackson regime for litigation funding, to recover from the defendant any success fee agreed pursuant to a conditional fee agreement and any premium paid for an after-the-event insurance policy does not breach the right to a fair trial under Article 6 of the European Convention on Human Rights. This much-anticipated ruling will come as a relief to parties with pre-April 2013 conditional fee agreements and after-the-event policies and those with claims to which the pre-Jackson regime continues to apply (primarily insolvency proceedings and privacy and publication cases). 

Background

Following the Jackson reforms to civil litigation costs and funding, under current legislation a success fee agreed pursuant to a conditional fee agreement (“CFA”) entered into on or after 1 April 2013 cannot, in the majority of cases, be recovered from the unsuccessful opposing party.  Likewise, in most cases, any premium paid for an after-the-event (“ATE”) insurance policy entered into on or after this date is also now irrecoverable from the unsuccessful party.

These changes were brought into force by section 44 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 in light of criticism of the pre-Jackson regime of litigation funding (which was governed by section 27 of the Access to Justice Act 1999. The main criticisms were that allowing recoverability of CFA success fees and ATE policy premiums led to disproportionate costs in litigation and placed an unfair burden on the unsuccessful party.

Nonetheless, the pre-Jackson regime governed by the 1999 Act remains applicable to a number of cases currently going through the courts. Firstly, it applies to CFAs entered into and ATE policies taken out before 1 April 2013; and secondly a number of areas of litigation were exempted from the reforms (publication and privacy proceedings, insolvency-related proceedings and claims for damages for diffuse mesothelioma) and the pre-Jackson regime still governs these.

Coventry v Lawrence

The question that came before the Supreme Court in Coventry v Lawrence was whether recoverability of success fees and ATE policy premiums in addition to base costs breached the unsuccessful defendant’s right to a fair trial under Article 6 of the European Convention on Human Rights and, by extension, infringed Article 1 of the First Protocol to the Convention (the right to protection of property).

The underlying litigation related to a claim in nuisance brought by the claimants in respect of the defendants’ motor-racing track that operated adjacent to the claimants’ property.  At first instance, the claimants obtained injunctive relief to limit the noise levels that could be emitted from the track and an award of damages of £20,750. The defendants successfully appealed the judgment in the Court of Appeal, but the Supreme Court ultimately allowed the decision at first instance to stand on liability (see the Case Comment here).

At first instance, the defendants were ordered to pay 60% of the claimants’ costs (including the success fee under the CFA the claimants had taken out with their solicitor and the premium for their ATE policy).  This meant that the defendants would be liable for base costs of £184,585 and an additional sum in respect of the success fee and ATE premium of approximately £312,000.  The defendants challenged their liability to pay the success fee and ATE premium on the basis that this infringed their rights under Article 6 and Article 1 of the First Protocol to the Convention.

The Supreme Court reserved its position on the question of recoverability to allow other parties to intervene given the wider implications of any decision as to the compatibility of the pre-Jackson regime with the Convention rights.

The defendants’ arguments

The defendants relied upon the decision in MGN Limited v United Kingdom (2011) 53 EHRR 5, in which the European Court of Human Rights found a number of flaws in the pre-Jackson regime, namely that:

  • it lacked focus and there were no formal requirements for entering into a CFA;
  • parties had little incentive to control costs, which would be assessed only at the end of a case;
  • the regime had the “chilling” effect that parties would feel compelled to settle early despite having a strong claim; and
  • the regime gave lawyers the opportunity to “cherry pick” winning cases to conduct on CFAs.

The court in MGN concluded that those flaws were sufficiently serious that the regime was incompatible with right to freedom of expression under Article 10 of the Convention.  The defendants submitted that, on the same reasoning, the court in Coventry had to find that the regime was also incompatible with Article 6.

The Supreme Court’s decision

The appeal was heard by a panel of seven Justices of the Supreme Court.  By a majority of 5:2, it held that the pre-Jackson regime was compatible with Article 6 and Article 1 of the First Protocol to the Convention.

The leading judgment was given by Lord Neuberger and Lord Dyson (with whom Lord Sumption and Lord Carnwarth agreed).  Lord Mance delivered his own concurring judgment, with which Lord Carnwarth also agreed.  Lord Clarke gave a dissenting judgment, with which Lady Hale agreed.

The issue of proportionality

As the Supreme Court identified, “…the principle of proportionality lies at the heart of this case”.  It noted that proportionality came into consideration in the context of both the Convention rights and the costs provisions of the Civil Procedure Rules.

Lord Neuberger and Lord Dyson referred to the four-limb test for proportionality in respect of interference with Convention rights as espoused by Lord Reed in Bank Mellat v HM Treasury (No. 2) [2013] UKSC 39. They took from this that appropriate weight must be given to informed legislative choices and that in the present context, the focus of “proportionality” was on the balance struck by the pre-Jackson regime between the rights of different types of litigant.

With respect to proportionality and costs, Lord Neuberger and Lord Dyson considered the issue of recoverability of additional liabilities in the context of the test for assessment of costs laid down in Home Office v Lownds [2002] EWCA Civ 365 (which permitted a party to recover disproportionate base costs so long as they were necessarily incurred).  They applied previous jurisprudence on the matter to the effect that:

(1) ATE premiums were recoverable if necessarily incurred (as this would be considered to be proportionate for costs purposes, even where the premium was disproportionately high compared with the amount of damages claimed); and

(2) success fees were also recoverable if necessarily incurred (again, as this would be considered to be proportionate for costs purposes).  They recognised that recoverability of success fees and the availability of ATE insurance were key to ensuring that the pre-Jackson regime met its objectives of ensuring access to the courts, containing the cost of legal aid and discouraging weak claims and was a viable policy to pursue.

Lord Neuberger and Lord Dyson rejected the defendants’ argument that it was implicit in the court’s reasoning in MGN that the pre-Jackson regime must be incompatible with Article 6 of the Convention.  This was because the MGN judgment was made in the context of defamation and privacy cases and concerned the balance between the Article 6 right and the right to freedom of expression under Article 10 of the Convention.  Here, there was no competing interest comparable to the Article 10 right and so the balancing act in this case was of a “wholly different character”.

However, they held that it was the potential for the “chilling” effect identified in MGN that lay at the heart of the present case (after having acknowledged that the other flaws, although present, did not impinge upon the rights of the opposing party).  The “chilling” effect was thus described as “…imposing a costs burden on opposing parties which is excessive and in some cases amounts to a denial of justice”.

Was the pre-Jackson regime a disproportionate way of achieving a legitimate aim?

Lord Neuberger and Lord Dyson considered that, despite the flaws inherent in the regime (which they themselves acknowledged), the flaws, and whether or not the regime was unfair in certain respects, were irrelevant questions in considering whether there was a breach of the defendants’ Convention rights. The key question was, in their view, whether the regime was a disproportionate way of achieving a legitimate aim.  They made the following pertinent observations:

  • applying Swift v Secretary of State for Justice [2013] EWCA Civ 193, under the Convention a state need only pursue a legitimate aim in a proportionate way: Strasbourg does not demand that it do any more;
  • the court must give considerable weight to informed legislative choices, at least where the state is seeking to reconcile the competing interests of different groups in society; and
  • a legislative or regulatory scheme can be compatible with the Convention even where it produces hard results in individual cases and a state can therefore adopt general measures that apply to pre-defined situations regardless of the individual facts of each case.

Lord Neuberger and Lord Dyson recognised that, despite the obvious shortcomings of the pre-Jackson regime, it had been a justifiable measure taken to widen access to justice and the decision was made within the ambit of the discretion allowed to decision-makers.  The perceived harshness of the pre-Jackson regime was also somewhat mitigated by:

  • district judges and costs judges acting as “watchdogs” for the regime, who would keep a check on the base costs and additional liabilities;
  • respondents themselves being able to enter into CFAs and take out ATE insurance; and
  • successful defendants often being better off under the pre-Jackson regime than if they had been relying on legal aid.

For these reasons, the pre-Jackson regime was compatible with Article 6 and Article 1 of the First Protocol to the Convention.

Whether one could ever devise a comparable scheme that would operate fairly for all litigants was summed up pithily by the court thus: “…in the absence of a widely accessible civil legal aid system (which had ceased to exist by 1999), it is impossible to devise a fair scheme which promotes access to justice for all litigants”.