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Lucy_Hayes_phThe outcome of this appeal could have far-reaching implications for the Government if the Supreme Court decides that the costs provisions of the Access to Justice Act 1999 (under which the unsuccessful party can be ordered to pay a ‘success fee’ of up to 100% of costs, plus the other side’s ATE insurance premium) are incompatible with the Article 6 right to a fair trial. If a declaration of incompatibility is made, litigants who have been “victims of those provisions” (in Lord Neuberger’s words) may be able to claim compensation from the Government.

Background

The underlying case relates to a nuisance claim against the Defendants (the Respondents in the appeal), who are the tenants and operators of land used as a speedway track, and their respective landlords. The Claimants (the Appellants) live in a property 850 yards from the track and brought a claim for damages and an injunction against the Defendants.

The Appellants were successful before the Supreme Court in the substantive nuisance action ([2014] UKSC 13, on appeal from [2012] EWCA Civ 26).  There then followed a hearing on 12 May 2014 that was intended to deal with matters consequential to the earlier judgment. Judgment was handed down in respect of this subsequent hearing on 23 July 2014 in Coventry and others (Respondents) v Lawrence and another (Appellants) (No 2) [2014] UKSC 46.  In that judgment, the Appellants’ arguments on costs were referred for this further hearing, which took place on 9 to 12 February 2015 before a panel comprising seven justices: Lady Hale and Lords Neuberger, Mance, Clarke, Dyson, Sumption and Carnwatch.

The Appellants had been legally represented in the substantive case under a conditional fee agreement (on a ‘no win no fee’ basis). Their costs at first instance consisted of three components; (1) the ‘base costs’ (their lawyers’ fees and disbursements); (2) the success fee to which the lawyers were entitled due to the CFA; and (3) the after-the-event  insurance premium. The base costs amounted to £398,000, the success fee was around £319,000 and the ATE premium was around £350,000. The Respondents were ordered to pay 60% of the Appellants’ costs, which amounted to £640,000 (the full costs were over £1 million).

Law

The Access to Justice Act 1999, which amended the Courts and Legal Services Act 1990  and was implemented through Rule 44 and PD 44 of the CPR, empowered the court to include provisions for the payment of success fees and ATE premiums in an order for costs. (Since 1 April 2013, by way of sections 44 and 46 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012, success fees and ATE premiums are no longer recoverable from the other side to litigation.)

In the May 2014 hearing before the Supreme Court that dealt with consequential matters, counsel for the Respondents submitted that under section 6 of the Human Rights Act 1998, the court (as a public body) has a duty to exercise its discretion in accordance with the European Convention on Human Rights. The Respondents argued that their liability for the Appellants’ representatives’ success fees and ATE premiums was incompatible with their Article 6 right to a fair trial under the Convention and/or Article 1 of the First Protocol to the Convention (i.e. the right to peaceful enjoyment of property).

The Supreme Court’s July 2014 judgment relating to consequential matters

In the July 2014 judgment, Lord Neuberger referred to the level of costs as “very disturbing”. He stated that “the fact that it can cost two citizens [the Appellants] £400,000 in legal fees and disbursements to establish and enforce their right to live in peace in their home is on any view highly regrettable”, particularly given that the value of the home was less than £300,000 and the effect of the nuisance on that value £74,000 at most. From the Respondents’ perspective, they now have to pay both their own costs and around £240,000 of the Appellants’ base costs, although “they plainly had a reasonable case, as is evidenced by the fact that they won in the Court of Appeal”. Even aside from the effect of the AJA 1999, “it would be wrong for this Court not to express its grave concern about the base costs in this case,” while emphasising that the concern relates to the system rather than the lawyers involved.

Lord Neuberger commented that the costs potentially recoverable by the Appellants are nearly three times the base costs, and that “the figures illustrate the malign influence of the amendments made to the 1990 Act”. The system introduced in 1999 had “a number of unique and regrettable features”, notably that:

  1. Claimants had no interest in the level of their base costs, success fees or ATE premium, as if they lost they paid nothing, and if they won the costs would be paid by the defendants;
  2. Unsuccessful Defendants found themselves paying three times the claimant’s ‘real’ costs in addition to their own costs;
  3. Base costs could be reduced if disproportionate, but proportionality was excluded from consideration in relation to the recovery of success fees or ATE premium (PD 44 of the CPR, paras 11.7 – 11.10);
  4. The stronger a Defendant’s case, the greater the liability for costs if the Defendant lost, as the size of a Claimant’s ATE premium was negatively correlative to the Claimant’s chances of winning.

The Strasbourg Court criticised recoverable success fees in MGN v UK (2011) 53 EHRR 5 and disagreed with the view of the Supreme Court in an earlier hearing of the matter. Lord Neuberger stated therefore that the issue of whether the 1999 Act costs regime infringed the Convention “is open to this Court to reconsider”, but that “it would be wrong for this Court to decide the point without the Government having had the opportunity to address the Court on the issue”.

In respect of the provisions relating to success fees and ATE premiums, Lord Neuberger stated that while they are “not on their face mandatory”, it is “arguable that the costs charging and recovery system introduced by Part II of the 1999 Act simply would not work unless a claimant’s success fee and ATE premium were recoverable in full”, in which case the proper outcome would not be to disregard the relevant parts of the CPR but to grant a declaration of incompatibility. Lord Neuberger commented that this “could have very serious consequences for the Government”.

Appeal

The appeal that was heard last month had eight intervening parties, including the Secretary of State for Justice, the General Council of the Bar, The Law Society and the Association of Costs Lawyers, which reflects the wide-ranging interests in the outcome of this case (which is further reflected by the seven-judge panel). Further details can be found on the Supreme Court website here.

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