Supreme Court: no-win-no-fee costs regime compatible with Article 6

22 July 2015 by David Hart KC

Coventry v. Lawrence [2015] UKSC 50, 22 July 2015, read judgment here

The pre-April 2013 Conditional Fee Agreement system, under which claimants could recover uplifts on their costs and their insurance premiums from defendants, has survived – just. It received a sustained challenge from defendants to the effect that such a system was in breach of their Article 6 rights to a fair trial.

In a seven-justice court there was a strongly-worded dissent of two, and two other justices found the case “awkward.”

The decision arises out of the noisy speedway case about which I posted in March 2014 – here. The speedway business ended up being ordered to pay £640,000 by way of costs after the trial. On an initial hearing (my post here), the Supreme Court was so disturbed by this that they ordered a further hearing to decide whether this was compatible with Article 6 .

At this further hearing, in February 2015 various interested parties attended, including the Government defending the charge that the costs system was incompatible with the ECHR.

Now to a breakdown of the numbers. The judge had ordered the defendants to pay 60% of the claimants’ costs at the end of the original trial. Those costs turned out to be £398,000 base costs, an assumed conditional fee (CFA) uplift of £319,000 and an ATE premium of £350,000 – £1,067,000 all in, hence 60% giving £640,000. Of this, you will see that over £400,000 is uplift and premium.

Compare the damages at stake; £20,750 as awarded by the judge, a bungalow worth under £400,000, with a maximum diminution in value of £74,000 if the noise was to continue.  So, at best, in financial terms, a little under £100,000.

So, said the Defendants, a disproportionate costs bill. The Defendants’ strongest point was MGN Limited v United Kingdom (2011) 53 EHRR 5, and Rosalind English’s post here. Naomi Campbell won her privacy case in the House of Lords, with massive costs consequences. The losing newspaper took the UK to Strasbourg, on the basis that recovery of the success fee violated their right of expression under Article 10. Strasbourg held that the system did not strike a fair balance between the paper’s Article 10 rights and Naomi Campbell’s Article 6 rights.

The majority in the present case (Lords Neuberger, Dyson, Sumption and Carnwath) were not ultimately convinced that there was direct read-over of the case. Strasbourg in MGN was concerned about the effect of the costs regime in defamation and privacy cases, and always gives particular weight to the right of freedom of expression.  The most careful scrutiny is called for when measures are capable of discouraging the participation of the press in debates over matters of legitimate public concern.

Compare the present case:

52……But in our judgment the balancing of the article 6 rights of appellants against those of respondents is an exercise of a wholly different character. There is no basis for concluding that it was implicit in the reasoning of the court that it would have held that the scheme violated the article 6 rights of the respondents in that case. We reject the submission that the decision in MGN v United Kingdom requires us to hold that the 1999 Act scheme is incompatible with article 6.

And A1P1 added nothing.

Lord Clarke (with Lady Hale) disagreed. MGN did apply to the current case. Whilst freedom of expression is a particularly powerful interest under the Convention, the interest of any defendant in being able to defend himself  in litigation, at a reasonable and proportionate cost is also one of some weight; and it certainly engages a balancing exercise, when set against the countervailing interest of claimants’ access to justice. They added

just as a claimant is entitled to a fair trial, so too is a defendant. It is unfairly to diminish that right to say that it is merely entitled to some weight. It is the duty of the court to ensure that both parties have a fair trial.

Hence Lord Clarke’s conclusion

[129]….. To my mind, so far as it applies to the class of defendant concerned in this case, the scheme is discriminatory and disproportionate and disregards their rights. So far as I can see, the Government at no stage considered the plight of respondents such as these.

Now to the discussion of the four flaws in the costs system identified by the Strasbourg Court in MGN, namely

(i) the lack of focus of the regime, and the lack of any qualifying requirements for claimants wanting a CFA (both rich and poor alike);

(ii) the absence of any incentive for claimants to control the incurring of legal costs and the fact that judges assessed costs only at the end of the case when it was too late to control costs that had been spent;

(iii) the “blackmail” or “chilling” effect of the regime which drove parties to settle early despite good prospects of a defence; and

(iv) the fact that the regime gave the opportunity to “cherry pick” winning cases to conduct on CFAs.

The critical flaw (per the majority at [53]) considering the defendants’ position arose out of (iii), the blackmail or chilling effect on defendants.

Now to the key question, namely whether the CFA system was a disproportionate way of achieving the legitimate aim, which had been to improve access to justice just as a broad system of legal aid in civil cases was being cut back. It is not enough to identify flaws or unfairnesses by themselves: [56].

The majority then turned to an important point in all such challenges to a system. Should one concentrate on the impacts on these particular defendants, or look more widely?

[62]. Nevertheless, the ECtHR recognises that a legislative or regulatory scheme may in some circumstances be compatible with the Convention even if it operates harshly in individual cases. The issue was considered in some detail in Animal Defenders v United Kingdom (2013) 57 EHRR 21. That case involved a challenge to the UK laws which ban political advertising on TV and radio. There was no dispute that the ban amounted to an interference with article 10 rights, was prescribed by law and pursued a legitimate aim. The issue was whether the interference was proportionate to the legitimate aim.

The majority cited a sustained passage from Animal Defenders, ending with

109. It follows that the more convincing the general justifications for the general measure are, the less importance the court will attach to its impact in the particular case ….

110. The central question as regards such measures is not, as the applicant suggested, whether less restrictive rules should have been adopted or, indeed, whether the State could prove that, without the prohibition, the legitimate aim would not be achieved. Rather the core issue is whether, in adopting the general measure and striking the balance it did, the legislature acted within the margin of appreciation afforded to it ….”

And this led to the majority’s summary of its conclusions on system at [64]. The scheme

 is compatible with the Convention for the simple reason that it is a general measure which was (i) justified by the need to widen access to justice to litigants following the withdrawal of legal aid; (ii) made following wide consultation and (iii) fell within the wide area of discretionary judgment of the legislature and rule-makers to make. On that basis, it is no answer to say that other measures could have been taken which would have operated less harshly on non-rich respondents.

Having said this, the majority then proceeded to look critically at the various features of the system, for better or for worse. It was not all one way traffic for defendants when CFAs arrived. Under the old wide legal aid system, if a defendant won, he rarely got his costs in practice – he was limited to what was known as the “football pools” order. Under a CFA if the defendant won, he would normally get his costs from the ATE insurer (whose premiums these defendants were saying were so exorbitant). And looking at the other side of the coin (for which see [70]-[72]), removal of the CFA/ATE system has meant in practice that it is very much more difficult for claims for modest damages to be run. That problem is particularly stark in group nuisance actions (for which see my thoughts on the Austin case here).

The most sustained argument arose about the Costs Practice Direction (CPD) which had limited consideration of proportionality issues to base costs – you could not say it was unreasonable for this claimant (e.g. Naomi Campbell) to have entered into a CFA and insured herself, and you could not say that the total costs (including uplift and premium) was disproportionate.

Ultimately, the majority thought that the CPD was central to the old system. Challenge that and lawyers would not have entered into CFAs. And if you start looking at the means of claimants, you open up a whole ream of satellite litigation, rather like the mini-hearings that can arise when deciding whether a Protective Costs Order can be made (see e.g. Mrs Litvinenko’s case discussed here)

Finally, the majority considered that there was no way of “reading down” the legislation or indeed the non-legislative Practice Direction to make its compatible – it was all or nothing. And they ultimately blanched at the massive impact a declaration of incompatibility would have had.

[90]….A decision to declare that the 1999 Act scheme was incompatible with the Convention would have a serious impact on many thousands of pre-April 2013 cases which are in run-off, as well as claims to which the pre-Jackson costs rules continue to apply, such as mesothelioma, insolvency and publication and privacy cases.

They added that any order they made would have had no effect on the contractual obligations of litigants to pay success fees to their lawyers and ATE premiums to their insurers. They would remain liable to pay their lawyers and insurers, but could not recover these sums from the defendants.

I have touched upon the views of Lord Clarke for the minority above, but his conclusion at [131] is worth quoting

I accept that the question is not whether the system was unfair or had flaws. It is whether it was a disproportionate way of achieving the legitimate aim. In my opinion, it plainly was because it did not treat all respondents in the same way but chose a particular class of respondents on whom to impose liabilities far beyond the bounds of what was reasonable or proportionate.

He had in mind the class of one-off uninsured litigants such as the defendants, who could have been spared liability for these massive costs, even though it might have been appropriate for frequent litigators or insured defendants to take the rough with the smooth (see [117]).

Conclusion

Why then the apparent swing in the majority of the court from its initial thoughts last July? I think they now appreciated (doubtless with the assistance of all the interested parties) just how central uplift and ATE recovery was to the system as operated between 2000 and 2013, and hence the impossibility of making some minor tweak in order to mitigate the speedway owners’ bill.

This leads on to the obvious counterfactual. What would have happened, had some brave defendant had a go at the system in the early 2000s? It is tempting to say that they might well have won, but I doubt it. The real problems only emerged some years into the operation of the system, when massive bills started landing on defendants’ desks. And I think most people would have probably analysed the problem as a weighing up of Article 6 rights on both claimants’ and defendants’ side, with no obvious winner or loser, until MGN in Strasbourg got us all thinking in 2011.

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