Supreme Court issues stark human rights costs warning

A long-running nuisance dispute may have a profound effect on parties’ liabilities for costs in cases fought under the pre-LASPO regime, the Supreme Court has warned.

Although the Supreme Court reserved its final decision on how to proceed until future representations had been obtained, Neuberger LJ suggested the outcome of the dispute may effectively render aspects of the pre-LASPO costs regime incompatible with article six of the European Convention on Human Rights – the right to a fair trial. This, in turn, has raised the prospect that those adversely affected by the old system may be entitled to seek compensation from the Government.

The dispute, Coventry and others (Respondents) v Lawrence and another (Appellants) (No 2) [2014] UKSC 46, involved a row over nuisance involving the Appellants, the owners of a bungalow, and the Respondents, the owners and occupiers of a nearby motor racing track. Although the effect of the nuisance was valued at £74,000 at most, the totality of the costs involved in the dispute came to £1,067,000, for which the Appellants were held liable in the sum of £640,000.

As permitted under the Legal Service Act 1990, as amended by Part II of the Access to Justice Act 1999, the Appellants’ first instance costs consisted of three components: base costs of £398,000, a success fee of around £319,000 and the ATE premium of around £350,000. Recalling these figures in the Supreme Court’s lead judgment, Neuberger LJ said they were “very disturbing” – especially considering that the Respondents “plainly had a reasonable” case, which they won in the Court of Appeal.

Acknowledging that many of the facets of this dispute would not be applicable under the post-LASPO regime Neuberger LJ went on to say that the Respondents were “understandably aggrieved” by the consequence of the judge’s order that they should pay not only 60 per cent of the appellants’ total costs, but also 60 per cent of the 100 per cent success fee and 60 per cent of the ATE premium.

Although domestic case law had previously found that success fees and ATE premiums were recoverable, subsequent ECHR case law had disagreed. Consequently, Neuberger LJ said: “It must, in my view, follow that the issue of whether the 1999 Act costs regime, and in particular a claimant’s right to recover any success fee and ATE premium from an unsuccessful defendant, infringes the Convention, is one that is open to this Court to reconsider.”

Before the Supreme Court decided on its next course of action, including the possibility of declaring historical sections of the CPR and Access to Justice Act 1999 incompatible with the ECHR, Neuberger said that interested parties – including the attorney-general – should be invited to intervene.

Potential Effect

Initially, the prospect of a Declaration of Incompatibility raised relatively few eyebrows: the fact that the Recovery Regime ended for CFAs entered into after 1 April 2013 caused many to believe that the effect of such a declaration would be minimal.

However, there is now a suggestion that a Declaration of Incompatibility may mean that any person – both legal and natural – who was required to pay an Additional Liability as part of a costs order may be able to recover those Additional Liabilities from the government.

It is believed that the level of such repayments will stand in the billions of pounds.

Insofar as the effect of a Declaration of Incompatibility is concerned on the cases which remain subject to the Recovery Regime, it would appear that many litigants would suddenly and unexpectedly incur a liability to pay ATE premiums and success fees out of their own pockets.

In the more immediate term, paying parties might be persuaded to believe they have compelling grounds to seek an adjournment of any assessment proceedings pending resolution of the Coventry case. They have not!

At the moment this decision does not appear to be impacting on any Assessment Hearings and certainly not ones where we have recently been involved although we have heard of a handful of cases where offers that included additional liabilities have been swiftly withdrawn.

The Supreme Court has yet to make a final decision but it appears they may simply have “flown a kite” and then invited the Government to respond.

If Defendants seriously intend to argue that the old CFA regime breached their Article 6 rights because they were intimidated into defending to avoid the risk of heavy costs then perhaps they should be invited to explain why it is that the post Jackson regime of QOCS is better for them. If anything their position is now worse because under the old regime a successful Defendant was at least left with the prospect of recovering costs (sometimes from the ATE insurer) whereas under the new regime they get nothing.

On behalf of Claimants everywhere who benefited under the old CFA regime we can but hope that this is simply political posturing by the senior judiciary given LJ Neuberger’s well known antipathy towards CFAs (and CFA funded lawyers) rather than anything more sinister.

Jim Knight, Partner and Costs Lawyer