Trinity Term [2015] UKSC 50 On appeal from: [2012] EWCA Civ 26

JUDGMENT
Coventry and others (Respondents) v Lawrence and
another (Appellants)
before
Lord Neuberger, President
Lady Hale, Deputy President
Lord Mance
Lord Clarke
Lord Dyson
Lord Sumption
Lord Carnwath
JUDGMENT GIVEN ON
22 July 2015
Heard on 9, 10 and 12 February 2015
Appellants
(Lawrence/Shields)
Respondent (David
Coventry and Moto
-Land
UK Ltd)
Stephen Hockman QC Robert McCracken QC
Timothy Dutton QC Sebastian Kokelaar
William Upton
Benjamin Williams
(Instructed by Richard
Buxton Environmental
and Public Law
)
(Instructed by Pooley
Bendall Watson
)
Intervener (Secretary of
State for Justice)
Tom Weisselberg QC
Jason Pobjoy
(Instructed by Government
Legal Department
)
Intervener (Asbestos
Victims Support Group
Forum UK)
Robert Weir QC
Harry Steinberg
Achas Burin
(Instructed by Leigh Day
)
Intervener (The General
Bar Council)
Nicholas Bacon QC
Dr Mark Friston
Greg Cox
(Instructed by Colemans
CTTS
)
Intervener (The Law
Society)
Kieron Beal QC
(Instructed by The Law
Society
)
Intervener (Association of
Business Recovery
Professionals
Simon Davenport QC
Tom Poole
Daniel Lewis
Clara Johnson
(Instructed by Moon
Beever)
Intervener (Department of
Justice Northern Ireland
Attorney-General for
Northern Ireland
(Instructed by Office of
the Attorney-General for
Northern Ireland)
Intervener (Media
Lawyers Association)
Gavin Millar QC
Chloe Strong
(Instructed by Reynolds
Porter Chamberlain LLP)
Intervener (Association of
Costs Lawyers)
Roger Mallalieu
(Instructed by Association
of Costs Lawyers)
Page 3
LORD NEUBERGER AND LORD DYSON: (with whom Lord Sumption
and Lord Carnwath agree)
The factual and procedural background
1. This judgment is concerned with an attack on the compatibility with the
European Convention on Human Rights (“the Convention”) of the system for
recovery of costs in civil litigation in England and Wales following the passing
of the Access to Justice Act 1999 (“the 1999 Act”). The proceedings to which it
relates have been the subject of two previous judgments of this court – [2014]
UKSC 13, [2014] AC 822 and [2014] UKSC 46, [2015] AC 106. The fact that
this is the third judgment of this court in this case is an unfortunate irony, as the
issue which has to be addressed arises from the contention that the order for costs
made against the respondents at first instance infringed article 6 of, and/or article
1 of the First Protocol to, the Convention, and considerable further costs have
been incurred since then.
2. A detailed summary of the factual and procedural history is to be found
in the first two judgments at [2014] AC 822, paras 2-27 and [2015] AC 106,
paras 1-4. So far as relevant for present purposes, and at the risk of oversimplification, the facts are as follows.
3. The appellants, Katherine Lawrence and Raymond Shields, the owners of
a residential bungalow in Mildenhall, Suffolk, brought proceedings for an
injunction and damages based on the contention that the noise emanating from
speedway and other motorsport activities, operated by David Coventry and
Moto-Land UK Limited (“the respondents”) on a stadium and track some 800
metres away, constituted a nuisance. After a trial lasting 11 days, HHJ Seymour
QC, sitting as a Deputy High Court Judge, found in favour of the appellants,
awarding them damages and an injunction limiting the level of noise emanating
from the stadium and track, against the respondents. He also dismissed the claim
in so far as it had been brought against the respondents’ landlords (“the
landlords”).
4. So far as the figures are concerned, the amount of damages awarded by
the judge in favour of the appellants against the respondents was a total of
£20,750; and, on the evidence, the value of the appellants’ bungalow was under
£400,000, and the maximum diminution in its value if the nuisance had
continued (ie if no injunction had been granted) was £74,000.
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5. Of central relevance for current purposes, the judge also ordered the
respondents to pay 60% of the appellant’s costs as assessed on the standard basis.
We now have fairly precise figures as to what that order means (subject to the
points dealt with in paras 7 and 8 below).
6. The appellants’ “base costs”, that is the costs payable by the appellants to
their lawyers on a conventional basis, in connection with the proceedings up to
the time the judge made the order, were £307,642, of which the respondents
would therefore be liable for 60%, ie £184,585. However, the appellants agreed
with their lawyers that they would proceed on the basis that the lawyers would
act under a conditional fee agreement, ie on a “no win no fee” basis. This meant
that, as the appellants had won before the judge, they would be liable to pay (i)
a success fee to their lawyers on top of the base costs, to compensate the lawyers
for acting on a conditional fee agreement, and (ii) a so-called ATE premium, a
premium to an insurance company in return for that insurance company having
agreed to underwrite any liability which the appellants might have had for the
respondents’ costs if the respondents had won. The success fees amounted to
£215,007, of which the respondents were liable for 60%, ie £129,004; the ATE
premium appears to have been in the region of £305,000, of which the
respondents were liable for 60%, ie about £183,000.
7. The respondents accept that they cannot challenge their liability for the
£184,585 on the ground that it infringes their Convention rights. However, Mr
McCracken QC was understandably anxious to make it clear on their behalf that
they would anticipate strongly challenging the appellants’ right to recover that
sum, on the sort of grounds on which a paying party is always entitled to seek to
challenge the receiving party’s bill of costs when assessed on the standard basis.
Those grounds would be that the total sum is disproportionate, and in any event
that the total sum includes items which it was not reasonable to have incurred at
all, and that the sums incurred in connection with those items which were
reasonably incurred were themselves unreasonable.
8. However, in relation to the £129,004 and the £183,000, the respondents
argue that it would infringe their rights under article 6 of the Convention (“article
6”) and/or article 1 of the First Protocol to the Convention (“A1P1”) if they were
liable for those sums, and that is the issue which we preliminarily considered in
our second judgment and now have to deal with in this judgment. Again Mr
McCracken was anxious to emphasise that, if his arguments based on article 6
and A1P1 fail, the respondents would wish to raise, to the extent which they
properly can, the sort of arguments described in para 7 to challenge any liability
to these two sums.
Page 5
9. In order to complete the history, the judge’s decision on the substantive
issue was reversed by the Court of Appeal, who decided that the respondents had
not been guilty of nuisance. However, the appellants were successful in their
appeal to this court, and, following our first decision, we reinstated Judge
Seymour’s order (albeit with modifications), including (subject to what we
decide in this judgment) the direction that the respondents pay 60% of the
appellants’ costs of the proceedings up to and including his judgment. Our
second judgment concerned the liability of the landlords for the respondents’
nuisance, and, in paras 32-46, what were in the event preliminary observations
on the respondents’ contention that the extent of their liability for costs pursuant
to Judge Seymour’s order (as reinstated by this court) infringed article 6 and/or
A1P1. For the reasons given in paras 43-45, we did not feel it right to determine
that issue until we had heard argument on the issue from the Secretary of State
and any other appropriate intervener.
10. The appellants’ base costs in the Court of Appeal and the Supreme Court
were, respectively, £103,457 and £204,226. The appellants’ success fees were
£71,770 in the Court of Appeal and £92,115 in the Supreme Court. The
appellants’ ATE premia were £70,141 in the Court of Appeal and £126,588 in
the Supreme Court. It appears likely that the effect of the order we make
following the two judgments which we have given is that the respondents will
be liable for all, or a substantial proportion, of these sums, subject to the
arguments discussed in paras 6 to 8 above, including in relation to the success
fees and ATE premia the contention that any such liability would be contrary to
article 6 and/or A1P1.
11. The issue raised by the respondents based on article 6 and A1P1 has now
been fully argued. We received full submissions from the respondents in support
of their contention that their liability to pay the success fees and ATE premia
infringed article 6 and A1P1. The case to the contrary was presented by the
appellants, with supporting arguments from the Secretary of State for Justice, the
General Council of the Bar, the Law Society of England and Wales, the Asbestos
Victims Support Group Forum, and (in written form only) the Association of
Business Recovery Professionals Limited. We also had submissions from the
Media Lawyers Association, which were not directed to the point at issue.
The legislative scheme in its historical context
12. Section 17(1) of the Courts and Legal Services Act 1990 (“the 1990 Act”)
stated that the general objective of Part II was the development of legal services
in England and Wales “by making provision for new or better ways of providing
such services and a wider choice of persons providing them, while maintaining
the proper and efficient administration of justice”. Section 58 permitted lawyers,
Page 6
for the first time, to enter into conditional fee agreements (“CFAs”, which, as
explained above, were “no win no fee” agreements under which a lawyer was
only to be paid a fee if the client won the case) subject to satisfying prescribed
conditions. The 1990 Act did not, however, permit the successful party to recover
any “success fee” (ie the “uplift” or extra payment which the lawyer would
receive in return for agreeing to act on a CFA rather than on the traditional basis)
from the losing party.
13. At the same time as CFAs were being developed under the new statutory
regime, the Law Society developed a new form of insurance cover known as
after the event insurance (“ATE”). An ATE premium was, as explained above, a
sum of money paid to an insurer by a person involved in, or contemplating,
litigation, in return for the insurer agreeing to underwrite (sometimes subject to
a maximum) the person’s liability to pay the costs of another party to the
litigation. The ATE premium was not recoverable from the losing party under
the 1990 Act.
14. In March 1998, the Government published a consultation paper entitled
Access to Justice with Conditional Fees. In this paper, the Government stated
that it considered that wider use of CFAs and legal expense insurance would
promote access to justice. The Government expressly sought views on whether
the success fee and the ATE insurance premium should be recoverable by the
successful party. The majority of those who responded to the consultation
supported the proposal that both should be recoverable. In December 1998, the
Government published a White Paper, Modernising Justice (Cm 4155) in which
it stated that it had decided to make it possible for the successful party to recover
the success fee and ATE premium from the unsuccessful party. It said at para
2.44: “This will make conditional fees more attractive and fairer, and allow
respondents and appellants whose case is not about money to use them. This will
be a further radical expansion of access to justice”.
15. The 1999 Act gave effect to this policy decision. Part I of the 1999 Act
created a new Legal Services Commission (in place of the Legal Aid Board) with
power to determine which types of litigation should qualify for public funding.
From 1 April 2000, legal aid was no longer available for personal injury cases,
although it continued to be available for clinical negligence cases.
16. As to the recoverability of CFA success fees, section 27 of the 1999 Act
repealed section 58 of the 1990 Act and added a new section 58 and a section
58A. Sections 58A(6) and (7) are in these terms:
Page 7
“(6) A costs order made in any proceedings may, subject in the
case of court proceedings to rules of court, include provision
requiring the payment of any fees payable under a conditional fee
agreement which provides for a success fee.
(7) Rules of court may make provision with respect to the
assessment of any costs which include fees payable under a
conditional fee agreement (including one which provides for a
success fee).”
17. As to the recoverability of ATE premiums, section 29 provided:
“Where in any proceedings a costs order is made in favour of any
party who has taken out an insurance policy against the risk of
incurring a liability in those proceedings, the costs payable to him
may, subject in the case of court proceedings to rules of court,
include costs in respect of the premium of the policy.”
18. Following the enactment of the 1999 Act, the Lord Chancellor conducted
a further consultation on the question of how success fees and ATE premiums
(to which we shall refer compendiously as “additional liabilities”) should be
recoverable in practice. This included consultation on the content of the statutory
instruments (and rules of court) which were necessary to give effect to the 1999
Act. In January 2000, the Government published its response to the consultation.
At para 14, it stated:
“The Government’s policy on the recoverability is to ensure that
the expense of shifting all or part of the risk in costs, whether to
the solicitor under a conditional fee agreement or an insurer under
an insurance policy, are usually met by the losing party and not out
of damages or the pocket of the winner ….”
19. The Civil Procedure Rules (“CPR”) were amended by the Civil Procedure
(Amendment No 3) Rules 2000 (SI 2000/1317) to reflect the new approach to
CFAs and ATE premiums.
20. CPR 43.2(1)(a) provided that “‘costs’ includes … any additional liability
incurred under a funding arrangement” and CPR Rule 43.2(1)(o) provided that
“additional liability” included the percentage increase or success fee under a
CFA and the premium payable for an ATE insurance policy. CPR Rule 44.4 set
out the basis of assessment of costs. It provided:
Page 8
“(1) Where the court is to assess the amount of costs … it will
assess those costs –
(a) on the standard basis; or
(b) on the indemnity basis,
but the court will not in either case allow costs which have been
unreasonably incurred or are unreasonable in amount.
(2) Where the amount of costs is to be assessed on the standard
basis, the court will –
(a) only allow costs which are proportionate to the matters
in issue ….”
21. Rule 44.5 set out the factors to be taken into account in deciding the
amount of costs. It provided:
(1) The court is to have regard to all the circumstances in deciding
whether costs were –
(a) if it is assessing costs on the standard basis –
(i) proportionately and reasonably incurred; or
(ii) were proportionate and reasonable in amount.
(b) if it is assessing costs on the indemnity basis –
(i) unreasonably incurred; or
(ii) unreasonable in amount. …
(3) The court must also have regard to –
Page 9

(b) the amount or value of any money or property involved;
(c) the importance of the matter to all the parties;
(d) the particular complexity of the matter or the difficulty
or novelty of the questions raised;
(e) the skill, effort, specialised knowledge and
responsibility involved;
(f) the time spent on the case; and
(g) the place where and the circumstances in which work or
any part of it was done.”
22. The concept of using proportionality to assess costs, on the standard basis,
had not played any part in the taxation, or assessment as it is now called, of costs
under the Rules of the Supreme Court (as was recognised by the Court of Appeal
in Home Office v Lownds [2002] EWCA Civ 365, [2002] 1 WLR 2450, para 2).
The only test was that of reasonableness.
23. Rule 44.3A contained provisions as to costs orders relating to funding
arrangements, including CFAs and ATE insurance. Rule 44.3B set limits on what
could be recovered under funding arrangements.
24. As envisaged by the amendments that were made to the CPR, an amended
costs practice direction was promulgated to supplement CPR Parts 43 to 48 (“the
CPD”) in order to give effect to section 58A(6) and (7) of the 1999 Act. It is not
in dispute that practice directions differ from rules in the CPR in that (a) they
provide guidance that should be followed but do not have binding effect; and (b)
should yield to rules in the CPR where there is a conflict between them: see
White Book (2015), Vol II paras 12-15 to 12-18.
25. Paragraph 9.1 of the CPD stated that “[u]nder an order for payment of
‘costs’ the costs payable will include an additional liability incurred under a
funding arrangement”. Section 11 included the following:
Page 10
“11.1 In applying the test of proportionality the court will have
regard to rule 1.1(2)(c). The relationship between the total of the
costs incurred and the financial value of the claim may not be a
reliable guide …
11.2 In any proceedings there will be costs which will inevitably
be incurred and which are necessary for the successful conduct of
the case. Solicitors are not required to conduct litigation at rates
which are uneconomic. Thus in a modest claim the proportion of
costs is likely to be higher than in a large claim, and may even
equal or possibly exceed the amount in dispute …
11.5 In deciding whether the costs claimed are reasonable and
(on a standard basis assessment) proportionate, the court will
consider the amount of any additional liability separately from the
base costs.
11.6 In deciding whether the base costs are reasonable and (if
relevant) proportionate the court will consider the factors set out in
rule 44.5.
11.7 Subject to para 17.8(2), when the court is considering the
factors to be taken into account in assessing an additional
liability, it will have regard to the facts and circumstances
as they reasonably appeared to the solicitor or counsel when
the funding arrangement was entered into and at the time of
any variation of the arrangement.
11.8 (1) In deciding whether a percentage increase is reasonable
relevant factors to be taken into account may include:
(a) the risk that the circumstances in which the costs,
fees or expenses would be payable might or might not
occur;
(b) the legal representative’s liability for any
disbursements;
(c) what other methods of financing the costs were
available to the receiving party.
Page 11

11.9 A percentage increase will not be reduced simply on the
ground that, when added to base costs which are reasonable and
(where relevant) proportionate, the total appears disproportionate.
11.10 In deciding whether the cost of insurance cover is
reasonable, relevant factors to be taken into account include:
(1) where the insurance cover is not purchased in
support of a conditional fee agreement with a success fee,
how its cost compares with the likely cost of funding the
case with a conditional fee agreement with a success fee
and supporting insurance cover;
(2) the level and extent of the cover provided;
(3) the availability of any pre-existing insurance cover;
(4) whether any part of the premium would be rebated
in the event of early settlement;
(5) the amount of commission payable to the receiving
party or his legal representative or other agents.”
The statutory aims of the changes introduced by the 1999 Act
26. Lord Bingham, having referred to the 1999 Act as having “introduced a
new regime for funding litigation”, described the three key aims of the funding
regime introduced under the 1999 Act in Callery v Gray (Nos 1 and 2) [2002]
UKHL 28, [2002] 1 WLR 2000 as follows:
“2. … One aim was to contain the rising cost of legal aid to public
funds and enable existing expenditure to be refocused on causes
with the greatest need to be funded at public expense, whether
because of their intrinsic importance or because of the difficulty of
funding them otherwise than out of public funds or for both those
reasons. A second aim was to improve access to the courts for
Page 12
members of the public with meritorious claims. It was appreciated
that the risk of incurring substantial liabilities in costs is a powerful
disincentive to all but the very rich from becoming involved in
litigation, and it was therefore hoped that the new arrangements
would enable claimants to protect themselves against liability for
paying costs either to those acting for them or (if they chose) to
those on the other side. A third aim was to discourage weak claims
and enable successful defendants to recover their costs in actions
brought against them by indigent claimants.”
Although it is right to acknowledge that Lord Bingham referred earlier in the
same paragraph to his opinion being only concerned with personal injury
litigation, it seems clear that the observations which we have quoted were
intended to be applicable to the “new regime” generally.
27. In MGN Ltd v United Kingdom (2011) 53 EHRR 5, para 197 of the
majority judgment of the European Court of Human Rights (“ECtHR”)
acknowledged that the CFA with recoverable success fees “sought to achieve the
legitimate aim of the widest public access to legal services for civil litigation
funded by the private sector”. A deliberate policy of the 1999 Act regime was to
impose the cost of all CFA litigation on unsuccessful respondents as a class: see
per Lord Hoffmann in Campbell v MGN Ltd (No 2) [2005] UKHL 61, [2005] 1
WLR 3394 at para 16. There was to be a fundamental rebalancing of the means
of access to justice by resort to the private sector rather than by the use of public
(legal aid) funds. Instead of placing a burden on the legal aid fund, legal
proceedings were to be funded in the first instance by a party’s lawyers (who
would undertake the work “on risk” in exchange for a potential success fee) and
then, if the proceedings were successful, the success fee would be transferred to
the losing party.
28. As Lord Bingham pointed out in para 4 of his speech in Callery, the new
funding regime faced two contingencies which “had they occurred, could have
proved fatal”: (i) lawyers declining to act on a conditional fee basis; and (ii) no
accessible market developing in ATE insurance. To counter the former, the
maximum permissible percentage uplift was retained at 100% (as had been the
case under the 1990 Act). As regards the latter, a healthy market for ATE
insurance did in fact continue to develop.
The meaning of proportionality
29. The concept of proportionality lies at the heart of this case. It is important
not to confuse two different meanings of proportionality which are in play here.
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Lord Hoffmann made the same point at para 23 of his speech in Campbell v MGN
Ltd (No 2).
30. The first meaning of proportionality is that with which we are familiar in
the context of the Convention. A valuable recent statement of what
proportionality in this sense entails is to be found in Bank Mellat v HM Treasury
(No 2) [2013] UKSC 39, [2014] AC 700. Lord Reed said at para 71:
“An assessment of proportionality inevitably involves a value
judgment at the stage at which a balance has to be struck between
the importance of the objective pursued and the value of the right
intruded upon. The principle does not however entitle the courts
simply to substitute their own assessment for that of the decisionmaker. As I have noted, the intensity of review under EU law and
the Convention varies according to the nature of the right at stake
and the context in which the interference occurs. Those are not
however the only relevant factors. One important factor in relation
to the Convention is that the Strasbourg court recognises that it
may be less well placed than a national court to decide whether an
appropriate balance has been struck in the particular national
context. For that reason, in the Convention case law the principle
of proportionality is indissolubly linked to the concept of the
margin of appreciation. That concept does not apply in the same
way at the national level, where the degree of restraint practised by
courts in applying the principle of proportionality, and the extent
to which they will respect the judgment of the primary decision
maker, will depend upon the context, and will in part reflect
national traditions and institutional culture. For these reasons, the
approach adopted to proportionality at the national level cannot
simply mirror that of the Strasbourg court.”
31. And at para 74, he set out the proportionality test in the following terms:
“… it is necessary to determine (1) whether the objective of the
measure is sufficiently important to justify the limitation of a
protected right, (2) whether the measure is rationally connected to
the objective, (3) whether a less intrusive measure could have been
used without unacceptably compromising the achievement of the
objective, and (4) whether, balancing the severity of the measure’s
effects on the rights of the persons to whom it applies against the
importance of the objective, to the extent that the measure will
contribute to its achievement, the former outweighs the latter.”
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32. Lord Reed said that the intensity with which this proportionality test is
applied “depends on the context” (para 70) and that “the intensity of review …
varies according to the nature of the right at stake and the context in which the
interference occurs” (para 71). In applying all four stages mentioned in para 74,
appropriate weight must be given to informed legislative choices: see, for
example, AXA General Insurance Ltd v The Lord Advocate [2011] UKSC 46,
[2012] 1 AC 868 at para 131. In the present context, the concept of
“proportionality” in this sense focuses on the balance that is struck by the 1999
Act system between the rights of different types of litigant.
33. The second meaning of proportionality finds expression in the CPR and
is relevant to the assessment of costs. Thus where the amount of costs is to be
assessed on the standard basis, the court will only allow costs “which are
proportionate to the matters in issue” (rule 44.4(2)(a)). An aspect of this is that
the court must have regard to the various matters set out in rule 44.5(3) which
we have set out at para 21 above. In Home Office v Lownds [2002] 1 WLR 2450,
the Court of Appeal gave important guidance as to the application of
proportionality in an assessment of costs on the standard basis. The court adopted
the following statement at para 23:
“In modern litigation, with the emphasis on proportionality, there
is a requirement for parties to make an assessment at the outset of
the likely value of the claim and its importance and complexity,
and then to plan in advance the necessary work, the appropriate
level of person to carry out the work, the overall time which would
be necessary and appropriate spend on the various stages in
bringing the action to trial and the likely overall cost. While it was
not unusual for costs to exceed the amount in issue, it was, in the
context of modest litigation such as the present case, one reason
for seeking to curb the amount of work done, and the cost by
reference to the need for proportionality.”
34. The court also said at para 31 that it was necessary to adopt a two-stage
approach to the assessment of costs. The first stage was the “global” approach.
At this stage, the question for the court was whether the total sum claimed was
disproportionate in particular by reference to the considerations in rule 44.5(3).
If the total did not appear to be disproportionate according to that test, all that
was normally required was that each item of costs should have been reasonably
incurred and the cost for that item should be reasonable. If the costs as a whole
did appear to be disproportionate, then the court would want to be satisfied that
the work in relation to each item was necessary and, if so, that the costs of each
item was reasonable.
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35. The point was put clearly at para 28:
“The reference in 11.2 to costs “which are necessary” is the key to
how judges in assessing costs should give effect to the requirement
of proportionality. If the appropriate conduct of the proceedings
makes costs necessary then the requirement of proportionality does
not prevent all the costs being recovered either on an item by item
approach or on a global approach. The need to consider what costs
are necessary is not a novel requirement. It was reflected by the
former provisions of RSC Order 62 which applied to the taxation
of costs prior to 1986. Rule 28(2) dealt with costs on a party and
party basis and stated:
“… there shall be allowed all such costs as were necessary
or proper for the attainment of justice …””
36. In other words, where base costs were incurred which were necessary,
they would be treated as being proportionate even if in fact they were not
proportionate “to the matters in issue” (CPR 44.4(2)(a)), ie even if the total
necessary costs were disproportionate to the value of the claim.
37. The introduction of additional liabilities made the proportionality issue
more acute. If apparently disproportionate base costs were recoverable under the
new CPR regime because they were necessary, what was to be done where the
base costs were inflated by additional liabilities?
38. An additional liability was an element of costs: see CPR 43.2(1)(o). Costs
which were unreasonably incurred or which were unreasonable in amount would
not be allowed (CPR 44.4(1)). Accordingly, a success fee and an ATE premium
would only be allowed to the extent that they were reasonably incurred and were
reasonable in amount, having regard to the factors set out at CPR 44.5(3). On the
standard basis, only costs which were proportionate to the matters in issue would
be allowed (CPR 44.4(2)(a)). The proportionality limitation, therefore, applied
to additional liabilities as well as to base costs. CPD para 11.5 did not disapply
the proportionality criterion, but confirmed that additional liabilities were to be
judged by reference to proportionality, albeit separately from the base costs. The
criterion of proportionality therefore applied subject only to the limitation
imposed by para 11.9.
39. In Rogers v Merthyr Tydfil County Borough Council [2006] EWCA Civ
1134, [2007] 1 WLR 808, the Court of Appeal had to consider whether an ATE
premium was recoverable by a successful claimant. The court addressed the issue
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of proportionality at paras 102 to 106. The damages were agreed in the sum of
£3,105 plus interest. The case went to trial and the claimant won. The deputy
district judge assessed the costs in the sum of £16,821. This included an ATE
premium of £5,103. The Court of Appeal held that the premium was recoverable
as a proportionate expense if it was necessarily incurred, even if the amount was
large in comparison with the amount of damages reasonably claimed. The court
said:
“105. In this case it might be thought that all the considerations
urged on the court by Mr Bartlett which favour the course taken by
Mr Cater, the appellant’s solicitor, might go to demonstrate the
reasonableness of his bill of costs – specifically, the ATE insurance
staged premium – but not its proportionality: precisely because
they have nothing to do with the quantum of the claim. But we do
not think that is right. If the court concludes that it was necessary
to incur the staged premium, then as this court’s judgment in
[Lownds] shows, it should be adjudged a proportionate expense.
Necessity here is, we think, not some absolute litmus test. It may
be demonstrated by the application of strategic considerations
which travel beyond the dictates of the particular case. Thus it may
include, as we are persuaded it does, the unavoidable
characteristics of the market in insurance of this kind. It does so
because this very market is integral to the means of providing
access to justice in civil disputes in what may be called the postlegal aid world.
106. It is important to recognise that this conclusion runs with, not
across, the grain of the procedural reforms expressed in the CPR.
The very recognition that justice requires a use of resources that is
proportionate to what is at stake implies the rightness of a strategic
approach. There can be no touchstone of a proportionate use of
resources so understood, without an eye to the context in which
any such resources are expended. Once it is concluded that the
ATE staged premium here was necessarily incurred, principle and
pragmatism together compel the conclusion that it was a
proportionate expense. We turn therefore to the question whether
the ATE staged premium was necessarily incurred.”
40. In other words, the court did not ask whether the premium was
proportionate to the importance of the case and what was at stake. Instead it
adopted the Lownds approach. If the premium was necessarily incurred, it was
proportionate. And it was proportionate even though it was disproportionately
high when compared with the amount of damages reasonably claimed. ATE
insurance was integral to the fundamental objective of improving access to
Page 17
justice in civil litigation. A premium that was reasonable in amount (having
regard to the litigation risk) was necessary and, therefore, proportionate.
41. By the same reasoning, a success fee that was reasonable in amount was
also necessary and, therefore, proportionate. This principle was applied in many
cases. It was essential to the viability of the 1999 Act scheme. In determining
whether a success fee was reasonable, the courts had to consider whether it was
proportionate to the litigation risk. Thus, for example, if a solicitor had only a
50% chance of earning payment by winning, it was commercially appropriate
for him to charge a success fee of 100%. In two identical cases, he would
statistically be paid only in one, so that to break even he needed to double his
charges in the successful case. In other words, a success fee proportionate to the
risk of going unpaid was calculated by dividing the risk of losing by the prospect
of winning and multiplying the product by one hundred to yield a percentage.
This is the so-called “ready-reckoner” approach which was approved by the
Court of Appeal in cases such as Atack v Lee [2004] EWCA Civ 1712, [2005] 1
WLR 2643 and routinely applied by costs judges. This approach only allowed a
solicitor to charge for the risk he faced of going unpaid on the basis that he would
thereby break even (and recover his normal costs) across his overall case-load.
The ready-reckoner principles were also reflected in the statutory limit on
success fees of 100% of a solicitor’s basic charges. This fully allowed for
solicitors taking on CFA cases with merits of at least 50%, but not cases which
were weaker than that.
The respondents’ case
42. The submissions of Mr McCracken QC can be summarised as follows.
The system set out in the CPD was incompatible with article 6 and A1P1 of the
Convention in that it unjustifiably interfered with the article 6 and A1P1
Convention rights of “non-rich” respondents who unsuccessfully contested
litigation instituted by appellants who had the benefit of CFA agreements and
ATE insurance.
43. The system had a number of shortcomings which were described as
“flaws” by Jackson LJ in his Review of Civil Litigation which were summarised
by the ECtHR at paras 207 to 210 of its judgment in MGN v United Kingdom.
The flaws were (i) the lack of focus of the regime and the lack of any qualifying
requirements for appellants who would be allowed to enter into a CFA; (ii) the
absence of any incentive for appellants 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
Page 18
defence; and (iv) the fact that the regime gave the opportunity to “cherry pick”
winning cases to conduct on CFAs. At para 217, the court concluded that:
“… the depth and nature of the flaws in the system … are such that
the court can conclude that the impugned scheme exceeded even
the broad margin of appreciation to be accorded to the state in
respect of general measures pursuing social and economic
interests.”
44. These flaws were regarded by the ECtHR as sufficiently serious to lead it
to conclude that the system was incompatible with article 10 of the Convention.
Mr McCracken submits that the same reasoning necessarily requires the court to
hold that the system was also incompatible with article 6 and A1P1.
45. The system was arbitrary. It singled out from the class of unsuccessful
litigants a subset of those who happened to have been opposed by CFA/ATEfunded litigants and imposed on that subset the burden of funding other
unsuccessful cases which did not involve them at all.
46. The real vice of the system lay in the CPD. Paragraph 11.7 based the
assessment of CFA uplifts and ATE premiums exclusively on the ex ante
perspective of the CFA/ATE party; and para 11.9 expressly disallowed any
reduction on the basis that the overall total of base costs and uplifts appeared to
be disproportionate. Decisions on uplift therefore disregarded the financial
circumstances of the payer, the importance to the payer of fighting the case and
the reasonableness of his decision to fight.
47. The system was not redeemed by the fact that costs were subject to
assessment at the end of the proceedings. By that stage, it was too late to control
what was being spent. Nor is it an answer to say that the court had the power to
cap the costs of a CFA-funded and ATE insurance-protected party at an early
stage.
48. The system failed when tested against the questions identified by Lord
Reed in Bank Mellat (No 2), at para 74 (see para 30 above). It is instructive to
ask: could a system of private funding of litigation for the non-rich have been
adopted which was less intrusive of payers’ fundamental rights without
unacceptably compromising the achievement of its objective? There must be an
affirmative answer to this question. Apart from the current Legal Aid, Sentencing
and Punishment of Offenders Act 2012 (“LASPO”) scheme, examples of less
intrusive schemes are: (i) a levy on all adverse costs payments by unsuccessful
Page 19
litigants could have funded the payment of additional liabilities under a modified
version of the 1999 Act system; (ii) the system could have been limited to claims
against defined groups of “non-ordinary” people (such as insured/large
organisations/public bodies); and (iii) the system could have incorporated
provisions requiring consideration of all circumstances including (a) the
proportionality of the total of base costs and uplifts and premiums, (b) those of
the payer (such as his means, whether he was insured, the importance of fighting
the case and his reasonableness in fighting the case).
49. In order to render the system compatible with article 6 (and A1P1) of the
Convention, all that is required is to read para 11.9 down in accordance with
section 3 of the Human Rights Act 1998 so as to provide a system incorporating
the provisions set out at para 48(iii) above.
MGN v United Kingdom
50. The first question that we must consider is whether the decision of the
ECtHR in MGN v United Kingdom requires us to hold that the 1999 Act scheme
is incompatible with article 6 and/or A1P1, at least in relation to the respondents
in this case. In that case, the claimant sought damages for breach of confidence
and compensation under the Data Protection Act 1998 in respect of the
publication in The Daily Mirror of an article and photographs of her. She
succeeded at first instance, but lost in the Court of Appeal. She entered into a
CFA for the purposes of an appeal to the House of Lords. Her appeal was
allowed. The respondents challenged the proportionality of the claimant’s costs
(including the success fee). The ECtHR held that there had been a violation of
article 10 of the Convention (the right to freedom of expression) as regards the
success fee that was payable by the respondents. In defending the CFA scheme,
the UK Government advanced arguments similar to those that have been
advanced by the Secretary of State (as well as by the appellants and some of the
interveners) in the present case. The court held that the requirement to pay the
success fees constituted an interference with the defendant’s article 10 rights.
The central issue was whether the UK authorities had struck a “fair balance”
between freedom of expression protected by article 10 and an individual’s right
of access to court protected by article 6 (para 199).
51. It is true that at paras 207 to 210 the court accepted that the scheme
suffered from the four flaws identified in the Jackson report. These flaws were
of general application and not confined to defamation and breach of privacy
litigation. It is also true that the court said at para 217:
Page 20
“However, the court considers that the depth and nature of the
flaws in the system, highlighted in convincing detail by the public
consultation process, and accepted in important respects by the
Ministry of Justice, are such that the court can conclude that the
impugned scheme exceeded even the broad margin of appreciation
to be accorded to the State in respect of general measures pursuing
social and economic interests.”
52. However, the context in which the court made these criticisms was its
concern about the effect of the scheme in defamation and privacy cases: see paras
211 to 215. The right of freedom of expression is always given particular weight
by the ECtHR. As the court said at para 201, 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. It concluded that a fair balance
had not been struck between the article 10 rights of defendant publishers and the
article 6 rights of appellants who allege defamation or breach of privacy. 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. Essentially
for the same reasons, we do not consider that MGN v United Kingdom assists the
respondents in relation to their case under A1P1.
The four flaws
53. We have summarised the four flaws to which the ECtHR referred in MGN
v United Kingdom at para 43 above. We accept that the first flaw (the regime
was unfocussed), the second flaw (the fact that costs were assessed only at the
end of the case) and the fourth flaw (the opportunity for lawyers to cherry pick)
were flaws in the system, but they could not have adversely affected the article
6 rights, or the A1P1 rights, of opposing parties. It is the third flaw which lies at
the heart of the present case. It is described as the “blackmail” or “chilling”
effect. Another way of describing it is as imposing a costs burden on opposing
parties which is excessive and in some cases amounts to a denial of justice.
Whether this flaw rendered the 1999 Act scheme incompatible with article 6 or
A1P1 is the central question that arises in this case and which we discuss in detail
below.
54. But before we do this, we need to refer to what Lord Neuberger described
at para 37 of his judgment in Coventry v Lawrence (No 2) as four “unique and
regrettable features” of the scheme on which the respondents also rely in support
Page 21
of their case. To some extent these features overlap with the four flaws. The first
feature was that appellants had no interest in the level of fees which they agreed
to pay their lawyers. The second was that in many cases unsuccessful
respondents found themselves paying, in addition to their own costs, three times
the appellants’ “real” costs. The third was that proportionality was excluded from
consideration in relation to the recovery of the success fee or ATE premium. The
fourth was that the stronger the respondents’ case, the greater their liability costs
would be if they lost, since the size of the success fee and the premium should
have reflected the appellants’ prospects of success.
55. The first feature was undoubtedly present in many cases, but the
reasonableness of the base costs and the additional liabilities could always be the
subject of scrutiny by the judge charged with the assessment of the costs. It put
a particularly heavy responsibility on costs judges, but the fact that a paying
opposing party was entitled to have the costs for which he was liable assessed by
an independent and expert tribunal by reference to reasonableness must be a very
strong mitigating factor. The second feature was present in those cases where
there was a 100% success fee and a premium which equated with the extent of
the claimant’s “real” costs recovery. This might be the situation with some cases,
but it was not a regular feature of the system as a whole. At best, it is no more
than an arithmetical description of the 1999 Act scheme at its worst. The third
feature (reflected in para 11.9 of the CPD) was an intrinsic part of the regime as
a whole: see the discussion at paras 38 to 41 above. The fourth feature was also
an inevitable consequence of the regime, but it did not necessarily interfere with
the article 6 or A1P1 rights of opposing parties.
Unfairness
56. Much has been made of the alleged unfairness of the system. But the issue
is not whether the system was unfair or had “flaws”. It is whether it was a
disproportionate way of achieving the legitimate aim. In Swift v Secretary of
State for Justice [2013] EWCA Civ 193, [2013] 3 WLR 1151, Lord Dyson said
at para 35:
“… the question is not whether the existing law is unfair and could
be made fairer. Nor is it whether the existing law is the fairest
means of pursuing the legitimate aim referred to at para 23 above.
Rather, the question is whether the existing law pursues that aim
in a proportionate manner. The Strasbourg jurisprudence does not
insist that a state pursues a legitimate aim in the fairest or most
proportionate way. It requires no more than that it does so in a way
which is proportionate. There may be a number of ways in which
Page 22
a legitimate aim can be pursued. Provided that the state has chosen
one which is proportionate, Strasbourg demands no more.”
57. Although these observations were made in a context far removed from
that with which we are concerned, they are apt here too.
Was the 1999 Act scheme compatible with article 6 and A1P1 of the
Convention?
58. It is common ground that the question whether a fair balance has been
struck between the interests of those litigants who have CFAs and ATE insurance
and those who do not is one for the court to determine. But, even in a field such
as access to justice and legal costs, the court, while being vigilant to protect
fundamental rights, must give considerable weight to informed legislative
choices, at least where state authorities are seeking to reconcile the competing
interests of different groups in society. In such cases, they are bound to have to
draw a line somewhere in order to mark where a particular interest prevails and
another one yields. Making a reasonable assessment of where to draw the line,
especially if that assessment involves balancing conflicting interests falls within
the State’s wide discretionary area of judgment. As Lord Bingham said in Brown
v Stott [2003] 1 AC 681, 703:
“Judicial recognition and assertion of the human rights defined in
the Convention is not a substitute for the processes of democratic
government but a complement to them. While a national court does
not accord the margin of appreciation recognised by the European
court as a supra-national court, it will give weight to the decisions
of a representative legislature and a democratic government within
the discretionary area of judgment accorded to those bodies.”
59. The choices made by Parliament in enacting the 1999 Act followed a wide
consultation to enable it to evaluate the various interests at stake. Similarly, in
formulating the CPR and the CPD, the relevant rule-makers were (following
consultation) in the best position to determine how to effect the reforms and how
to strike the appropriate balance between the different types of litigant.
60. An important question is whether the compatibility of the scheme should
be judged “by reference to the generality of cases, so that a few unfortunate
results are inevitable”: see per Lord Neuberger in Coventry v Lawrence (No 2)
at para 44. In Campbell v MGN Ltd (No 2), Lord Hoffmann considered that this
Page 23
approach should be adopted in relation to the question whether the 1999 Act
scheme was compatible with article 10 of the Convention. He said:
“26. … [C]oncentration on the individual case does not exclude
recognising the desirability, in appropriate cases, of having a
general rule in order to enable the scheme to work in a practical
and effective way. It was for this reason that the European Court
of Human Rights decided in James v United Kingdom (1986) 8
EHRR 123 that Parliament was entitled to pursue a social policy
of allowing long leaseholders of low-rated houses to acquire their
freeholds at concessionary rates, notwithstanding that the scheme
also applied to some rich tenants who needed no such assistance.
27. Thus, notwithstanding the need to examine the balance on the
facts of the individual case, I think that the impracticality of
requiring a means test and the small number of individuals who
could be said to have sufficient resources to provide them with
access to legal services entitled Parliament to lay down a general
rule that CFAs are open to everyone.”
61. In MGN v United Kingdom, the ECtHR rejected the Government’s
submission that “any disproportionality visited on an individual case by the
CFA/recoverable success fee regime was justified by the need to adopt
provisions of general application when pursuing broad social and economic
policy objectives” (para 202). The court seems to have rejected it because the
lengthy public consultation that had taken place since 2003 had exposed flaws
in the system that were too serious to survive scrutiny.
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 court made
the following preliminary remarks to the effect that a scheme can be compatible
with the Convention even though it produces hard results in individual cases. It
said:
“106. Whether or not the interference was so pleaded in the abovecited VgT case, the present parties accepted that political
Page 24
advertising could be regulated by a general measure and they
disagreed only on the breadth of the general measure chosen. It is
recalled that a state can, consistently with the Convention, adopt
general measures which apply to pre-defined situations regardless
of the individual facts of each case even if this might result in
individual hard cases. Contrary to the applicant’s submission, a
general measure is to be distinguished from a prior restraint
imposed on an individual act of expression.
107. The necessity for a general measure has been examined by
the court in a variety of contexts such as economic and social
policy … and welfare and pensions … it has also been examined
in the context of electoral laws; prisoner voting; and artificial
insemination for prisoners; the destruction of frozen embryos; and
assisted suicide; as well as in the context of a prohibition on
religious advertising ….
108. It emerges from that case-law that, in order to determine the
proportionality of a general measure, the court must primarily
assess the legislative choices underlying it. … The quality of the
parliamentary and judicial review of the necessity of the measure
is of particular importance in this respect, including to the
operation of the relevant margin of appreciation. … It is also
relevant to take into account the risk of abuse if a general measure
were to be relaxed, that being a risk which is primarily for the State
to assess. A general measure has been found to be a more feasible
means of achieving the legitimate aim than a provision allowing a
case-by-case examination, when the latter would give rise to a risk
of significant uncertainty …, of litigation, expense and delay … as
well as of discrimination and arbitrariness. … The application of
the general measure to the facts of the case remains, however,
illustrative of its impact in practice and is thus material to its
proportionality ….
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
Page 25
and striking the balance it did, the legislature acted within the
margin of appreciation afforded to it ….”
63. The court held that there was no violation of article 10 because the impact
of the prohibition did not outweigh the convincing justifications for the general
measure (para 124). When the same issue had been before the House of Lords,
Lord Bingham said the same thing, namely that “[a] general rule means that a
line must be drawn, and it is for Parliament to decide where”, and added that this
“inevitably means that hard cases will arise falling on the wrong side of it, but
that should not be held to invalidate the rule if, judged in the round, it is
beneficial” – R (Animal Defenders International) v Secretary of State for Culture,
Media and Sport [2008] UKHL 15, [2008] 1 AC 1312, para 33.
64. In our judgment, there is a powerful argument that the 1999 Act 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: the reasoning of the ECtHR at para 110 of the Animal Defenders
case is particularly apposite here. Nevertheless, we do not propose to base our
conclusion solely on this argument: we bear in mind the fact that it was rejected
in MGN v United Kingdom, albeit in the context of an article 10 case.
Accordingly, we proceed to examine the position rather more critically.
65. The withdrawal of legal aid in most areas of civil litigation presented a
real problem for the government. It had to decide how to secure access to justice
for those who previously qualified for legal aid. Under the first scheme that was
adopted (and which was in force from 1995 until 2000), when success fees were
permitted for the first time and ATE insurance was first encouraged, the success
fee and ATE insurance premium were not recoverable from the opposing party.
The problems with this scheme included that (i) it only worked well where
appellants sought substantial monetary relief (thereby realising a fund, in the
event of success, from which the success fee would be paid) and (ii) damages
recoverable by CFA appellants were eroded by the irrecoverable cost of funding
and ATE insurance.
66. These difficulties were overcome by the 1999 Act scheme. The first
difficulty was overcome because a substantial fund of damages was no longer
necessary to secure the payment of success fees and ATE premiums: inter partes
costs orders were sufficient. The second difficulty was resolved because
damages (or, in a low money or non-money claim, the litigant’s own funds) were
Page 26
no longer eroded by irrecoverable success fees and premiums. In policy terms,
the principal shift from the first scheme to the second scheme was to transfer the
cost of financing successful claims from winning litigants to losing litigants. The
cost of unsuccessful claims remained with lawyers and ATE insurers.
67. The potential unfairness of the 1999 Act scheme on unsuccessful litigants
was mitigated by the fact that district judges and costs judges would perform the
role of “watchdog” as Lord Bingham described it in Callery v Gray (Nos 1 and
2) [2002] UKHL 28, [2002] 1 WLR 2000 at para 6. Lord Bingham said that the
courts would be astute to check any practices which might undermine the
fairness of the new funding regime, which was to “operate so as to promote
access to justice and not so as to confer disproportionate benefits on legal
practitioners or after the event insurers or impose unfair burdens on respondents
or their insurers” (para 10). Thus the base cost and any additional liabilities were
to be assessed by the court. As to base costs, where costs were to be paid on the
standard basis they were to be judged by the criteria of reasonableness and
proportionality. Where costs were to be paid on the indemnity basis, they were
to be judged by the sole criterion of reasonableness. As regards any additional
liability, a successful litigant was only entitled to a reasonable success fee and
ATE premium and (where costs were assessed on the standard basis) a
proportionate success fee (as explained in Lownds). In an appropriate case, the
court had the ability to make a cost-capping order as was required, for example,
by the Court of Appeal in King v Telegraph Group Ltd [2004] EWCA Civ 613,
[2005] 1 WLR 2282.
68. Nor should it be overlooked that respondents could themselves enter into
CFAs and take out ATE insurance.
69. There was, and indeed there is, no perfect solution to the problem of how
best to enhance access to justice following the withdrawal of legal aid for most
civil cases. A successful defendant was often better off under the 1999 Act
scheme than he had been when legal aid was generally available to appellants.
At that time, a successful defendant usually had to bear his own costs of
defending a claim. The appellant did not have the means to meet the defendant’s
costs and it was a rare case in which a successful defendant would be able to
obtain its costs from the legal aid fund. Under the 1999 Act regime, the
successful defendant would usually obtain its costs from the ATE insurer. On the
other hand, the unsuccessful defendant was unquestionably better off under the
previous regime because it was only liable for the claimant’s base costs. This
was the policy choice that was made by Parliament.
70. Mr McCracken submits that the current LASPO scheme (based on the
proposals for reform made by Sir Rupert Jackson) is fairer than the scheme that
Page 27
it replaced. The LASPO scheme was intended to readjust the balance which had
been adjusted in 1990 and 1999, and it has inevitably curtailed access to the
courts in some respects as a result, as is demonstrated by the facts of this case.
Appellants of modest means cannot finance litigation without a CFA. But that
inevitably requires them to pay a success fee on their solicitors’ and counsel’s
basic charges. In a substantial case, these costs are bound to be high. How is the
success fee to be paid by appellants who bring claims for non-financial remedies
or where the damages claimed are very small? Sir Rupert recognised the
problem, when he called for general damages to be increased by 10%. This was
effected by the Court of Appeal in Simmons v Castle [2012] EWCA Civ 1039
and 1288, [2013] 1 WLR 1239. But in the present case, this would have benefited
the appellants to the extent of only £2,085. Even if the success fees were to be
substantially reduced on assessment, this increase in damages would represent a
very small fraction of the overall figure. In short, under the LASPO regime, the
present litigation would not have been viable. The success fees are almost
certainly more than the appellants’ likely damages, and more than the financial
value of the rights they are attempting to protect (the diminution in value of their
home being, on the expert evidence, no more than £74,000).
71. Sir Rupert Jackson also recognised the serious impediment that inter
partes costs liability would cause if ATE premiums were not to be recoverable.
That is why he proposed qualified one-way costs shifting (QOCS). But QOCS
was only introduced in respect of personal injury claims. It has no impact on
other claims brought by litigants of relatively modest means (such as the present
claim).
72. The reason for referring to the LASPO scheme at some length is not to
criticise the Jackson reforms, but (i) to show that there are restrictions on access
to justice inherent in the LASPO scheme and (ii) to demonstrate that, at least 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.
73. At this stage, we should comment on the other “less intrusive” schemes
suggested by Mr McCracken. A levy on all adverse costs payments by
unsuccessful litigants would be a radically different scheme from anything
adopted hitherto in our civil justice system. It would require primary legislation
and would probably be highly controversial. It is impossible to predict how
politically acceptable such a proposal would be and what consequences it would
bring in its train. It is at best a proposal whose potential effect and effectiveness
is no more than speculative. We reject the idea that, viewed in the round, it would
better promote the Convention rights of litigants than the 1999 Act scheme.
Page 28
74. We also reject the suggestion that the 1999 Act scheme should have been
limited to defined categories of rich litigants, on the basis that, if it had been
limited in this way, it would have been unlikely to interfere with their article 6
or A1P1 rights. But how would a “large organisation” have been defined? Even
large organisations become insolvent or at least face financial difficulties from
time to time. How (if at all) would the scheme have taken account of the fact that
some individuals are wealthier than some large organisations? At what stage of
the proceedings would a decision have been made by the court on the question
whether the litigant fell within the category of rich litigants? In our view,
questions such as these demonstrate that a scheme limited to defined categories
of rich litigants would have been uncertain and arbitrary, and would almost
certainly have led to a great deal of expensive and time-consuming “satellite”
litigation to determine the extent of the means of many actual and potential
litigants.
75. The most sustained argument was that a scheme less intrusive of an
unsuccessful litigant’s article 6 rights would have required consideration of all
the circumstances including (a) the proportionality of the total of base costs and
uplifts and premiums and (b) all of the payer’s circumstances. It is important to
clarify that proportionate costs in this context means costs which were
proportionate to what was at stake in the litigation. The argument is that, even if
the total costs (including uplifts and premiums) were reasonably and necessarily
incurred by the litigant in order to have the benefit of legal representation, they
should not have been allowed on assessment to the extent that they exceeded a
sum which was proportionate to what was at stake.
76. Much of Mr McCracken’s attack therefore was directed at CPD 11.9. But
CPD 11.9 cannot be viewed in isolation. CPD 11 made separate provision for
base costs and additional liability. CPD 11.5 provided that the court would
consider the amount of any additional liability separately from the base costs.
CPD 11.7 provided that, when the court was considering the factors to be taken
into account in assessing an additional liability, it would have regard to the facts
and circumstances “as they reasonably appeared to the solicitor or counsel when
the funding arrangement was entered into …”. By contrast, the assessment of
base costs was conducted ex post facto on the basis of what happened in the
litigation. The reason for treating the assessment of an additional liability
differently was that, if legal representatives knew that the assessment of the
reasonableness and proportionality of their success fees would be reviewed by
the court on an ex post facto basis (rather than on the basis of what they
reasonably thought would happen), this would have been likely to discourage
them from entering into CFAs. They would have been concerned that, if they
were successful, the success fees payable by the unsuccessful party might be
reduced for reasons which they could not reasonably have foreseen when they
entered into the CFA. They would have been faced with the unattractive choice
Page 29
between foregoing the unrecovered part of the fee or seeking to recover it from
their client. That would have risked undermining the whole system introduced
by the 1999 Act.
77. CPD 11.9 provided that a percentage increase would not be reduced
simply on the ground that, when added to base costs which were reasonable and
(where relevant proportionate), the total appeared disproportionate. Like CPD
11.5, this provision was necessary to make the scheme work. If legal
representatives knew that reasonable success fees were liable to be reduced on
the grounds that, when added to the base costs, the total appeared to be
disproportionate, this would have been likely to deter them from entering into
CFAs. Success fees were calculated on the basis of an assessment of the risk of
losing (the so-called “ready-reckoner approach”). That was intrinsic to the CFA
system. To use the language of Lownds, a reasonable success fee was necessary
to fund the litigation. The reasoning in Rogers is apposite here. As we have seen,
the court held that, if an ATE premium was necessarily incurred, it was to be
regarded as proportionate and therefore recoverable. It was “integral to the
means of providing access to justice in civil disputes in what may be called the
post-legal aid world”: [2007] 1 WLR 808, para 105. So too was a CFA success
fee. It was necessary in order to secure access to justice. It was therefore
proportionate. If it were otherwise, there would have been a real danger (to put
it no higher) that litigants who previously qualified for legal aid would have been
unrepresented and the fundamental and legitimate aim of the 1999 Act scheme
would have been frustrated.
78. In summary, if the basis upon which Mr McCracken’s attack on section
11.7 and 11.9 was founded were to be accepted, it would have imperilled the
whole scheme which had been put in place by the 1999 Act, because lawyers
would have been unwilling to enter into CFAs for fear that, even if successful,
the uplift which they had agreed on the basis envisaged by the system embodied
in the 1999 Act would have been liable to be reduced or disallowed on
assessment because it would have been held to have been disproportionate to
what was at stake in the litigation.
79. Nor can we accept that the scheme was incompatible with the Convention
on the grounds that the assessment of the successful party’s total costs did not
take account of the paying party’s financial circumstances. So far as we are
aware, the financial position of the paying party has never been a relevant factor
in determining the assessment of reasonable and proportionate costs. As already
mentioned, if the position were otherwise, there would be a real risk of protracted
and expensive disputes as to the true financial worth of the paying party, often
with requests for disclosure of documents and cross-examination. In other words,
it would lead to satellite litigation, with the expenses, delays and uncertainties
which such litigation normally involves.
Page 30
80. We should interpolate that it was suggested in argument that the rules
already provided that the financial circumstances of the paying party could (and
perhaps should) be taken into account in the assessment of costs. CPR rule
44.5(1) required the court to have regard “to all the circumstances” in deciding
costs. CPR 1.2 required the court to give effect to the “overriding objective” of
dealing with cases justly when exercising any power under the Rules. CPR 1.1(2)
provided that dealing with cases justly and at proportionate cost includes so far
as practicable “(c) dealing with the case in ways which are proportionate – (iv)
to the financial position of each party”. Finally, para 11.1 of the CPD provided
that in applying the test of proportionality “the court will have regard to rule
1.1(2)(c)”.
81. If para 11.1 of the CPD is left out of account, we are satisfied that the
CPR did not require or permit costs to be assessed by reference to the financial
position of the parties. CPR 44.5 set out the factors to be taken into account in
assessing costs. They did not include the financial circumstances of the parties.
That is not at all surprising. If the fact that the paying party had limited resources
militated in favour of reducing the amount of costs that it was reasonable for him
to pay, then why should the fact that he was wealthy not militate in favour of
increasing the costs? The logic of the argument should also mean that the
financial circumstances of the receiving party was relevant. We are satisfied that
this cannot have been intended by the draftsman of the rules. If the draftsman
had intended financial circumstances to be taken into account, he would have
included them as a relevant factor in CPR 44.5. We do not consider that financial
circumstances could be introduced as an additional relevant factor by means of
CPR 1.1(2)(c). If rule 1.1(2)(c) was relevant to the assessment of costs at all, it
related only to the manner in which the process of the assessment was conducted.
It was not relevant to the amount of costs to be paid.
82. Paragraph 11.1 of the CPD did, however, purport to go further than the
rules. It purported to say that the court would have regard to the financial position
of each party in applying the test of proportionality. In our view, this conflicted
with the rules which, for the reasons that we have given, did not permit this. It
should, therefore, not have been followed or should have been disapplied: see
para 24 above.
83. To summarise. It was undoubtedly a feature of the 1999 Act scheme that
the costs awarded to successful appellants who had the benefit of CFAs could be
very high indeed. For that reason, it had the potential to place respondents under
considerable pressure to settle before even more costs were incurred. This is the
third flaw identified by the ECtHR in MGN v United Kingdom and the second of
Lord Neuberger’s four unique and regrettable features. We accept that, in a
number of individual cases, the scheme might be said to have interfered with a
defendant’s right of access to justice. But for the reasons stated earlier (paras 58
Page 31
to 63 above), it is necessary to concentrate on the scheme as a whole. The scheme
as a whole was a rational and coherent scheme for providing access to justice to
those to whom it would probably otherwise have been denied. It was subject to
certain safeguards. The government was entitled to a considerable area of
discretionary judgment in choosing the scheme that it considered would strike
the right balance between the interests of appellants and respondents whilst at
the same time securing access to justice to those who would previously have
qualified for legal aid. It had to find a solution to the problem created by the
withdrawal of legal aid. The government has now produced three different
schemes. Each was produced after wide consultation. Each has generated
considerable criticism. As already indicated, once civil legal aid was constrained
to the extent that it was in 1999, it became impossible to come up with a solution
which would meet with universal approval. This is relevant to the question
whether the 1999 Act scheme struck a fair balance between the interests of
different litigants.
84. For the reasons that we have given, we are satisfied that the scheme was
not incompatible with article 6 or A1P1.
85. For completeness, we should add that it was argued that, in any event, at
least one of the respondents had failed to establish that he was not “non-ordinary”
or “non-rich” (see para 48), either because there was no evidence of his means
or because he was in fact insured against liability for nuisance. For the reasons
we have given, it is unnecessary to decide whether that is a well-founded
argument. However, the very fact that it has been raised demonstrates the risk of
satellite litigation if the respondents’ case is accepted: it would be necessary to
assess a party’s means and liabilities, identify the precise terms of an insurance
policy that has been mislaid, and then decide whether it covered nuisance by
noise.
Remedy
86. This only arises if (contrary to our view) the system was incompatible
with article 6 and A1P1. No-one is arguing for a declaration of incompatibility
under section 4 of the Human Rights Act 1998. There is nothing in the language
of the 1999 Act which requires any particular scheme. We cannot read “may” in
section 58A as meaning “must”. The statute permits a scheme to be created (by
rules and practice directions), but it does no more than that.
87. As we have said, the real complaint is about paras 11.7 and 11.9 of the
CPD, especially para 11.9. If these render the scheme incompatible for the
reasons given by Mr McCracken, the question arises whether they can and should
Page 32
be “read down” or disapplied so to require consideration of all the circumstances
including (a) the proportionality (to the matters in issue in the litigation) of the
total of base costs and uplifts and premiums; and (b) the financial circumstances
of the paying party.
88. We do not consider that it is possible to read down para 11.9 in accordance
with possibility (a) or to disapply it. It would involve a radical departure from
the Lownds approach to proportionality. The question would not be whether the
success fee and ATE premium were necessary (and therefore treated as
proportionate), but rather whether they were in fact proportionate. The focus of
the former question in a CFA case was on the reasonableness of the fee and
premium having regard to the litigation risk. The focus of the latter question was
on whether the amount of the costs was proportionate to what was at stake in the
litigation. In our judgment, it is impermissible to do this under the guise of
interpretation. As we have explained at paras 75 to 77 above, lawyers would have
been deterred from entering into CFAs if they knew that the success fees were
susceptible to reduction on the grounds that, when added to base costs, they
appeared to be disproportionate to the matters in issue. Paragraph 11.9 was
integral to the scheme. It cannot be interpreted away.
89. Even if it was open to us to read down para 11.9 in the way for which Mr
McCracken contends we do not consider that it would be right to do so. Nor
would it be right to disapply it. As the Bar Council points out, the Court of
Appeal actively shaped the law relating to additional liabilities throughout the
period from 2000 until 2013. It was implicit in all of the cases that success fees
(often substantial success fees) were recoverable. In none of the cases did the
court disallow or reduce the amounts payable in success fees on the grounds that
they were so high as to amount to a breach of the paying party’s Convention
rights. In these circumstances, litigants and their lawyers had a legitimate
expectation that the court would not (at least without reasonable notice) decide
that these fees were in principle incompatible with the Convention.
90. This is no mere abstract statement. 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. Any order made by this court in
the present case would have no effect on the contractual obligations of litigants
to pay success fees to their lawyers and ATE premiums to their insurers.
Successful parties would, therefore, still be liable to pay their lawyers and
insurers if they won their cases and could not recover them from unsuccessful
respondents.
Page 33
91. Mr McCracken responds with three points. First, he says that there are
good prospects that the lawyers would not seek to enforce the success fees for
reasons of (i) decency, (ii) reputational risk and (iii) questionable enforceability
in view of advice (in a situation of conflict of interest) about agreements with
these problematic terms. Secondly, some appellants entered into CFAs and ATE
insurance policies in the knowledge that their terms made them liable to pay the
success fee and premium in the event of success even if, for whatever reason,
those sums were not in fact recovered from the defendant. It cannot be said that
an order disallowing recovery of success fee and ATE insurance premium would
impose on such a claimant a burden he never envisaged having to assume.
Thirdly, if the lawyer did not advise the claimant that he should at least consider
not entering into a CFA or ATE insurance policy unless his liability to pay the
success fee or premium was limited to whatever was actually recovered from the
paying party, or provide some other assurance that they would not have to pay
in uplift more than they could sensibly risk, then they would potentially have a
remedy in negligence against the lawyer.
92. We do not consider that these points provide a sufficient answer. We
accept that some lawyers might not seek to enforce the success fees. But others
might well do so, particularly if their client had means. It would be quite wrong
to assume that only litigants of modest resources would have entered into CFAs.
As regards the second point, we accept that the terms of some CFAs and ATE
policies imposed a burden on the litigant to pay the success fee and premium in
certain circumstances. But it does not follow that all litigants who entered into
CFAs and ATE premiums did so in the belief that they were at risk, even if
successful, of having to pay the success fee and premium. We suspect that many
such litigants would have been most surprised to be told that this was the
position. As for the third point, in view of the fact that CFAs and ATE insurance
policies had been routinely used throughout the period 2000-2013 and
sanctioned by the courts (even the House of Lords) without any suggestion that
they were incompatible with article 6 or A1P1 or otherwise unlawful, it would
be remarkable if a lawyer who advised his client to enter into a typical CFA and
take out a typical ATE insurance policy could be said to have acted negligently.
93. The result of declaring that the 1999 Act scheme was contrary to the
Convention might also be that some appellants would decide to abandon their
claims so as to avoid incurring further irrecoverable liabilities.
94. As regards the financial circumstances of the paying party, to take these
into account would involve a substantial change to the CPD and rules as we have
interpreted them at paras 78 to 81 above. This too would involve a fundamental
change to the 1999 Act scheme and cannot be achieved under the guise of
interpretation.
Page 34
Conclusion
95. For the reasons that we have given, the 1999 Act scheme was compatible
with article 6 and A1P1. We have not addressed A1P1 separately. That is because
it has (rightly) not been suggested that, if the scheme was compatible with article
6, it could nevertheless for some other reason be incompatible with A1P1.
96. If (contrary to our view) the scheme was incompatible with article 6 and
A1P1, we would not read it down so as to make it compatible and we would not
strike the scheme down or disapply it.
LORD MANCE: (with whom Lord Carnwath agrees)
97. This is an awkward case. The Supreme Court is embarked on an
examination of a system of costs which, despite its replacement in 2013 for
future litigation by the LASPO scheme, remains applicable in many pending
cases, and which appellate courts have from 1999 onwards repeatedly endorsed,
developed and enforced: see eg Callery v Gray [2001] EWCA Civ 1117, [2001]
1 WLR 2112 and [2002] UKHL 28, [2002] 1 WLR 2000; Atack v Lee [2004]
EWCA Civ 1712, [2005] 1 WLR 2643; Halloran v Delaney [2002] EWCA Civ
1258, [2003] 1 WLR 28; In re Claims Direct Test Cases [2003] EWCA Civ 136,
[2003] 4 All ER 508; U v Liverpool City Council (Practice Note) [2005] EWCA
Civ 475, [2005] 1 WLR 2657; Rogers v Methyr Tydfil County Borough Council
(Law Society intervening) (Practice Note) [2006] EWCA Civ 1134, [2007] 1
WLR 808; Crane v Canons Leisure Centre [2007] EWCA Civ 1352, [2008] 1
WLR 2549; and C v W [2008] EWCA Civ 1459; [2009] 4 All ER 1129.
98. Lord Neuberger and Lord Dyson make a powerful case in their judgment
for a conclusion that the system of costs not only fulfils the legitimate aim of
affording access to justice to appellants (that is unchallenged), but does so in a
way which falls within the wide area of discretionary judgment which rulemakers must be recognised as having when balancing the interests of those
seeking access to justice and respondents faced with the additional burden of
costs which the system could impose.
99. In striking such a balance, the state is entitled to look at the system as a
whole, and the possibility of individual hard cases is not itself fatal: see Animal
Defenders cases, cited by Lord Neuberger and Lord Dyson in paras 62 and 63.
As the ECtHR there put it, “the more convincing the general justifications for
the general measure are, the less importance the court will attach to its impact in
Page 35
the particular case”, and Lord Bingham in the House of Lords had said the same
thing. See also James v United Kingdom (1986) 8 EHRR 123.
100. Nonetheless, the European Court of Human Rights was in MGN Ltd v
United Kingdom (2011) 53 EHRR 195 persuaded, after an examination of the
system and of the flaws in it identified by Sir Rupert Jackson and accepted by
the Government, that, despite its legitimate aim to promote access to justice, it
operated disproportionately in the context of claims for defamation, because of
its effect on the right to freedom of expression protected under article 10 of the
Convention.
101. The appellants, supported by the Secretary of State for Justice and legal
professional and other bodies, distinguish this decision and its reasoning on the
basis that there is here no competing interest comparable to freedom of
expression. Instead, the respondents are relying upon their own right of access
to justice under article 6 and/or their right to protection of their property under
paragraph 1 of protocol 1 to the Convention (“A1P1”).
102. Lord Neuberger and Lord Dyson accept this distinction, and regard the
balancing exercise involved in the present appeal as being “of a wholly different
character” (para 52). In para 79 they discount any suggestion that the scheme in
force from 1999 to 2013 was incompatible because it did not take account of the
paying party’s financial circumstances, but in para 83 they accept that, in a
number of individual cases, it might be said to have interfered with a
respondent’s right of access to justice. Nonetheless, they conclude that, viewed
as a whole, it was rational and coherent, and not incompatible with either article
6 or A1P1.
103. While freedom of expression is a particularly powerful interest under the
Convention, the interest of any respondent in being able to defend himself or
itself in litigation, at a reasonable and proportionate cost is, in my opinion, also
one of some weight; and it certainly engages (as I understand Lord Neuberger
and Lord Dyson to accept) a balancing exercise, when set against the
countervailing interest that appellants should have the access to justice which the
system was designed to give.
104. In this context, the strength of the present respondents’ case lies in their
claim to be individuals or small undertakings carrying on modest businesses
without insurance and faced with one-off litigation, which has involved them in
eye-catchingly large costs exposure. Precisely how compelling this claim is, as
Lord Neuberger and Lord Dyson note (para 85), untested. Even small businesses,
carrying on motor racing activities, would be expected to carry some forms of
Page 36
insurance, although it is at least open to doubt whether the insurance against
nuisance which at any rate the first respondent carried covered nuisance by noise;
and whether noise insurance would have been available to, or have been expected
to be obtained by, either the second or third respondent has not been investigated.
105. Whatever the position in this regard, the balancing exercise and any
decision as to the validity of the system and the grant of any relief must all be
undertaken taking account of the circumstances and competing interests as they
stand at the time of the present proceedings. It is unnecessary and indeed
inappropriate to scrutinise the scheme in the same way as would or might have
been appropriate before or when it first came into force. Since then, much water
has flowed under the bridge, in terms of the rules made and practice directions
issued under the legislation, and the constant jurisprudence of domestic courts
endorsing the system and of litigants and their lawyers acting on the basis that it
applied and was valid.
106. I do not in this context accept the submission, made by the respondents
and supported by the Department of Justice for Northern Ireland, that litigants
and their lawyers cannot have had a legitimate expectation that the system would
apply and be upheld. When appellate courts have repeatedly endorsed the
system, it seems to me unrealistic to expect them to have avoided use of the
system from concern about what would, if appreciated at all, have been seen as
a remote risk that courts might change their attitude. I also consider that their
legitimate expectation that the system would be enforced is one which falls to be
taken into account at the present stage, and is not merely a matter that might
(being itself a protected possession within A1P1) be raised as against the United
Kingdom in Strasbourg.
107. In the above circumstances, I reject the respondents’ challenge to the
system of costs whereby they are potentially liable in respect of success fees
agreed and ATE premia incurred by the appellants. The position must, as Lord
Neuberger and Lord Dyson have said, be considered as a whole. The system had
a legitimate aim, the present is on its face an extreme and unusual case. It is
difficult to conceive of any solution which would cater for such cases, without
imperilling the whole system. The system has been repeatedly endorsed by
domestic courts over a decade. Litigants and their lawyers have justifiably relied
upon its validity. Legal certainty, consistency and the legitimate expectations
which have so been generated all militate in favour of the Supreme Court
upholding the system (though it can of course still be challenged as against the
United Kingdom in proceedings in Strasbourg); and I would uphold it and refuse
any relief accordingly.
Page 37
LORD CLARKE: (dissenting – with whom Lady Hale agrees)
108. I agree with Lord Mance that this is an awkward case. Subject to one
critical point, like him, I agree that Lord Neuberger and Lord Dyson make a
powerful case that the system of costs under review not only, as is conceded on
behalf of the respondents, fulfils the legitimate aim of affording access to justice
to appellants, but also falls within the wide area of discretionary judgment which
rule-makers must be recognised as having when balancing the interests of those
seeking access to justice and respondents faced with the additional burden of
costs which the system could impose.
109. I also agree with Lord Mance (at para 99) that, in striking such a balance,
the state is entitled to look at the system as a whole, and the possibility of
individual hard cases is not itself fatal: see the Animal Defenders cases, cited by
Lord Neuberger and Lord Dyson in paras 62 and 63. Lord Mance notes the
general point made by the ECtHR 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”. He also observes that Lord Bingham
had said the same thing in the House of Lords and refers to James v United
Kingdom (1986) 8 EHRR 123.
110. As Lord Mance observes at para 100, in MGN Ltd v United Kingdom
(2011) 53 EHRR 195, the ECtHR was nonetheless persuaded, after an
examination of the system and of the flaws in it identified by Sir Rupert Jackson
and accepted by the Government, that, despite its legitimate aim to promote
access to justice, it operated disproportionately in the context of claims for
defamation, because of its effect on the right to freedom of expression protected
under article 10 of the Convention. As I see it, the question is whether that
decision can properly be distinguished from the issue in this appeal on the footing
that there is here no competing interest comparable to freedom of expression.
Lord Neuberger and Lord Dyson say that it can. I respectfully disagree. In my
opinion, the principles identified by the ECtHR apply to the facts of this case,
where the respondents are relying upon their own right of access to justice and
to a fair trial under article 6 and/or their right to protection of their property under
paragraph 1 of protocol 1 to the Convention (“A1P1”).
The case for the respondents
111. Lord Neuberger and Lord Dyson summarise the respondents’ case at
paras 42 to 49 as follows. For ease of reference I set their case out here in much
the same way. The system unjustifiably interferes with the article 6 and A1P1
Convention rights of “non-rich” respondents who unsuccessfully contest
Page 38
litigation instituted by appellants who had the benefit of CFA agreements and
ATE insurance. In his Review of Civil Litigation Sir Rupert Jackson identified a
number of what he described as flaws, which were summarised by the ECtHR at
paras 207 to 210 of its judgment in MGN v United Kingdom. They were (i) the
lack of focus of the regime and the lack of any qualifying requirements for
appellants who would be allowed to enter into a CFA; (ii) the absence of any
incentive for appellants 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. At para 217, the ECtHR concluded that:
“… the court considers that the depth and nature of the flaws in the
system, highlighted in convincing detail by the public consultation
process, and accepted in important respects by the Ministry of
Justice, are such that the court can conclude that the impugned
scheme exceeded even the broad margin of appreciation to be
accorded to the state in respect of general measures pursuing social
and economic interests.”
The flaws were thus regarded by the ECtHR as sufficiently serious to lead it to
conclude that the system was incompatible with article 10 of the Convention.
The same reasoning necessarily requires the court to hold that the system was
also incompatible with article 6 and A1P1.
112. The system was arbitrary. It singled out from the class of unsuccessful
litigants a subset of those who happened to have been opposed by CFA/ATEfunded litigants and imposed on that subset the burden of funding other
unsuccessful cases which did not involve them at all. The real vice of the system
lay in the CPD, which, so far as relevant, is quoted by Lord Neuberger and Lord
Dyson in para 25 above. Paragraph 11.7 based the assessment of CFA uplifts and
ATE premiums exclusively on the ex ante perspective of the CFA/ATE party;
and para 11.9 expressly disallowed any reduction on the basis that the overall
total of base costs and uplifts appeared to be disproportionate. Decisions on uplift
therefore disregarded the financial circumstances of the payer, the importance to
the payer of fighting the case and the reasonableness of his decision to fight.
113. The system was not redeemed by the fact that costs were subject to
assessment at the end of the proceedings. By that stage, it was too late to control
what was being spent. Nor is it an answer to say that the court had the power to
cap the costs of a CFA-funded and ATE insurance-protected party at an early
stage.
Page 39
114. The system failed when tested against the questions identified by Lord
Reed in Bank Mellat (No 2), at para 74, which are quoted by Lord Neuberger and
Lord Dyson at para 30 above. It is instructive to ask: could a system of private
funding of litigation for the non-rich have been adopted which was less intrusive
of payers’ fundamental rights without unacceptably compromising the
achievement of its objective? There must be an affirmative answer to this
question. Apart from the current LASPO scheme, examples of less intrusive
schemes are: (i) a levy on all adverse costs payments by unsuccessful litigants
could have funded the payment of additional liabilities under a modified version
of the 1999 Act system; (ii) the system could have been limited to claims against
defined groups, such as insured, or large corporations, large organisations, or
public bodies; and (iii) the system could have incorporated provisions requiring
consideration of all the circumstances including (a) the proportionality of the
total of base costs and uplifts and premiums and (b) those of the payer (such as
his means, whether he was insured, the importance of fighting the case and his
reasonableness in fighting the case).
115. In order to render the system compatible with article 6 (and A1P1) of the
Convention, all that is required is to read para 11.9 down in accordance with
section 3 of the Human Rights Act 1998 so as to provide a system incorporating
the provisions set out at (iii) in para 114 above.
Discussion
116. The critical point in this case to my mind is that in the system under
review some classes of defendant were treated differently from others. Professor
Zuckerman put the point with his usual clarity in the third edition of his book on
Civil Procedure in 2013 at para 27.315 in the context of his discussion of the
decision of the ECtHR in MGN v United Kingdom:
“The incompatibility of the CFA legislation with ECHR article 6
was not directly considered in the Campbell case [in the House of
Lords]. Lord Hoffmann touched on the point when he said that in
relation to personal injury actions arising out of road accidents it
was legitimate for Parliament to adopt a strategy of shifting the
burden of funding that type of litigation from the State to
unsuccessful respondents. The legitimacy of such strategy,
however, depends on the fairness of the distribution of the
advantages and disadvantages created by the CFA policy. In
personal injury actions arising from road accidents, the burden of
CFA success fees falls on insurance companies, who in turn are
able to spread it amongst all policy holders, many of whom may
be poor. Furthermore, CFAs were not confined to cases where the
Page 40
burdens and benefits could be aggregated in this way. It could be
said that it is neither legitimate nor proportionate to adopt a policy
that increases access to justice to one litigant by means of
burdening others with the risk of having to pay twice the
reasonable and proportionate costs of their adversaries and who
cannot pass the risk to others nor afford to shoulder it on their own.
The last point raises an issue of equality of arms. Equality of arms
requires that both parties should be afforded an equal and
reasonable opportunity to advance their respective cases under
conditions that do not substantially advantage or disadvantage
either side. Yet, an individual defendant without the benefit of a
CFA is in a worse position than the CFA claimant because he is
exposed to the risk of having to pay as much as twice the
claimant’s reasonable and proportionate costs. The way in which
the success fee is calculated compounds the inequality and the
unfairness because the magnitude of the ‘reasonable’ success fee
is in inverse proportion to the strength of the claimant’s case. The
riskier the claimant’s case, the greater the success fee that his
lawyer may legitimately charge. It follows that the stronger the
defendant’s prospect of success and the more he has reason to
insist on his rights the more he would have to pay the claimant by
way of success fee, in the event that the claimant wins.”
117. In my opinion those points have great force. As I see it, the system was
unfairly discriminatory against some classes of respondent by comparison with
others. I can understand that it might be just to introduce some such system where
the respondents are part of a class of respondents who are frequent litigators such
that a system which provides the rough with the smooth may be justifiable. An
example would be respondents who have relevant liability insurance because
liability insurers are not concerned so much with the result in the particular case
as with balancing the premium income over a long period. Similar considerations
may apply to commercial entities of which the same may be said. They may also
apply to organs of the state. Although (for the most part) they do not have the
protection of the Human Rights Act, in the nature of things they are respondents
in many classes of case. Save in such cases, it seems to me to be discriminatory
and disproportionate to burden uninsured respondents with costs which vastly
exceed the fair and reasonable costs incurred by the claimant in order to
encourage solicitors to act for other appellants against other respondents against
whom the claims may fail.
118. It is a striking feature of a CFA that it is available to rich as well as poor
appellants, as the House of Lords held in Campbell v Mirror Group Newspapers
Ltd [2005] UKHL 61, [2005] 1 WLR 3394. So, when it was made possible to
Page 41
recover the success fee (and ATE premium) from respondents, it was not only a
means of providing access to justice (ie through lawyers) for those who could
not otherwise afford it but also a risk free means of providing access to lawyers
for those who could afford to fund it in other ways. There are cases in which
appellants are richer than respondents. The claimant always had a choice about
whether to go to court, whereas once that choice was made, the defendant had
no choice not to take part. He must give in, negotiate or fight. Moreover, if the
claimant had ATE insurance, which meant that his chances were better (usually
substantially better) than evens, the defendant would have little or no prospect
of obtaining ATE insurance because his chances would be unlikely to be so rated.
119. The facts of this case bear much of this out, as can be seen from Lord
Neuberger’s description of the costs position in this case, reported as Coventry v
Lawrence (No 2) [2014] UKSC 46, at paras 32 to 39. He said this at paras 32 to
34:
“32. The final issue arises out of the judge’s order for costs,
namely that the respondents should pay 60% of the appellants’
costs. The appellants’ costs at first instance consisted of three
components, as permitted by the Courts and Legal Services Act
1990 as amended by sections 27-31 in Part II of the Access to
Justice Act 1999. The first was the ‘base costs’, ie what their
lawyers charged on the traditional basis, which was, in crude
terms, calculated on an hourly rate and the costs of disbursements.
The second component was the success fee (or uplift) to which the
lawyers were entitled, because they were providing their services
on a conditional fee (or no win no fee) basis. The third component
was the so-called ATE premium, a sum which is payable to an
insurer who agreed to underwrite the appellants’ potential liability
to the respondents for their costs if the respondents had won. The
appellants’ base costs amounted to £398,000; the success fee,
which (we will assume) was at the maximum permitted level of
100%, amounted to £319,000-odd (as the uplift does not apply to
every item of costs), and the ATE premium was apparently about
£350,000.
33. Accordingly, if the respondents had been liable for the
whole of the appellants’ costs up to the date the judge made the
order, they would have had to pay the appellants around
£1,067,000. As it is they are liable for over £640,000.
34. These figures are very disturbing.”
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120. Lord Neuberger (with whom Lord Sumption and I agreed) then, in paras
35 and 36, expressed grave concern about the base costs in a case like this. He
added:
“37. The amount of the base costs in this case is however
dwarfed by the total potentially recoverable costs, which are nearly
three times as much. The figures illustrate the malign influence of
the amendments made to the 1990 Act by Part II of the 1999 Act,
and as implemented through CPR rule 44 and the Practice
Direction supplementing CPR Part 44, now fortunately repealed
and replaced by the provisions of Part 2 of the Legal Aid,
Sentencing and Punishment of Offenders Act 2012, following Sir
Rupert Jackson’s Review of Civil Litigation Costs (2010), referred
to above. As Sir Rupert pointed out in his Review, and as is
explained in Zuckerman on Civil Procedure Principles and
Practice, 3rd ed (2013), the system introduced in 1999 had a
number of unique and regrettable features, four of which are worth
mentioning for present purposes. First, claimants had no interest
whatever in the level of base costs, success fee or ATE premium
which they agreed with their lawyers, as, if they lost they had to
pay nothing, and if they won the costs would all be paid by the
respondents, who, on the other hand, had no say about the costs
(other than retrospectively on an assessment). Secondly, in many
cases, unsuccessful respondents found themselves paying, in
addition to the whole of their own costs, three times the claimants’
real costs. Thirdly, while proportionality had a part to play when
assessing the recoverability of base costs (albeit a limited part: see
Home Office v Lownds (Practice Note) [2002] 1 WLR 2450), it
was excluded from consideration in relation to the recovery of
success fee or ATE premium (which were simply required to be
reasonable): see Practice Direction supplementing CPR Part 44
paras 11.7-11.10. Fourthly, the stronger the respondents’ case, the
greater their liability for costs would be if they lost, as the size of
the success fee and the ATE premium should have reflected the
appellants’ prospects of success.”
121. Lord Neuberger then briefly summarised in para 38 the case which Mr
McCracken QC has advanced before us. I appreciate that the majority do not
accept the respondents’ case as summarised above. However, as already stated,
my own view is that the system described above, as applied to respondents such
as the respondents in this case, is discriminatory, disproportionate and unfair and
infringes their right to a fair trial under article 6. In my opinion it also breaches
their rights under A1P1, although I do not think that adds anything significant to
their case under article 6. In these circumstances I am not surprised that Sir
Page 43
Rupert was critical of the system in his Review and or that Parliament has now
changed the law.
122. Nor am I surprised that there has been significant extra-judicial adverse
comment about the scheme. In particular, Sir Anthony May, who was then
President of the Queen’s Bench Division, said this in Cardiff on 19 June 2009 in
a passage cited by Sir Rupert Jackson in his final Report at pp 97-98:
“Is it right in principle that a losing party should have to pay an
additional amount, in excess of the proper and reasonable costs of
the litigation, to cover the winning party’s lawyer’s costs of losing
other cases on behalf of other clients? Is it in principle right that an
eventual losing party to litigation should be at risk of paying a
greater uplift if he has a strongly arguable case he nevertheless
loses, whereas, if he has a rotten case, the justifiable uplift will be
less? So too with the after the event insurance premium. This has
insured the winning party against the costs he would have been
ordered to pay if he had lost, including the costs he would have
paid to the eventual losing party. Is it right in principle that a party
to litigation should be ordered to pay costs referable to an
insurance policy which would have covered his own costs if he had
been successful? I do not here question the appropriateness of
agreements providing for success fees nor the sense of insuring
against potential liabilities in costs. What I do question is whether
the other party should in principle be ordered to pay these
elements. After all, we do start from the position that the base costs
are the proper reasonable costs of conducting the litigation. Why
should the losing party additionally finance the costs of other
litigation of which he is not a party or of an insurance premium
which would have relieved his opponent of his costs if his own
defence had succeeded? And the stronger his own defence, the
more he has to pay if nevertheless he loses. He may have been
negligent or in breach of contract, but his negligence or breach of
contract did not generate these expenses.”
I agree with Sir Anthony May, who has great experience of civil litigation of all
kinds.
The decision of the ECtHR in MGN v United Kingdom
123. The decision of the ECtHR in MGNv United Kingdom is to my mind of
considerable importance. Lord Neuberger and Lord Dyson have set out the facts
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at para 50 above. As they observe, in defending the CFA scheme, the UK
Government advanced arguments similar to those that have been advanced by
the Secretary of State (as well as by the appellants and some of the interveners)
in the present case. The ECtHR held that the requirement to pay the success fees
constituted an interference with the defendant’s article 10 rights. The central
issue was whether the UK authorities had struck a “fair balance” between
freedom of expression protected by article 10 and an individual’s right of access
to court protected by article 6 (para 199).
124. At paras 206 to 217 the ECtHR accepted that the scheme suffered from
the four flaws identified in the Jackson report and set out above. At para 51 above
Lord Neuberger and Lord Dyson correctly recognise that these flaws were of
general application and not confined to defamation and breach of privacy
litigation. In this connection they quote the passage from para 217 set out at para
111 above.
125. I recognise the point made in para 52 above that the context in which the
ECtHR made those criticisms was its concern about the effect of the scheme in
defamation and privacy cases: see paras 211 to 215. I also recognise that the right
of freedom of expression is always given particular weight by the ECtHR and
(as the ECtHR said at para 201) that 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. I further recognise that it was in that
context that the ECtHR concluded that a fair balance had not been struck between
the article 10 rights of defendant publishers and the article 6 rights of appellants
who allege defamation or breach of privacy.
126. The question is whether the same applies to the relative rights of
appellants seeking access to justice and a fair trial under article 6 and those of
respondents seeking a fair trial under article 6 and the recognition of their rights
under A1P1. I respectfully disagree that the balance to be struck in this class of
case is of a wholly different character. As Lord Mance says in para 102, in para
79 Lord Neuberger and Lord Dyson discount any suggestion that the scheme in
force from 1999 to 2013 was incompatible because it did not take account of the
paying party’s financial circumstances. They say that the financial position of
the paying party has never been a relevant factor in determining the assessment
of reasonable and proportionate costs. However, as Lord Mance points out, in
para 83 they accept that, in a number of individual cases, it might be said to have
interfered with a defendant’s right of access to justice. Nonetheless, they
conclude that, viewed as a whole, it was rational and coherent, and not
incompatible with either article 6 or A1P1.
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127. Save that I would go further, I agree with Lord Mance at para 103 that,
while freedom of expression is a particularly powerful interest under the
Convention, the interest of any defendant in being able to defend himself or itself
in litigation, at a reasonable and proportionate cost is also one of some weight;
and it certainly engages (as he understands Lord Neuberger and Lord Dyson to
accept) a balancing exercise, when set against the countervailing interest that
appellants should have the access to justice which the system was designed to
give. The respect in which I would go further is that it appears to me that, 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.
128. As Lord Mance says at para 104, the strength of the present respondents’
case lies in their claim to be individuals or small undertakings carrying on modest
businesses without insurance and faced with one-off litigation, which has
involved them in eye-catchingly large costs exposure. I agree that precisely how
compelling this claim is, as Lord Neuberger and Lord Dyson note (para 85),
untested. However, as I understand it, their case has been rejected on the basis
that is bound to fail.
129. It is true that previous challenges to the scheme have failed but the points
now taken were not determined in any of them. 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. In MGN v United
Kingdom, having set out the facts, the ECtHR reached these conclusions in paras
219 and 220:
“219. In such circumstances, the court considers that the
requirement that the applicant pay success fees to the claimant was
disproportionate having regard to the legitimate aims sought to be
achieved and exceeded even the broad margin of appreciation
accorded to the Government in such matters.
220. Accordingly, the court finds that there has been a violation
of article 10 of the Convention.”
I respectfully agree.
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Conclusions
130. I agree with Lord Neuberger and Lord Dyson (at para 53) that, of the four
flaws identified by Sir Rupert Jackson, it is the third flaw that lies at the heart of
this case. One way of describing it is as imposing a costs burden on opposing
parties which is excessive and in some cases amounts to a denial of justice. In
para 54 they set out what Lord Neuberger had described as four “unique and
regrettable features” of the scheme on which the respondents also rely in support
of their case. As they say, to some extent these features overlap with the four
flaws. The first feature was that appellants had no interest in the level of fees
which they agreed to pay their lawyers. The second was that in many cases
unsuccessful respondents found themselves paying, in addition to their own
costs, three times the appellants’ “real” costs. The third was that proportionality
was excluded from consideration in relation to the recovery of the success fee or
ATE premium. The fourth was that the stronger the respondents’ case, the greater
their liability costs would be if they lost, since the size of the success fee and the
premium should have reflected the appellants’ prospects of success.
131. 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.
132. As Lord Sumption observed in Bank Mellat (No 2) at para 25, “a measure
may respond to a real problem but nevertheless be irrational or disproportionate
by reason of its being discriminatory in some respect that is incapable of
objective justification”. In my opinion this is such a case.
Legitimate expectation and remedy
133. The majority place weight on what they call the “legitimate expectation”
of litigants and lawyers that courts will uphold the legality of the costs regime
around which they have contracted. They say that, even if the system is
incompatible with article 6 and A1P1, litigants’ and lawyers’ legitimate
expectation that successful appellants would receive a costs order covering the
success fee and ATE insurance premium should be weighed in the balance so
that a remedy of reading down the provisions so as to be compatible with
respondents’ Convention rights is not appropriate: Lord Neuberger and Lord
Dyson, para 89; Lord Mance, para 106. The appellants before us argued that their
expectation that they would receive such a costs order was a “legitimate
expectation” which was a protected possession under A1P1. Presumably (though
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they do not say so) the members of the majority intend to use the term “legitimate
expectation” in that sense.
134. The question is what order the court must make. To my mind the answer
is clear. By section 6 of the Human Rights Act, the court must not act
incompatibly with a Convention right. It is the court’s duty to balance these
competing rights as part of the balancing exercise and determine the proper way
forward. Insofar as the expectations of litigants and their lawyers are relevant to
the article 6 balancing exercise, I consider that they are one factor only and
cannot render proportionate the discriminatory treatment of the particular classes
of defendant I have already discussed.
135. As the majority observe, legitimate expectation may be relevant on the
issue of remedy. It strikes me that it may be relevant in this way. When deciding
what order to make in light of the facts at the present day, considerations of
legitimate expectation should cause the court to go back to the balancing exercise
it has already undertaken when evaluating the scheme itself. The court would
then take account of the parties’ legitimate expectations in a new balancing
exercise and decide whether to maintain its previous view. Considerations
tending to the conclusion that that the scheme is still incompatible might include
the following: (i) the ECtHR was untroubled by this concern in MGN v United
Kingdom; (ii) the legitimacy of an expectation that the Government would
enforce a scheme which breaches the Convention rights of others must be very
limited indeed; (iii) the application of A1P1 to the question of whether a superior
court should feel able to disturb settled case-law is an area where the court should
act with great caution; (iv) as a matter of fact the scheme was heavily criticised
from its inception, so that litigants must have known that there was an issue under
article 6; (v) since it is the court’s duty to act compatibly with the Convention,
the court should not make an excessive costs order which directly infringes a
respondent’s rights, even though this may have a deleterious effect on the
claimant; (vi) it may not have such an effect because the solicitors may not
enforce their rights against the appellants; and (vii) the appellants may have
rights against the United Kingdom. If all these points are borne in mind when
striking a balance between the rights of the parties, the correct conclusion is that
respondents’ article 6 rights are still breached because leaving the scheme in
place is still not proportionate. I would add by way of footnote that it is surely
relevant to observe that a respondent is in no way responsible for any legitimate
expectation that a claimant might have had.
136. The question of what precise order the court should make then arises. It
appears to me to be at least arguable that CPD 11.9 can be read down as
submitted on behalf of the respondents. However, I recognise that Lord
Neuberger and Lord Dyson say that it cannot. If that is correct, the appropriate
remedy would to my mind be to strike down CPD 11.9, which is not of course
Page 48
primary (or even secondary) legislation, as being contrary to the Convention.
There is scope for further argument on these questions and, if it were relevant I
would be willing to receive further argument on them, but I recognise that in
present circumstances there would be no point in such argument because I am in
a minority.
Conclusion
137. For all these reasons, in respectful disagreement with the majority, I
would allow the appeal.