Is the Supreme Court about to change the law as regards the recoverability of ‘pre-Jackson’ CFA success fees & ATE premiums, and will the Government have to pay compensation to those adversely affected by the old regime?
The Supreme Court decision in Coventry and others (Respondents) v Lawrence and another (Appellants) (No 2)  UKSC 46[i] handed down yesterday (23/7/14) may come to have wide-ranging and significant consequences in relation to the recoverability of Conditional Fee Agreement (‘CFA’) success fees and after the event insurance (‘ATE’) premiums. Whilst the ‘Jackson reforms’ abolished the inter partes recoverability of these, as the law presently stands they remain recoverable where the CFA or ATE were entered into prior to the 1st April 2013. As such, huge numbers of ongoing cases may potentially be affected by the decision and the recoverability of many millions of pounds in costs is at stake.
The litigation itself concerned the liability of the operators and landlords of a speedway circuit (the Respondents to the appeal), for nuisance caused to the owners and occupiers of a residential property nearby (the Appellants). In a decision earlier this year[ii] the Supreme Court found in favour of the residents as against the operators of the circuit. However, the matter had to come back before the Supreme Court for consideration of a number of consequential orders including costs. It is the Court’s observations on that costs issue that concern this blog post.
The Appellants cases were funded by way of a CFA, with a 100% success fee, and backed by an ATE insurance policy. Base costs were £398,000, but with an ATE premium of £350,000, and a 100% uplift on the base profit costs, total claimed costs came to £1,067,000. The Respondents had been ordered to pay 60% of those costs. By way of contrast, total damages awarded to the Appellants were modest, amounting to £20,700. Lord Neuberger, who gave the lead judgment of the Court, described these figures as “very disturbing”. He also noted, even in relation to the base costs, and without ATE insurance premium, that to cost almost £400,000 for two citizens to enforce their right to live in peace in their home was “…on any view highly regrettable”.
The Respondents’ argument was that the recoverability of such high success fees and ATE insurance premium amounted to a breach of their right to a fair trial as enshrined in Article 6 of the European Convention on Human Rights, and also an unjustified deprivation of their property contrary to Article 1 of the First Protocol to the Convention. Whilst the House of Lords in Callery v Gray [iii] had previously considered and rejected an argument that such a costs regime infringed Article 10 of the Convention, the European Court of Human Rights had taken a different view in the subsequent case of MGN v UK [iv]. Accordingly, the Supreme Court was now free to revisit the issue.
It is plain from the judgment of Lord Neuburger that the Court had considerable sympathy with the Respondents’ argument. He described the reforms the Access to Justice Act 1999 had made as regards CFAs and ATE as “malign”, and “fortunately repealed and replaced” by those changes introduced by the ‘Jackson reforms’. The Appellants had submitted that a refusal to allow full recovery of their success fees and ATE would amount to a breach of their own Article 6 rights. Whilst the Court did not come to a final view on that latter point, it was “inclined to dismiss” it.
However, the Court said that it might not be sufficient to attempt to disapply the relevant parts of the CPR in line with the Respondents Convention rights, as there was an argument that the primary legislation, namely the Access to Justice Act 1999, was also incompatible. Accordingly, the Court might have to make a declaration of incompatibility. In the light of that it would be appropriate, if the Respondents wished to pursue the point, to allow the Government, and other potential interested parties, to make representations. This was not least given the Government might be liable to pay compensation to parties whose Article 6 rights had been adversely affected by the old regime. The Court also noted that it might be appropriate for those submissions to be heard first by the Court of Appeal, who had the primary supervisory function in relation to costs issues, and possibly with some input from the trial Judge
It remains to be seen whether the Respondents take up the opportunity the Court has afforded them, but given the observations already made by the Supreme Court, until the matter is determined, whether in this case or another, the extent of recoverability of both success fees and ATE premiums in ‘pre-Jackson’ cases must remain in doubt. It may also be that the Government is liable to pay significant compensation to those adversely affected by the previous costs regime. It is to be hoped for all those affected these issues are resolved with a degree of certainty sooner rather than later.
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