Last week the Supreme Court heard further submissions on whether the pre-Jackson reforms costs regime infringed provisions of the European Convention on Human Rights. National head of costs, Paul Edwards, was watching.

An all-star cast of barristers and judges

Underlining the importance of the issues under consideration, submissions were heard by a panel of seven Supreme Court justices, with the President, Lord Neuberger, at the helm. The hearing was conducted by no less than 23 advocates representing the parties and a number of interveners. During the tightly timetabled hearing written submissions were supplemented by oral argument focused on discreet issues allowing the justices to interrogate the advocates, something they did not shy away from doing!

The appellants’ submissions – fighting their own case

Apart from where necessary to achieve their own favourable result, the appellants kept their submissions as narrow as possible. In this case, additional liabilities alone are worth more than the value of the diminution claim and the legal fees overall amount to more than the value of the property.

Submissions included that:

  • the pre-Jackson system was ‘fundamentally flawed’ and ‘grotesque’ bringing about an entirely unfair situation in which paying parties were responsible for the costs of other failed claims;
  • a new ‘scheme’ needs to be implemented (to cover pre-Jackson run off) because the old regime was unfair. Any order that allowed recovery of any additional liability by way of a success fee or the after the event insurance (ATE) premium would be in breach of article 6 of the European Convention on Human Rights (ECHR), and accordingly, unlawful; and
  • if the receiving party wishes to recover any sum for additional liabilities then its rights could be exercised against the Government or by taking the case to the European Court of Human Rights in Strasbourg.

Grappling with these points the justices queried how they are supposed to resolve an issue where both sides are saying that a negative judgment would infringe their own (separate) human rights. Lord Mance commented that, in theory, the Supreme Court was ‘stuck between a rock and a hard place’. Lord Carnwath observed that perhaps the Supreme Court is able, if there is conflict between two potential breaches, to actually use its discretion to make an order that resolves the dispute.

The appellants didn’t accept this arguing that their case is essentially ‘all or nothing’. They concluded their submissions by reiterating that the pre-Jackson regime showed no consideration for defendants, particularly those described as ‘ordinary non rich’ - it is inconsistent with both the Convention and rules of natural justice to say that where there is only a small prospect of success, those whose livelihoods are at stake can only defend themselves by using a system which puts them at risk of paying not only their opponent’s costs, but the costs of other claims too (via the principles underpinning the calculation of success fees and ATE premiums).

In the alternative, if additional liabilities are to be recovered, then a far more complex test is needed. This should, the appellants submitted, include consideration of whether it was reasonable for the receiving party to have signed a conditional fee agreement and taken out ATE insurance, set against an assessment of the paying parties’ finances. 

A wider picture articulated by the interveners

Media Lawyers Association – their members still affected by the old regime

Challenges to recovery of additional liabilities were supported by the Media Lawyers Association which represents a large number of small regional newspapers who post enactment of the Legal Aid Sentencing and Punishment of Offenders Act 2012 (LASPO) remain liable, if sued in defamation, to having to pay substantial success fees and ATE premiums. Reference was made to the freedom of speech implications.

The ATE providers – standing up for their product

The ATE providers in this matter, Burford Capital, submitted that the pre-Jackson regime incorporated sufficient mechanisms to deal with the quantum of costs and these were appropriate remedies. The costs judge would always assess whether fees claimed were necessary, proportionate and reasonable so that, in principle, appellants are entitled to recover the ATE premium in so far as it is necessary and reasonable. They put the pre-Jackson regime into context, stating that the Access to Justice Act 1999 was intended to make access to justice more readily available in light of the withdrawal of public funding in many areas. It was necessary for claimants of modest means to enter into CFAs and purchase ATE if they were to have any chance of pursuing meritorious claims, but both the Act and the Civil Procedure Rules gave the same assistance to both sides. Given that in this case both sides had been able to bring their case, there had been no access to justice problem. The level of costs claimed is simply a reflection of the overall complexity of the matter.

It was argued that both old and new regimes are reasonable. While the old regime arguably penalised defendants slightly, the new one does the same for claimants however both fall within a reasonable ‘margin of appreciation’.

The ATE provider also submitted that the court should be cautious in making any order that undermines a system that has been in place for thirteen years without any acknowledged ECHR breaches. If the additional liabilities are disallowed, then the claimants themselves would be left to pay them potentially despite them having had an expectation that if they were reasonable in amount they would not need to. Another intervener, the Law Society, echoed many of these sentiments, arguing that to deny the claimants their additional liabilities would be a breach of their human rights.

The ATE providers concluded by discussing remedies - if one is needed it should be left in the hands of Parliament to give guidance. Otherwise, orders should be made as normal.

The Government – no evidence that justice has been stifled

The barrister representing the Secretary of State for Justice spent quite some time going through the history of the various consultations on costs, highlighting the Government’s objectives and how perceived flaws in the pre-Jackson regime were dealt with. He submitted that given this case had been fully contested there was no evidence that justice had been stifled. If there were any flaws, then it was suggested the Supreme Court should give guidance to the courts as to what to do. 

Lord Mance suggested that to do so could be to ‘shoot the whole regime in the foot’ and risk opening up the ‘costs wars’ again, something that Sir Rupert Jackson wanted so much to avoid. He also commented that statistically our civil justice system is either one of the most or potentially even the most expensive costs regime in Europe - Strasbourg would not be impressed.

The Law Society and Bar Council – on behalf of the professions

The Law Society and Bar Council took similar stances splitting submissions on European law and costs law between them. Their view was that the appellants were focused solely on one narrow view, whereas the Law Society is taking a wider public view, a view which ultimately includes the proposition that its members want to get paid for the work reasonably done. It was submitted that in this case these issues are being raised prematurely given that no detailed assessment has taken place and no findings on proportionality have been made.

It was submitted that the pre-Jackson regime was capable of getting fair results in most cases. Proportionality had been defined by the leading case of Lownds -v- Home Office (2002) and, the Law Society said, was a safeguard against excessive success fees and ATE premiums. This is a rather surprising submission as the principle of proportionality has no bearing on additional liabilities.

Nicholas Bacon QC, acting for the Bar Council, focused on  costs law, stating that where the rules allow for the recovery of  ‘costs’  that includes a prima facie entitlement to additional liabilities. He reiterated that on the premise that there is an entitlement to costs then if the rules are properly applied any excessive and disproportionate additional liabilities should be disallowed. It was said that the appellant was seeking to strike down the whole regime based on one result and argued that on detailed assessment the costs judge who assesses this bill will be concerned at its level and, with the right direction, will reduce the costs claimed. Lord Neuberger commented that the costs judge will not be able to adjust base costs because they know that additional liabilities will be added.  

What next?

There is no current indication of when a judgment will be available and, after so much legal argument, it is very difficult to predict an outcome. There may yet be further evidence on one point raised within a number of submissions regarding whether the parties had the benefit of before the event and/or public liability insurance.

Those who suggest that the appeal will simply be dismissed out of hand are likely to be disappointed, as it is clear that the justices of the Supreme Court have the bit between their teeth on these fascinating issues and will properly consider what can and should be done to combat what are acknowledged to be high legal costs. Much may hinge on analysis of the consideration given to the rights of paying parties when the Woolf reforms and the Access to Justice Act were introduced.

All parties noted that the implications of a finding of incompatibility could be significant, with the Government facing a potentially huge bill from parties in other cases who had paid additional liabilities. However, upon questioning by Lord Neuberger, it seemed to be accepted that any decision made in this case would not impact claims that have already been settled, only those that remain in the system. While there are still a considerable number of these filtering through if already settled cases are not affected then the Government will certainly breathe a sigh of relief.

Even if this particular challenge is dismissed I think we can still expect strong words of concern about the level of costs within the judgment with direction to costs judges to be firmer on the quantum of success fees and ATE premiums going forwards. If there is merit in the challenge that the recovery of such additional liabilities breaches European law, then a very carefully worded solution will be required to avoid substantial satellite litigation.