The Supreme Court, in Coventry v Lawrence (No 2)  UKSC 46 has queried whether the recoverability by successful claimants of certain costs, namely success fees and after the event (ATE) insurance premiums, from defendants could breach those defendants' right to a fair trial under article 6 of the European Convention on Human Rights. Though the Supreme Court has yet to reach its decision, having adjourned to allow the government the opportunity to make submissions, such a decision would be a welcome one for professional services firms, who can often find themselves on the wrong end of such costs claims.
The case concerned a claim for nuisance brought by a homeowner against a neighbouring stadium, used for various motor sports. The claimant was successful at first instance and the defendants were ordered to by 60% of the claimants' costs. When the claim reached the Supreme Court, that order was reconsidered.
The claimants' costs, at first instance, were comprised of three components totalling £1,067,000. First, the base fees of £398,000. Second, a success fee, most likely at the maximum allowed level of 100%, of £319,000 and finally, an ATE insurance premium of £350,000. By comparison, the claimants' residential property was valued at less than £300,000 and the value of the nuisance was £74,000.
As the claim pre-dated the Jackson Reforms (under which success fees and ATE insurance are no longer recoverable from the losing party), the defendants were liable for 60% of the million plus fees. The defendants argued that the requirement to pay 60% of the success fees and the ATE insurance premium (on top of the base costs) was a breach of their right to a fair trial and right to protection of property.
Lord Neuberger intimated that it may be that the defendants are right in their contention that their liability for such costs would be inconsistent with their Convention Rights. He suggested that if that were the case, and a Declaration of Incompatibility was made, litigants who had been "victims" of such provisions could find themselves with a claim for compensation against the government.
Such a decision could affect three groups of litigants in particular:
- insolvency litigation where success fees and ATE insurance premiums, in an exemption to the Jackson Reforms, remain recoverable from the losing party;
- current proceedings which have success fees or where ATE insurance arrangements were entered into before 1 April 2013. In those proceedings the litigants are currently in the position that those fees would be recoverable from a losing party. That would change with a Declaration of Incompatibility; and
- any litigants who had previously been "victims" of such provisions and paid out, as a losing party, the other party's success fees and ATE insurance premiums. Lord Neuberger said such litigants could find themselves with a claim for compensation against the government.
For now, we can only await judgment. The hearing will need to be relisted and the government given the opportunity to make submissions.
One also suspects that, with the Jackson Reforms ending this problem, the Supreme Court may be reluctant to make a declaration that could generate a litigation industry in itself and potentially cost the government billions of pounds in compensation. Lord Neuberger's views could be good news for professional firms and their insurers, but it is too early yet to start celebrating.