The overriding objective of the rules which govern court proceedings is to enable the court “…to deal with cases justly and at proportionate cost". Parties (generally defendants) have long argued that the recovery of additional liabilities (success fees and ATE insurance premiums), as part of the costs process at the conclusion of litigation, is neither just nor proportionate. Coventry v Lawrence now suggests that the Supreme Court may agree.

The Background

In a nutshell, the paying party in Coventry objects to payment of the success fee and ATE premium, being claimed by the successful claimant, on the ground that the regime permitting recovery is contrary to the European Convention on Human Rights (specifically Art 6 - the right to a fair trial and/or Art 1 of the first Protocol).

While the regime (under the Courts and Legal Services Act 1990 as amended by the Access to Justice Act 1999) entitling parties to recover success fees and ATE premiums was put in place with the best of intentions - to widen access to justice by providing funding to other litigation - it was fundamentally flawed and unfair. The costs risk between the parties was skewed with one facing very large additional risks and the other none at all.

LASPO (2012) set aside the old regime as from 1 April 2013. However success fees and ATE premiums for funding arrangements and policies entered into before 1 April 2013 are still recoverable. It is thought that such cases will be with us for up to five years following the implementation of LASPO. Coventry is one of those cases.

S4 of the Human Rights Act 1998 gives the court the power to make a declaration of incompatibility where it decides that primary legislation is incompatible with a Convention right. This, however, does not affect the validity, continuing operation or enforcement of the rules permitting recovery of additional liabilities. Success fees and ATE premiums will still be recoverable following a declaration of incompatibility, pending the Government implementing legislation to remedy the infringement. Of course, if the Government refuses to endorse an adverse judgment, it may be taken to the ECtHR.

However, it appears that the paying party in Coventry may not actually be seeking a declaration of incompatibility but instead will argue for an order limiting the recoverable costs to base costs. The Human Rights Act requires that primary and subordinate legislation be read in a way which is compatible with Convention Rights. Not so much a matter of construction, but destruction and reconstruction. The primary legislation (the 1990 and 1999 acts) does not mandate the recovery of additional liabilities, but rather it is the secondary legislation (the Civil Procedure Rules and old Costs Practice Direction) which precludes the court from considering the proportionality of additional liabilities. It is possible that the court will dis-apply parts of the secondary legislation without needing to make a declaration of incompatibility.

That said, a declaration of incompatibility might still be made and, against that background, the Government is likely to intervene in the proceedings. Other interested parties may also seek to intervene, particularly if the issue heads to the ECtHR.

What next?

The Supreme Court has told the parties that the case needs to be re-listed so that detailed submissions can be heard. The reality is that the hearing is not likely to take place until next year (and not necessarily early in the year) and the practical upshot is that the issue is not likely to be decided for at least 12 months (possibly longer). What should paying parties do in the meanwhile? 

Some have already taken the point and have sought to deal only with the settlement of claims for base costs pending the determination of the issue (putting off the determination of liability for the success fee and ATE premium). Others take the view that is a risky and opportunistic approach and the better way forward is to raise Coventry as part of the negotiating process but continue to deal with all aspects of the costs claim in the meantime. 

The appropriate approach is likely to turn on the facts of individual cases and the amounts at stake. In cases where the additional liabilities are very large, paying parties may want to await the Supreme Court’s determination of Coventry. However, in doing so, they may miss the chance to achieve a substantial discount in negotiations arising out of the uncertainty which currently prevails. 

And what of those who have already settled claims for substantial additional liabilities? The concern for the Government is that it might be liable to damages claims both in the domestic courts and in the ECtHR. That raises the stakes and makes Coventry another, potential, landmark case.