Almost exactly one year ago, the Supreme Court lobbed a grenade into the world of costs and funding. In Coventry v Lawrence (No 2) [2014] UKSC 46.

Lord Neuberger indicated he had sympathy with the defendant’s view that the system of costs and funding implemented by the Access to Justice Act 1999 was potentially incompatible with the Human Rights Act 1998, and particularly the defendant’s rights to a fair trial under Article 6 of the European Convention on Human Rights. He invited the parties to the action, the secretary of state and other interested parties to make submissions and a full hearing was held in February 2015.

As chair of the Law Society’s Civil Justice Committee I was involved with the Law Society’s intervention. We worked closely with the Bar Council; whilst both submissions dovetailed, the Law Society with its barrister Kieron Beal QC led on the human rights and European aspects, whilst the Bar Council team led by Nick Bacon QC led on costs law and practical consequences. As a demonstration of successful collaboration between the professions, it was exemplary. The decision of the Supreme Court has been handed down today. 

There are three separate judgements. The majority judgement was given by the President of the Supreme Court (and previous Master of the Rolls) Lord Neuberger and the current Master of the Rolls Lord Dyson (with whom Lord Sumption and Lord Carnwath agreed). 

The claim was in respect of noise nuisance against the owners and operators of a speedway track. There was an 11 day trial. Damages were £20,000. The value of the claimant’s house was £400,000 and the diminution in value (if no injunction) was a maximum of £74,000. The judge ordered the defendant to pay 60% of the costs.  There had not yet been any detailed assessment. The liability to pay base costs, subject to assessment, was not disputed. However, liability to pay 60% of an after the event insurance premium (maximum of £183,000) and 60% of the success fee (maximum of £129,004), albeit subject to assessment, was disputed in principle. The base costs of the appeals exceeded £300,000, with further success fees of £163,885 and further ATE premiums of nearly £200,000 (again all subject to assessment). On any reckoning the base costs and the additional liabilities are huge. 

The original line that the primary and secondary legislation should be declared to be incompatible with the Human Rights Act 1998 was not really pursued. This was largely because this remedy would simply pass the ball back to the government to decide what do generally, but would give no remedy whatsoever to the individual defendant in this case. The court also did not feel the need to construe the statute to replace the word “may” with “must”.

The majority judgment stresses that government has a wide ambit of discretion when establishing a system for access to justice and that individual hard cases are not fatal to this. 

Although the answer to the question “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?” must be “yes”, the issue was instead whether the government’s choice was a “proportionate” one. (Proportionality in this context is derived from interpretation of European law, rather than costs law, namely striking the balance “between the importance of the objective pursued and the value of the right intruded upon”). 

The majority declined to consider themselves bound by the judgement of the European Court of Human Rights in MGN Ltd v United Kingdom (2011) 53 EHRR 195 (the Naomi Campbell case). In this case the European court had declared the Access to Justice Act 1999 funding regime incompatible with article 10 rights to freedom of speech. In Coventry the majority held that this decision related only to the interplay between the article 6 right to a fair trial and the right to free speech, thus distinguishing MGN.

A key feature of the submissions of the Law Society and the Bar Council was that no system of access to justice was perfect and there would always be winners and losers. The majority accepted this view and drew attention to the fact that a number of litigants were potentially losers in the new Jackson regime. They said this was not to criticise Jackson, but “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”. 

Revising the Costs Practice Direction does not require a declaration of incompatibility. As it does not count as primary or secondary legislation, the Supreme Court were entitled to ‘read down’ its provisions (i.e. remove or re-write them) to make them compatible with Convention rights, if necessary. The key provisions of the old Costs Practice Direction were:

“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.
11.9    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.”

I was part of the working group convened in 1999 to assist the Rules Committee in preparing the draft of the Costs Practice Direction. I remember keen debate about the extent to which proportionality to the issues should apply to the success fee as opposed to proportionality to the risk run by the lawyer as it reasonably appeared to them at the time. As the Supreme Court say, if the former “this would have been likely to discourage them from entering into CFAs”.

The majority, relying upon the definition of proportionality in Home Office v Lownds [2002] EWCA Civ 365, and following a similar approach of the Court of Appeal towards ATE premiums in Rogers v Merthyr Tydfil County Borough Council [2006] EWCA Civ 1134, held that it was “necessary” for the success fee to be considered as provided for by CPD paragraph 11. They felt that even if they were wrong about this, it was not possible to simply read down the provisions of paragraph 11 by inserting a requirement to take into account the amounts in issue and financial circumstances of the parties. This would fundamentally change the role of the court in the assessment process and would, they felt, require a complete rewriting of the rules. In so far as CPD 11.1 suggested that the financial position of the parties should be taken into account on assessment, this went further than the rules provided and should be struck down. 

Finally, these arguments had never been raised in 14 years despite significant challenges in other respects. Therefore “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”.

Lord Mance (with whom Lord Carnworth agreed) begin by saying “this is an awkward case”. They agreed with the analysis of the majority. They noted that “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.”

The minority (Lord Clark, another former Master of the Rolls who had appointed Jackson, and Baroness Hale) felt that distinguishing MGN Ltd v United Kingdom was splitting hairs and that the same principles should apply here. They felt that CPD paragraph 11 could be read down so that:

“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).”

It seems likely that the losing defendants will now take the case to the European Court of Human Rights fortified by the trenchant views of the minority. However, even the minority accept that where a class of defendants can spread the risk through insurance this is less likely to require correction. So it would seem that even if the European Court of Human Rights intervened, any revision may only be applied to uninsured small businesses (and indeed all members of the court pointed out that this was not yet actually determined on the facts here). The MGN case took more than five years to be determined by the European Court of Human Rights, so don't hold your breath. By the time the case is decided there will be only a tiny number of pre-Jackson cases still in the litigation system.

The Supreme Court has made a sensible pragmatic decision. It has rejected the wilder fantasies of some commentators, applied article 6 rights in a British context and rejected arguments that it was bound by the decision of the European Court of Human Rights in MGN. It would have been ludicrous for the courts to be clogged up with satellite litigation about a regime that has already been repealed. Thankfully the Supreme Court saw the sense in this.