July 22, 2015

Costs & Compatibility: Supreme Court finds Access to Justice Act in line with ECHR

On first inspection, Lawrence and another v Fen Tigers Limited and others (No 2) [2014] UKSC 46 (known as Coventry v Lawrence) is an unremarkable case concerning noise nuisance caused by a motocross track.

However, this apparently routine dispute caught the attention of the litigation world when, following the Claimants' eventual success in the Supreme Court, Lord Neuberger came to consider costs. The Claimants' costs amounted to more than £1m, including a success fee and ATE premium. The Defendants (who were individuals rather than a corporate entity) argued that the requirement to pay the success fee and ATE premium was inconsistent with their rights under the European Convention on Human Rights ("ECHR") - specifically Article 6, the right to a fair trial. In particular, the provisions of the Access to Justice Act 1999 ("the Act") - which meant that such costs were required to be paid if they were reasonable (but not necessarily proportionate) - were, in the Defendants' view, manifestly unfair.

Lord Neuberger expressed great concern at the level of the costs, not least because they significantly outweighed the sums in issue between the parties. The costs hearing was therefore relisted to allow the Court to hear from interested parties, including the Government, and judgment was handed down this morning.

By a majority of 5-2, the Supreme Court has held that the Act's costs regime is compatible with the ECHR. In delivering the leading judgment, Lords Neuberger and Dyson considered the concept of proportionality; firstly as a means of striking the right balance between different types of litigant and secondly as a yardstick by which to measure the total costs incurred by a receiving party, including success fees and ATE premiums. Whilst acknowledging that there were flaws inherent in the regime (which has now been superseded by the Legal Aid, Sentencing and Punishment of Offenders Act 2012 ("LASPO")), Lords Neuberger and Dyson found that the regime was a proportionate, rational and coherent method of achieving a legitimate aim; namely widening access to justice, such that it was not incompatible with Article 6.

It is clear that powerful submissions were made by both sides and the Defendants' position swayed Clarke LJ and Baroness Hale, who produced a strong dissenting judgment, asserting that the regime was disproportionate and discriminatory because it imposed liabilities, far beyond the bounds of what may be reasonable or proportionate, on a specific class of defendants who happened to have been opposed by CFA/ATE-funded litigants.

The judgment will no doubt be welcomed by the Government, as the ruling means that a prospective flood of compensation claims from unsuccessful litigants who have paid out ATE premiums over the years will now no longer be forthcoming. Indeed, the potential sums at stake (some commentators estimated that recoveries could run into billions) had the Supreme Court found the Act to be incompatible with the ECHR may lead some to suggest that this decision is a matter of public policy.

For insurers, who have undoubtedly borne the painful brunt of the costs regime under the Act over the years, there may be some disappointment in this morning's decision. There is now no prospect of recovery from the Government for costs paid out historically to successful claimants, and, going forward, successful claimants with the benefits of CFAs entered into under the former regime will continue to be entitled, in principle, to recover success fees and ATE premiums. That said, there is some comfort to be had from the changes to the CFA regime brought in by LASPO, and, even if not entirely satisfactory, the status quo does at least have the benefit of familiarity. A finding of incompatibility would inevitably have resulted in uncertainty - something that, in these already uncertain economic times, few would have welcomed.