UKSC 2012/0076
IN THE SUPREME COURT OF THE UNITED KINGDOM
ON APPEAL FROM THE COURT OF APPEAL (CIVIL DIVISION)
[2012] EWCA Civ 26
BETWEEN:
(1) DAVID MITCHELL COVENTRY T/A RDC PROMOTIONS
(2) MOTO-LAND UK LTD
(3) TERENCE RAYMOND WATERS
JAMES EDWARD WATERS
Respondents/Defendants
- and (1) KATHERINE LAWRENCE
(2) RAYMOND SHIELDS
Appellants/Claimants
- and –
(1) THE SECRETARY OF STATE FOR JUSTICE
(2) THE LAW SOCIETY OF ENGLAND AND WALES
(3) THE GENERAL COUNCIL OF THE BAR
(4) THE ASSOCIATION OF BUSINESS RECOVERY PROFESSIONALS
(6) BURFORD CAPITAL
(7) ASBESTOS VICTIMS SUPPORT GROUP FORUM UK
(8) THE ASSOCIATION OF COSTS LAWYERS
Proposed Interveners
WRITTEN SUBMISSION ON BEHALF OF
THE ASSOCIATION OF COSTS LAWYERS
The Association of Costs Lawyer and the basis for seeking permission to intervene
1. The Association of Costs Lawyers (‘the ACL’) is the representative body for Costs Lawyers.
The ACL was founded in 1977 (as the Association of Law Costs Draftsmen) to promote the
status and interests of its members.
2. The ACL pioneered professional development for its members and its work was central to
the elevation of law costs draftsmen to the status of qualified lawyers. Qualified,
regulated law costs draftsmen (under the Legal Services Act 2007) are now given the title
Costs Lawyer.
3. Until October 2011, the ACL both represented and regulated its members. In 2007, the
organisation was appointed as a statutory authorised regulator under the Legal Services
Act. As part of its compliance with the requirements of the Act, the ACL delegated its
regulatory work to the newly-formed Costs Lawyer Standards Board.
4. The ACL is now a solely representative body, promoting the interests of Costs Lawyers to
the legal profession, the Government and the public and is run by an elected Council with
the assistance of executive and administrative staff.
5. Its members are intimately involved in the day to day process of costs recovery of all kind,
but in particular between the parties costs recovery in litigation. Both in its members and
in its Council it has an unparalleled body of expertise and experience in the day to day
process of costs assessment.
6. In respect to the instant case, ACL members have been at the forefront of the assessment
of and advice and arguments in relation to the between the parties recovery of Success
Fees and ATE premiums (‘additional liabilities’) throughout the time of the impugned
regime under s. 58 Courts & Legal Services Act 1990.
7. In seeking permission to intervene, the ACL seeks to serve two main purposes;
a. To make available to the court its expertise and experience in relation to the main
subject matter of the argument, namely the between the parties recoverability of
additional liabilities. In particular, the ACL seeks to assist the court with its
expertise and experience in relation to the workings of both the primary and
secondary legislation and, perhaps equally importantly, the related secondary
legislation and guidance (such as that relating to the approach to proportionality
and to the notification to an opponent of the use of funding arrangements of this
type) and its practical application to assist the court in ensuring that all relevant
aspects of the regime are properly considered when deciding whether or not it
interferes with and, if so, it is a legitimate interference with, parties rights under
Article 6 of the Convention (or Article 1 of the First Protocol);
b. To represent the interests of its members, in so far as those interests are put in
issue by the matters raised by the issues before the Court. Those members have
acted in assessments relating to the recoverability of additional liabilities (for both
paying and receiving parties), have drafted Bills of Costs, Points of Dispute and
Replies concerning these issues, have provided advice on those issues, including
whether such liabilities should be sought, paid or disputed and, if so, in what sums,
countless times. The issues raised in this case have potentially very significant
implications for a substantial number of those members.
8. For the avoidance of doubt, ACL members act for both paying parties and receiving parties
(and a wide range of interested parties, such as insurers) and its members represent both
‘sides’ of the debate. The ACL has no particular ‘Claimant or Defendant’ stance (though,
as seen below, the ACL submits that the Claimant/Defendant divide is erroneous). The
ACL does not seek to intervene on behalf of any particular party or faction, but rather for
the reasons indicated.
The issue the ACL seeks to address
9. The background to this case and the judgments to date is set out elsewhere in detail and
is not repeated here. The court’s judgment on the substantive issues is recited at [2014]
UKSC 13, [2014] AC 822, SC.
10. Issue 9 in the appeal concerned the issue of whether or not the Appellant’s ability to
recover a success fee under its CFA and/or an ATE premium constituted a
disproportionate interference with the Appellants’ rights under Article 6 and/or under
Article 1 of the First Protocol (‘the Protocol’) of the European Convention of Human Rights
(‘the Convention’)
11. As the ACL understands it, the issue is now pursued by the First Respondent only.
12. By way of supplemental judgment [2014] UKSC 46, [2014] 3 WLR 55 the Court dealt with
a number of issues consequential on the first judgment. At [32] to [43] Lord Neuberger
rehearsed some of the arguments and directed a further hearing to provide for the
opportunity for the Secretary of State for Justice to intervene on what was rightly
identified as an important issue.
13. It is this issue that the ACL seeks to address. In particular, the issue in relation to the
asserted infringement of Article 6 (the ACL respectfully agrees with Lord Neuberger’s
provisional indication at [39] of [2014] UKSC 46 that the Protocol point does not take
matters any further (and indeed submits that the Protocol point is flawed in any event)).
ACL’s position / concerns
14. The ACL does not seek to advocate for any particular party in these proceedings. Nor does
the ACL seek to advocate for or against the recoverability of additional liabilities per se or
to argue that the pre Jackson regime was better (or worse) than the post April 2013
regime.
15. However, having carefully considered the submissions of all other parties and interveners,
the ACL’s broad position is that it is concerned that the submissions made on behalf of
the Respondents arguably fail to properly reflect the workings of the pre Jackson regime
and, in particular, arguably fail to recognise two key factors, namely:
a. That the pre Jackson regime was neither a Claimant, nor a Defendant scheme
exclusively, but was an attempt to provide funding mechanisms to all potential
parties to civil litigation with a view to enhancing access to justice generally
(whether or not it ultimately succeeded in that aim). The scheme was available to
and was used by Defendants and indeed the availability, inter alia, of ATE
insurance to Defendants was one of the factors which provided a means by which
such Defendants could, where appropriate, seek to mitigate the effects of
between the parties recoverability of additional liabilities; and
b. That the scheme contained a number of checks and balances, in particular by way
of notification requirements and by way of limitation on the sums that could be
recovered from an opponent by way of additional liabilities, the proper operation
of which, the ACL respectfully submits, this court ought to be fully aware of when
reaching its decision and the effective consequence of which was a scheme which,
whilst flawed, was a legitimate means of seeking to achieve a legitimate objective.
16. In consequence, the ACL’s submission overall is that the pre Jackson regime in relation to
the potential between the parties recoverability of success fees and/or ATE premiums was
(and in so far as it continues in operation is) compatible with Article 6 ECHR.
17. Further, that in the event that the Court had residual concerns that the practical
application of that regime had the potential to cause consequences that would prima facie
conflict to an unacceptable degree with another party’s rights under Article 6, that the
same does not arise from any fundamental incompatibility on the part of the primary
legislation, but would rather be likely to be a consequence of either the implementation
of that regime through secondary legislation or, more likely, as a consequence of the
interpretation by individual or appellate courts of how the regime and the wider regime
for assessing costs under the Civil Procedure Rules should be implemented.
18. Accordingly, that the regime as a whole is and was one which was not inherently
incompatible with Article 6 and that to the extent that the regime gave rise to the
potential for any infringement the same could and should be addressed by a proper
application, on a case by case basis of the existing secondary legislation and accompanying
caselaw.
A process point
19. The position reached to date, as summarised by Lord Neuberger at [32] is that an award
of costs in principle has been made, but there has been no assessment of those costs.
Objection is taken to payment of the success fee and ATE premium. However, until the
conclusion of any assessment, by order or agreement, it is not yet known whether and, if
so, to what extent either a success fee or an ATE premium, or both, will be payable.
20. The sums claimed – at least at first instance – in relation to these items appear known.
However, a fundamental part of the balancing process which, the ACL submits, is material
to the consideration of whether the overall effect of the pre Jackson CFA/ATE regime is or
is not compatible with the Article 6 right, is the courts’ ability to control the recoverability
of additional liabilities through the relevant secondary legislation, that is to say the
provisions of CPR 43 to 47 as in force at the material time.
21. What the effect of those provisions would be in the instant case is not presently known
and, accordingly, whether the Respondents here would be liable to pay the additional
liabilities at all, let alone in the sums claimed, is unknown.
22. It would appear to follow, therefore, that the issue before this Court is one of whether
the potential liability to pay such sums in principle is sufficient to amount to an unjustified
infringement of an opponent’s rights under Article 6.
The impugned regime
23. The Secretary of State of Justice has set out the details of the scheme and its history in its
submissions dated 16th December 2014 and they are not repeated here. The ACL accepts
and respectfully adopts that recitation.
24. By way of brief summary and submission, however, the ACL makes the following
submissions.
25. The ability to recover an additional liability1 from an opponent was not unfettered.
1
As defined at CPR 43.2(1)(o) of the pre amendment rules. All references hereafter to the CPR will be to the pre
April 2013 rules which, pursuant to CPR 48.1 of the current rules, continue in application in relation to the
assessment of additional liabilities in relation to funding arrangements entered into prior to 1 st April 2013.
26. Firstly, an additional liability is an element of costs2 and is subject to the same principles
of assessment as any other element of costs. Accordingly:
a. Costs which were unreasonably incurred or which are unreasonable in amount will
not be allowed (CPR 44.4(1));
b. Accordingly, a success fee and an ATE premium will only be allowed to the extent
that they were both reasonably incurred and are reasonably in amount, having
regard to the factors set out at CPR 44.5(3)) – the approach to the assessment of
the reasonableness of success fees was clarified over a succession of cases – see,
in particular U v Liverpool City Council [2005] EWC A Civ 475, [2005] 1 WLR 2657
and the cases considered therein and in relation to ATE premiums, Rogers v
Merthyr Tydfil CBC [2006] EWCA Civ 1134, [20078] 1 WLR 808;
c. On the standard basis, any doubt in this regard operates to the benefit of the
paying party (CPR 44.4(2)(b));
d. On the standard basis, only costs which are proportionate to the matters in issue
will be allowed (CPR 44.4(2)(a))3 (the test of proportionality at the material time
being that espoused in Lownds v Home Office [2002] EWCA Civ 365, [2002] 1 WLR
2450, the continued application of which is preserved by CPR 44.3(7) of the post
amendment rules);
e. The proportionality limitation applied to additional liabilities in addition to base
costs.
27. It is this latter point which might require some further consideration and which is the
subject of some misunderstanding.
Application of the proportionality test to additional liabilities
2
As defined at CPR 43.2(1)(a) of the pre amendment rules
The test of proportionality has been redefined post Jackson with the deliberate intention of making it more
robust – see CPR 44.3(2)(a) – however a test of proportionality applied both pre and post Jackson
3
28. Firstly, CPR 44.4(2)(a) did not disapply the proportionality criterion in the context of
additional liabilities. It applied to all ‘costs’, an expressly defined term which expressly
included additional liabilities (see CPR 43.2(1)(a)).
29. Secondly, CPR 44 PD 11 contained two pieces of guidance of relevance. Firstly, CPR 44 PD
11.5 provided that in deciding whether the costs are reasonable and (if relevant)
proportionate the court will consider the amount of any additional liability separately
from the base costs.
30. This did not disapply the proportionality criterion, but rather serves to confirm that the
additional liabilities must be judged by that criterion, albeit separately from the base
costs.
31. CPR 44 PD 11.9 provided that a percentage increase (success fee) will not be reduced
simply on the ground that, when added to the base costs which are reasonable and (where
relevant) proportionate, the total appears disproportionate.
32. A number of points may be made in relation to this guidance:
a. It only applies to the success fee;
b. It does not prohibit an assessment of whether it was proportionate to incur the
success fee or whether the success fee per se is a proportionate expense.
33. Accordingly, the criterion of proportionality applies, as a matter of principle, to both the
success fee and ATE premium subject only to the guidance indicated above. Nothing in
the primary legislation, nor in the secondary legislation itself (that is to say the CPR, as
opposed to the PD) places any fetter on the application of the proportionality test and the
only limitation is the modest one in the guidance provided by the PD.
34. The Court of Appeal expressly considered the application of the proportionality test to
ATE premiums in Rogers v Merthyr Tydfil CBC (supra) at [102] – [105], the effect of which
was to conclude that the cost of an ATE premium was a proportionate expense if it was a
necessary expense. This was no more than a reflection of the Lownds approach to
proportionality, and accordingly serves to confirm that ATE premiums were subject to the
same test of proportionality (however effective or ineffective that was) as all other
aspects of costs4.
Notification requirements
35. The second fetter on recovery was provided by CPR 44.3B and associated provisions,
(under the express heading ‘Limits on recovery under funding arrangements’).
36. This rule, and the associated provisions under CPR 44.15, CPR 44 PD 19 and CPR 47 PD 32
and paragraph 9.3 of the Practice Direction – Pre Action Conduct5 provided a strict regime
of notification with the practical effect that a party (whether Claimant or Defendant)
seeking to use a funding arrangement which exposed an opponent to the risk of paying
an additional liability was required to notify the opponent of that risk ‘as soon as possible’
and in any event pre issue.
37. In default, the party using that funding arrangement was prima facie prevented from
recovering that additional liability on success, even if that additional liability was
otherwise prima facie both reasonable and proportionate.
38. Accordingly, a Defendant was, at all times, on notice of the existence of any form of
funding arrangement which would expose it to such a liability. Accordingly, it was able to
fully take such potential exposure into account both (i) when deciding on what approach
to take to the litigation and (ii) when deciding whether and, if so, to what extent, to use
such funding mechanisms itself (for example, by way of taking out ATE insurance to cover
the potential exposure).
4
Reference is made below to cases which illustrate that the test of proportionality can be robustly applied to
the assessment of ATE premiums.
5
Page 2616 of the 2013 White Book Volume 1
39. The importance of such prior notification was recognised firstly by progressive
strengthening of the notification requirements and secondly by the draconian sanctions
that attached to failures to comply, absent relief from sanctions being granted.
40. The ACL submits that these fetters are important aspects of the Court’s consideration of
the balance struck by the impugned regime and whether or not that regime went beyond
what was necessary and proportionate to achieve the legitimate aim of promoting access
to justice.
The four factors identified by Lord Neuberger
41. Four initial points were identified by Lord Neuberger in his second judgment, at [37]. The
ACL’s response to these in general is that, on closer examination and consideration, those
legitimately raised points can be seen not to result in the outcome that the impugned
regime is incompatible with the Convention:
(1)
That the Claimants had no ‘interest’ in the level of costs, whether base fees or additional
liabilities
42. This is incorrect, as a matter of generality. It is undoubtedly correct that, particularly
within the personal injury field, a form of Conditional Fee Agreement developed 6,
colloquially known as a CFA ‘lite’ under which a solicitor would agree to limit some or all
of the costs payable by a client (whether Claimant or Defendant) to the solicitor such that
the client would have no liability (save in certain specified circumstances) for any
‘shortfall’ between what was recovered from an opponent and what would otherwise be
6
And indeed its use was recognised by a relatively short lived set of amendments to the CFA Regulations 2000
(SI 2000 No. 692) introduced by the Conditional Fee Agreement (Miscellaneous Amendment) Regulations 2003
[SI 2003 No. 1240], the 2000 Regulations as a whole being revoked by the Conditional Fee Agreement
(Revocation) Regulations 2005 (SI 2005 No. 2305). The CFA lite provisions were, apparently, relatively little used
(at least intentionally), at least during the lifetime of the Regulations – see at Jones v Wrexham Borough Council
[2007] EWCA Civ 1356, [2008] 1 WLR 1590 at [9].
payable under such the agreement. Indeed, such agreements persist post Jackson7. Such
agreements do serve to limit the ‘interest’ the client has in the costs being incurred.
43. However, this is not inherent in the CFA regime and, in so far as a standard form of CFA
could be said to have existed, this was not the standard form8. As far as the ACL is aware,
it was not the form of CFA in use here.
44. Absent such express provision, which was absent in the majority of CFAs in the ACL’s
experience, the client had a direct interest in not merely the base costs, but also the
success fee payable under any CFA, namely that, to the extent that such costs were not
recovered from an opponent the client was contractually liable to pay any shortfall.
45. Indeed, the use of a ‘standard form’ CFA gave the client an enhanced interest over that
where a conventional retainer was used. The client’s liability for any shortfall under a CFA
would not merely be for any shortfall in the base costs, but would be for those base costs
plus a success fee on those base costs at whatever percentage the client had agreed to.
46. Moreover, as far as the success fee itself was concerned, whilst as a matter of generality
it might be correct that, where the success fee was disallowed or reduced on a between
the parties basis the reduced success fee would also apply on a solicitor-client basis, this
was not the automatic consequence of any mandatory contractual or regulatory
provision. The Law Society model CFA provided that this would be the case ‘unless the
court is satisfied that it should continue to be payable9’. Other CFAs did not and such a
provision was certainly not mandatory (at least following revocation of the CFA
7
For example, a solicitor in a low value claim may agree not to charge the client any more by way of base fees
than the sum recovered (if any) for such fees from an opponent. Such an agreement is a species of Conditional
Fee (because part of the fees are only payable in specified circumstances) and may exist regardless of whether
or not any success fee is payable at all under the agreement.
8
For example, the Law Society standard form was not a CFA ‘lite’, nor were the standard form CFAs produced
by PIBA / APIL for use by counsel.
9
Accordingly, it was possible that a court could decide on a between the parties basis that the success fee was
unreasonable and reduce it accordingly, but the same court could hold that, in light of what had been discussed
between solicitor and client and the client’s express agreement to that success fee, the full success fee remained
payable by the client.
Regulations 2000 in November 2005). Accordingly, the client had a contractual ‘interest’
in ensuring the success fee was set at a reasonable and proportionate level.
47. It is undoubtedly correct, as a matter of general experience, that in the field of lower value
personal injury claims (commonly the front line of between the parties satellite costs
litigation) the market forces at work in that area seem to have led to a position whereby
either model agreements were commonly used which limited the Claimant’s interest
under such agreements or, perhaps more commonly, it simply became an accepted
practice that solicitors would routinely, though not invariably, insulate Claimants from any
liability which might have contractually existed under a CFA agreement (whether in
relation to base costs, success fees or otherwise), and such practices appear to persist
post Jackson. However, the development of such practices does not detract from the fact
that the CFA regime generally does give a CFA client an interest, indeed an enhanced
interest, in the costs (both base and success fee) being incurred under the CFA.
48. A similar position applies in relation to ATE insurance. Recovery of ATE premiums in full is
not ‘guaranteed’ (though the guidance developed through the cases of Rogers v Merthyr
Tydfil (supra) and Kris Motor Spares Ltd v Fox Williams LLP [2010] EWHC 1008 (QB), [2010]
4 Costs LR 620 at [46] has effectively required challenges to the quantum of such
premiums to be brought on a properly founded basis).
49. The judgments in Kelly v Black Horse Ltd (SCCO, 27th September 2013, Chief Master Hurst)
and Redwing Construction Ltd v Wishart [2011] EWHC 19 TCC are robust examples of the
application of the proportionality test to claims for ATE premiums.
(2)
That Defendants had no say in relation to the costs incurred.
50. As an overarching point, the ACL is concerned that this concern carries within it the
assumption, which is arguably present through the Respondents’ submissions, that the
CFA / ATE funding regime was a facility available to Claimants which only visited harm on
Defendants.
51. For two reasons, this is incorrect. Firstly, the CFA / ATE funding regime was available to all
litigants (save in those areas expressly excluded under s.58(3) CLSA 1990). CFAs10 and/or
ATE insurance could be, and indeed were, utilised by Defendants to claims 11 and, almost
certainly, allowed some claims to be fought, in circumstances where they otherwise could
not have been, just as they allowed some claims to be brought in circumstances where
they otherwise could not have been.
52. Secondly, ATE itself provided a valuable potential benefit to Defendants in that it provided
a route by which a successful Defendant could look to recover its costs in cases where,
often, the Claimant himself was, if not a man of straw, then one certainly who did not
possess the resources to meet a substantial adverse costs liability. That was an
improvement for Defendants over the public funding system which, as a matter of
generality, placed very substantial restrictions on the ability of Defendants to seek to
recover adverse costs (and where, often in any event the losing Claimant had no funds
with which to meet any such liability).
53. It could be said to be an improvement (at least in isolation) on the post Jackson regime
whereby, as a quid quo pro for the non recovery of ATE premiums in the personal injury
field, Defendants have had to surrender the right to recover adverse costs save in very
limited circumstances. Whether that is a good bargain will be tested over time. However,
the point illustrates firstly that it is overly simplistic to categorise the impugned scheme
as a ‘Claimant’ scheme or to adopt an Orwellian approach of ‘old regime bad, new regime
good’ for Defendants. Both regimes seek / sought to achieve a balanced method of
enhancing access to justice, the very Article 6 right on which the Respondents seek to rely.
Which regime comes closer to that aim is, in the ACL’s submission, difficult to assess even
if there was any clear conclusion as to the correct point from which the assessment should
be conducted.
10
Unlike, for example, the Damages Based Agreements scheme introduced as part of the Jackson reforms
which, as a matter of practice, is only available as a funding method to Claimants (or possibly Defendants with
a substantial counterclaim) – see the DBA Regulations 2013 [
].
11
See Sousa v LB Waltham Forest [2011] EWCA Civ 194, [2011] 1 WLR 2197 GCC v Evans [2008] EWCA Civ 21,
[2008] 1 WLR 1883
54. Those general points aside, the ACL submits that there are three further, and specific
reasons why it is wrong to consider that Defendants has no say about the costs under the
old regime.
55. Firstly, Defendants, as potentially paying parties, retained at all times the ultimate remedy
of detailed assessment12. The purpose of detailed assessment, as set out at above was to
ensure that any costs liability imposed on a losing party, including any liability to
additional liabilities, did not exceed such sum as was both reasonable and proportionate
(on a standard basis assessment).
56. Secondly, additional liabilities were vulnerable to precisely the same costs shifting process
as base costs (prior to the Jackson reforms). Accordingly, a Defendant was not only able
to challenge the reasonableness and proportionality of any liability to costs, but was able
to mitigate any potential liability to additional liabilities just as easily as with any potential
liability to base costs (for example, by use of Part 36 or without prejudice offers,
admissions etc).
57. Thirdly, it was an inherent part of the impugned secondary legislation that a potential
paying party, whether Defendant or Claimant, had to be given express notice at an early
stage of any proceedings that it was potentially liable for either a success fee or an ATE
premium.
(3)
That proportionality played no part under the old regime
58. For the reasons addressed above, this is incorrect.
59. It is only right that the ACL acknowledges that there is a concern as to whether, post
Lownds, the question of proportionality was approached in a sufficiently rigorous fashion.
12
Which, of course, remains the ultimate remedy for paying parties post Jackson, despite the widespread
introduction of costs budgeting. Costs budgeting only applies to ‘future’ costs (that is to say those which
postdate the setting of a budget [
] and any ‘incurred’ costs will fall to be tested on assessment if
incapable of agreement. Even in relation to future costs, budgeting does not oust assessment, but merely sets
a guide which is not to be departed from without ‘good reason’.
The criticism of the test adopted in Lownds, most notably by Jackson LJ13, needs no
repetition and has led to the express replacement of the Lownds approach with that in
CPR 44.3(2)(a)14. Whether the new test will have the desired effect remains to be seen.
60. The ACL notes that arguments could be had as to whether the flaw lay in either the Lownds
test itself or, perhaps, in its application to the assessment of both base costs, but in
particular, success fees and to ATE premiums with the result that the proportionality of
such additional liabilities was arguably not subjected to adequate scrutiny – see Sir Rupert
Jackson at 5.23 of the Final Report.
61. The ACL expresses no detailed view on those arguments. They do not appear to be the
arguments advanced by the Respondents (or indicated in Lord Neuberger’s dicta to date).
They do not appear to be arguments which, if correct, go directly to the issue of
compatibility with Article 6, but rather to the question of the robustness with which the
existing test of proportionality which, the ACL emphasises, did apply to the assessment of
additional liabilities and which was inherent and express in the impugned regime, was in
fact applied. The ACL simply notes that there appears to be no good reason why, where
appropriate, a robust application of a necessity approach could not have efficiently and
effectively prevented the recovery of additional liabilities where appropriate.
62. The combination of both a necessity and a reasonableness test, both of which had the
potential to prevent recoverability of the additional liabilities in principle and to limit the
quantum of the same if recoverable was, it is submitted, a substantial and appropriate
safeguard and an appropriate method of seeking to balance competing Article 6 rights if
properly applied on a case by case basis.
(4)
That where a Defendant’s case was stronger, the costs it faced were greater.
63. The broad operation of the CFA regime meant that solicitors were incentivised to take
claims where the prospects of success were 50/50 or greater.
13
14
Final Report, page 37, paragraph 5.11 et seq
Though that would not apply in the instant case pursuant to CPR 44.3(7)(a).
64. Accordingly, the scheme itself (as opposed, potentially, to the way it was used, or some
might even argue abused by some) did not incentivise or encourage the pursuit of
unmeritorious claims.
65. The starting point, therefore, is that as a matter of principle the claims were ones where
the aggrieved Claimants had legitimate grounds for pursuing their claims and it was in
accordance with their own Article 6 right that they should have effective access to justice
in respect of those claims.
66. The very fact of a system of costs recovery in litigation which fundamentally rests on a
basic ‘loser pays’ approach (and which is not, per se, said to be contrary to Article 6 by the
Respondents) means that wherever a Claimant has a valid claim the risk to the opponent
of paying the costs of that claim will have an impact on how the opponent approaches
whether to and, if so, how to, defend that claim.
67. Indeed, as a matter of broad principle, the more convinced the opponent is as to the
merits of its defence, the greater the costs it faces if it is wrong. It is obvious and simplistic,
but no less correct for that, to note that a Defendant who considers it has a rock solid
defence, and therefore fights the case robustly to trial, and then loses, will face a
substantially greater costs bill than the one that realises on receipt of a letter of claim that
it has no defence and settles immediately.
68. Accordingly, it is inherent in any ‘loser pays’ system of costs recovery that those
Defendants who have stronger cases face greater costs15.
69. The ACL acknowledges that the system of CFA and ATE funding could be said to magnify
that position. However, that magnification is, on closer examination, a consequence of
two things.
15
As a matter of generality. Of course, this assumes the Defendant ultimately loses. If the Defendant wins, then
on a simplistic loser pays basis it faces no costs (and where the Claimant has incepted ATE, is likely to be able to
recover the majority of its own costs).
70. Firstly, the broad use of a system whereby, in order to try and facilitate access to justice
on a broader basis, some measure of increased cost is passed to a losing opponent. It is
not clear if the Respondents assert here that any system whereby any additional costs is
passed to a losing party in order to try and achieve access to justice to litigants generally
is inherently incompatible with Article 6. The ACL respectfully submits that such an
argument, if made, would be flawed16.
71. The second is that within that system an attempt has been made to limit the additional
cost such that it is proportionate to the risk taken. It would, of course, have been possible
for the Government of the time to have introduced a different scheme – for example one
whereby a fixed success fee (either in £s or in % terms) and/or a fixed premium was to be
added to all successful claims (or all claims of a particular type) and paid by the losing
defendant. Such a scheme would have been as vulnerable to the argument in the
preceding paragraph as this one.
72. What appears to be seen as the vice, however, is that the scheme is not one which
involves a single, fixed, cost, but that the additional cost varies dependent upon the risk
of the case.
73. It is respectfully submitted that this can be seen as a virtue as much as a vice. Indeed, it is
arguably the first step in ensuring that the additional sum(s) the losing Defendant is
potentially to pay are proportionate in light of the facts and circumstances of the
particular case.
16
It is an argument which could, for example, be used to attach the public funding (Legal Aid) scheme since, by
having a scheme whereby successful Defendants are effectively barred from recovering costs which they would
otherwise have been entitled to seek to recover but for the Claimant being publicly funded, Defendants generally
are made to bear an additional cost in the interest of facilitating access to justice. Indeed, the argument could
be said to be stronger there since the public funding scheme in civil litigation was predominantly used to fund
claims (rather than defences) whereas the CFA/ATE scheme is, as noted, one which ostensibly at least is as
available to be used to give a Defendant access to justice to defend a case it might otherwise have been unable
to as to allow a Claimant to bring a claim.
74. This is particularly so where, as noted above, the Defendant is at all material times on
notice of the fact of exposure to such additional liabilities and accordingly is able to gauge
its response to a claim.
Compatability with Article 6 ECHR
75. The purpose behind the amendments to the Courts & Legal Services Act 1990 (‘CLSA
1990’) effected by the Access to Justice Act 1999 (‘AJA 1999’) was summarised by Lord
Bingham in Callery v Gray (No. 1 & 2) [2002] UKHL 28, [2002] 1 WLR 2000, HL at [2].
76. The three aims identified were (i) to limit the cost of public funding of litigation, (ii) to
improve access to the courts for those with meritorious claims and (iii) to discourage weak
claims and to enable successful defendants to recover cost against ‘indigent’ claimants17.
77. It does not appear to be in dispute that these were legitimate aims (see [12] of the First
Respondent’s Written Case dated 19th January 2015) , and they were identified as such in
MGN Ltd v UK (2011) 53 EHRR 5 at [197], albeit that they were in conflict with the
competing right under Article 10.
78. Whilst the fundamental right to a fair trial and effective access to justice must not be
impaired, the precise mechanism by which this is to be achieved by a Contracting State
has been recognised to be a matter within the margin of appreciation for those
Contracting States – see Steel & Morris v UK (2005) 41 EHRR 22 at [60] to [62]. What is
important is that ‘each side is afforded a reasonable opportunity to present his or her case
under conditions that do not place him or her at a substantial disadvantage vis a vis an
adversary’ [62].
79. What must be undertaken is an inevitably difficult balancing exercise and the Secretary of
State has set out at [48] to [51] of his submissions the basis on which that balancing
17
The inability to do so was a perceived vice of the public funding regime and is, arguably, a renewed vice of the
post Jackson funding regime for personal injury claims as a result of the introduction of Qualified One Way Costs
Shifting (‘QOCS’) – see CPR 44.13 to 44.17 of the current CPR.
exercise was conducted when the impugned funding regime was introduced in 1999 (at
least in part) to remedy the perceived vices of the previous regime.
80. It was an inherent part of the revised regime that an additional cost burden would be
imposed on losing litigants in return for the three perceived benefits identified above (see
Lord Hoffman in Campbell v MGN Ltd at [16-17]) and Smith LJ, Rogers v Merthyr Tydfil
CBC [2006] EWCA Civ 1134, [20078] 1 WLR 808 at [105] in relation to ATE premiums ,
(though again the point is made that it would be wrong to categorise the revised regime
as one which provided a benefit solely to Claimants and solely at the expense of
Defendants18).
81. It could be argued that it is an inherent feature of any regime for the funding of litigation
which seeks to transfer the burden from the state to private parties (as seems to be the
general course of funding reform) that it will involve some additional cost being borne by
losing parties. Indeed, the post Jackson revised regime is not without such costs (for
example, the increase in general damages in tort claims and the introduction of QOCS) –
and of course, maintains (at least pro tem) the ‘old’ regime for certain categories of claims
(mesothelioma, privacy and insolvency claims).
82. As the ACL has already submitted, above, part of the balance struck with the 1999
amendments was the presence of a series of checks and balances in relation to the
recoverability from the opponent of additional liabilities, the practical effect of which was,
in the ACL’s submission, to place the prime burden for ensuring that the revised regime
worked in a balanced fashion on the paying parties and the judiciary through the
application of the relevant parts of CPR 43 to 47.
18
Not only were CFAs and ATE available in principle to Defendants, but the revised regime, as noted, offered
Defendants the materially enhanced prospect of being able to recover their costs, in successfully defended
claims, from pecunious ATE insurers rather than impecunious litigants (who previously would often have had
the benefit of statutory protection against being visited with adverse costs orders).
83. Proper application of the provisions under CPR 43 to 47 was intended to and would and
should mitigate the perceived risk of abuse of the regime as identified by Lord Bingham in
the Callery case at [5].
84. Whether they did in fact achieve that balance and whether any perceived deficiencies are
matters of individual abuse or failings of the system rather than a systemic failure are
matters this Court will no doubt consider.
85. Achieving a precise balance is an impossible task – not least because the question of
where that balance is to be found depends heavily on the viewpoint of and the vested
interests of the observer. Dissatisfaction with the regime could readily be found on ‘both’
of the (in fact many) sides of the argument. It would, in the ACL’s submission, be incorrect
to categorise the whole regime as being one sided and failing to attempt a proper
balancing exercise between the competing Article 6 rights of parties to litigation.
86. The ACL respectfully submits that whether or not the practical application of the
secondary legislation has led to instances where individual Article 6 rights might be said
to have been infringed, there is nothing in the primary legislation in s.58 CLSA 1990 which
prevents or prevented the regime being applied in a convention compatible fashion.
87. Further, that whilst it would appear to be correct, on the basis of Campbell v MGN Ltd
(No. 2) [2005] UKHL 61, [2005] 1 WLR 3394 HL and Sousa v Waltham Forest BC [2011]
EWCA Civ 194, CA, that a consequence of the primary legislation is that Success Fees and
ATE premiums are recoverable as a matter of general principle in litigation, the ACL
repeats the previous submissions which illustrate that where such additional liabilities are
unreasonably and disproportionately incurred or are unreasonable or disproportionate in
amount then the secondary legislation not merely provides, but requires, that they be
disallowed.
88. Accordingly, the ACL is unable to support the argument that the primary legislation or
secondary legislation is incompatible such as to require a declaration of incompatibility or
that the secondary legislation must be ‘read down’ in some way.
89. Any concern thereafter as to whether or not the provisions of CPR 43 to 47 are applied in
a sufficiently robust fashion would appear to be a largely case sensitive issue. The ACL
adopts no position on the facts of this case, though does repeat the concern that there
has as yet been no assessment of any claimed additional liabilities in this case.
Potential Effect of ‘reading down’ the existing legislation
90. In the event that the Court was to conclude that the pre Jackson regime was not prima
facie compatible with Article 6, the first issue is whether the flaw rests with the primary
legislation in that it is fundamentally incompatible, or whether the flaw rests either with
the secondary legislation and/or the court’s approach to implementation of the primary
and/or secondary legislation in such a way that that secondary legislation may be read
down, or this court may give revised guidance as to the application of the legislation such
as to achieve a compatible approach.
91. In the event that the Court was to conclude that the latter course was appropriate, the
presumed intention would be to arrive at a regime which either removed the ability to
recover additional liabilities between the parties completely, in a fashion akin to the
Jackson reforms, but without those reforms’ transitional provisions or balancing
measures, or which placed greater restrictions than had hitherto been the case on the
ability on assessment to recover some or all of such liabilities.
92. Whilst the ACL would, of course, seek to assist the Court with how best such objectives
could be achieved, the ACL’s primary concern is as to the damaging effect that such an
outcome could have.
93. In particular, in relation to the possibility of a reading down of the secondary legislation
and/or the provision of revised guidance such that the recovery of additional liabilities
was restricted, the ACL highlights the following practical concerns;
a. The Jackson reforms are a carefully constructed, interlinking package of measures.
The removal of the recoverability of additional liabilities was rightly seen as
something that could not be achieved in isolation without the risk of serious
unfairness and injustice. Compensating mechanisms included the enhancement of
the level of general damages (Simmons v Castle [2012] EWCA Civ 1039, [2013] 1
WLR 1239), the introduction of QOCS and the introduction of a capping system for
the ability of solicitors to charge success fees to their clients, the latter two both
in the field of personal injury litigation, the core area for use of CFAs and ATE.
Whether those measures were right or wrong, and whether or not they achieved
the correct balance, this Court is not in a position to conduct that sort of balancing
exercise or to introduce any such measures;
b. The Jackson reforms were heavily trailed and the removal of the recoverability of
additional liabilities was notified well in advance. Furthermore, there are
important transitional provisions19, in turn linked to the compensating
mechanisms, the overall effect of which (broadly) is that parties who entered into
such funding arrangements prior to the 1st April 2013 were able to do so on the
basis of the legitimate expectation, both by reference to the existing legislation
and its interpretation in Campbell v MGN [2005] 1 WLR 3394 and bolstered by the
very specific transitional provisions, that the additional liabilities under such
arrangements would continue to be recoverable in principle and would be subject
to the, by then very well established, judicial approach on assessment. To now
fundamentally change that approach to restrict the ability to recover would be
entirely contrary to that legitimate expectation;
c. Further, it must be understood that this does not merely relate to some small
rump of cases where, for example, there is an outstanding assessment of the
19
See s.44(6) and 46(3) LASPO. See also CPR 44.3(7) to similar (though in fact wider) effect in relation to the
test on proportionality.
additional liabilities. It is the ACL’s experience that there was a very substantial
take up of pre Jackson funding mechanisms before the Jackson D Day of the 1 st
April 2013. Many of these cases are still ongoing – parties are litigating on the basis
of ongoing pre Jackson funding arrangements entered into with the legitimate
expectation of recovering such additional liabilities if successful, subject to
assessment. Indeed, the ACL anticipates that there will be a significant number of
claims, particularly those of greater complexity and value, where pre Jackson
funding arrangements were entered into but the claims remain at a pre issue
stage. In the event that the basis of recovery of additional liabilities was to be
fundamentally revised (and the prospects of such recovery materially reduced), it
is difficult to predict the impact that the same will have on such claims, save that
it is likely to be a detrimental one. Clients will have to face a materially enhanced
risk that they will have to pay such additional liabilities from their own pocket or
from any damages recovered, in circumstances where there may simply be no
prospect of them doing so or no adequate pot of damages from which to do so.
They will do so in circumstances where they will lack both the compensating
mechanisms and the consumer protection mechanisms introduced by the Jackson
reforms. Solicitors and other legal advisers may have to consider whether the
material change of circumstance results in their being unwilling or unable to act
further in the matter. The continued provision of ATE insurance in the claim may
be jeopardised, as may any prospect of any ‘top up’ insurance or further staged
cover. The precise outcome is highly unpredictable (a legitimate concern in its own
right), but the overall effect seems highly likely to be to reduce the ability of
existing litigants to pursue their claims and accordingly to inhibit access to justice.
d. As a matter of practice, the effect of the Court concluding that the pre Jackson
regime was incompatible, but that compatability could be achieved by some
reading down of the relevant legislation or provision of revised guidance on
implementation, would almost certainly be to encourage and provoke a raft of
satellite costs and potentially professional negligence litigation.
Remedy
94. For the reasons given, the ACL submits that the impugned regime does not improperly
infringe on a potential paying party’s Article 6 rights, alternatively that the principle of
recoverability of such liabilities does not do so, subject to a sufficiently rigorous case by
case application of the impugned regime.
95. It follows from the preceding submissions that if, contrary to the foregoing, the impugned
regime is incompatible with Article 6, the ACL does not contend that such incompatibility
requires a declaration of incompatibility of the primary legislation, or any outcome the
anticipated effect of which would be to prevent the wholesale recoverability between the
parties of additional liabilities.
96. Rather, any such incompatibility can be addressed by any reading down that might be
required of the secondary legislation to the extent necessary to achieve compatability
and/or by the provision by this Court of revised guidance as to the correct approach to
assessment of such liabilities.
97. In particular, one consideration may be whether the secondary legislation per se is the
source of any infringement or whether the remedy might not instead lie in
reconsideration (or even disapplication) of CPR 47 PD 11.5 and 11.9 and the guidance on
proportionality in Lownds v Home Office as it applies to additional liabilities, with the
effect of ensuring a robust consideration of the proportionality of such claims.
98. The ACL does not advocate for such a course, for the reasons already given, and considers
that the effective retrospective adoption of such changes would imperil the Article 6 rights
and legitimate expectations of the existing users of such funding regimes. However the
ACL will seek to assist the Court with identifying a workable remedy if the existing regime
is found to be an unacceptable interference with Article 6 rights.
The First Respondent’s Arguments
99. As set out in the introduction, it is not the ACL’s role (as sought) to seek to argue for or
against a specific party’s case.
100.
However, it is hoped that it will be clear from the above that the ACL has concerns as
to whether the arguments as advanced by the First Respondent properly weigh in the
balance the true nature of the impugned funding regime, the ancillary provisions which
surround it and the powers available to the court to limit recoverability under it.
101.
On the facts of the specific case, the ACL simply notes that the facts of this case do
seem to illustrate that, as a matter of generality, the funding regime did not (or perhaps
did not necessarily) have the ‘chilling’ effect ostensibly complained of in that:
a. Aspects of that funding regime were available (at least in principle) to the First
Respondent;
b. The First Respondent was presumably fully notified of the use of the funding
regime by the Claimant, and thereby was fully able to consider his position in light
of such notification. Neither his knowledge of the existence generally of such a
regime nor his specific knowledge in this case that it was being used appears to
have inhibited his ability to contest the claim;
c. As a matter of what appears to be regrettable fact (the ACL plays no part in any
dispute as to whether it is correct or not) it appears to be the conduct of the
litigation and the fact of the loss and consequent liability to pay costs at all which
will prove devastating to the First Respondent, a position which sadly appears to
be unrelated to any liability for additional liabilities. Indeed, it might be argued
that this is a position which could only properly have been remedied had the First
Respondent himself availed himself of ATE insurance (assuming he is otherwise
uninsured) something which, as a matter of practice, would have been more likely
to have been available20 and more likely to have been utilised21 under the pre
Jackson regime.
20
Due to the more viable market at a time when ATE premiums were recoverable in principle between the
parties
21
Due to the prospect of between the parties recoverability of the premium on success and the potential for the
premium to be self insured, both of which would offer encouragement to a party to make use of such a policy,
if commercially available.
Aarhus
102.
The ACL understands that this point is not being pursued (First Respondent’s Written
Case dated 19th January 2015 at [15]).
103.
In any event, the ACL does not presently see how reference to the Aarhus Convention
assists in this case. Prima facie, by reference to Edwards v the Environment Agency (No.
2) [2013] 1 WLR 2914, ECJ the availability of CFAs and ATE policies with recoverable
additional liabilities enables, rather than reduces, access to the court by providing
Claimants with access to the court without exposure to a prohibitive expense (see further
Morgan v Hinton Organics Ltd [2009] EWCA Civ 107, [2009] Env LR 30).
Article 1 First Protocol
104.
The ACL does not presently see this argument as adding anything to the general
argument. For the reasons set out, any liability that a losing Defendant may have to meet
in respect of costs is one which is imposed in accordance with a clear and predictable
system of procedural law and where the liability is controlled such that it cannot exceed
a reasonable and proportionate sum by reference to all the circumstances of the case.
Roger Mallalieu
26th January 2015
4 New Square
Lincoln’s Inn