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The costs of complexity (revisited): A practical view from the Bar


In his monthly column, originally published by PLC, James Bickford Smith considers again
the Supreme Court’s judgment in Coventry v Lawrence (No 2) [2014]
UKSC 46, the adjourned hearing of which has been listed for 9-11 February 2015.
James assesses some of the key issues which have been debated since his initial
analysis of the decision in October 2014, including the potential uncertainty
for current funding arrangements that are not dependent on the Access to
Justice Act 1999.

In October 2014, The costs of complexity
(www.practicallaw.com/7-583-1485), James Bickford Smith considered the Supreme
Court’s judgment in Coventry and others v Lawrence and another (No 2) [2014] UKSC
46 (see Legal Update, Supreme Court adjourns appeal so government can address
them on whether old costs regime infringed ECHR
(www.practicallaw.com/6-575-6429)), the adjourned hearing of which has been
listed for 9 to 11 February 2015. The potential impact of this case is now the
subject of widespread comment and concern within the profession. Ahead of the
case being argued and judgment being given, below is an extract from James’ original
October column, followed by some further observations in light of subsequent
commentary.

Coventry and others v Lawrence and another (No 2) [2014] UKSC 46

Traditionally, the House of Lords took a deferential
approach to the Court of Appeal on matters of civil procedure. This convention
was never set in stone and was memorably departed from on occasion, American
Cyanamid v Ethicon
[1975] UKHL 1 being probably the best-known example.
The conventional wisdom, however, was that:

“The Court of Appeal is traditionally
and rightly responsible for supervising the administration of civil procedure.
This is an area in which [the House of Lords has] in the past seldom intervened
and, it must be said, the few exceptions to this policy of self-restraint have
usually tended to confirm the wisdom of the general practice.”

(Callery v Gray [2002]
UKHL 28, at paragraph 18
.)

In Callery itself, the House of Lords
upheld the Court of Appeal’s approach to the costs provisions of the Access to
Justice Act 1999 (the 1999 Act) that subject to reasonableness, success fees
and ATE premiums were recoverable heads of costs. Accordingly, for the
following decade litigators learned to live with those provisions, with calls
for reform mainly channelled through representative bodies or the various consultation
exercises involving the judiciary.

Against this background, the decision in Coventry
and others v Lawrence and another (No 2)
[2014] UKSC 46 can fairly be
described as a bolt from the blue. All that was expected was a brief supplementary
judgment concerning matters consequential to the appellants’ success in a
nuisance action (see Coventry and others v Lawrence and another [2014] UKSC 13 and Legal update, Can an activity permitted by planning law
constitute a private nuisance? (Supreme Court)
(www.practicallaw.com/6-559-3526)). In the event, however, the respondents advanced
(whether for the first time or not is unclear) a wholesale challenge to the
principle of paying any significant amount of the appellant’s costs. The first
respondent’s counsel argued:

“that, by virtue of section
6 of the Human Rights Act 1998 the court, as a public body, must exercise its
discretion when awarding costs in accordance with the Convention, save where
otherwise required by primary legislation (such as the 1990 and 1999 Acts), and
that secondary legislation (such as the CPR and Practice Directions) must be
disapplied where it requires otherwise. Relying on the judgments of the Strasbourg
Court in MGN Limited v United Kingdom
(2011) 53 EHRR 5 and Dombo
Beheer BV v Netherlands
(1994) 18 EHRR 213, he contends that article 6
would be infringed if the court required the respondents to pay 60% of the
success fee and the ATE premium. As to A1P1, he relies on the reasoning of the Strasbourg
court in James v United Kingdom (1986) 8 EHRR 123.”

(Coventry and others v Lawrence and another (No 2) [2014] UKSC 46, at paragraph 38.)

These ambitious arguments resonated with Lord Neuberger. The
main reason for that seems to have been that he found the sums that the respondents
would have been liable to pay in trial costs alone “very disturbing”,
whether or not that liability was for 100% of the appellants’ costs or for 60%
of the appellants’ costs (the figure ordered by the trial judge). Those figures
were £1,067,000 and £640,000 respectively. That prompted this extended comment:

“The fact that it can cost
two citizens £400,000 in legal fees and disbursements to establish and enforce
their right to live in peace in their home is on any view highly regrettable.
The point is reinforced when one takes into account the value of their home,
which is less than £300,000 (coupled with the effect of the nuisance on that
value, £74,000 at the most) and the fact that there will have been very
significant further ‘base costs’ incurred as a result of four-day appeals in
the Court of Appeal and this Court. The point can equally forcefully be made
from the point of view of the respondents. As relatively small business operators,
they are not only having to fund their own costs, which presumably would be of
the same order, but in addition they are going to have to pay some £240,000
towards the appellants’ costs. It is true that the respondents lost, but they
were seeking to defend their businesses and they plainly had a reasonable case,
as is evidenced by the fact that they won in the Court of Appeal.

One of the main, and laudable,
aims of the proposals made by Lord Woolf in his report Access to Justice
(1996), which led to the enactment of the Civil Procedure Act 1997, and the
introduction of the Civil Procedure Rules the following year, was to try and
achieve a better relationship between the costs and benefits of litigation. As
the figures in this case show, and as is reflected in many other cases, that
target has not merely proved elusive, but it is often missed by a very wide
margin indeed. It is, of course, easy to criticise, and, having been Master of
the Rolls until 2013, I am as aware as anyone how hard it is to ensure that a
case, particularly one that does not involve a very large sum of money but is
potentially complex in terms of fact, law and expertise, such as the present
case, is both properly and proportionately litigated. It is also right to
acknowledge that the reforms proposed by Sir Rupert Jackson in 2010, which do
not apply to this case, have been largely introduced and are being absorbed.
Nonetheless, even without the effect of Part II of the 1999 Act, to which I
must shortly turn, it would be wrong for this Court not to express its grave
concern about the base costs in this case, and express the hope that those
responsible for civil justice in England and Wales are considering what further
steps can be taken to ensure better access to justice. It is only fair to
emphasise that this concern relates to the current system and that it is not
intended to imply any criticism of the lawyers in this case.

The amount of the base costs in
this case is however dwarfed by the total potentially recoverable costs, which
are nearly three times as much. The figures illustrate the malign influence of
the amendments made to the 1990 Act by Part II of the 1999 Act, and as
implemented through CPR rule 44 and CPR44 PD – now fortunately repealed and
replaced by the provisions of Part 2 of the Legal Aid, Sentencing and
Punishment of Offenders Act 2012, following Sir Rupert Jackson’s Review of
Civil Litigation Costs (2010), referred to above. As Sir Rupert pointed out in
his Review, and as is explained in Zuckerman on Civil Procedure Principles and
Practice (3rd ed 2013), the system introduced in 1999 had a number of unique
and regrettable features, four of which are worth mentioning for present
purposes. First, claimants had no interest whatever in the level of base costs,
success fee or ATE premium which they agreed with their lawyers, as, if they
lost they had to pay nothing, and if they won the costs would all be paid by
the defendants, who, on the other hand, had no say about the costs (other than
retrospectively on an assessment). Secondly, in many cases, unsuccessful
defendants found themselves paying, in addition to the whole of their own
costs, three times the claimants’ ‘real'” costs. Thirdly, while
proportionality had a part to play when assessing the recoverability of base
costs (albeit a limited part – see Home Office v Lownds [2002] 1 WLR
2450), it was excluded from consideration in relation to the recovery of
success fee or ATE premium (which were simply required to be reasonable) – see CPR44
PD, paras 11.7-11.10. Fourthly, the stronger the defendants’ case, the greater
their liability for costs would be if they lost, as the size of the success fee
and the ATE premium should have reflected the claimants’ prospects of
success.”

(Coventry and others v Lawrence and another (No 2) [2014] UKSC 46, at paragraphs 35 to 37.)

On the back of these firm views of the effect of the 1999
Act, Lord Neuberger decided to adjourn the case to give the government the opportunity
to intervene. The reasons for that were made very clear indeed:

“It appears to me that there
is a substantial argument to the effect that it is not merely secondary
legislation, namely CPR 44 and CPR44 PD, but also Part II of the 1999 Act,
which had the effect of requiring defendants who have been ordered to pay a claimant’s
costs to pay the uplift and ATE premium in full, subject to the uplift and
premium having been reasonable, but irrespective of proportionality. Section
58A(6) of the 1990 Act (added by section 27 of the 1999 Act) provides that an
order for costs ‘may, subject … to rules of court, include provision requiring
the payment of any fees payable under a conditional fee agreement which
provides for a success fee’, and section 29 of the 1999 Act has a similar
provision in relation to an ATE premium. It is true that these provisions are
not on their face mandatory, but it seems to me to be arguable that the costs charging
and recovery system introduced by Part II of the 1999 Act simply would not work
unless a claimant’s success fee and ATE premium were recoverable in full,
irrespective of proportionality, from a defendant who had been ordered to pay
the claimant’s costs.

Accordingly, if the respondents’
argument based on article 6 or A1P1 is correct, it may well be that the proper
outcome would not be to disregard paras 11.7-11.10 of CPR44 PD, but to grant a
declaration of incompatibility, although that would be questionable as the
relevant provisions of the 1990 and 1999 Acts have been repealed and replaced
by a far less unsatisfactory system in Part 2 of the 2012 Act. Nonetheless, the
system enacted in the 1999 Act remains in force in relation to litigation
brought pursuant to conditional fee agreements made before April 2013 (see Simmonds
v Castle
(Practice Note) [2013] 1 WLR 1239). Quite apart from that, a
determination by a United Kingdom court that the provisions of the 1999 Act infringed
article 6 could have very serious consequences for the Government. Although the
Strasbourg court would not be bound by the determination, it would, I suspect,
be likely to agree or accept that conclusion, so that those litigants who had been
“victims” of those provisions could well have a claim for
compensation against the government for infringement of their article 6
rights.”

(Coventry and others v Lawrence and another (No 2) [2014] UKSC 46, at paragraphs 42 and 43.)

Accordingly, the possibility opened up by the judgment is
that if the court comes to decide on a sufficiently broad ratio that the respondents’
Article 6 rights would be infringed by an order that they pay the appellants’
costs, then the government could face compensation claims from all or many of those who have had to pay costs orders
that were assessed on whichever basis the Supreme Court finds to be in breach
of those rights.

The following comments can be made about this judgment: 

  • Concern at the level of costs payable by
    unsuccessful parties following the 1999 Act are not new. Related arguments
    against the provisions of the 1999 Act were advanced with varying degrees of
    strength before, during, and after its passage by numerous interested parties
    and legal commentators. Many lawyers will also have practical experience of the
    ensuing hard cases.
  • As against these concerns and arguments, other
    commentators and interest groups have advanced the argument that, without these
    provisions of the 1999 Act, access to justice would have been impossible to
    achieve for many parties or prospective parties. Many lawyers will, or will
    soon, be gaining practical experience of the hard cases that will now ensue as
    parties are unable to litigate. It is a salutary thought that some 799 years
    after the first promulgation of Magna Carta, the undertaking that “to no
    one will we sell, to no one deny or delay right or justice” (emphasis
    added) may be one too radical for governments of any political complexion to
    consider honouring in “the current funding climate”.
  • The ensuing legal policy debates are ones that
    the senior judiciary have, over the years, had ample opportunity to address.
  • In this context, and whatever one thinks of
    their substance, it is very regrettable that the concerns now being expressed
    in
    Coventry
    and others v Lawrence and another (No 2)
    [2014] UKSC 46 are being
    expressed some years after a) the 1999 Act came into force, b) it was unsuccessfully
    challenged in
    Callery on the basis of arguments that appear substantially
    the same as those now advanced, although they differ in their ECHR focus, c)
    numerous cases have been litigated on the basis that the 1999 Act is lawful and
    d) the funding regime put in place by that act has been superseded.
  • Put very simply, it would seem that we are
    currently witnessing a move towards the stable door some years after the horse
    has bolted and indeed some years after the House of Lords decided that the door
    should remain open. The majority’s attempt to justify this unexpected volte
    face is, it must be said, not very convincing. It is said that “it must
    follow” from the ECHR decision in
    MGN Limited v United Kingdom [2011]
    ECHR 66 that
    Callery is open to reconsideration. That is highly debateable,
    not least because the MGN case focused on Article 10 issues peculiar to
    litigation involving freedom of expression. It is also a particularly
    surprising one to hear from a bench several of whose members have been
    advocating a less deferential approach to ECHR decisions.
     

Above all, however, one notes that Lord Neuberger’s concerns
at the level of the appellants’ costs sit very uneasily with the substance of Coventry
and others v Lawrence and another
[2014] UKSC 13 and indeed with the
Supreme Court’s treatment of other issues in Coventry and others v Lawrence
and another (No 2)
[2014] UKSC 46. In the former, the court departed
from settled understandings of the law of nuisance in ways that seem overwhelmingly
likely to trigger both more potential claims and more uncertainty about whether
successful claimants will obtain injunctive relief or an award of damages in
lieu. All of this tends towards the view that more lawyering, rather than less,
will be required in such cases in the future. Even more strikingly, in the
latter the minority based their view that the landlords should also be held
liable for their tenants’ nuisance partly on the facts that a) they were both
represented by the same counsel at trial and b) that counsel had not taken the
point that the landlords should not be held liable even if the tenants were.
The logic of that approach must, in turn, be that there should have been
separate representation and more extensive legal argument.

It will be seen, therefore, that in the very same case in
which the Supreme Court has considered the level of the appellants’ costs to be
of sufficient concern to prompt consideration of whether the funding regime
created by the 1999 Act is incompatible with the ECHR, the court has also made
the substantive law concerning nuisance more complicated to litigate. It seems
very hard indeed to see how that complexity will not have a cost implication.

This central difficulty is, it must be said, by no means a
new one. There are now a number of areas of the law in which the costs of
taking an action to trial have been increased by developments in the
substantive law, whether those developments are otherwise welcome or not. Simply
by way of example, the more one allows into evidence the “commercial
context” to a contract (which often becomes voluminous) the more expensive
even quite basic contractual disputes become to litigate. In that context, one
must ask how realistic it is to consider that base costs can be kept at the
levels the Supreme Court, and many lawyers, would intuitively consider
proportionate. That problem has not been resolved by the Jackson reforms, which
would appear simply to stiffen the disincentive to litigate low-value but
complex disputes. Moreover, it must be asked whether that disincentive is not
in and of itself as much of an Article 6 concern as the 1999 Act regime was. If
I have no realistic way of bringing my dispute to trial because I will not
recover my true costs of doing so, am I not as much deprived of my rights as
the person who would be forced to pay my costs bill were I to have succeeded
under the old system?

It is to be hoped that the Supreme Court will grapple with
these issues, rather simply than the narrow argument about the 1999 Act regime that
has been the focus of its discussion so far, when Coventry and others v Lawrence
and another (No 2)
[2014] UKSC 46 returns to them. The fear must be
that the ensuing judgment will tell us more about the problems with the 1999
Act than about the more fundamental issues of costs recovery that it sought to
address.

February 2015 update

Since the above was published in October 2014, the potential
ramifications of the case have been discussed fairly widely. Some key issues
that have been raised in such discussions are: 

  • The distinction between the findings that the
    1999 Act regime breaches the ECHR and as such, gives paying parties a potential
    claim against the state. Alternatively, it dictates that courts should not make
    a costs order incompatible with Article 6 or A1P1. The latter finding would
    affect the position between the parties and might have dramatic effects on
    existing cases. While the current practice of the costs masters has been to
    refuse to stay arguments in assessment proceedings (see Master Gordon-Saker’s
    speech,
    The Litigation Journey (1
    October 2014)), there must be a possibility that inter-party rights will be
    affected by the final decision in
    Coventry and others v Lawrence and another
    (No 2)
    [2014] UKSC 46.
  • Uncertainty (enhanced by the proximity of a
    general election) as to how the government would react to a declaration of
    incompatibility.
  • The potential knock-on effect on fee and funding
    agreements between solicitor, counsel and client.
  • The possibility that the judgment may create a
    degree of uncertainty about current funding arrangements that are not dependent
    on the 1999 Act.
     

Given the practical importance of this final point it should
be addressed in a little more detail. One argument is that, if domestic funding
arrangements are apt to be revisited following unexpected developments in
Strasbourg and Supreme Court jurisprudence then, logically, current funding
arrangements may be as well. I find this reasoning questionable. The regime
created by the 1999 Act had effects that, with one exception, are not easy to
find parallel with in the current regime. The sole exception is the
unavailability of civil legal aid or conditional fee agreements to a wide range
of litigants. Current ECHR jurisprudence does not hold this to be a breach of
Article 6. That position seems open to debate given the challenges of
litigating many complex areas of the law in person. (Litigants in person can
also vastly increase the other side’s costs bill, but that is an issue for
another time.) Crucially, however, the knock-on effect of Strasbourg
reconsidering this point would seem simply to be one facing the government,
rather than parties to current funding arrangements.

The other argument is that, were the Supreme Court to take a
bold step and disapply primary and secondary costs legislation, there would be
a knock-on effect on the courts’ approach to the current costs regime. In
particular, it is suggested that they will be more willing to entertain
challenges to it. I find that argument plausible. Costs appear to be an issue
preoccupying judicial minds at present, and there are certainly some judges who
will say privately that the Jackson reforms have merely transferred
“litigation pain” from a category of litigants generally insured
against it, to a category of potential litigants generally uninsured and unable
to pursue their rights meaningfully (either because they will be unable to
secure representation or because they will not, if represented, recover
anything like the true costs of the case). It would be unwise to exclude the
possibility that such voices might be heard in judgments striking down Jackson
provisions on ECHR grounds.

Comment

While many of the above points would suggest that the best
result for all concerned would be for the Supreme Court to find and put back in
the bag the cat let loose over the summer, it would be wrong not to recognise
the legitimacy of the concerns about the 1999 Act regime and its operation.
Master Gordon-Saker puts these bluntly:

“The recoverability of
additional liabilities simply had to go. There was no justice in a system which
required losing parties to pay double, or with ATE premiums, more than double
the reasonable costs of the winning party. And it is salutary to remember why
we had that system. The government wished to reduce the civil legal aid bill.
But it replaced a relatively modest burden on the state – the cost of civil
legal aid in those relatively few cases where the assisted person was
unsuccessful – with a much greater burden placed on paying parties.

The government’s decision to
replace civil legal aid with a system which required losing parties to
subsidise the cost of unsuccessful claims conducted by their opponents’ lawyers
caused great damage to the civil justice system. Civil litigation became a
commodity which could be bought and sold. Lawyers, who previously had no
personal interest in the cases they undertook, now had a direct financial
interest in the outcome. The focus turned from the justice of the case to the
costs of the case.”

(Master Gordon-Saker,
The Litigation Journey (1 October 2014)
.)

These comments also put in the right place the
responsibility for the unsatisfactory situation litigators have been dealing
with for some years, namely the decision to replace the civil legal aid regime
with a system drawn up on the basis of untested and ill-considered assumptions
about likely party responses to it. The most regrettable features of the
current situation are that: 

  • It has taken the Supreme Court until 2014 to
    voice its concerns, and until 2015 to hear argument on these, despite the House
    of Lords having been offered ample opportunity to do so previously.
  • By virtue of that delay, the effect of any
    “dramatic” decision will potentially be to undermine legal certainty.
  • The focus of debate seems to be on the narrow
    point of costs and after the event recoverability rather than on the broader
    question of whether the funding regime introduced by the 1999 Act was
    ECHR-compliant and, in particular, whether the decision to restrict civil legal
    aid so dramatically is open to challenge. If the latter question is answered in
    the negative, one wonders how viable a challenge to the costs regime that
    sought to replace that legal aid can truly be.
     

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