COVENTRY v. THE UNITED KINGDOM

Communicated on 12 May 2017

FIRST SECTION

Application no. 6016/16
David Michael COVENTRY
against the United Kingdom
lodged on 20 January 2016

STATEMENT OF FACTS

The applicant, Mr David Michael Coventry, is a British national who was born in 1954 and lives in Romford. He is represented before the Court by Ms J. Pooley of Pooley, Bendall & Watson Solicitors, a firm of solicitors based in Cambridgeshire.

A. The circumstances of the case

The facts of the case, as submitted by the applicant, may be summarised as follows.

1. The nuisance proceedings

The applicant owned the freehold of a stadium which was used for various motor sports. In 2009 the owners of a house situated close to the stadium issued nuisance proceedings against the applicant and a number of other defendants. At first instance, the judge found that the operation of activities at the stadium constituted a noise nuisance to the claimants and granted them an injunction limiting the levels of noise which could be emitted from the site. In addition to the injunction, he awarded damages against the applicant and the third and sixth defendants in the sum of GBP 10,325, GBP 10,425 and GBP 100 respectively. The judge further ordered that the applicant and the third defendant pay 60 percent of the claimants’ costs subject to detailed assessment.

The Court of Appeal quashed the judge’s finding of nuisance, but the Supreme Court allowed the claimants’ appeal and restored the judge’s original order, including the order for costs. The Supreme Court ordered a further hearing to deal with a number of consequential matters, including whether the order for costs infringed either Article 6 of the Convention or Article 1 of Protocol No. 1. This hearing took place on 12 May 2014 and judgment was given on 23 July 2014.

2. The costs issue

Prior to 1995, the only means of funding litigation (apart from legal aid) was to agree an ordinary retainer with a lawyer. However, section 58 of the Courts and Legal Services Act 1990 (“the 1990 Act” – see section on Domestic law and practice below) permitted lawyers, for the first time, to enter into conditional fee agreements (“CFAs”, or “no win no fee” agreements), under which the lawyer was only to be paid if a client won a case. In return for agreeing to act on a CFA, the lawyer could receive a percentage uplift to his fees (otherwise known as a “success fee”). The riskier the claimant’s case, the higher the percentage uplift the lawyer could legitimately charge. At the same time that CFAs were introduced, a new form of insurance was developed known as “after the event” (“ATE”) insurance. A person involved in, or contemplating, litigation could pay an insurer an ATE premium to underwrite his liability to pay the costs of another party.

Neither success fees nor ATE premiums were recoverable from the losing party under the 1990 Act. However, the Access to Justice Act 1999 (“the 1999 Act” – see section on Domestic law and practice below) provided that an order for costs made by a court against a losing party could include both the success fees payable under a CFA and any ATE premium. The Civil Procedure Rules (“CPR” – see section on Domestic law and practice below) were amended accordingly. Rule 44.4 provided that the court would only allow costs, including any additional liability incurred under a funding arrangement, which were proportionate to the matters in issue. The CPR were supplemented by a Costs Practice Direction (“CPD” – see section on Domestic law and practice below). Pursuant to the CPD, in deciding whether the costs claimed were reasonable and proportionate, the court had to consider the amount of any additional liability separately from the base costs, and success fees could not be reduced simply on the ground that, when added to base costs which were reasonable and proportionate, the total appeared disproportionate.

The Legal Aid, Sentencing and Punishment of Offenders Act 2012 subsequently abolished the recoverability of success fees and ATE premiums from the losing party. However, the 1999 Act scheme applied to the present case. Therefore, as the claimants had engaged their lawyer under a CFA, the applicant and third defendant were liable to pay 60 percent of their base costs, success fees, and ATE premiums. In its judgment of 22 July 2015 the Supreme Court noted that the claimants’ base costs at first instance amounted to GBP 307,642; the 100 percent success fee amounted to GBP 215,007; and the ATE premium was in the region of GBP 305,000. Furthermore, the claimant’s base costs in the Court of Appeal and Supreme Court were GBP 103,457 and GBP 204,226, respectively; their success fees were GBP 71,770 in the Court of Appeal and GBP 92,115 in the Supreme Court; and their ATE premiums were GBP 70,141 in the Court of Appeal and GBP 126,588 in the Supreme Court.

3. The Supreme Court judgment of 23 July 2014

The applicant, together with the third defendant, argued that the order that they pay 60 percent of the success fee and the ATE premium had infringed both Article 6 and Article 1 of Protocol No. 1 to the Convention (although they anticipated challenging the base costs on the ground that they were not reasonably and proportionately incurred, they conceded that the recovery of base costs by a winning party was in principle a lawful interference with Article 6 and Article 1 of Protocol No. 1). While they accepted that the costs scheme under the 1999 Act had a legitimate aim, in their submission it was – as demonstrated by MGN Limited v. the United Kingdom, no. 39401/04, 18 January 2011 – an unjustified and irrational means of achieving that aim.

The Supreme Court considered that it would be inappropriate for it to consider whether the costs awarded against the applicant and third defendant infringed either Article 6 or Article 1 of Protocol No. 1 without giving the Government an opportunity to address it on the issue. It therefore adjourned the issue for further hearing.

However, in his leading judgment, Lord Neuberger of Abbotsbury, the President of the Supreme Court, observed that the level of costs in the case were “very disturbing”. He continued:

“They give rise to grave concern even if one ignores the success fee and ATE premium. 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.

...

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.”

4. The Supreme Court judgment of 22 July 2015

The applicant and the third defendant contended that the 1999 Act scheme was incompatible with both Article 6 and Article 1 of Protocol No. 1 to the Convention. They recalled that in his Review of Civil Litigation Costs Jackson LJ had identified four “flaws” in the scheme (“the Jackson review – see section on Domestic law and practice below): namely, its lack of focus and the lack of qualifying requirements for being allowed to enter into a CFA; the absence of any incentive for claimants to control the incurring of legal costs and the fact that judges only assessed costs at the end of a case when it was too late to control costs that had been spent; the “blackmail” or “chilling” effect which drove parties to settle early despite good prospects of a defence; and the fact that it gave lawyers the opportunity to “cherry pick” winning cases to conduct on CFAs. In MGN (cited above, § 217) the Court considered these flaws to be sufficiently serious to conclude that the impugned scheme exceeded even the broad margin of appreciation to be accorded to the State in respect of general measures pursuing social and economic interests, and therefore held that it was incompatible with Article 10 of the Convention. The applicant and third defendant argued that the same reasoning necessarily required the Supreme Court to hold that the scheme was also incompatible with Article 6 and Article 1 of Protocol No.1.

That being said, the applicant and third defendant contended that the real vice of the scheme lay in the CPD (see section on Domestic law and practice below), which based the assessment of CFA uplifts and ATE premiums exclusively on the ex ante perspective of the CFA/ATE party (CPD 11.7), and expressly disallowed any reduction on the basis that the overall total of base costs and uplifts appeared to be disproportionate (CPD 11.9). It was therefore their contention that the scheme could be rendered compatible with Article 6 and Article 1 of Protocol No.1 to the Convention if CPD 11.9 were read down in accordance with section 3 of the Human Rights Act 1998 so as to provide a scheme incorporating provisions requiring considerations of all circumstances, including the proportionality of the total of base costs and uplifts and premiums, and the circumstances of the payer, including his means, whether he was insured, the importance of fighting the case and his reasonableness in fighting the case.

By a majority of five to two, the Supreme Court rejected the submissions of the applicant and third defendant. The leading judgment was handed down by Lord Neuberger and Lord Dyson (with whom Lord Sumption and Lord Carnwath agreed). Lord Neuberger and Lord Dyson distinguished MGN, since in that case the Court’s criticisms of the system had been made in the Article 10 context, and it had always given particular weight to freedom of expression. The present complaint was therefore of a “wholly different character”. They further noted that of the four “flaws” identified in the Jackson review and referred to by the Court in MGN, only the third – that is, the “blackmail” or “chilling” effect of the scheme which could drive parties to settle early despite good prospects of a defence, which was also identified by Lord Neuberger in the Supreme Court judgment of 23 July 2014 as one of the scheme’s “unique and regrettable features” – could have adversely affected the Article 6 or Article 1 of Protocol No. 1 rights of opposing parties. It was this “flaw” which lay at the heart of the present case.

Lord Neuberger and Lord Dyson accepted that under the 1999 Act costs awarded to successful claimants who had the benefit of CFAs could be very high indeed, and therefore had the potential to place opposing parties under considerable pressure to settle. Consequently, they accepted that “in a number of individual cases, the system might be said to have interfered with a defendant’s right of access to justice”. However, having regard to the approach adopted towards general measures in cases such as Animal Defenders International v. the United Kingdom [GC], no. 48876/08, ECHR 2013 (extracts), they noted that the system as a whole was a rational and coherent scheme for providing access to justice to those to whom it would probably otherwise have been denied, it had been made following wide consultation, and it fell within the area of discretionary judgment afforded to legislators and rule-makers.

Nevertheless, given that the Court had rejected such an argument in MGN, albeit in the Article 10 context, Lord Neuberger and Lord Dyson proceeded to examine the position more critically. They observed that in creating the scheme the Government had been trying to find a solution to the problem created by the constraining of civil legal aid in 1999, but it proved impossible to come up with a solution that would meet with universal approval. However, the potential unfairness of the 1999 Act scheme was mitigated by the fact that district judges and costs judges would perform the role of “watchdog” to check any practices which might undermine its fairness. Thus, base costs were to be assessed by the court, having regard to their proportionality and reasonableness. As to any additional liability, a successful litigant was only entitled to a reasonable success fee and ATE premium. In an appropriate case, the court could make a cost-capping order, and defendants could themselves enter into CFAs and take out ATE insurance.

Lord Neuberger and Lord Dyson considered whether, in assessing costs under the 1999 Act scheme, courts should be required to take into account all the circumstances, including the proportionality of the total of base costs, uplifts and premiums, and all of the payer’s circumstances. However, they found that such a requirement would have imperiled the whole scheme, since lawyers would have been unwilling to enter into CFAs for fear that, even if successful, the agreed uplift could be reduced or disallowed on assessment. Furthermore, since ATE insurance was integral to the provision of access to justice, if a premium was necessarily incurred it had to be regarded as proportionate. Finally, any requirement that the assessment of total costs take into account the financial position of the paying party would likely lead to satellite litigation, with the expenses, delays and uncertainties which such litigation normally involves.

For these reasons, the Lord Neuberger and Lord Dyson were satisfied that the 1999 Act scheme struck a fair balance between the interests of different litigants. In reaching this conclusion, they noted that the merits of the applicant and third defendant’s case – that is, that they were individuals or small undertakings carrying on modest businesses without insurance and faced with one-off litigation which involved them in eye-catchingly large costs exposure – were largely “untested”. In particular, there had been no investigation into whether they had, or could have had, insurance against nuisance.

Finally, with regard to remedy, Lord Neuberger and Lord Dyson noted that even if it had been possible to read down the CPD in the manner suggested by the applicant and third defendant, it would have been wrong to do so since litigants and their lawyers had a legitimate expectation that the court would not decide (at least not without reasonable notice) that additional liabilities were incompatible with the Convention. To find otherwise would have a serious impact on many thousands of ongoing cases to which the 1999 Act scheme still applied.

Lord Mance, with whom Lord Carnwath also agreed, similarly rejected the challenge of the applicant and the third defendant. He agreed with Lord Neuberger and Lord Dyson that the scheme had to be considered as a whole. He observed that the present case was an extreme and unusual one, and that it would be difficult to conceive of any solution that would cater for such cases without imperiling the whole scheme. Furthermore, the scheme had been endorsed by domestic courts for over a decade, and litigants and lawyers had justifiably relied on its validity. Therefore, legal certainty, consistency and the legitimate expectations generated all militated in favour of the Supreme Court upholding the scheme.

Lord Clarke of Stone-Cum-Ebony (with whom Baroness Hale of Richmond agreed) disagreed with the majority, finding that the principles identified by the Court in MGN in the context of Article 10 applied also to this case, where the applicant and third defendant were relying on their right of access to justice and a fair trial under Article 6 and/or their right to protection of property under Article 1 of Protocol No.1. For him, it was discriminatory and disproportionate to burden uninsured defendants with costs which vastly exceeded the fair and reasonable costs incurred by the claimant in order to encourage solicitors to act for other claimants in cases where the claim might fail. In particular, they noted that the way in which the success fee was calculated compounded the inequality and unfairness because the magnitude of the reasonable success fee was in inverse proportion to the strength of the claimant’s case: the riskier the claimant’s case, the greater the success fee his lawyer could legitimately charge. It therefore followed that the stronger the defendant’s prospect of success, the more he would have to pay the claimant in the event that the claimant won.

In addition, Lord Clarke considered it “a striking feature of a CFA” that it was available to rich as well as poor applicants. Thus, it was not only a means of providing access to justice for those who could not otherwise afford it, but also a “risk free means of providing access to lawyers for those who could fund it in other ways”. Whereas the claimant had a choice about whether to go to court, once that choice was made, the defendant had no choice not to take part. Moreover, since ATE insurance was usually only available to litigants whose chances were “better than evens”, if the claimant had ATE insurance, the defendant would have little or no chance of obtaining it.

Finally, with regard to remedy, Lord Clarke observed that it was the court’s duty to balance competing rights. The expectations of litigants were one factor relevant to this balancing exercise, but could not render proportionate the discriminatory treatment of a particular class of defendant. In this regard, although it was true that the strength of the applicant and third defendant’s claims were untested, they represented that class of defendant towards whom the scheme was discriminatory, disproportionate and disregarded their rights.

B. Relevant domestic law and practice

1. The Courts and Legal Services Act 1990

Section 58 of the Courts and Legal Services Act 1990 (“the 1990 Act”) permitted lawyers in England and Wales, for the first time, to enter into conditional fee agreements. Section 17(1) of the 1990 Act stated that the general objective behind the change was the development of legal services in England and Wales “by making provision for new or better ways of providing such services and a wider choice of persons providing them, while maintaining the proper and efficient administration of justice”.

At the same time as CFAs were being developed under the new statutory scheme, the Law Society developed ATE insurance, which enabled a person involved in, or contemplating, litigation to insure against the risk that he would have to pay the costs of another party.

Success fees and ATE premiums were not recoverable from the losing party under the 1990 Act.

2. The Access to Justice Act 1999

In March 1998 the Government published a consultation paper entitled “Access to Justice with Conditional Fees”, in which it indicated that wider use of CFAs and ATE insurance would promote access to justice. The majority of those who responded to the consultation supported the proposal that both the success fee and ATE premium should be recoverable.

In December 1998 the Government published a White Paper, entitled “Modernising Justice”, in which it stated that it had decided to make it possible for the successful party to recover the success fee and ATE premium from the unsuccessful party in order to “make conditional fees more attractive and fairer, and allow respondents and appellants whose case is not about money to use them. This will be a further radical expansion of access to justice”.

The Access to Justice Act 1999 (“the 1999 Act”) gave effect to this policy decision. In particular, it added a new section 58 and a section 58A to the 1990 Act. Sections 58A(6) and (7) provided as follows:

“(6) A costs order made in any proceedings may, subject in the case of court proceedings to rules of court, include provision requiring the payment of any fees payable under a conditional fee agreement which provides for a success fee.

(7) Rules of court may make provision with respect to the assessment of any costs which include fees payable under a conditional fee agreement (including one which provides for a success fee).”

As to the recoverability of ATE premiums, section 29 of the 1999 Act provided:

“Where in any proceedings a costs order is made in favour of any party who has taken out an insurance policy against the risk of incurring a liability in those proceedings, the costs payable to him may, subject in the case of court proceedings to rules of court, include costs in respect of the premium of the policy.”

In Callery v. Gray [2002] 1 LR 2000, a case concerning personal injury litigation, Lord Bingham described the three key aims of the funding regime under the 1999 Act as follows:

“2. ... One aim was to contain the rising cost of legal aid to public funds and enable existing expenditure to be refocused on causes with the greatest need to be funded at public expense, whether because of their intrinsic importance or because of the difficulty of funding them otherwise than out of public funds or for both those reasons. A second aim was to improve access to the courts for members of the public with meritorious claims. It was appreciated that the risk of incurring substantial liabilities in costs is a powerful disincentive to all but the very rich from becoming involved in litigation, and it was therefore hoped that the new arrangements would enable claimants to protect themselves against liability for paying costs either to those acting for them or (if they chose) to those on the other side. A third aim was to discourage weak claims and enable successful defendants to recover their costs in actions brought against them by indigent claimants.”

3. The Civil Procedure Rules

The Civil Procedure Rules (“CPR”) were amended by the Civil Procedure (Amendment No. 3) Rules 2000 to reflect the new approach to CFAs and ATE premiums. CPR Rule 44.4 set out the basis of assessment of costs. It provided:

“(1) Where the court is to assess the amount of costs ... it will assess those costs -

(a) on the standard basis; or

(b) on the indemnity basis,

but the court will not in either case allow costs which have been unreasonably incurred or are unreasonable in amount.

(2) Where the amount of costs is to be assessed on the standard basis, the court will -

(a) only allow costs which are proportionate to the matters in issue ...”

Rule 44.5 set out the factors to be taken into account in deciding the amount of costs. It provided:

“(1) The court is to have regard to all the circumstances in deciding whether costs were -

(a) if it is assessing costs on the standard basis -

(i) proportionately and reasonably incurred; or

(ii) were proportionate and reasonable in amount.

(b) if it is assessing costs on the indemnity basis -

(i) unreasonably incurred; or

(ii) unreasonable in amount. ...

(3) The court must also have regard to -

...

(b) the amount or value of any money or property involved;

(c) the importance of the matter to all the parties;

(d) the particular complexity of the matter or the difficulty or novelty of the questions raised;

(e) the skill, effort, specialised knowledge and responsibility involved;

(f) the time spent on the case; and

(g) the place where and the circumstances in which work or any part of it was done.”

4. Costs Practice Direction

As envisaged by the amendments that were made to the CPR, an amended costs practice direction was promulgated to supplement CPR Parts 43 to 48 (“the CPD”) in order to give effect to section 58A(6) and (7) of the 1999 Act. Paragraph 9.1 of the CPD stated that

“[u]nder an order for payment of ‘costs’ the costs payable will include an additional liability incurred under a funding arrangement”.

Section 11 included the following:

“11.1 In applying the test of proportionality the court will have regard to rule 1.1(2)(c). The relationship between the total of the costs incurred and the financial value of the claim may not be a reliable guide ...

11.2 In any proceedings there will be costs which will inevitably be incurred and which are necessary for the successful conduct of the case. Solicitors are not required to conduct litigation at rates which are uneconomic. Thus in a modest claim the proportion of costs is likely to be higher than in a large claim, and may even equal or possibly exceed the amount in dispute ...

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.

11.6 In deciding whether the base costs are reasonable and (if relevant) proportionate the court will consider the factors set out in rule 44.5.

11.7 Subject to para 17.8(2), when the court is considering the factors to be taken into account in assessing an additional liability, it will have regard to the facts and circumstances as they reasonably appeared to the solicitor or counsel when the funding arrangement was entered into and at the time of any variation of the arrangement.

11.8 (1) In deciding whether a percentage increase is reasonable relevant factors to be taken into account may include:

(a) the risk that the circumstances in which the costs, fees or expenses would be payable might or might not occur;

(b) the legal representative’s liability for any disbursements;

(c) what other methods of financing the costs were available to the receiving party.

...

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.

11.10 In deciding whether the cost of insurance cover is reasonable, relevant factors to be taken into account include:

(1) where the insurance cover is not purchased in support of a conditional fee agreement with a success fee, how its cost compares with the likely cost of funding the case with a conditional fee agreement with a success fee and supporting insurance cover;

(2) the level and extent of the cover provided;

(3) the availability of any pre-existing insurance cover;

(4) whether any part of the premium would be rebated in the event of early settlement;

(5) the amount of commission payable to the receiving party or his legal representative or other agents.”

5. Lownds v. Home Office (Practice Note) [2002] 1 WLR 2450

In Lownds the Court of Appeal gave guidance on the application of proportionality in an assessment of costs on the standard basis. It adopted the following approach:

“In modern litigation, with the emphasis on proportionality, there is a requirement for parties to make an assessment at the outset of the likely value of the claim and its importance and complexity, and then to plan in advance the necessary work, the appropriate level of person to carry out the work, the overall time which would be necessary and appropriate spend on the various stages in bringing the action to trial and the likely overall cost. While it was not unusual for costs to exceed the amount in issue, it was, in the context of modest litigation such as the present case, one reason for seeking to curb the amount of work done, and the cost by reference to the need for proportionality.”

The court then continued:

“... what is required is a two-stage approach. There has to be a global approach and an item by item approach. The global approach will indicate whether the total sum claimed is or appears to be disproportionate having particular regard to the considerations which Part 44.5(3) states are relevant. If the costs as a whole are not disproportionate according to that test then all that is normally required is that each item should have been reasonably incurred and the cost for that item should be reasonable. If on the other hand the costs as a whole appear disproportionate then the court will want to be satisfied that the work in relation to each item was necessary and, if necessary, that the cost of the item is reasonable. If, because of lack of planning or due to other causes, the global costs are disproportionately high, then the requirement that the costs should be proportionate means that no more should be payable than would have been payable if the litigation had been conducted in a proportionate manner. This in turn means that reasonable costs will only be recovered for the items which were necessary if the litigation had been conducted in a proportionate manner.”

In Rogers v. Merthyr Tydfil County Borough Council (Law Society Intervening) (Practice Note) [2007] 1 WLR 808 the Court of Appeal adopted the Lownds approach in assessing whether an ATE premium was recoverable by a successful claimant. If the premium was necessarily incurred, it was proportionate, even if it was disproportionately high compared with the amount of damages reasonably claimed. The domestic courts similarly accepted that a success fee that was reasonable in amount was also necessary and, therefore, proportionate. In determining reasonableness, the courts had to consider whether it was proportionate to the litigation risk. A success fee proportionate to the risk of going unpaid was calculated by dividing the risk of losing by the prospect of winning and multiplying the product by 100 to yield a percentage (see, for example, Atack v. Lee [2005] 1 WLR 2643). Thus, if a solicitor only had a 50 percent chance of earning payment by winning, it was considered commercially appropriate for him to charge a success fee of 100 percent.

6. The Jackson review

In late 2008 Jackson LJ was appointed to conduct a fundamental review of the rules and principles governing the costs of civil litigation and to make recommendations in order to promote access to justice at proportionate cost.

In January 2010 the Jackson review was published. In relation to CFAs, it noted that England and Wales differed from all other jurisdictions in having success fees payable not by the lawyer’s own client but by the losing party. The benefits of CFAs had been achieved at massive cost, especially in cases which were fully contested. That cost was borne by tax payers, insurance premium payers and by those defendants who had the misfortune of being neither insured nor a large, well-resourced organisation.

While Jackson LJ concluded that CFAs were not objectionable in themselves, he considered that there were four flaws in allowing success fees to be recovered from the losing party, the consequence of which was to generate disproportionate costs:

“(a) First flaw

4.8 Any person, whether rich or poor and whether human or corporate, is entitled to enter into a CFA and take out ATE insurance. All that such a person needs to do is to find willing solicitors and willing insurers. This gives rise to anomalies and unintended consequences on a grand scale. ...

...

4.12 The first flaw in the recoverability regime is that it is unfocused. There is no eligibility test for entering into a CFA, provided that a willing solicitor can be found.

(b) Second flaw

4.13 The second flaw is that the party with a CFA generally has no interest in the level of costs being incurred in his or her name. Whether the case is won or lost, the client will usually pay nothing. If the case is lost, the solicitors waive their costs and pay the disbursements, in so far as not covered by ATE insurance. If the case is won, the lawyers will recover whatever they can from the other side either (a) by detailed or summary assessment or (b) by negotiation based upon the likely outcome of such an assessment.

4.14 This circumstance means that the client exerts no control (or, in the case of a no win, low fee agreement, little control) over costs when they are being incurred. The entire burden falls upon the judge who assesses costs retrospectively at the end of the case, when it is too late to “control” what is spent.

(c) Third flaw

4.15 The third flaw in the recoverability regime is that the costs burden placed upon opposing parties is excessive and sometimes amounts to a denial of justice. If one takes any large block of cases conducted on CFAs, the opposing parties will end up paying more than the total costs of both parties in every case, regardless of the outcome of any particular case.

4.16 If the opposing party contests a case to trial (possibly quite reasonably) and then loses, its costs liability becomes grossly disproportionate. Indeed the costs consequences of the recoverability rules can be so extreme as to drive opposing parties to settle at an early stage, despite having good prospects of a successful defence. This effect is sometimes described as “blackmail”, even though the claimant is using the recoverability rules in a perfectly lawful way.

(d) Fourth flaw

4.17 If claimant solicitors and counsel are successful in only picking “winners”, they will substantially enlarge their earnings... As the Senior Costs Judge explained... it is not possible for costs judges effectively to control success fees retrospectively.

4.18 Of course, not all lawyers are good at picking winners and some suffer losses on that account. Nevertheless, one repeated criticism of the recoverability regime which I have heard throughout the Costs Review, is that some claimant lawyers “cherry pick”. In other words they generally conduct winning cases on CFAs, they reject or drop at an early stage less promising cases and thus generate extremely healthy profits. Obviously the financial records of individual solicitors firms and barristers are confidential. Moreover, even if one such set of accounts were made public, that would tell us nothing about all the others. Nevertheless, the one point that can be made about the CFA regime is that it presents the opportunity to cherry pick. If lawyers succumb to that temptation, they will greatly increase their own earnings and they will do so in a manner which is entirely lawful.

4.19 Having worked in the legal profession for 37 years, I have a high regard for my fellow lawyers, both solicitors and counsel. The fact remains, however, that lawyers are human. As Professor Adrian Zuckerman has forcefully pointed out both during the Woolf Inquiry and during the present Costs Review, work tends to follow the most remunerative path. In my view, it is a flaw of the recoverability regime that it presents an opportunity to lawyers substantially to increase their earnings by cherry picking. This is a feature which tends to demean the profession in the eyes of the public.”

7. Legal Aid, Sentencing and Punishment of Offenders Act 2012

As a direct result of the criticisms of the 1999 Act scheme made in the Jackson review, the Legal Aid, Sentencing and Punishment of Offenders Act 2012 abolished the recoverability of success fees and ATE premiums from the losing party.

COMPLAINTS

The applicant complains that the recovery of the success fee and ATE premium under a conditional fee agreement constituted a disproportionate interference with his rights under Article 6 of the Convention and Article 1 of Protocol No. 1 to the Convention.

QUESTION TO THE PARTIES

Having regard both to the general application of the costs recovery scheme, and its application in the present case, was the recoverability of the success fee and ATE premium under the Access to Justice Act 1999 incompatible with the applicant’s rights under Article 6 and/or Article 1 of Protocol No. 1 to the Convention?

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