Since the Jackson reforms came into force from 1 April 2013, the last wave of claims funded by “old style” CFAs have been working their way through to trial up and down the country. It had been assumed that defendants would simply have to grit their teeth in the meantime and accept their liability to pay claimant lawyers a success fee and the ATE premium. But in the recent case of Coventry (and ors) v Lawrence (and anr) (No 2)  UKSC 46 the Supreme Court has held that the pre-April 2013 costs regime introduced by Part II of the Access to Justice Act 1999, may be incompatible with the European Convention on Human Rights (‘ECHR’).
The case concerned a claim in private nuisance brought against the occupiers of a speedway track by two local residents. It succeeded at first instance, was then reversed by the Court of Appeal only for the first instance decision to then be reinstated by the Supreme Court. The two respondents were ordered to pay £10,350 each in damages, and 60% of the appellants’ costs.
The appellants’ base costs from the original trial were £398,000, plus a success fee of £319,000 and ATE premium of about £350,000, totalling £1,067,000. This meant the respondents were liable for over £640,000, even before the costs of the two appeals were considered.
Supreme Court decision
Lord Neuberger, delivering the lead judgement of the Court described these figures as “very disturbing”; particularly as on the appellant’s best case they would not have recovered more than £74,000 in damages. Lord Neuberger went on, “[The costs] 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 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 Respondents argued that the requirement to pay 60% of the success fee and ATE premium would breach their rights under Article 6 ECHR and under Article 1 of the First Protocol of the Convention; As the Court is a public body, it is under an obligation to exercise its costs discretion in accordance with the Convention.
The House of Lords had considered the legality of the 1999 Act costs regime on two previous occasions. In Callery v Gray  1 WLR 2000 it concluded that, subject to reasonableness, success fees and ATE premiums were recoverable; and in Campbell v MGN Ltd (No 2)  1 WLR 3394 it held that that the costs regime did not infringe the paying party’s Art 10 rights.
However, in MGN Ltd v United Kingdom  ECHR 66 the European Court of Human Rights (‘ECtHR’) held that “the depth and nature of the flaws in the system” introduced by the 1999 Act and paras 11.7 – 11.10 of CPR44 PD were “such that the Court can conclude that [it] exceeded even the broad margin of appreciation to be accorded to the State in respect of general measures pursuing social and economic interests”.
Lord Neuberger therefore held that it was open to the court to reconsider the issue, in particular the recoverability of success fees and ATE premium; “In light of the facts of this case and the ECtHR jurisprudence, it may be that the respondents are right in their contention that their liability for costs would be inconsistent with their Convention rights”.
Lord Neuberger considered that “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”. However, Lord Neuberger recognised that a determination by a UK court that the provisions of the Access to Justice Act infringed Article 6 could have “very serious consequences for the government” as litigants “could well have a claim for compensation against the government” for the infringement and that “it would be wrong for this court to decide the point without the Government having had the opportunity to address the Court on the issue”.
The Court gave directions for the hearing to be re-listed after giving the Attorney General and the Secretary of State for Justice an opportunity to address the court on the issue.
The Court’s clear provisional view is that (i) the 1999 Act costs regime infringes the respondents’ Convention rights and (ii) the appropriate remedy is a declaration of incompatibility. What such a declaration would mean practically speaking, for litigants in ongoing pre-Jackson claim, or indeed those whose claims were determined under the old rules, is hard to say. In the absence of remedial legislation, the courts are bound to apply the 1999 Act and litigants who have paid success fees and ATE premiums may have to turn to the government for compensation.
Alternatively, the Court may conclude that the 1999 Act can be construed in a way that is consistent with the respondents’ Convention rights. Lord Neuberger noted in this regard that the provisions of the 1999 Act are on their face not mandatory - 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” or ATE premium. It would then be open to the Court simply to disregard the CPR to the extent that it offends the Convention without having to make a declaration of incompatibility. That would be preferable for cost paying litigants as the court could decline to award any additional liabilities.
This solution seems unlikely however as, according to Lord Neuberger, the 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”.