The Supreme Court has held that a claimant's right to recover a Conditional Fee Agreement (CFA) success fee and After the Event insurance (ATE) from an unsuccessful defendant is not contrary to the European Convention on Human Rights (ECHR).
Coventry and another v Lawrence and another (2015) UKSC 50 (the Coventry case) concerned the pre-Jackson costs recoverability regime which has since been repealed and replaced by a scheme under the Legal Aid, Sentencing and Punishment of Offenders Act 2012. Success fees and ATE premiums are no longer recoverable in respect of CFAs and ATE policies entered into after 1 April 2013.
At the time of writing, it is possible to recover success fees and ATE premiums under transitional arrangements (and in certain cases) if the CFA or ATE policy was entered into prior to 1 April 2013.
The costs regime introduced by the Access to Justice Act 1999 allowed a successful party to recover both a success fee and ATE insurance premium from their opponent. The objective of the AJA was to ensure that the costs risk was borne by the losing party.
In 2011 the European Court of Human rights held (in the case of MGN Ltd v United Kingdom (2011) 53 EHHR 5) the payment of success fees to the winning party was incompatible with its rights under Article 10 of the ECHR despite acknowledging the legitimate aim of access to legal services funded by the private sector.
The factual matrix
In Coventry, the appellants were successful with their nuisance claim. They were awarded damages of £20,750 and an injunction. The defendants were ordered to pay 60% of the appellant's costs on a standard basis. The base costs liability amounted to £184,585, however the appellants had entered into a CFA with their lawyers and an ATE insurance policy. The respondent's costs liability therefore included 60% of:
- the success fee amounting to £215,007 (i.e. £129,004); and
- the ATE insurance premium of approximately £305,000 (i.e. £183,000).
Further base costs, success fee and ATE premiums were incurred by the appellants in their appeals to the Court of Appeal and Supreme Court.
The respondents accepted their liability to pay base costs pursuant to the order at first instance (subject to detailed assessment of the appellant's costs bill). The defendants contended that their liability to pay 60% of the appellant's success fee and ATE premium was contrary to their Article 6 rights to a fair trial and Article 1 of the First Protocol right to peaceful enjoyment of possessions under the ECHR.
The Supreme Court held by a majority of 5:2 that the costs regime which allowed success fee and ATE premium recovery was not a disproportionate way of achieving access to justice.
Proportionality was 'at the heart of the case' according to their Lordships. There were two concepts applicable in the appeal:
- balancing the importance of the objective of the appeal and the value of the right enshrined in the ECHR; and
- under the Civil Procedure Rules (CPR), costs assessed on the standard basis will be allowed if they are 'proportionate to the matters in issue' (CPR 44.4(2)(a)) together with the Court of Appeal guidance on proportionality in the case of Home Office v Lownds  EWCA Civ 365
Their Lordships stated that the introduction of success fees and ATE made the issue of proportionality more acute. They adopted the approach of the Court of Appeal in Lownds where base costs necessarily incurred would be treated as being proportionate even if they were not proportionate to the 'matters in issue'.
Accordingly, if the ATE premium was necessarily incurred, it was recoverable from the respondent and was proportionate even if it was disproportionate to the damages claimed, the importance of the case and what was at stake.
Access to Justice
The respondents contended that the decision in MGN v United Kingdom (supra) was binding and the Supreme Court was required to reach the same conclusion in respect of Article 6 and Article 1 Protocol rights.
The Supreme Court rejected this. Their Lordships decided that the key issue was whether the Access to Justice Act (AJA) scheme was a disproportionate way of achieving the aim of access to justice.
Their Lordships decided that the AJA scheme in place prior to 1 April 2013 was compatible with Article 6 ECHR and Article 1 of the Protocol ECHR.
In reaching their conclusion, their Lordships comments included:
- the state was required to balance competing interests in society and draw the line somewhere
- there had been a wide consultation before the implementation of the AJA scheme
- in reaching the decision in MGN v United Kingdom, the European Court of Human Rights had accepted that legislative schemes will be compatible with the ECHR even if that meant harsh applicability to individual cases
- Costs judges could monitor unfairness on litigants
- CFAs allowed litigants access to justice and were therefore proportionate
- Respondents could enter into CFAs and ATE insurance
- There was no need for the AJA scheme to take the paying party's financial circumstances into account in order for the AJA scheme to be compatible with the ECHR
- The AJA scheme was, overall, a rational and coherent way of providing access to justice to those who would otherwise have been denied access to it
The practical effect of the judgment is to maintain the status quo that, provided the court exercises its discretion, where a successful litigant has entered into a CFA or obtained ATE insurance prior to April 2013, success fees and ATE premiums can be recovered from the paying party.
This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.