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You are here: BAILII >> Databases >> United Kingdom Supreme Court >> Coventry & Ors v Lawrence & Anor [2015] UKSC 50 (22 July 2015) URL: https://www.bailii.org/uk/cases/UKSC/2015/50.html Cite as: [2015] 4 Costs LO 507, [2015] WLR(D) 332, [2015] 1 WLR 3485, [2015] HRLR 16, [2015] UKSC 50 |
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Trinity Term
[2015] UKSC 50
On appeal from: [2012] EWCA Civ 26
Coventry and others (Respondents) v Lawrence and another (Appellants)
before
Lord Neuberger, President
Lady Hale, Deputy President
Lord Mance
Lord Clarke
Lord Dyson
Lord Sumption
Lord Carnwath
JUDGMENT GIVEN ON
Heard on 9, 10 and 12 February 2015
Appellants (Lawrence/Shields) Stephen Hockman QC Timothy Dutton QC William Upton Benjamin Williams (Instructed by Richard Buxton Environmental and Public Law) |
Respondent (David Coventry and Moto-Land UK Ltd) Robert McCracken QC Sebastian Kokelaar (Instructed by Pooley Bendall Watson) |
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Intervener (Secretary of State for Justice) Tom Weisselberg QC Jason Pobjoy (Instructed by Government Legal Department) |
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Intervener (Asbestos Victims Support Group Forum UK) Robert Weir QC Harry Steinberg Achas Burin (Instructed by Leigh Day) |
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Intervener (The General Bar Council) Nicholas Bacon QC Dr Mark Friston Greg Cox (Instructed by Colemans CTTS) |
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Intervener (The Law Society) Kieron Beal QC (Instructed by The Law Society) |
LORD NEUBERGER AND LORD DYSON: (with whom Lord Sumption and Lord Carnwath agree)
The factual and procedural background
The legislative scheme in its historical context
"(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)."
"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."
"The Government's policy on the recoverability is to ensure that the expense of shifting all or part of the risk in costs, whether to the solicitor under a conditional fee agreement or an insurer under an insurance policy, are usually met by the losing party and not out of damages or the pocket of the winner …."
"(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 …."
(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."
"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."
The statutory aims of the changes introduced by the 1999 Act
"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."
Although it is right to acknowledge that Lord Bingham referred earlier in the same paragraph to his opinion being only concerned with personal injury litigation, it seems clear that the observations which we have quoted were intended to be applicable to the "new regime" generally.
The meaning of proportionality
"An assessment of proportionality inevitably involves a value judgment at the stage at which a balance has to be struck between the importance of the objective pursued and the value of the right intruded upon. The principle does not however entitle the courts simply to substitute their own assessment for that of the decision-maker. As I have noted, the intensity of review under EU law and the Convention varies according to the nature of the right at stake and the context in which the interference occurs. Those are not however the only relevant factors. One important factor in relation to the Convention is that the Strasbourg court recognises that it may be less well placed than a national court to decide whether an appropriate balance has been struck in the particular national context. For that reason, in the Convention case law the principle of proportionality is indissolubly linked to the concept of the margin of appreciation. That concept does not apply in the same way at the national level, where the degree of restraint practised by courts in applying the principle of proportionality, and the extent to which they will respect the judgment of the primary decision maker, will depend upon the context, and will in part reflect national traditions and institutional culture. For these reasons, the approach adopted to proportionality at the national level cannot simply mirror that of the Strasbourg court."
"… it is necessary to determine (1) whether the objective of the measure is sufficiently important to justify the limitation of a protected right, (2) whether the measure is rationally connected to the objective, (3) whether a less intrusive measure could have been used without unacceptably compromising the achievement of the objective, and (4) whether, balancing the severity of the measure's effects on the rights of the persons to whom it applies against the importance of the objective, to the extent that the measure will contribute to its achievement, the former outweighs the latter."
"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 reference in 11.2 to costs "which are necessary" is the key to how judges in assessing costs should give effect to the requirement of proportionality. If the appropriate conduct of the proceedings makes costs necessary then the requirement of proportionality does not prevent all the costs being recovered either on an item by item approach or on a global approach. The need to consider what costs are necessary is not a novel requirement. It was reflected by the former provisions of RSC Order 62 which applied to the taxation of costs prior to 1986. Rule 28(2) dealt with costs on a party and party basis and stated:
"... there shall be allowed all such costs as were necessary or proper for the attainment of justice ...""
"105. In this case it might be thought that all the considerations urged on the court by Mr Bartlett which favour the course taken by Mr Cater, the appellant's solicitor, might go to demonstrate the reasonableness of his bill of costs – specifically, the ATE insurance staged premium – but not its proportionality: precisely because they have nothing to do with the quantum of the claim. But we do not think that is right. If the court concludes that it was necessary to incur the staged premium, then as this court's judgment in [Lownds] shows, it should be adjudged a proportionate expense. Necessity here is, we think, not some absolute litmus test. It may be demonstrated by the application of strategic considerations which travel beyond the dictates of the particular case. Thus it may include, as we are persuaded it does, the unavoidable characteristics of the market in insurance of this kind. It does so because this very market is integral to the means of providing access to justice in civil disputes in what may be called the post-legal aid world.
106. It is important to recognise that this conclusion runs with, not across, the grain of the procedural reforms expressed in the CPR. The very recognition that justice requires a use of resources that is proportionate to what is at stake implies the rightness of a strategic approach. There can be no touchstone of a proportionate use of resources so understood, without an eye to the context in which any such resources are expended. Once it is concluded that the ATE staged premium here was necessarily incurred, principle and pragmatism together compel the conclusion that it was a proportionate expense. We turn therefore to the question whether the ATE staged premium was necessarily incurred."
The respondents' case
"… the depth and nature of the flaws in the system … are such that the court can 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."
MGN v United Kingdom
"However, the court considers that the depth and nature of the flaws in the system, highlighted in convincing detail by the public consultation process, and accepted in important respects by the Ministry of Justice, are such that the court can 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."
The four flaws
Unfairness
"… the question is not whether the existing law is unfair and could be made fairer. Nor is it whether the existing law is the fairest means of pursuing the legitimate aim referred to at para 23 above. Rather, the question is whether the existing law pursues that aim in a proportionate manner. The Strasbourg jurisprudence does not insist that a state pursues a legitimate aim in the fairest or most proportionate way. It requires no more than that it does so in a way which is proportionate. There may be a number of ways in which a legitimate aim can be pursued. Provided that the state has chosen one which is proportionate, Strasbourg demands no more."
Was the 1999 Act scheme compatible with article 6 and A1P1 of the Convention?
"Judicial recognition and assertion of the human rights defined in the Convention is not a substitute for the processes of democratic government but a complement to them. While a national court does not accord the margin of appreciation recognised by the European court as a supra-national court, it will give weight to the decisions of a representative legislature and a democratic government within the discretionary area of judgment accorded to those bodies."
"26. … [C]oncentration on the individual case does not exclude recognising the desirability, in appropriate cases, of having a general rule in order to enable the scheme to work in a practical and effective way. It was for this reason that the European Court of Human Rights decided in James v United Kingdom (1986) 8 EHRR 123 that Parliament was entitled to pursue a social policy of allowing long leaseholders of low-rated houses to acquire their freeholds at concessionary rates, notwithstanding that the scheme also applied to some rich tenants who needed no such assistance.
27. Thus, notwithstanding the need to examine the balance on the facts of the individual case, I think that the impracticality of requiring a means test and the small number of individuals who could be said to have sufficient resources to provide them with access to legal services entitled Parliament to lay down a general rule that CFAs are open to everyone."
"106. Whether or not the interference was so pleaded in the above-cited VgT case, the present parties accepted that political advertising could be regulated by a general measure and they disagreed only on the breadth of the general measure chosen. It is recalled that a state can, consistently with the Convention, adopt general measures which apply to pre-defined situations regardless of the individual facts of each case even if this might result in individual hard cases. Contrary to the applicant's submission, a general measure is to be distinguished from a prior restraint imposed on an individual act of expression.
107. The necessity for a general measure has been examined by the court in a variety of contexts such as economic and social policy … and welfare and pensions … it has also been examined in the context of electoral laws; prisoner voting; and artificial insemination for prisoners; the destruction of frozen embryos; and assisted suicide; as well as in the context of a prohibition on religious advertising ….
108. It emerges from that case-law that, in order to determine the proportionality of a general measure, the court must primarily assess the legislative choices underlying it. … The quality of the parliamentary and judicial review of the necessity of the measure is of particular importance in this respect, including to the operation of the relevant margin of appreciation. … It is also relevant to take into account the risk of abuse if a general measure were to be relaxed, that being a risk which is primarily for the State to assess. A general measure has been found to be a more feasible means of achieving the legitimate aim than a provision allowing a case-by-case examination, when the latter would give rise to a risk of significant uncertainty …, of litigation, expense and delay … as well as of discrimination and arbitrariness. … The application of the general measure to the facts of the case remains, however, illustrative of its impact in practice and is thus material to its proportionality ….
109. It follows that the more convincing the general justifications for the general measure are, the less importance the court will attach to its impact in the particular case ….
110. The central question as regards such measures is not, as the applicant suggested, whether less restrictive rules should have been adopted or, indeed, whether the State could prove that, without the prohibition, the legitimate aim would not be achieved. Rather the core issue is whether, in adopting the general measure and striking the balance it did, the legislature acted within the margin of appreciation afforded to it …."
Remedy
Conclusion
LORD MANCE: (with whom Lord Carnwath agrees)
LORD CLARKE: (dissenting – with whom Lady Hale agrees)
The case for the respondents
"… the court considers that the depth and nature of the flaws in the system, highlighted in convincing detail by the public consultation process, and accepted in important respects by the Ministry of Justice, are such that the court can 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."
The flaws were thus regarded by the ECtHR as sufficiently serious to lead it to conclude that the system was incompatible with article 10 of the Convention. The same reasoning necessarily requires the court to hold that the system was also incompatible with article 6 and A1P1.
Discussion
"The incompatibility of the CFA legislation with ECHR article 6 was not directly considered in the Campbell case [in the House of Lords]. Lord Hoffmann touched on the point when he said that in relation to personal injury actions arising out of road accidents it was legitimate for Parliament to adopt a strategy of shifting the burden of funding that type of litigation from the State to unsuccessful respondents. The legitimacy of such strategy, however, depends on the fairness of the distribution of the advantages and disadvantages created by the CFA policy. In personal injury actions arising from road accidents, the burden of CFA success fees falls on insurance companies, who in turn are able to spread it amongst all policy holders, many of whom may be poor. Furthermore, CFAs were not confined to cases where the burdens and benefits could be aggregated in this way. It could be said that it is neither legitimate nor proportionate to adopt a policy that increases access to justice to one litigant by means of burdening others with the risk of having to pay twice the reasonable and proportionate costs of their adversaries and who cannot pass the risk to others nor afford to shoulder it on their own.
The last point raises an issue of equality of arms. Equality of arms requires that both parties should be afforded an equal and reasonable opportunity to advance their respective cases under conditions that do not substantially advantage or disadvantage either side. Yet, an individual defendant without the benefit of a CFA is in a worse position than the CFA claimant because he is exposed to the risk of having to pay as much as twice the claimant's reasonable and proportionate costs. The way in which the success fee is calculated compounds the inequality and the unfairness because the magnitude of the 'reasonable' success fee is in inverse proportion to the strength of the claimant's case. The riskier the claimant's case, the greater the success fee that his lawyer may legitimately charge. It follows that the stronger the defendant's prospect of success and the more he has reason to insist on his rights the more he would have to pay the claimant by way of success fee, in the event that the claimant wins."
"32. The final issue arises out of the judge's order for costs, namely that the respondents should pay 60% of the appellants' costs. The appellants' costs at first instance consisted of three components, as permitted by the Courts and Legal Services Act 1990 as amended by sections 27-31 in Part II of the Access to Justice Act 1999. The first was the 'base costs', ie what their lawyers charged on the traditional basis, which was, in crude terms, calculated on an hourly rate and the costs of disbursements. The second component was the success fee (or uplift) to which the lawyers were entitled, because they were providing their services on a conditional fee (or no win no fee) basis. The third component was the so-called ATE premium, a sum which is payable to an insurer who agreed to underwrite the appellants' potential liability to the respondents for their costs if the respondents had won. The appellants' base costs amounted to £398,000; the success fee, which (we will assume) was at the maximum permitted level of 100%, amounted to £319,000-odd (as the uplift does not apply to every item of costs), and the ATE premium was apparently about £350,000.
33. Accordingly, if the respondents had been liable for the whole of the appellants' costs up to the date the judge made the order, they would have had to pay the appellants around £1,067,000. As it is they are liable for over £640,000.
34. These figures are very disturbing."
"37. 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 the Practice Direction supplementing CPR Part 44, 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 respondents, who, on the other hand, had no say about the costs (other than retrospectively on an assessment). Secondly, in many cases, unsuccessful respondents 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 (Practice Note) [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 Practice Direction supplementing CPR Part 44 paras 11.7-11.10. Fourthly, the stronger the respondents' 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 appellants' prospects of success."
"Is it right in principle that a losing party should have to pay an additional amount, in excess of the proper and reasonable costs of the litigation, to cover the winning party's lawyer's costs of losing other cases on behalf of other clients? Is it in principle right that an eventual losing party to litigation should be at risk of paying a greater uplift if he has a strongly arguable case he nevertheless loses, whereas, if he has a rotten case, the justifiable uplift will be less? So too with the after the event insurance premium. This has insured the winning party against the costs he would have been ordered to pay if he had lost, including the costs he would have paid to the eventual losing party. Is it right in principle that a party to litigation should be ordered to pay costs referable to an insurance policy which would have covered his own costs if he had been successful? I do not here question the appropriateness of agreements providing for success fees nor the sense of insuring against potential liabilities in costs. What I do question is whether the other party should in principle be ordered to pay these elements. After all, we do start from the position that the base costs are the proper reasonable costs of conducting the litigation. Why should the losing party additionally finance the costs of other litigation of which he is not a party or of an insurance premium which would have relieved his opponent of his costs if his own defence had succeeded? And the stronger his own defence, the more he has to pay if nevertheless he loses. He may have been negligent or in breach of contract, but his negligence or breach of contract did not generate these expenses."
I agree with Sir Anthony May, who has great experience of civil litigation of all kinds.
The decision of the ECtHR in MGN v United Kingdom
"219. In such circumstances, the court considers that the requirement that the applicant pay success fees to the claimant was disproportionate having regard to the legitimate aims sought to be achieved and exceeded even the broad margin of appreciation accorded to the Government in such matters.
220. Accordingly, the court finds that there has been a violation of article 10 of the Convention."
I respectfully agree.
Conclusions
Legitimate expectation and remedy
Conclusion