Coventry v Lawrence – The Outcome

It’s a case that everyone has being waiting for and it proved to be fairly anti-climatic in the end. For those who want to refresh their memories we wrote an extensive article on the background of the Coventry case which you can read by clicking here.

The full Judgment of Coventry -v- Lawrence [2015] UKSC 50 was published yesterday confirmed that nothing will change and that the recovery of additional liabilities did not breach the European Convention on Human Rights. The Supreme Court commented as follows:

“The scheme 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 was subject to certain safeguards. The government was entitled to a considerable area of discretionary judgment in choosing the scheme that it considered would strike the right balance between the interests of appellants and respondents whilst at the same time securing access to justice to those who would previously have qualified for legal aid. It had to find a solution to the problem created by the withdrawal of legal aid. The government has now produced three different schemes. Each was produced after wide consultation. Each has generated considerable criticism. As already indicated, once civil legal aid was constrained to the extent that it was in 1999, it became impossible to come up with a solution which would meet with universal approval. This is relevant to the question whether the 1999 Act scheme struck a fair balance between the interests of different litigants.”

This should put to bed any arguments over the recoverability of any success fee / ATE Premium on pre-Jackson cases. The outcome shouldn’t come as a big surprise to lawyers. Notably Lord Mance stated as follows;

In the above circumstances, I reject the respondents’ challenge to the system of costs whereby they are potentially liable in respect of success fees agreed and ATE premium incurred by the appellants. The position must, as Lord Neuberger and Lord Dyson have said, be considered as a whole. The system had a legitimate aim, the present is on its face an extreme and unusual case. It is difficult to conceive of any solution which would cater for such cases, without imperilling the whole system. The system has been repeatedly endorsed by domestic courts over a decade. Litigants and their lawyers have justifiably relied upon its validity.

The Judgment prevents any complications for Claimants seeking to recover a success fee and also prevents a hefty bill for the UK government who could have found themselves having to remedy the success fees and ATE Premiums already paid and to be paid as part of on-going pre-Jackson cases.

The Supreme Court invariably made the right decision but what Coventry has done is to place in everybody’s mind the disproportionate nature of the old costs regime and only seeks to reinforce the importance of costs management (and perhaps even the extension of fixed fees) in the years to come.  I end this article the same as I ended my previous analysis of this case and it is one of Lord Neuberger’s original comments that has stuck with me the most;

“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)

[…]

These figures are very disturbing.”

Regardless of the judgment yesterday, one thing is clear, the figures are very disturbing indeed.

Do you agree with the Supreme Court’s decision? Let us know in the comments below.

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The Future of Guideline Hourly Rates and the Extension of Fixed Fees

It has been announced that the SCCO Guideline Hourly Rates (GHR) are to be frozen at the 2010 levels indefinitely after the Master of Rolls decided that the evidence required to change them would not be produced.

Perhaps, concerning for some is Lord Dyson’s comments that he would instead continue to press the government to extend the use of fixed fees.

Following a year-long study by the Civil Justice Council’s costs committee which concluded in July last year, Lord Dyson stated that there was a “fundamental” shortcoming in the evidence available to amend the GHR. He added that he would seek “urgent discussions” with the Law Society and the government to see what steps could be taken to obtain more.

Lord Dyson said last week that: “these discussions… have not made any material change to the position I was placed in last July – there is no funding available from any source for undertaking the sort of in-depth survey which the Civil Justice Council’s costs committee and its expert advisers consider is required to produce an adequate evidence base.

“There is also considerable doubt that even if such funds were forthcoming there would be sufficient numbers of firms willing to participate and provide the level of detailed data required to enable the committee (and in turn myself) to produce accurate and reasonable GHRs.”

Lord Dyson observed that the GHRs are becoming “less and less relevant” particularly given the judiciary’s use of proportionality as a driving principle in assessing costs, and the greater application of costs budgeting. The full effect of the new proportionality test under CPR 44.3 is only just beginning to bite for many.

He added: “Not least, I hope […] is a trend towards the greater use of fixed costs in litigation. I have long advocated their wider application, and will continue to press this point to ministers and others in the hope that this important element of the Jackson reforms is implemented.”

Lord Dyson stopped short of suggesting that the existing GHRs no longer apply and instead stated that “the existing rates will […] remain in force for the foreseeable future, and will remain a component in the assessment of costs, along with the application by the judiciary of proportionality and costs management.”

The decision represents something of a double edged sword with any decision over the Guideline Hourly Rates likely to be as unpredictable as the outcome of this year’s General Election. Paying Party firms will likely be relieved that hourly rates haven’t increased but there was also a feeling among many established figures that hourly rates could have decreased.

Solicitors have to remember that the GHR remain as precisely that a guideline and only as a starting point. Lord Dyson explicitly stated that “[the GHRs] remain an integral part of the process of judges making summary assessments of costs in proceedings. They also form a part, even if only a starting reference point, in the preparation of detailed assessments. They also provide a yardstick for comparison purposes in costs budgeting.”

Hourly Rates will inevitably continue to be a battleground until Lord Dyson has his way and the application of fixed costs is extended. Lord Dyson’s comments regarding the application of hourly rates to Costs Budgeting is also an interesting reference point given the on-going debate as to what role (if any) costs management should have on the assessment of hourly rates. Lord Dyson’s statement simply leaves the status quo which invariably carries with it the same issues as before.

The big question now is how is it possible for a receiving party seeking hourly rates above the GHRs able to predict what might or might not be allowed? The answer is that they can’t and can only base any predictions upon previous experience. My experience is that it is dealt with so inconsistently that the only fair comparison point is that of playing the lottery. If you don’t play you can’t win but by playing it doesn’t equal success.

The extension of fixed fees may well overcome the issue of GHRs but it is likely to be at the cost of solicitors. The only real option left is for solicitors to streamline processes and to become more efficient. On one hand fixed costs offers greater clarity for everyone but this does come at a cost. Does the solicitor suffer by getting reduced costs, does the client suffer as matters have to be passed to lower grade fee earners or less time spent in order to ensure a reasonable return. There will no doubt be time to have these arguments at a later point but whilst nothing may have changed, change is certainly coming.

What do you think about the decision to freeze GHRs, is this a good thing? Do you support the extension of fixed fees as suggested by Lord Dyson? As always let us have your comments below.

The full note published by Lord Dyson is available by clicking here.

If you have any questions or queries in relation to this blog please contact Sean Linley (sean.linley@clarionsolicitors.com and 0113 336 3327) or the Clarion Costs Team on 0113 2460622.

Costs reduced to Nil following failure to comply with Contract Regulations

Whilst all eyes are on the case of Coventry v Lawrence another significant development has taken place in the case of Cox v Woodlands Manor Care Home Ltd.

The full judgment is awaited but it is likely to have a great impact on all costs claims going forward. The case found that the failure to comply with the Cancellation of Contracts made in a Consumer’s Home or Place of Work etc. Regulation 2008 (“the 2008 Regulations”) would render a CFA unenforceable and resultantly no costs would be recoverable inter parties.

The Case

The case was an employers’ liability claim where the Claimant recovered £100,000.00 in damage, plus an entitlement to costs to be assessed on the standard basis.

Detailed assessment proceedings were commenced and upon review of the Claimant’s CFA, the Defendant raised the argument that the Claimant had failed to attach a notice of cancellation as required by the 2008 regulations (see section ‘the Regulations’ for more information). The Defendant therefore argued that the failure to comply with the 2008 regulations meant that the CFA was unenforceable between the Claimant and the solicitor. This meant costs were not recoverable between the Claimant and the solicitor and by virtue of the indemnity principle no costs were recoverable from the Defendant.

At the first detailed assessment, the claimant and the solicitor submitted witness evidence stating that their intention was for the CFA only to come into effect once the legal expenses insurance enquiries had been completed. District Judge Britten accepted this. HHJ Denyer QC granted an appeal, holding that the district judge had erred to find that the CFA came into effect at any date other than the date that it had been signed. This ruling was upheld in the Court of Appeal, meaning that the contract between the claimant and her solicitor was found to be unenforceable. As such, the bill of costs was assessed at nil and the Defendant was awarded their detailed assessment costs, including those relating to the two appeals.

The Regulations

The regulations themselves only apply to Conditional Fee Agreements entered into after 1 October 2008. Even the regulations only apply in very specific circumstances:

  • During a visit by the trader to the consumer’s home or place of work, or to the home or another individual;
  • During an excursion organised by the trader away from his business premises;
  • After an offer made by the consumer during such a visit or excursion.

The judgment confirmed that solicitors satisfy the description of “trader” and their client’s would be classed as “consumers”, under the terms of the 2008 Regulations.

In most cases it is very rare that a CFA is signed at the same time by the client and solicitor and resultantly it is common for the 2008 regulations to apply.

Where the 2008 Regulations apply, the following requirements must be satisfied:

A: The solicitor must give the client a written notice of his right to cancel the retainer;

that notice must be given at the time the retainer is made, or if the contract is made after the visit or excursion, at the time the offer is made;

B: That notice must

Be dated;

  • Indicate the right of the consumer to cancel the contract within the cancellation period;
  • Be easily legible;
  • Contain the following information: the identity of the solicitor including trading name if any; the solicitor’s reference, code or other details to enable the contract or offer to be identified;
  • Contain a cancellation form in the form set out in Part II of Schedule 4 of the 2008 Regulations provided as a detachable slip and completed by or on behalf of the trader in accordance with the notes;
  • Contain the name and address, (including any electronic mail address as well as the postal address), of the person to whom a cancellation notice may be given;
  • Contain a statement that the consumer has a right to cancel the contract if he wishes and that this right can be exercised by delivering, or sending (including by electronic mail) a cancellation notice to the person mentioned above at any time within the period of 7 days starting with the day of receipt of a notice in writing of the right to cancel the contract;
  • Contain a statement that notice of cancellation is deemed to be served as soon as it is posted or sent to a trader or in the case of an electronic communication from the day it is sent to the trader;
  • Contain a statement that the consumer can use the cancellation form provided if he wishes;
  • Indicate, if applicable, that the consumer may be required to pay for the services supplied if services are provided with his written agreement before the end of the cancellation period; and
  • Indicate if applicable that a related credit agreement (such as a disbursement funding loan) will be automatically cancelled if the retainer is cancelled.

It is evident that ensuring compliance with these regulations isn’t entirely straight forward given the long list of areas which must be complied with. The case highlights the significance of ensuring compliance as failure to do so can result in costs been disallowed.

Even more significantly failure to comply with the regulations is a criminal offence so if you find yourself in this position or have any concerns it is vital to obtain specialist advice at the earliest opportunity.

What next?

This Court of Appeal decision held that costs are irrecoverable where a CFA does not comply with the 2008 Regulations. As reported by the Association of Costs Lawyers, within the judgment, the Court of Appeal confirmed that the 2008 Regulations apply to cases funded by CFAs between solicitors and their clients. As such, the decision applies to all CFAs entered into between solicitors and their client’s between 1 October 2008 and 13 June 2014.

The case is likely to give rise to even more requests for the disclosure of CFAs in any applicable cases and understandably so given the massive reductions which could be achieved.

My advice would be to disclose the CFA where ever it is practically possible to do so. Refusal to disclose your CFA only leads to doubts been raised over the validity of the same and would likely lead to criticism from the Court particularly if retainer documentation is only provided in the Court’s bundle (at the Detailed Assessment). If there is nothing to hide then there is no reason not to be open. Being open will likely assist in settlement negotiations, lead to a higher recovery rate and even to a swifter settlement.

For parties reviewing old cases who have failed to comply with the Contract Regulations then I can only urge you to obtain specialist advice as soon as possible because the repercussions can be catastrophic.

Do you think the application of the Contract Regulations is a harsh interpretation or is it right that the failure to comply leads to a nil costs recovery?

You can view the full 2008 Regulations online here http://www.legislation.gov.uk/uksi/2008/1816/pdfs/uksi_20081816_en.pdf

If you have any questions or queries in relation to this blog please contact Sean Linley (sean.linley@clarionsolicitors.com and 0113 336 3327) or the Clarion Costs Team on 0113 2460622.

£3,500.00 in damages and nearly half a million pounds in Legal Costs – How do you deal with Disproportionate Costs?

I’ve often found myself wanting to get into the mind of a Costs Judge and the case of Gilks -v- Hodgson [2015] EWCA Civ 5  is one such case.

 

The case centred around a boundary dispute between the parties in relation to the boundaries of land and a right of way. The matter ran all the way to Trial which lasted 10 days, thereafter an appeal was allowed and heard in the Court of Appeal which lasted 3 days and was solely in relation to the boundary dispute. The Claimant was awarded £3,500.00 in damages.

 

Sir Stanley Burnton’s judgment makes for some particularly interesting reading. He stated that “this [was] a depressingly unfortunate dispute between neighbours. The costs so far approach half a million pounds, far more than the value of the rights involved. It is a dispute that could and should have been compromised on terms that both parties could live with. The trial took 10 days, and even then some issues, referred to by the judge at paragraph 2 of his judgment, were left undecided.”

 

So to be clear, although the matter in dispute was undoubtedly important to the client, damages were awarded in the sum of £3,500.00 and legal costs totalled nearly half a million pounds. There’s clearly some large proportionality issues and the Judgment handed down certainly goes some way to addressing this.

 

This is particularly interesting when read in the context of the recent case of Savoye -v- Spicers Ltd [2015] EWHC 33 (TCC) (a useful post on this case can be found here) It is almost certain that this case will be raised when dealing with the issue of costs. In the case of Savoye, the Bill of Costs was reduced from £201,790.66 on summary assessment, to £96,465.00.

 

This is a case which is worth keeping an eye on in terms of costs. The Costs Judge will no doubt have some difficult issues to determine and depending upon which proportionality test applies there could be some drastic reductions.

 

Is Costs Budgeting the Key?

 

For those doubting Costs Budgeting, is there a better case than this to highlight the need for some form of monitoring costs? The amount incurred is astonishing and some form of Costs Management would certainly have been beneficial in curbing the level of costs incurred.

 

Lord Justice Bean who also heard the Appeal added in the Judgment the following;

 

I only add how dismayed I have been by this Dickensian litigation. The disputed strip of land and right of way do not constitute the sole means of access to anyone’s home. The award of damages to Mr & Mrs Gilks was £3,500. Yet, at a time when the courts are under great pressure, the battle between these two couples took up ten days of court time – more than some murder trials – before Judge Armitage and a further three days in this court; and about half a million pounds has been spent in costs. It is almost as though Lord Woolf and other civil procedure reformers over the years have laboured in vain.

 

I have faith that the reforms in place will start to work, particularly once the Bill of Costs follows the same format as the Budget which will enable the correct comparisons to be made (there’s a clear disconnect between the two at present).

 

Costs Management can assist if applied correctly.  Get the Costs Budget right and everything else will naturally fall into place. As with most things in life, prevention is better than cure.

 

Are people seeing a more aggressive approach from the Court in terms of proportionality? Should the Court be doing more to prevent such disproportionate claims for legal costs?

 

The full Judgment is available online http://www.bailii.org/ew/cases/EWCA/Civ/2015/5.html

 

If you have any questions or queries in relation to this blog please contact Sean Linley (sean.linley@clarionsolicitors.com and 0113 336 3327) or the Clarion Costs Team on 0113 2460622.

Failure to Word Tomlin Order Correctly Can Result in Adverse Costs

We have often encountered difficulties when costs orders have not been termed correctly.  One example is where a party failed to include the provision for costs to be assessed in the final Tomlin Order, and simply provided for the losing party to pay the winning costs ‘subject to agreement’. There was no reference to detailed assessment.

In order to commence detailed assessment proceedings, it is necessary to have a ‘right to detailed assessment’ (CPR 47.7). Such a right can arise only as a result either of a court order which states that costs are to be assessed, or a deemed order (for example as a result of acceptance of a CPR 36 offer, or upon notice of discontinuance under CPR 38). Importantly, where an order does not mention costs the general rule is that no party is entitled to its costs (CPR 44.10(1)).

Therefore, in the absence of the inclusion of the terms ‘subject to detailed assessment’ the court held that there was no authority for the costs to be assessed and adjourned the Detailed Assessment hearing.

The costs implications couldn’t be clearer.  When concluding any claim it is vital that any Tomlin or Consent Order specifically makes reference to costs to be assessed.  Costs Lawyers can assist with the terms of costs orders ensuring that these are completely watertight, and therefore avoiding the possibility of adverse costs or expensive satellite litigation.

You can contact the Clarion Costs Team on 0113 2460622, or by emailing Andrew.McAulay@clarionsolicitors.com.

Part 36 leads to indemnity costs, enhanced interest and an additional £75,000.00 in damages in Downing -v- Peterborough & Stamford Hospitals NHS Foundation Trust [2014]

If you ever needed to be convinced of the advantages of putting forward a strong early Part 36 offer then this look no further than the case of Downing –v- Peterborough & Stamford Hospitals NHS Foundation Trust where the Claimant was awarded indemnity costs, increased interest (10% instead of 8%) and an additional £75,000.00 in damages.

The Case

The matter was a high value medical negligence claim. The Claimant made a Part 36 offer of £1.2 million (inclusive of interest). Damages were awarded in the sum of £1,508,524.00.

In accordance with CPR 36.14(3)(b) and (c) the Claimant requested that costs be awarded on the indemnity basis from the relevant date and for interest on those costs to be awarded at a rate not exceeding 10% above base rate. The Judge noted that the court was obliged to make such an award unless it was considered to be ‘unjust’ to do so

The Judge further when considering CPR 36 noted that “a decision was taken, as a matter of public policy, to impose sanctions in order to encourage and facilitate the settlement of litigation and, correspondingly, to avoid parties incurring the costs involved in going to trial and also to save court time.”  Effectively, the rule was not in place as a punishment for conduct or as a result of breaching a rule but instead as a way to encourage lawyers to explore the possibility of an early settlement.

The Defendant argued that they had been mis-led by one of the experts who they stated appeared to take a less optimistic view of the Claimant’s prospects of recovery when giving oral evidence as opposed to the written evidence which had previously been provided. The Judge stated that all of the experts in the case were “tentative and cautious as to the changes of significant improvement [to the Claimant]” and that resultantly there was “nothing […] to justify a departure from the presumption in favour of indemnity costs”. The Judge accordingly awarded that costs should be assessed from the relevant date on the indemnity basis and further that there should be interest on those costs at 10% above base rate.

The Judge subsequently referred to CPR 36.14(3)(d) which states that an additional amount (on damages awarded) not exceeding £75,000.00 to be paid which is calculated based on the sliding scale set out within the rule (10% of the first £500,000 and 5% of any amount above that figure limited to £75,000.00). The Judge accordingly awarded the maximum figure of £75,000.00.

Part 36 – Friend or Foe?

It is clear that putting forward a strong early Part 36 offer can offer up some strong rewards. There is a clear incentive for both Claimants and Defendants and the judgment in Downing acts as a reminder of the potential implications of beating your own Part 36 offer.

Equally the risks of pursuing litigation at the expense of properly considering any Part 36 offer put forward highlights the potential risk at assessment. Any party seeing this judgment should be acutely aware of the benefits of placing early risk on the Other Side.

In my opinion it makes sense for all parties, Claimant or Defendant to put forward a strong Part 36 offer early on. For a Claimant and Defendant the opportunity to get indemnity costs, enhanced interest and additional damages should be appealing enough but there is also the opportunity to settle early, a benefit for all the parties involved and indeed the court’s reasoning for the awarding of the aforementioned benefits.

Part 36 in Costs Litigation 

The same benefits apply in costs litigation and it is therefore nonsensical to not make a strong early Part 36 offer.

That applies for both the receiving and the paying party who can both benefit out of the Part 36 regime. Again the added bonus here is that it can lead to an early settlement avoiding the incurring of unnecessary legal costs.

There will obviously be litigators who are aggressive in the amount of costs they want to recover and there will always be paying parties putting forward unrealistic offers but tactically this plays right into Part 36 and the ‘riches’ that can be awarded.

How do people feel about the new Part 36 regime, have you started putting forward and receiving early Part 36 offers? Please comment below.

If you have any questions or queries in relation to this blog please contact Sean Linley (sean.linley@clarionsolicitors.com and 0113 336 3327) or the Clarion Costs Team on 0113 2460622.

Coventry –v- Lawrence – The Immediate Aftermath and why Additional Liabilities on pre-Jackson cases are still recoverable

Most lawyers will likely be familiar with the unexpected judgment provided by the Supreme Court in the case of Coventry and others v Lawrence and another (No 2) [2014] UKSC 46 concerning the recovery of success fees and ATE premiums. The Supreme Court found that the recovery of additional liabilities from defendants may breach the European Convention on Human Rights. The ramifications are potentially both huge and costly.

Before we consider what might happen it is useful to consider what has already happened.

Background

At its simplest the Coventry case was a claim for nuisance by the owners of a bungalow against the occupiers of a stadium 850 yards away which was used for motor racing and resultantly caused lots of noise. The Claimant’s initially won the claim then lost at the Court of Appeal before winning in the Supreme Court where an injunction against the defendants and damages totalling £20,700.00 were ordered. The Claimants got an order that 60% of their costs should be paid by the defendants.

This led to a second issue to be considered in relation to the level of costs sought. The Supreme Court recorded that the claimants had base courts that amounted to £398,000.00 together with a 100% success fee and an ATE premium of circa £350,000.00. In essence the total costs claimed exceeded £1,000,000.00 and the defendant would have been liable for 60% of the costs claimed which would amount to over £640,000.00, 32 times larger than the damages awarded. This was before appeal costs were even taken into consideration.

The lead judgment of Lord Neuberger summed up the all of costs claimed as being “disturbing” and “highly regrettable”. The case in this respect was clearly highly unusual.

The Arguments – For and Against

On the day of the hearing it was argued for the defendants before the Supreme Court that the extent of their costs liability infringed the defendants’ rights under the European Convention on Human Rights (ECHR) to both a fair trial under Article 6, and to peaceful enjoyment of possessions under Article 1 to the 1st protocol. The defendants specifically referred to the judgments of MGN Limited –v- United Kingdom (2011) and Dombo Beheer BV v Netherlands (1994) in that article 6 would be infringed if the court required the defendants to pay 60% of the success fee and the ATE Premium.

In MGN v UK, the Strasbourg Court held that there was a violation of article 10 (freedom of expression) in respect of the payment of additional liabilities. In this case, however, the violation occurred given the wealth of Naomi Campbell (the Claimant in the original claim against MGN) who it was argued did not need a CFA as she could have utilised alternative means of funding. It was indeed noted by the Court that the law had a legitimate aim of achieving the widest public access to legal services for civil litigation. It was found in this case that the requirement to pay success fees was disproportionate. The Supreme Court commented on Coventry that “in the present case, by contrast, article 10 does not apply and it is apparent that the [claimants] needed the protection of a conditional fee agreement and recoverable ATE premium in order to be able to bring their claim.”

The case of Dombo Beheer BV v Netherlands dealt with the issue of article 6 specifically. In the case of Dombo Beheer BV it effectively provided that one side in a trial should not have an unfair advantage. The Supreme Court stated that it was “by no means clear that the general observation [held in Dombo Beheer BV] would necessarily support the defendants’ argument.” If the claimants did not have access to legal representation by way of a CFA then arguably the claimants right to a fair trial could itself be undermined.

The Supreme Court went on to refer to the case of Callery v Gray [2002] where the House of Lords “effectively confirmed that, subject to reasonableness, success fees and ATE premiums were recoverable”. It was further noted that in Campbell v MGN Ltd (No 2) [2005] that whilst the House of Lords determined that the recovery of additional liabilities (in line with the 1999 Act costs recovery regime) did not infringe article 10, the Strasbourg Court found that it did. The Supreme Court therefore found that the issue of whether the 1999 Act costs regime and specifically the right to recover any success fee and ATE premium from the unsuccessful defendant infringed the EHCR should be open for the Supreme Court to reconsider.

The case was adjourned in order to allow the UK government to present its case to the Court before any ruling was made.

The main counter argument will be based around the principle of ‘Access to Justice’.  Indeed the Supreme Court refers to this explicitly and even accepted that the Claimants needed a Conditional Fee Agreement which provided for the recovery of a success fee and ATE premium in order to bring the claim.

The Supreme Court’s key issue appears to be that the Court has no way in which to reign in any additional liabilities claimed. Whilst the court can state that the base costs are disproportionate and too high the same cannot be said for the success fee or the ATE premium. This is because the CPR and 1999 Act have the effect of requiring the defendants to pay any success fee and ATE premium in full, subject to the same having been reasonable but irrespective of proportionality. Indeed the Costs Practice Direction (CPD) 11.5 further states that “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”. CPD 11.9 adds further to this that “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.” It certainly seems that far from the tentative arguments put forward by the defendants resonating with Lord Neuberger it is in fact the astonishing level of “very disturbing” costs claimed that struck a chord. It is important to note at this stage that the level of any success fee (where the success fee isn’t fixed) / ATE premium can be reduced / challenged at assessment.

We are faced with the question of whether the recoverability of additional liabilities really ever solved the issue of ‘access to justice’ for all? The fact that Woolf’s reforms were replaced by the Jackson reforms would seem to indicate that Woolf’s reforms were not perfect. Clearly additional liabilities formed part of an attractive proposition to lawyers allowing them to take on cases which they may not have otherwise done so but it equally lead to some exuberant cost claims. It is accepted that many claims are no longer as lucrative as they once were with profit margins dropping as a result of Jackson’s reforms. Indeed there is now an on-going debate about whether Jackson is actually undermining access to justice, granted this is another matter but it is interrelated in the greater context of Coventry, that been would a declaration of incompatibility be at logger heads with access to justice? Would the inability to recover a success and ATE Premium have prevented the claimants from bringing their claim?

What happens next?

It is unclear what will happen next and what any longstanding implications may be.

On the most simplistic level a seven judge Supreme Court will hear the matter on February 9th and 10th 2015;  the ‘costs D-day’.

Any decision would only apply to CFAs entered into before 1 April 2013. If it is determined that the relevant UK legislation was incompatible with the ECHR and / or Article 1 First Protocol then the government could face significant claims by defendants for the return of additional liabilities that they were unlawfully forced to pay. Exact figures aren’t know but its feeling would no doubt be felt at next year’s general elections as the next government could be faced with a legal bill running into billions of pounds.

The Human Rights Act 1998 section 4 (6) states that a declaration of incompatibility does not “affect the validity, continuing operation or enforcement of the provision in respect of which it is given and is not binding on the parties to the proceedings in which it is made.” Significantly, it appears that a declaration of incompatibility would have no material effect on the legality of the recoverability of additional liabilities for pre-Jackson CFAs.

What happens to the recovery of additional liabilities now?

For post 1 April 2013 CFAs there will be no change, as post-LASPO retainers abolished the recoverability of additional liabilities from a defendant. There may, however, be potential issues relating to pre 31 March 2013 CFAs.

I have seen defendants already seeking to rely upon the uncertainty of the Coventry case to argue that assessments should be adjourned until the Supreme Court’s ruling is given. There is nothing to support that the court would adjourn any assessment hearing but equally it is not 100% clear that the court wouldn’t order an adjournment.

It is my opinion that any additional liabilities will continue to be recoverable in the interim period. There is existing law for the court to apply and even in the event that the recovery of additional liabilities is found to be unlawful any remedy would be against the UK government so the question will be why should a defendant refuse to pay?

A paying party may wish to reference Coventry to create uncertainty and risk. In claims which carry an unfixed success fee or a high value ATE Premium it could potentially lead to some claimants taking a ‘deal’ or discount but I simply cannot see the court taking the position that an assessment should be adjourned, particularly given that the wording of the Human Rights Act 1998 section 4 (6) seems to effectively guarantee the recovery of additional liabilities even if the same has to remedied by the government.

Conclusion

It is regrettable that the Supreme Court is looking at this issue now. Jackson has sought in many respects to deal with the issues that the Supreme Court has found to be so glaring with the abolishment of the recovery of success fees and ATE premiums from defendants and the introduction of costs budgeting and the new stricter test for proportionality.

There is already talk of extending fixed costs to claims up to £250,000.00 (which in my opinion in turn opens the doors for fixed costs to be extended to all claims) and it is clear that there is an agenda to stamp out excessive costs claims. It is just a shame that this is now happening ‘after the event’.

I would welcome people to share their own experiences with Coventry, have you found defendants referencing the case and are you concerned about the potential retrospective abolishment of the recovery of additional liabilities?

As the ‘costs D-day’ draws closer I thought this excerpt from Lord Neuberger’s judgment drives home why the Supreme Court is considering the issue of the recoverability of additional liabilities;

“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)

[…]

These figures are very disturbing.”

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