Pre-Laspo CFA scheme breached ECHR
Posted on 11th October 2022 at 16:56
By Sean Linley, Costs Draftsman
In a significant European Court of Human Rights decision, it has been held that the Pre-Laspo Conditional Fee Agreement (CFA) regime allowing Claimants to recover additional liabilities (ATE and success fees) does violate the European Convention on Human Rights (ECHR) under Articles 1 & 6.
In Coventry v The United Kingdom - 6016/16 [2022] ECHR 816 (11 October 2022) the case was brought by the Applicant who was an unsuccessful defendant in a nuisance action which the Claimant had funded through a CFA backed by ATE insurance. The Applicant complained "under Article 6 of the Convention and Article 1 of Protocol No. 1 about the fact that, by virtue of the Access to Justice Act 1999, the order for costs made against him included both the “success fees”, intended to compensate lawyers working under a CFA for unsuccessful cases for which they would not be paid, and the ATE premium." The Applicant was required to pay 60% of the Claimant's base costs, success fees and ATE premium totalling £860,791.00 (of which there was a success fee of £215,007 and an ATE premium of £305,000.00). In addition, the Applicant was ordered to pay further costs in the Court of Appeal and Supreme Court.
In short the European Court found that there was inequity in arms and that "in respect of uninsured defendants, who bore an excessive and arbitrary burden in CFA litigation, the impugned scheme, when viewed as a whole, infringed the very essence of the principle of equality of arms as guaranteed by Article 6 § 1 of the Convention." Moreover, it was found that an uninsured Defendant, in principle, would consequently be deprived of their possesions "in the context of Article 1 of Protocol No. 1" where "the Court consider[ed] that in respect of that class of defendant the scheme exceeded even the wide margin of appreciation accorded to the State in matters of social and economic policy." Consequently the European Court held there were violations of the Convention where it applied to uninsured Defendants and a lack of equitable remedy available to such parties. The question was not considered in the context of insured Defendants.
Background
The case was previously heard by the Supreme Court with Lord Neuberger remarking that the level of costs in the case were "very disturbing".
The Supreme Court decision is nearly summarised in the ECHR's judgment:
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 Limited, 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 Limited, 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, and 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” (see paragraph 11 above) - 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.
"15. 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 by the Court 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.
16. Nevertheless, given that the Court had rejected such an argument in MGN Limited, 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.
17. 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 base costs, uplifts and premiums, and all of the payer’s circumstances. However, they found that such a requirement would have imperilled 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.
18. For these reasons, 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.
19. 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.
20. 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 imperilling 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."
The Supreme Court's decision was not unanimous and there were concerns raised about the pre-Laspo scheme.
Untangling the Legislation
For those costs nerds interested in the history and road map of how recoverable additional liabilities came to be then the ECHR judgment offers an interesting insight.
It's acknowledged that the Government wanted to look to modernise litigation and promote access to justice through its Access to Justice Act 1999. One of the key features of the scheme was to promote and encourage the wider use of CFAs and ATE Insurances through the belief this would enhance access to justice. In consultation the majority of those who responded ultimately supported the proposal that both the success fee and ATE premium should be recoverable.
The ECHR's judgment next goes through the Civil Procedure Rules with the ECHR examining the mechanisms for assessment including the basis of assessment (CPR 44.4) and the factors to be taken into account when deciding the amount of costs (CPR 44.5). Further analysis and consideration is then given to proportionality as it applied pre-Laspo (the old Lowndes test and Rogers with respect to ATE Premiums).
Fast forward and the ECHR concerned itself with the Jackson review with it noted that 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." History runs it course but we know that Jackson LJ's review ultimately ended up with section 44 of the Legal Aid, Sentencing and Punishment of Offers Act 2012 (LASPO) largely abolishing the recoverability of success fees and ATE premiums from the losing parties, instead client's picking these up directly (which in turn has seen an increase in solicitor-own-client challenges). It was further noted a further commencement order abolished the recoverability of success fees in publication and privacy proceedings, although ATE premiums continue to be recoverable in such proceedings.
The Arguments
The ECHR looked at the case in the context of the conventions and alleged violations of the European Convention on Human Rights. It was noted that:
"The applicant complained that the recovery of the success fees and ATE premium under a CFA constituted a disproportionate interference with his rights under Article 6 of the Convention, in particular his right of access to a court and the principle of equality of arms.
54. In so far as relevant, Article 6 § 1 of the Convention reads as follows:
“In the determination of his civil rights and obligations ... everyone is entitled to a fair ... hearing ... by [a] ... tribunal ...”"
The Court did not fully accept the argument but did declare that it was "of the opinion that the complaint concerning the alleged infringement of the principle of equality of arms raises sufficiently complex issues of fact and law, so that it cannot be rejected as manifestly ill-founded within the meaning of Article 35 § 3 (a) of the Convention. It is further satisfied that it is not inadmissible on any other ground. It must therefore be declared admissible."
The Applicant averred "that the orders requiring him to pay the success fee and ATE premium were in principle incompatible with his rights under Article 6 of the Convention because the legislative scheme and rules of court pursuant to which the orders made were an unfair, irrational and disproportionate means of pursuing the legitmate aim of widening access to justice; and that they had an individual and oppressive effect on him."
The Applicant's arguments were set out thus:
"64. Regarding the operation of the legislative scheme, the applicant accepted that the recovery of base costs from a losing party was in principle a lawful interference with his rights under Article 6 § 1 of the Convention. He also accepted that the scheme pursued the legitimate aim of widening access to the courts for the “non-rich”. However, a restriction of the principle of equality of arms would not be compatible with Article 6 § 1 of the Convention unless there was a reasonable relationship of proportionality between the means employed and the legitimate aim sought to be achieved.
65. In this regard, the applicant considered a number of features of the scheme to be noteworthy. First of all, the lower the claimant’s prospect of success, the higher the success fees would be. As a result, the more justified a defendant was in resisting a claim, the greater the costs penalty would be if he lost. Secondly, the effect of the legislative scheme was that unsuccessful defendants sued by claimants with a CFA were subsidising unsuccessful litigation in unrelated cases. The scheme was therefore arbitrary as the cost of funding access to justice was not borne by unsuccessful defendants as a whole, but instead by a subset of unsuccessful defendants, namely those sued by a claimant with a CFA policy. Thirdly, although ATE insurance was in theory available to both parties, in practice it generally was not available to defendants facing claimants who had it. This was because insurers would require a 60-65% prospect of success in order to fund a claim. Fourthly, while it appeared from CPR 44.4 and 44.5 (see paragraphs 39-40 above) that proportionality underpinned the assessment of costs on the standard basis, following Lownds v. Home Office (Practice Note) [2002] 1 WLR 2450 (see paragraphs 43-45 above), costs were to be treated as “proportionate” if they were “necessary”, even if the total necessary costs were disproportionate to the value of the claim. This applied to both base costs and additional liabilities, such as the success fees and the ATE premium. Moreover, the CPD (see paragraph 41 above) provided that there should be no reduction on the basis that the total costs, when the success fees and ATE premium were added to the base costs, were disproportionate. Fifthly, despite being intended to widen access to court for the non-rich, CFAs were available to any kind of claimant, including the very wealthy. Finally, the defendant had no way of knowing in advance what the CFA/ATE policies stipulated and therefore could not know in advance what the additional liabilities would be.
66. The applicant further argued that the available safeguards were inadequate. First of all, the assessment of costs took place at the end of the proceedings, by which time it was too late to control what was being spent, and proportionality was expressly excluded from the consideration of the recovery of the success fees and ATE premium. Further, the scope for challenging the reasonableness or otherwise of the success fees and ATE premium was very limited as it was judged exclusively from the ex ante perspective of CFA/ATE funded party and his insurers. Thirdly, the power of the court to impose a cost-capping order on a CFA-funded and/or ATE-protected party at an early stage did not address the significant disadvantage which the opposing party faced. It did not deal with the fundamental objection that a defendant was exposed to liability which was up to twice (or three times, if ATE insurance was in place) the amount which would be reasonable and proportionate for that case. Moreover, the court would only make a cost capping order in “exceptional circumstances” pursuant to paragraph 23A.1 of the CPD (see paragraph 42 above). Finally, an application for such an order would involve satellite litigation which would be pointless in the event that the non-CFA/ATE party were to be successful.
67. According to the applicant, the operation of the scheme compromised defendants’ freedom to settle, due to the claimants’ rapidly escalating costs and the fact that there was no incentive for the claimants to limit those costs. Some defendants might wish to settle but could not afford to do so, while others might feel obliged to do so due to the risk of having to pay a fast-growing costs bill. Indeed, the fact that the success fees increased as the claimant’s case became weaker meant that the pressure on defendants to settle would be greatest when they had a strong case.
68. The applicant placed particular reliance on the Court’s finding in MGN Limited v. the United Kingdom (no. 39401/04, 18 January 2011). In that case, the Court had relied on four “flaws” identified in the Jackson review (see paragraph 48 above) and, in the applicant’s opinion, all four of those flaws applied equally to an assessment of whether the scheme also violated Article 6 of the Convention. Moreover, in MGN Limited the Court had not applied the narrower margin of appreciation normally applied where freedom of the press was at stake. Rather, it accepted that the State’s margin of appreciation was broad, as the scheme pursued social and economic interests, but nevertheless considered that that “broad margin” had been exceeded. The applicant therefore argued that there was no proper basis for distinguishing MGN Limited from the case at hand and, if this was correct, the Supreme Court had been wrong to rely on the approach to general measures taken by the Grand Chamber in Animal Defenders International v. the United Kingdom ([GC], no. 48876/08, ECHR 2013 (extracts)), since the Court had rejected a similar argument in MGN Limited.
69. With regard to the impact on himself, the applicant submitted that he was an uninsured defendant with no substantial savings or assets. Although the applicant and the third defendant were jointly and severally liable for the claimants’ costs, the third defendant had gone into voluntary liquidation (see paragraph 27 above) and had no means to contribute to the costs order. The applicant therefore submitted that the knowledge that he faced the risk of an order to pay the claimants’ costs, including the success fees and ATE premium, put him (and the other defendants) at a substantial disadvantage throughout the course of the litigation, especially with regard to their freedom, in practical terms, to enter into settlement negotiations with the other side. He contended that he and his fellow defendants had explored the possibility of settlement with the claimants on various occasions, including at a day-long mediation, but that a significant factor preventing a settlement being reached was the claimants’ insistence that their rapidly escalating costs should be paid in full. Moreover, it was wholly unrealistic to suggest that he could have entered into a CFA or taken out an ATE policy himself as his prospects of success - 50% at best - were simply not strong enough."
The Government's case was the rules allowing for the recoverability of success fees and/or ATE Premiums were both prescribed by law and pursued a legitmate aim. Concerning proportionality the Court was invited to judge the Convention compatibility of the scheme as a 'whole' and not by reference to a few unfortunate results. Furthermore, reliance was provided on the judgment of the Supreme Court which had concluded there were not violations. The Government further averred that there were safeguards by way of district and costs judges who played the role of watchdog and that additional liabilities were ultimately regulated. It was also put to the Court that costs capping orders were available and could be used to regulate overall costs. In addition, it was stated that Defendants could also enter into CFAs and take out ATE insurance and the existence of ATE actually meant Defendants were often better offer under the 1999 Act as they would not have to bear their own costs.
Finally the Government submitted that "any decision as to the validity of the 1999 Act scheme had to take account of the circumstances and competing interests as they stood at the time of the present proceedings. It was therefore relevant that in the twenty years since the 1999 Act came into force it had been analysed in detail by the Court of Appeal, House of Lords and Supreme Court with no finding that the impugned provisions were incompatible with Article 6 of the Convention. As a consequence, claimants with CFAs and/or ATE insurance would have had a legitimate expectation that the system would be enforced. Claimants and their lawyers had justifiably relied on the validity of the scheme and any decision which deprives a successful claimant of his right to recover the success fees or ATE premium would be likely to infringe his rights under Article 6 or Article 1 of Protocol No. 1."
The Court's Assessment
The Court considered the arguments and considered thus:
77. The Court reiterates that the adversarial principle and the principle of equality of arms, which are closely linked, are fundamental components of the concept of a “fair hearing” within the meaning of Article 6 § 1 of the Convention. They require a “fair balance” between the parties: each party must be afforded a reasonable opportunity to present his case under conditions that do not place him at a substantial disadvantage vis-à-vis his opponent or opponents (see Regner v. the Czech Republic [GC], no. 35289/11, § 146, 19 September 2017, and Avotiņš v. Latvia [GC], no. 17502/07, § 119, ECHR 2016).
78. The Court has accepted that such a disadvantage may arise where one party enjoys a privileged position with respect to the costs of civil litigation (see Stankiewicz, cited above, §§ 68-76). However, in the present case the Government have asked the Court to follow the approach adopted in MGN Limited (cited above) and examine the scheme as a whole rather than judging it by a few unfortunate results (see paragraph 71 above). It is true that the merits of the applicant’s case - that is, that he and the third defendant 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” before the domestic courts (see paragraph 18 above). Nonetheless, it would appear from the proceedings subsequently brought by the applicant against his insurers (see paragraphs 28 and 29 above) that he had been informed by the broker that the nuisance litigation was not covered by his insurance policy. The Government have not sought to challenge this assertion. Therefore, regardless of the outcome of the ongoing litigation, the Court would accept that the applicant - not unreasonably - believed himself to be an uninsured defendant throughout the course of the nuisance proceedings. Consequently, the Court will consider the operation of the scheme vis-à-vis uninsured defendants as a class.
79. In this respect, the Court recalls that according to its case-law, the rights deriving from the principle of equality of arms are not absolute and the Contracting States may enjoy a certain margin of appreciation in this area, although it is for the Court to determine in the last instance whether the requirements of the Convention have been complied with (see, for example, Regner, cited above, § 147). In MGN Limited the Court acknowledged that the introduction of the CFA with recoverable success fees sought to achieve the widest public access to legal services for civil litigation funded by the private sector (see MGN Limited, cited above, § 197). This is supported by the consultation paper (see paragraph 34 above); by the dictum of Lord Bingham in Callery v. Gray (see paragraph 38 above); and by the findings of the Supreme Court in the present case (see paragraph 16 above). The legislature was therefore implementing a social and economic policy, and in implementing such policies the Court has generally afforded it a wide margin of appreciation (see, mutatis mutandis, James and Others, cited above, § 46).
80. The scheme sought to achieve its aforementioned goal by rebalancing the means of access to justice: instead of placing the burden on the public purse, through the legal aid fund, it instead imposed the costs of CFA litigation on the unsuccessful party. In MGN Limited, the Court, in the context of Article 10 of the Convention, found the scheme to be disproportionate to the legitimate aims pursued and concluded that it exceeded even the broad margin of appreciation accorded to the Government in such matters (see MGN Limited, cited above, § 217). In reaching this conclusion, it largely relied on the four flaws highlighted by the Jackson review (see paragraph 48 above): first, there was the lack of focus of the regime and the lack of any qualifying requirements for claimants who would be allowed to enter into a CFA; secondly, there was no incentive on the part of a claimant to control the incurring of legal costs on his or her behalf and judges assessed those costs only at the end of the case, when it was considered too late to control what had been spent; thirdly, there was the “blackmail” or “chilling” effect due to the fact that the costs burden on the opposing parties was so excessive that often a party was driven to settle early despite good prospects of a successful defence; and fourthly, the regime provided the opportunity for solicitors and barristers to “cherry pick” winning cases to conduct on CFAs with success fees (see MGN Limited, cited above, §§ 206-10).
81. In the present case, Lord Neuberger and Lord Dyson considered that only the third flaw could have affected the Article 6 and Article 1 of Protocol No. 1 rights of opposing parties adversely (see paragraph 14 above). The Court would agree that the risk of a party with good prospects of a successful defence being driven to settle early by the possibility of an excessive costs burden was one of the principal objections to the scheme, especially when viewed through the prism of the principle of equality of arms. This risk would be particularly acute when the defendant was uninsured. Although insurers would not be oblivious to an opposing parties’ rapidly escalating costs, and would dictate the course of the proceedings accordingly, it is clear that defendants who did not have insurance to cover their opponents’ costs would be at a particular disadvantage. While the obvious risk is that they could be pressurised into an early settlement, the Court would not define the potential prejudice so narrowly (for example, in Stankiewicz, cited above, the Court did not expressly link the imbalance in the parties’ liability for costs to any particular outcome in the civil proceedings). On the contrary, the very different financial risks being faced by the opposing parties would be likely to impact every decision concerning the conduct of the proceedings. As the applicant in the present case suggests, it could also preclude a settlement, even in the early stages, if a party was simply not in a position to pay the opposing party’s costs (see paragraph 69 above). For Lord Clarke (with whom Baroness Hale agreed), 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 (see paragraph 21 above).
82. The risk of a party with good prospects of a successful defence being driven to settle early was exacerbated by the fact that as Lord Neuberger himself pointed out in the second Supreme Court judgment of 23 July 2014, a curious feature of the scheme was that 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 reflected the claimants’ prospects of success. Consequently, a defendant with a good prospect of a successful defence who ultimately lost the case could find himself paying, in addition to the whole of his own costs, three times the claimants’ base costs (see paragraph 11 above). An uninsured defendant would be personally liable for the entirety of this sum.
83. However, the Court does not consider only the third flaw to be relevant to the case at hand. In the context of Article 6 of the Convention, its task is to assess whether the scheme struck a fair balance between the litigants in CFA litigation, and in particular whether defendants in such cases were placed at a substantial disadvantage vis-à-vis their opponents (see paragraph 77 above). It is therefore relevant that, unlike an uninsured defendant, who would personally be facing rapidly escalating costs, a claimant with both a CFA and ATE insurance would not normally be liable for his own costs or those of the defendant if his claim was unsuccessful. This was also recognised by Lord Neuberger in the second Supreme Court judgment, where he identified as one of the “unique and regrettable features of the scheme” the fact that claimants had no interest whatever in the level of base costs, success fees or ATE premiums which they agreed with their lawyers, since if they lost they had to pay nothing, and if they won the costs would all be paid by the defendants (see paragraph 11 above).
84. The Government have not been able to point to any safeguards built into the scheme which would be capable of redressing the imbalance. While it is true that in principle defendants could also take out ATE insurance, in view of the fact that a claimant could usually only obtain ATE insurance if his chances were “better than evens”, a defendant in the same proceedings would have little or no prospect of obtaining such insurance (see paragraph 22 above). In addition, while costs were subject to assessment at the end of the proceedings, where the principle source of prejudice to the defendant is the chilling effect occasioned by the prospect of rapidly escalating costs, this assessment would come too late to correct the imbalance between the parties during the course of the proceedings (see paragraph 23 above). In any event, while proportionality had a part (albeit a limited part) to play when assessing the recoverability of base costs, it had no part to play when assessing the recoverability of success fees or ATE premiums, which only had to be reasonable (see the relevant provisions of the CPD set out at paragraph 41 above). As the Court observed in MGN Limited (citing the dictum of Lord Hope in Designers Guild Ltd v. Russell Williams (Textiles) Ltd. (2003] 2 Costs LR 204), the reasonableness of success fees essentially concerned the review of the percentage uplift on the basis of the risk undertaken in the case (see MGN Limited, cited above, § 216).
85. The Court considers two further factors to be relevant. First of all, as Lord Clarke, with whom Baroness Hale agreed, stated in the third and final judgment of the Supreme Court in this case, the scheme did not place the burden of widening public access to legal services on unsuccessful litigants; rather, it singled out unsuccessful litigants who happened to be opposed by CFA/ATE funded litigants and imposed on them the burden of funding other unsuccessful cases which did not involve them at all (see paragraph 23 above). While some litigants might themselves have had insurance, uninsured litigants would have been burdened with costs which vastly exceeded the fair and reasonable costs incurred by their opponents in order to encourage solicitors to act for litigants in other cases (see paragraph 21 above).
86. Secondly, while the fourth flaw identified in the Jackson review may not have interfered with the Article 6 rights of the opposing parties, in MGN Limited the Court considered that the fact the 1999 Act scheme permitted lawyers to “cherry pick” implied that it did not in fact achieve the intended objective of extending access to justice to the broadest range of persons (an objective rightly recognised by the Supreme Court to be inherent in the rule of law: see R (on the application of UNISON) v. Lord Chancellor at paragraph 52 above). On the contrary, lawyers had the opportunity to pursue only meritorious cases with CFAs/success fees and to avoid claimants whose claims were less meritorious but which were still deserving of being heard (see MGN Limited, cited above, §§ 210 and 215).
87. The Court acknowledges the findings of the Supreme Court in Flood v. Times Newspapers Ltd (No. 2), Miller v. Associated Newspapers Ltd and Frost and Others v. MGN Ltd (No. 2) to the effect that depriving claimants of the ability to recover the success fees and ATE premiums for which they were liable to their legal advisors and ATE insurers respectively could potentially infringe their rights under Article 1 of Protocol No. 1 to the Convention (see paragraph 51 above). It also acknowledges that ATE insurance afforded protection to successful defendants by providing them with the opportunity to recover their costs. Therefore, in contrast to the position in respect of success fees, which aimed to compensate lawyers for their unsuccessful cases, in paying the ATE premiums unsuccessful defendants were not being required to contribute to the funding of other litigation and general access to justice. Nonetheless, having regard to the depth and nature of the aforementioned flaws in the scheme, which were highlighted by the public consultation process, which were accepted in important respects by the Ministry of Justice and which have resulted in the abolition of the recoverability of success fees and ATE premiums from the losing party (see paragraph 49 above), the Court considers that in respect of uninsured defendants, who bore an excessive and arbitrary burden in CFA litigation, the impugned scheme, when viewed as a whole, infringed the very essence of the principle of equality of arms as guaranteed by Article 6 § 1 of the Convention.
88. This conclusion would appear to be borne out by the facts of the present case. The Court has accepted that the applicant - not unreasonably - believed himself to be an uninsured defendant throughout the course of the nuisance proceedings (see paragraph 78 above). Moreover, the Government have not sought to challenge his assertion that the third defendant, with whom he was jointly and severally liable, went into liquidation without making any contribution to the claimants’ costs (see paragraph 27 above). If these claims are true, he personally stands to pay a total sum of GBP 846,838.27 in respect of the claimants’ costs before the High Court and the Court of Appeal, with the claimants’ costs before the Supreme Court still to be assessed. Of this figure, GBP 320,658.56 represents the claimants’ base-costs; GBP 236,113.41 represents the success fees owed to the claimants’ solicitor and counsel; and GBP 290,066.30 represents the claimants’ ATE premiums (see paragraph 25 above). To put it into context, even excluding the costs before the Supreme Court, the order for costs made against the applicant is more than eighty times the award of damages made against him (see paragraph 4 above).
89. Accordingly, the Court would accept that the applicant can claim to be a “victim” of the alleged violation of his right to a fair trial within the meaning of Article 34 of the Convention and therefore dismisses the Government’s preliminary objection of lack of victim status (see paragraphs 55, 57 and 61 above). It further finds that there has been a violation of Article 6 § 1 of the Convention.
The Court also looked at a violation of Article 1 of Protocol No. 1 to the Convention which provides that:
“Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.
The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.”
The Court considered as follows:
2. The Court’s assessment
97. Although the Court has, in the context of costs in civil proceedings, acknowledged the legitimate aim behind the “loser pays” rule, it has found that the imposition of a disproportionate costs burden on a losing party may violate Article 1 of Protocol No. 1 to the Convention (see Cindrić and Bešlić v. Croatia, no. 72152/13, §§ 94-111, 6 September 2016).
98. While the aim of the “loser pays” rule (namely, the avoidance of unwarranted litigation and unreasonably high litigation costs by dissuading potential plaintiffs from bringing unfounded actions without bearing the consequences) was quite different from that of the 1999 Act scheme (see paragraph 38 above), the Court would nevertheless accept that that scheme had both a basis in domestic law and pursued a legitimate aim. However, in light of its conclusions at paragraphs 77-89 above, in particular, its finding that the scheme placed an excessive burden on uninsured defendants, in CFA litigation, in the context of Article 1 of Protocol No. 1 the Court considers that in respect of that class of defendant the scheme exceeded even the wide margin of appreciation accorded to the State in matters of social and economic policy (see James and Others, cited above, § 46, and, mutatis mutandis, MGN Limited, cited above, § 200). While it acknowledges that litigants who entered into CFAs may, at the time the arrangement was entered into, have had a legitimate expectation that it would be enforced, that can be no answer to the question posed in the present case, namely, whether the scheme was itself compatible with the Convention.
99. Accordingly, the Court finds that there has also been a violation of Article 1 of Protocol No. 1 to the Convention.
Article 41 and just satisfaction
The Applicant relied on Article 41 that where there has been a breach of the Convention that the Court shall, if necessary, afford just satisfaction. The Applicant argued that the Government should indemnify him in a sum equivalent to his liability for the success fee and ATE premiums as well as for the litigation which related to the Convention issues. In addition, the Application claimed his own legal costs and expenses incurred before the Supreme Court and the European Court.
The Government argued that the Applicant had failed to mitigate his costs liability by not engaging in the assessment of costs resulting in a Default Costs Certificate and also had provided no evidence that he had paid any sum in respect of the success fees or ATE premiums.
The ECHR considered that it could not rule on the application of Article 41 and stated it would fix a further hearing.
Conclusions
So a significant decision delving into complex access to justice issues which sees the European Court unanimously hold that there were violations of the ECHR in relation to Articles 1 and 6, though the remedy for these breaches remains to be dealt with on another day.
The ramifications remain to be seen, the application of the Convention to the current scheme has not been tested and the decision seems to relate specifically to uninsured Defendants subject to the pre-LASPO regime.
Will we see challenges brought to cases where additional liabilities remain recoverable (like mesothelioma?), this remains to be seen. The question that will hang is what might have happened if such a challenge was made sooner. It will be interesting to see what remedy is given to the Applicant and whether the Government will ultimately have to indemnify the additional liabilities. If so will this set a precedent? Will it give other Defendants confidence to push their own challenges? The LASPO act was not under scrutiny in the case at hand so we don't know how the European Court would view it in the context of the Convention. The other question is a wider one but the Government has not hidden its desire to remove the European Courts from jurisdiction in the UK and even a desire to draw up a new bill of rights. Either of these could impact any potential future challenges.
In the meantime the question remains one of what might have been as Coventry exposes cracks in the Access to Justice Act 1999 though nearly 10 years on from the abolition of the recoverability of additional liabilities its application will in the immediacy surely be limited.
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Tagged as: ATE Premiums, Conditional Fee Agreement
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