More Noise: Loser pays on CFA’s?

  Coventry v Lawrence (Part 2)

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A Supreme Court case I commented on recently, elsewhere described as “…an important judgment on the principles of private nuisance for the 21st century…”[i] now has wider ramifications for legal costs in CFA cases. In the supplemental judgment of 23 July, Coventry v Lawrence [2014] UKSC 46[ii] a five member Supreme Court panel decided on the grant of an injunction and damages in a private nuisance case brought by a house owner against operators of a speedway stadium.

One of the remaining issues was whether the injunction for nuisance should be suspended until the house was again habitable, following fire damage. Damages were thought likely to be even more of an adequate remedy in the meantime.

However, the pronouncements on CFA costs have assumed far greater importance than on this case alone. The house owner had been awarded 60% of his costs to be paid by the operators, including base costs, success fee and after the event costs insurance (AEI). On a detailed analysis of the figures, Lord Neuberger said

 the figures are very disturbing

The base costs were £398,000, success fee £319,000 and AEI £350,000 (total £1,067,000). This was “regrettable” in the context of the house being worth a maximum of £300,000, and the nuisance reducing this by £74,000 at most. The operator’s liability to pay the householder’s costs would leap from £238,000 (60% of basic costs only) to £640,200, being 60% of all three elements, based solely on how the householder had chosen to fund their case.

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It had been thought that satellite litigation on costs or CFAs and AEIs at least had subsided, following Callery v Gray [2002] 1 WLR 2000, where the House of Lords decided that, subject to reasonableness, success fees and ATE premiums were recoverable. In Campbell v MGN Ltd (No 2) [2005] 1 WLR 3394, the House of Lords held that the 1999 Act[iii] costs recovery regime did not infringe Article 10 of the European Convention on Human Rights (“ECHR”) (freedom of expression).

However, the operators argued that following the Strasbourg Court in MGN Limited v United Kingdom (2011) 53 EHRR 5 and Dombo Beheer BV v Netherlands (1994) 18 EHRR 213, Article 6 (right to a fair trial) would be infringed if the court required them to pay 60% of the success fee and the ATE premium.

In MGN v UK at para 217, the Strasbourg Court said that “…the depth and nature of the flaws in the system…” introduced by the 1999 Act and the provisions of the CPR were “…such that the Court can conclude that [it] exceeded even the broad margin of appreciation to be accorded to the State in respect of general measures pursuing social and economic interests…”.

As to Article 1 of the First Protocol to the Convention (“A1P1”), the operators rely on the reasoning of the Strasbourg court in James v United Kingdom (1986) 8 EHRR 123.

Faced with these contentions and giving the lead judgment, Lord Neuberger held that it is

open for argument

whether the home owner’s costs claims (success fee and AEI) are a breach of the operator’s entitlement to a fair trial under Article 6 ECHR and/or A1P1. The Supreme Court ruled that if the operator wishes to pursue that argument, it would be wrong for it to decide the point without representations from the Government and other interested parties as interveners. These would include the Attorney-General and the Secretary of State for Justice, and any other intervener sanctioned by the Court.

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Comment

Following the Jackson Reforms, the success fee and AEI would no longer be recoverable in cases where such arrangements were entered in to after April 2013. However, in the instant case (and a vast number of cases continuing through the Courts under the “old” fee regime), until now such success fee and AEI have been regarded as entirely valid and enforceable against the losing side.

A number of questions arise, including whether, if the court considered that there was an infringement of the operator’s rights this ought to be recognised by a declaration of incompatibility. However, the forum for this decision has yet to be resolved, whether this should be again at the Supreme Court, or as stated in Callery v Gray at the Court of Appeal, being “…the primary supervisory and judicial policy-making functions in connection with case-management, procedural and costs issues…” with greater experience on matters concerning costs.

Further affected by this renewed doubt however, are litigants in ongoing cases subject to the old costs regime, where the funding, CFAs, retainers and AEI premiums will now be questioned, to say nothing of all previous cases decided (or settled) on the assumption by the courts that the old regime did not offend against ECHR. If there is a declaration of incompatibility, this could lead to a deluge of compensation claims against the UK Government.

 

[i] (Planning permission no defence to private nuisance claim) http://wp.me/p4DFLr-c

[ii] http://supremecourt.uk/decided-cases/docs/UKSC_2012_0076_Judgment.pdf

[iii] Legal Services Act 1990 Part II, Access to Justice Act 1999

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