The new Mitchell?

In Coventry and Ors v Lawrence and Anr (No 2) [2014] UKSC 46, the Supreme Court chose not to do what all other courts up and down the land have done. Instead of ordering payment of a success fee and an after-the-event (ATE) insurance premium against the losing party, the court took the decision to adjourn the matter.

This was to allow the Minister for Justice and the Attorney General to make comments/representations with regards to two key questions: (i) whether recoverability of the success fee and premium breached article 6 of the European Convention on Human Rights (i.e. the paying party’s right to a fair trial), and (ii) whether article 1 of the first protocol to the convention was breached (i.e. an unjustified deprivation of property).

Primarily, the case was about nuisance. It concerned a successful private claim, which was brought by two local residents against the occupiers of a speedway track. The case was run under the pre-Jackson costs regime established by the Access to Justice Act 1999. It is a prime example of how costs can rack up on a small value dispute.

The residents won at first instance but the case was then taken to the Court of Appeal. Here the residents lost but the case was referred to the Supreme Court where the residents won again. The two occupiers of the speedway track were ordered to pay £10,350 each in damages, and 60 per cent of the residents’ costs.

The residents’ base costs from the original trial were £398,000, plus a success fee of £319,000 and ATE premium of about £350,000. This totalled £1,067,000.

Taking into account the 60 per cent of residents’ costs for which the Speedway owners were liable, this meant that they were/are facing a bill over £640,000 - before the court costs.

Understandably, the court said: “These figures are very disturbing; they give rise to grave concern even if one ignores the success fee and ATE premium. 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.”

It appears to be the hugely disproportionate costs that led the court to consider whether article 6 and article 1 came into play. Furthermore, it stated that if the European argument prevails then insurance companies, or whoever has paid out for disproportionate additional liabilities, “may well have a claim for compensation against the government for infringement of their article 6 rights”.

Potential issues

The court has not actually made a decision yet on this issue. Instead, it is merely musing out loud and allowing the government a chance to have its say. But these are potentially massive issues, so what are the possible ramifications?

First, it is not clear how this case may proceed following the adjournment and after the government has taken its opportunity to give its opinion.

It may be suggested that the question of costs should be dealt with by the Court of Appeal, or original trial judge. Similarly, it might be recommended that there should be a hearing to decide the best way forward, with the hearing to include all the parties plus any others with an interest in the case. Those with an interest in the case could be almost infinite given that the question could go to the heart of most litigation post-AJA 1999 but prior to the implementation of the Jackson reforms.

I have spoken to cost gurus, claimant lawyers, defendant lawyers and insurance companies and the general view is that this is a case about nuisance and disproportionate additional liabilities. If the court shares this view, Coventry v Lawrence will not be a case with wide-ranging impact. If those I have spoken to are right, the court’s musings will stay as exactly that - something of interest for the more erudite and technical lawyers but nothing more.

If, however, it is found that the pre-Jackson regime of recoverable success fees and ATE insurance do breach the European Convention on Human Rights, there will be “very serious consequences for the government”, just as the Supreme Court suggested.

I am firmly against the case applying widely. My main points against it applying specifically to PI cases, and therefore allowing us to panic less, are:

1. It is a case about nuisance and no more.

2. It is about disproportionate additional liabilities and no more. >>

3. It involves rights to property and civil rights, which are not widely applicable.

4. How often in personal injury litigation would the costs be over £1m and the dispute amount to £75,000? Extremely unlikely in my opinion.

5. The article 6 point has already been looked at in the Naomi Campbell case (MGN v UK) by Europe. Although it criticised the government, ultimately nothing changed in English and Welsh law.

6. There is no decision yet and the matter has been adjourned to allow the Attorney General and the Ministry of Justice to make representations.

7. If the Supreme Court made a declaration of incompatibility, the matter would go back to parliament for their input. Presumably, parliament would say “do what we said in the first place (AJA 1999) and pay the premium and the uplift, and by the way we have changed all of this now anyway”.

8. Any potential claim for monies already paid out or to be paid out would appear to be a claim against the government.

9. The law as at today is unchanged and had been settled for some time; any application on the back of the current “non-decision” would be opportunistic and expensive.

10. You have to ask whether the government would allow that level of omnishambles to take place.

Stay prudent

So, on the face of it, waiting to see how the government reacts would appear to be the most prudent way forward. However, it is not beyond the ken of man for some insurers, or more likely some defendant solicitors on behalf of their insurer clients, to see it there is any merit in progressing the Coventry arguments.

Defendant lawyers may be looking for the next big case to push on. Therefore, we must pause to consider whether Coventry is the new Mitchell.

For the ten reasons mentioned above, I think that Coventry is casting a longer shadow than it truly deserves. However, it is understandable why people are uncomfortable with its potential ramifications.

The first way marker is to see what the MoJ and the Attorney General have to add to the debate. We should not forget that they could easily kill the speculation with a few well-chosen missives.

The next factor to consider is whether the Supreme Court will seek the input of all interested parties and ask for their opinion prior to making its own decision.

Alternatively, it could be the case that the Supreme Court ducks the decision on costs and delegates (or sidesteps) the decision on costs to the Court of Appeal or the original trial judge.

Somebody somewhere is probably wondering why we are having this debate at all, given that it seems to throw up more questions than answers.

Something that should not be forgotten in this discussion is what was in parliament’s mind when the AJA 1999 made its way onto the statute books. In my view, the AJA was meant to provide “access to justice” for more people rather than less. How well it achieved that aim is another debate, but that was parliament’s aim.

Are those aims not entirely concordant with European Convention Rights? If you strip away the outliers such as Coventry, hasn’t the AJA worked pretty well during its lifetime, allowing millions of people to benefit from ‘no win, no fee’ arrangements?

The other facet that should be considered is what happens if an insurance company wanted to make an application for a declaration of incompatibility. Will that be dealt with by the lower courts and why would they take such a gamble at this point in time? The cost consequences of getting it wrong would appear to be steep, and with such uncertainty around this point, would the courts not see the application as opportunistic at best?

Coventry will not fundamentally change the views that we have held since the AJA was enacted, especially as arguments on disproportionality are largely historic since the Jackson reforms were implemented.

However, insurer behaviour and the ability for lower-level courts to be bullied may lead to
issues for lawyers and their clients before an actual decision occurs. I sincerely hope that this current non-decision is not used as an opportunity to delay payment of costs on perfectly valid, reasonable and proportionate costs and ATEs. SJ

David Bott is senior partner at Bott & Co