Recoverability of Success Fees and ATE Premiums – Has the Primary Legislation let Claimants down?

Recoverability of Success Fees and ATE Premiums – Has the Primary Legislation let Claimants down?

The recent appeal in the case of Coventry & Others v Lawrence & Another (No 2) [2014] UKSC 46 has raised concerns over the recoverability of additional liabilities between the parties in civil claims where the CFAs and ATE premiums pre-date 1 April 2013.  Prior to that date, where a Claimant has funded its claim by way of a CFA and an ATE premium, the resulting additional liabilities have thus far been routinely recoverable from the losing party in the proceedings.

Coventry was a case in which the occupiers of a stadium (the Respondents) were found liable in nuisance to the occupiers of a nearby residential bungalow (the Appellants).  Damages of £10,350 were awarded against each of the two Respondents who were also ordered to pay 60% of the Appellants’ costs.  These costs included a success fee – assumed to be charged at 100% – in the region of £319,000 and an ATE premium of around £350,000.  Had the Respondents been liable for 100% of the Appellants’ costs, therefore, they would have had to pay them in excess of £1million.  As Lord Neuberger pointed out, these figures (for such a modest claim) are disturbing.

One of the matters for consideration at the Hearing in the Supreme Court on 23 July 2014 was whether or not the Order for costs against the Respondents infringed their rights under article 6 of the European Convention on Human Rights (the right to a fair trial).  Having considered the matter and the cases relied upon by the Respondents, Lord Neuberger decided that it would not be appropriate for the Court to make a ruling on the point without the Government having first been given the opportunity to address the Court on the issue.  In taking this decision, Lord Neuberger stated:

“….a determination by a United Kingdom court that the provisions of the 1999 [Access to Justice] Act infringed article 6 could have very serious consequences for the Government. Although the Strasbourg court would not be bound by the determination, it would, I suspect, be likely to agree or accept that conclusion, so that those litigants who had been ‘victims’ of those provisions could well have a claim for compensation against the Government for infringement of their article 6 rights.”

Lord Neuberger stopped short of reaching a decision in the index case and instead held that, if the Respondents wished to maintain their contention that their rights under Article 6 would be infringed, the appeal should be re-listed after the appropriate notice had been given to the Attorney-General and the Secretary of State for Justice.

Section 3 of the Human Rights Act (relating to the interpretation of legislation) states:

“(1) So far as it is possible to do so, primary legislation and subordinate legislation must be read and given effect in a way which is compatible with Convention rights.

(2) This section-

(a) applies to primary legislation and subordinate legislation whenever enacted;

(b) does not affect the validity, continuing operation or enforcement of any incompatible primary legislation; and

(c) does not affect the validity, continuing operation or enforcement of any incompatible subordinate legislation if (disregarding any possibility of revocation) primary legislation prevents removal of the incompatibility.”

The question, of course, will be whether or not the receiving party can rely on the above in order to recover the additional liabilities.  It could be argued that this section of the HRA means the Court cannot prevent recoverability from the paying party, however we should, perhaps, look closely at the precise wording of the primary legislation.  Section 58A(6) of the Courts and Legal Services Act 1990 reads:

“(6) A costs order made in any proceedings may, subject in the case of court proceedings to rules of court, include provision requiring the payment of any fees payable under a conditional fee agreement which provides for a success fee.”

Section 29 of the Access to Justice Act 1999 states:

“Where in any proceedings a costs order is made in favour of any party who has taken out an insurance policy against the risk of incurring a liability in those proceedings, the costs payable to him may, subject in the case of court proceedings to rules of court, include costs in respect of the premium of the policy.”

Arguably, then, the primary legislation allows the Court some discretion in respect of the recoverability of those additional liabilities and therefore, if the Supreme Court in Coventry – following an address by the Government – finds that such recovery is incompatible with the Respondents’ rights under Article 6 of the Convention, it would leave the door wide open for other paying parties to challenge the recoverability of such fees.

In light of the Supreme Court’s position and the unsurprising fact that the Respondents have decided to continue with their objections, it is likely that Courts will – at least until the outcome in Coventry has been decided – refrain from ordering success fees and ATE premiums to be paid inter partes.  Cases which would normally be heard at detailed assessment are therefore likely to be adjourned until a final judgment in Coventry has been handed down.

Watch this space……