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The costs of nuisance and the nuisance of costs – by Phillip Patterson

A divided Supreme Court in Coventry and others v Lawrence and another

[2015] UKSC 50 has finally brought to a conclusion a particularly sorry
piece of litigation with a judgment which serves to highlight the
turbulent regime of civil litigation costs in the 21st Century.

Were it not for the human element at the heart of this case, there
would be considerable humour in what Lords Neuberger and Dyson described
as the “unfortunate irony” of a leading case examining the costs regime
in England and Wales requiring three hearings before the Supreme Court.
But this case is not the product of the mind of a modern satirist. It
is a case which puts the costs regime left by the decline of civil legal
aid back in the spotlight.

Ms Lawrence and Mr Shields owned a residential bungalow in
Mildenhall, Suffolk. A mere 800m away was a stadium which hosted
motorsport events. Troubled by the noise emanating from these events and
the impact it had on the enjoyment of their bungalow, the couple sought
advice on bringing a claim for the tort of nuisance. The couple were
ineligible for legal aid. However, their financial position was such
that the costs of litigation were a significant factor for them in
coming to a decision on how to proceed. The couple entered into a
Conditional Fee Agreement (“CFA”) with their legal representatives.

After an 11 day trial, HHJ Seymour found in the couple’s favour. The
stadium’s owners appeal to the Court of Appeal and won. The couple took
their case to the Supreme Court, who overturned the decision of the
Court of Appeal and reinstated judgment in their favour ([2014] AC 822).

So far this case seems unremarkable. This impression changes,
however, when further details are added. The bungalow concerned was
valued at less than £400,000. The evidence heard at trial suggested that
the maximum diminution to the value of the bungalow resulting from the
nuisance was £74,000. The amount awarded to the couple by way of damages
was £20,750. In addition to this money judgment, however, the
Defendants were found to be liable for over £640,000 towards the
couple’s costs. The Defendants argued that an order against them to pay
such a sum by way of costs amounted to a breach of Article 6, ECHR and
A1P1.

The vast scale of the costs bill in this case arose from three factors:

• Base costs

• Success fee

• ATE insurance

The base costs of the Claimants were high largely because liability
in this case was only determined following hearings in the High Court,
the Court of Appeal and then two hearings in the Supreme Court prior to
the hearing to which the recent judgment relates.

The second and third driving forces behind the vast costs bill both
related to the fact that the couple were represented pursuant to a CFA.
The rules applicable to this claim were such that a successful party
whose representation was provided under a CFA was entitled to recover
both the success fee and the ATE premium from the other party in
addition to their base costs.

In one sense, the questions which the Supreme Court was considering
in the Coventry case were academic, or at least historic, in their
nature. The Jackson Report on the costs of civil litigation was highly
critical of those rules which imposed upon the losing party liability to
pay the successful party’s success fee and ATE premium. As a result of
that Report, since 1 April 2013, it has not, in most cases, been
possible to recover these from the losing party.

However, the potential implications of the Supreme Court’s ruling
went far beyond the (now insolvent) Defendants’ liability to pay this
extraordinary costs bill incurred by Ms Lawrence and Mr Shields. To
fully appreciate the implications of this judgment, it is necessary to
look back to the judgment of the Supreme Court in Coventry (No. 2)
[2014] UKSC 46 (the second of the three judgments of the Supreme Court
in this case). It was before that court that the argument was first run
that the liability to pay the Claimants’ costs of the litigation as
ordered infringed the Defendants’ rights under Article 6 and A1P1. In
was, in that hearing, one of four issues for the court to consider, and
the Supreme Court in Coventry (No. 2) declined to rule on the question.
Lord Neuberger (with whom Lords Clarke and Sumption agreed) observed at
[43]:

“a determination by a United Kingdom court that the provisions of the
1999 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 very 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.”

If these observations were correct, the Government stood potentially
liable for the compensation of a very large number of parties from
litigation which took place under the old costs regime, a regime which
prevailed for more than a decade. The question of the liability to pay
the Claimants’ costs was, therefore, listed for a further hearing before
the Supreme Court after the Secretary of State and the Attorney General
had been given an opportunity to make submissions.

This recent judgment, finding as it did that the regime did not
breach Article 6 and A1P1, will provide some consolation to the
Government. Nevertheless, the Supreme Court was divided and its judgment
highlights in clear terms the difficulties which have arisen following
the retreat of civil legal aid.

In an instructive account of the history of the CFA regime, Lords
Neuberger and Dyson, giving the judgment of the majority, quoted from
Lord Bingham in Callery v Gray (Nos. 1 and 2) [2002] 1 WLR 2000, the
statutory aims of the 1999 Act:

“One aim was to contain the rising cost of legal aid to public funds
and enable existing expenditure to be refocused on causes with the
greatest need to be funded at public expense, whether because of their
intrinsic importance or because of the difficulty of funding them
otherwise than out of public funds or for both those reasons. A second
aim was to improve access to the courts for members of the public with
meritorious claims. It was appreciated that the risk of incurring
substantial liabilities in costs is a powerful disincentive to all but
the very rich from becoming involved in litigation, and it was therefore
hoped that the new arrangements would enable claimants to protect
themselves against liability for paying costs either to those acting for
them or (if they chose) to those on the other side. A third aim was to
discourage weak claims and enable successful defendants to recover their
costs in actions brought against them by indigent claimants.”

Both the majority and the minority recognised that the regime
introduced by the 1999 act resulted in substantial advantages for some
litigants and substantial disadvantages for other litigants. For Lords
Neuberger and Dyson, the apportionment of risk and benefit as between
various classes of litigant was a matter for Government:

“It is common ground that the question whether a fair balance has
been struck between the interests of those litigants who have CFAs and
ATE insurance and those who do not is one for the court to determine.
But, even in a field such as access to justice and legal costs, the
court, while being vigilant to protect fundamental rights, must give
considerable weight to informed legislative choices, at least where
state authorities are seeking to reconcile the competing interests of
different groups in society. In such cases, they are bound to have to
draw a line somewhere in order to mark where a particular interest
prevails and another one yields. Making a reasonable assessment of where
to draw the line, especially if that assessment involves balancing
conflicting interests falls within the State’s wide discretionary area
of judgment.”

The majority endorsed the effects of the old CFA regime, stating:

“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.”

The majority brought their judgment to a conclusion with the
following, insightful comments on the difficulties faced following the
reduction in the availability of civil legal aid:

“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 a 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.”

Lord Clarke (with whom Lady Hale agreed) in the minority saw the question differently:

“The critical point in this case to my mind is that in the system
under review some classes of defendant were treated differently from
others.”

He continued:

“As I see it, the system was unfairly discriminatory against some
classes of respondent by comparison with others. I can understand that
it might be just to introduce some such system where the respondents are
part of a class of respondents who are frequently litigators such that a
system which provides the rough with the smooth may be justifiable.”

However, because the system introduced by the 1999 act was not so
focused and, in fact, chose a particular class of respondents on who to
impose liabilities far beyond the bounds of what was reasonable or
proportionate, the minority found the system to be in breach of Article 6
and A1P1:

“it seems to me to be discriminatory and disproportionate to burden
uninsured respondents with costs which vastly exceed the fair and
reasonable costs incurred by the claimant in order to encourage
solicitors to act for other appellants against other respondents against
whom the claims may fail.”

It is perhaps inevitable that the Supreme Court followed the
reasoning of the majority. Had the reasoning of the minority prevailed,
unsuccessful litigants who had paid out under costs orders for success
fees and ATE insurance, would surely have sought to bring claims against
the Government for the recovery of those sums. The potential bill for
the Government in that case would have been devastating.

Nevertheless, this judgment highlights, both in the views of the
majority and the minority, the difficult balancing act which the
Government has had to strike since the retreat of civil legal aid. It
may well be that the regime which came into force in April 2013 is not a
significant improvement on that which was under scrutiny in Coventry. A
matter which was not in dispute between the judges in this case was
that the underlying claim would not have been viable under the new
regime. There was thus an acceptance of sorts that the changes brought
about following the Jackson Report had in fact restricted access to
justice by restricting the scope for parties to recover their success
fees and ATE premiums from the losing party.

The 2013 changes may not, therefore, constitute the last word on this
subject. The Government must monitor what happens in courtrooms across
England and Wales. It must take care to strike the correct balance
between widening access to justice for non-rich litigants and entitling
defendants to contest claims which it is appropriate to defend without
risking vast and crippling costs orders being made against them.
Coventry v Lawrence shows just how hard it will be for the Government to
strike that balance.

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