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THE COSTS OF COMPLEXITY: A PRACTICAL VIEW FROM THE BAR



In his monthly column, originally published by PLC, James Bickford Smith considers the Supreme Court’s judgments in Coventry v Lawrence (No 2) [2014] UKSC 46 and Marley v Rawlings [2014] UKSC 51, before commenting briefly on relief from sanctions disputes after Denton v White and other appeals [2014] EWCA Civ 906.

The legal summer vacation (which seems for once to have coincided with some good weather) has seen some welcome, and some surprising, developments in the higher courts' considerations of civil procedure and costs. This column summarises some major developments, all of which seem likely to have repercussions in the months ahead. It also addresses practical points which some of the decisions under discussion have not grappled with as fully as might have been expected.

Coventry and others v Lawrence and another (No 2) [2014] UKSC 46
Traditionally, the House of Lords took a deferential approach to the Court of Appeal on matters of civil procedure. This convention was never set in stone and was memorably departed from on occasion, American Cyanamid v Ethicon [1975] UKHL 1 being probably the best-known example. The conventional wisdom, however, was that:

"The Court of Appeal is traditionally and rightly responsible for supervising the administration of civil procedure. This is an area in which [the House of Lords has] in the past seldom intervened and, it must be said, the few exceptions to this policy of self restraint have usually tended to confirm the wisdom of the general practice."
(Callery v Gray [2002] UKHL 28, at paragraph 18.)

In Callery itself, the House of Lords upheld the Court of Appeal's approach to the costs provisions of the Access to Justice Act 1999 (the 1999 Act) that subject to reasonableness, success fees and ATE premiums were recoverable heads of costs. Accordingly, for the following decade litigators learned to live with those provisions, with calls for reform mainly channelled through representative bodies or the various consultation exercises involving the judiciary.
Against this background, the decision in Coventry and others v Lawrence and another (No 2) [2014] UKSC 46 can fairly be described as a bolt from the blue (see Legal Update, Supreme Court adjourns appeal so government can address them on whether old costs regime infringed ECHR (www.practicallaw.com/6-575-6429)). All that was expected was a brief supplementary judgment concerning matters consequential to the appellants' success in a nuisance action (see Coventry and others v Lawrence and another [2014] UKSC 13 and
Legal update, Can an activity permitted by planning law constitute a private nuisance? (Supreme Court) (www.practicallaw.com/6-559- 3526)). In the event, however, the respondents advanced (whether for the first time or not is unclear) a wholesale challenge to the principle of paying any significant amount of the appellant's costs. The first respondent's counsel argued:

"that, by virtue of section 6 of the Human Rights Act 1998 the court, as a public body, must exercise its discretion when awarding costs in accordance with the Convention, save where otherwise required by primary legislation (such as the 1990 and 1999 Acts), and that secondary legislation (such as the CPR and Practice Directions) must be disapplied where it requires otherwise. Relying on the judgments of the Strasbourg Court in MGN Limited v United Kingdom (2011) 53 EHRR 5 and Dombo Beheer BV v Netherlands (1994) 18 EHRR 213, he contends that article 6 would be infringed if the court required the respondents to pay 60% of the success fee and the ATE premium. As to A1P1, he relies on the reasoning of the Strasbourg court in James v United Kingdom (1986) 8 EHRR 123."
(Coventry and others v Lawrence and another (No 2) [2014] UKSC 46, at paragraph 38.)

These ambitious arguments resonated with Lord Neuberger. The main reason for that seems to have been that he found the sums that the respondents would have been liable to pay in trial costs alone "very disturbing", whether or not that liability was for 100% of the appellants' costs or for 60% of the appellants' costs (the figure ordered by the trial judge). Those figures were £1,067,000 and £640,000 respectively. That prompted this extended comment:

"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. The point is reinforced when one takes into account the value of their home, which is less than £300,000 (coupled with the effect of the nuisance on that value, £74,000 at the most) and the fact that there will have been very significant further 'base costs' incurred as a result of four-day appeals in the Court of Appeal and this Court. The point can equally forcefully be made from the point of view of the respondents. As relatively small business operators, they are not only having to fund their own costs, which presumably would be of the same order, but in addition they are going to have to pay some £240,000 towards the appellants' costs. It is true that the respondents lost, but they were seeking to defend their businesses and they plainly had a reasonable case, as is evidenced by the fact that they won in the Court of Appeal.

One of the main, and laudable, aims of the proposals made by Lord Woolf in his report Access to Justice (1996), which led to the enactment of the Civil Procedure Act 1997, and the introduction of the Civil Procedure Rules the following year, was to try and achieve a better relationship between the costs and benefits of litigation. As the figures in this case show, and as is reflected in many other cases, that target has not merely proved elusive, but it is often missed by a very wide margin indeed. It is, of course, easy to criticise, and, having been Master of the Rolls until 2013, I am as aware as anyone how hard it is to ensure that a case, particularly one that does not involve a very large sum of money but is potentially complex in terms of fact, law and expertise, such as the present case, is both properly and proportionately litigated. It is also right to acknowledge that the reforms proposed by Sir Rupert Jackson in 2010, which do not apply to this case, have been largely introduced and are being absorbed. Nonetheless, even without the effect of Part II of the 1999 Act, to which I must shortly turn, it would be wrong for this Court not to express its grave concern about the base costs in this case, and express the hope that those responsible for civil justice in England and Wales are considering what further steps can be taken to ensure better access to justice. It is only fair to emphasise that this concern relates to the current system and that it is not intended to imply any criticism of the lawyers in this case.

The amount of the base costs in this case is however dwarfed by the total potentially recoverable costs, which are nearly three times as much. The figures illustrate the malign influence of the amendments made to the 1990 Act by Part II of the 1999 Act, and as implemented through CPR rule 44 and CPR44 PD – now fortunately repealed and replaced by the provisions of Part 2 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012, following Sir Rupert Jackson's Review of Civil Litigation Costs (2010), referred to above. As Sir Rupert pointed out in his Review, and as is explained in Zuckerman on Civil Procedure Principles and Practice (3rd ed 2013), the system introduced in 1999 had a number of unique and regrettable features, four of which are worth mentioning for present purposes. First, claimants had no interest whatever in the level of base costs, success fee or ATE premium which they agreed with their lawyers, as, if they lost they had to pay nothing, and if they won the costs would all be paid by the defendants, who, on the other hand, had no say about the costs (other than retrospectively on an assessment). Secondly, in many cases, unsuccessful defendants found themselves paying, in addition to the whole of their own costs, three times the claimants' 'rea'" costs. Thirdly, while proportionality had a part to play when assessing the recoverability of base costs (albeit a limited part – see Home Office v Lownds [2002] 1 WLR 2450), it was excluded from consideration in relation to the recovery of success fee or ATE premium (which were simply required to be reasonable) – see CPR44 PD, paras 11.7-11.10. Fourthly, 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 should have reflected the claimants' prospects of success."
(Coventry and others v Lawrence and another (No 2) [2014] UKSC 46, at paragraphs 35 to 37.)

On the back of these firm views of the effect of the 1999 Act, Lord Neuberger decided to adjourn the case to give the government the opportunity to intervene. The reasons for that were made very clear indeed:

"It appears to me that there is a substantial argument to the effect that it is not merely secondary legislation, namely CPR 44 and CPR44 PD, but also Part II of the 1999 Act, which had the effect of requiring defendants who have been ordered to pay a claimant's costs to pay the uplift and ATE premium in full, subject to the uplift and premium having been reasonable, but irrespective of proportionality. Section 58A(6) of the 1990 Act (added by section 27 of the 1999 Act) provides that an order for costs 'may, subject … to rules of court, include provision requiring the payment of any fees payable under a conditional fee agreement which provides for a success fee', and section 29 of the 1999 Act has a similar provision in relation to an ATE premium. It is true that these provisions are not on their face mandatory, but it seems to me to be arguable that the costs charging and recovery system introduced by Part II of the 1999 Act simply would not work unless a claimant's success fee and ATE premium were recoverable in full, irrespective of proportionality, from a defendant who had been ordered to pay the claimant's costs.

Accordingly, if the respondents' argument based on article 6 or A1P1 is correct, it may well be that the proper outcome would not be to disregard paras 11.7-11.10 of CPR44 PD, but to grant a declaration of incompatibility, although that would be questionable as the relevant provisions of the 1990 and 1999 Acts have been repealed and replaced by a far less unsatisfactory system in Part 2 of the 2012 Act. Nonetheless, the system enacted in the 1999 Act remains in force in relation to litigation brought pursuant to conditional fee agreements made before April 2013 (see Simmonds v Castle (Practice Note) [2013] 1 WLR 1239). Quite apart from that, 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 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."
(Coventry and others v Lawrence and another (No 2) [2014] UKSC 46, at paragraphs 42 and 43.)

Accordingly, the possibility opened up by the judgment is that if the court comes to decide on a sufficiently broad ratio that the respondents' Article 6 rights would be infringed by an order that they pay the appellants' costs, then the government could face compensation claims from all or many of those who have had to pay costs orders that were assessed on whichever basis the Supreme Court finds to be in breach of those rights.

The following comments can be made about this judgment:
  • Concern at the level of costs payable by unsuccessful parties following the 1999 Act are not new. Related arguments against the provisions of the 1999 Act were advanced with varying degrees of strength before, during, and after its passage by numerous interested parties and legal commentators. Many lawyers will also have practical experience of the ensuing hard cases.
  • As against these concerns and arguments, other commentators and interest groups have advanced the argument that, without these provisions of the 1999 Act, access to justice would have been impossible to achieve for many parties or prospective parties. Many lawyers will, or will soon, be gaining practical experience of the hard cases that will now ensue as parties are unable to litigate. It is a salutary thought that some 799 years after the first promulgation of Magna Carta, the undertaking that "to no one will we sell, to no one deny or delay right or justice" (emphasis added) may be one too radical for governments of any political complexion to consider honouring in "the current funding climate".
  • The ensuing legal policy debates are ones that the senior judiciary have, over the years, had ample opportunity to address.
  • In this context, and whatever one thinks of their substance, it is very regrettable that the concerns now being expressed in Coventry v Lawrence (No 2) are being expressed some years after a) the 1999 Act came into force, b) it was unsuccessfully challenged in Callery on the basis of arguments that appear substantially the same as those now advanced, although they differ in their ECHR focus, c) numerous cases have been litigated on the basis that the 1999 Act is lawful and d) the funding regime put in place by that act has been superseded.
  • Put very simply, it would seem that we are currently witnessing a move towards the stable door some years after the horse has bolted and indeed some years after the House of Lords decided that the door should remain open. The majority's attempt to justify this unexpected volte face is, it must be said, not very convincing. It is said that "it must follow" from the ECHR decision in MGN Limited v United Kingdom [2011] ECHR 66 that Callery is open to reconsideration. That is highly debatable, not least because the MGN case focused on Article 10 issues peculiar to litigation involving freedom of expression. It is also a particularly surprising one to hear from a bench several of whose members have been advocating a less deferential approach to ECHR decisions.
Above all, however, one notes that Lord Neuberger's concerns at the level of the appellants' costs sit very uneasily with the substance of Coventry and others v Lawrence and another [2014] UKSC 13 and indeed with the Supreme Court's treatment of other issues in Coventry v Lawrence (No 2). In the former, the court departed from settled understandings of the law of nuisance in ways that seem overwhelmingly likely to trigger both more potential claims and more uncertainty about whether successful claimants will obtain injunctive relief or an award of damages in lieu. All of this tends towards the view that more lawyering, rather than less, will be required in such cases in the future.
Even more strikingly, in the latter the minority based their view that the landlords should also be held liable for their tenants' nuisance partly on the facts that a) they were both represented by the same counsel at trial and b) that counsel had not taken the point that the landlords should not be held liable even if the tenants were. The logic of that approach must, in turn, be that there should have been separate representation and more extensive legal argument.

It will be seen, therefore, that in the very same case in which the Supreme Court has considered the level of the appellants' costs to be of sufficient concern to prompt consideration of whether the funding regime created by the 1999 Act is incompatible with the ECHR, the court has also made the substantive law concerning nuisance more complicated to litigate. It seems very hard indeed to see how that complexity will not have a cost implication.

This central difficulty is, it must be said, by no means a new one. There are now a number of areas of the law in which the costs of taking an action to trial have been increased by developments in the substantive law, whether those developments are otherwise welcome or not. Simply by way of example, the more one allows into evidence the "commercial context" to a contract (which often becomes voluminous) the more expensive even quite basic contractual disputes become to litigate. In that context, one must ask how realistic it is to consider that base costs can be kept at the levels the Supreme Court, and many lawyers, would intuitively consider proportionate. That problem has not been resolved by the Jackson reforms, which would appear simply to stiffen the disincentive to litigate low-value but complex disputes. Moreover, it must be asked whether that disincentive is not in and of itself as much of an Article 6 concern as the 1999 Act regime was. If I have no realistic way of bringing my dispute to trial because I will not recover my true costs of doing so, am I not as much deprived of my rights as the person who would be forced to pay my costs bill were I to have succeeded under the old system? It is to be hoped that the Supreme Court will grapple with these issues, rather simply than the narrow argument about the 1999 Act regime that has been the focus of its discussion so far, when Coventry returns to them. The fear must be that the ensuing judgment will tell us more about the problems with the 1999 Act than about the more fundamental issues of costs recovery that it sought to address.


Marley v Rawlings [2014] UKSC 51
Another sign of the Supreme Court's more interventionist approach to costs issues emerges in the costs decision in Marley v Rawlings [2014] UKSC 51 (see Legal update, Supreme Court holds solicitor's insurer liable for costs of negligently executed will (www.practicallaw.com/5-581-9465)). This was litigation concerning an error in a testator's will that was brought about through solicitors' negligence. The Supreme Court's decision was that the solicitors' insurers should pay the costs of the litigation directly. While apparently common-sensical, it must be said that the route to this judgment is not entirely easy to follow, albeit that some first instance judgments could be prayed in aid of it. Further, the court insisted as a condition of its judgment that counsel should disclaim all monies that might be
due to them under CFAs due to an entirely "technical" victory. That bespeaks, again, a firm desire to keep the costs of litigation under control. The question that might be asked, however, is where this leaves those considering how to fund their case before the Supreme Court in the future. If the decision is applied outside the peculiar context of claims concerning defectively-drafted wills, one sees real potential for uncertainty about the security of funding arrangements.


Denton v White Ltd and another, Decadent Vapours Ltd v Bevan and others and Utilise TDS Ltd v Davies and others [2014] EWCA Civ 906
This decision was handed down shortly after my last column, and by now readers will have seen a considerable volume of commentary on it (see Legal update, Relief from sanctions: the new test (www.practicallaw.com/7-573-5846)). In those circumstances, it seems sensible to highlight only points of particular interest or practical importance:
  • The minority judgment of Jackson LJ has many of the qualities of a dissent owing to its construction of CPR 3.9. It may well prove highly influential. If correct, it suggests that the satellite litigation following Mitchell v News Group Newspapers Ltd [2013] EWCA Civ 1537 was based on a false premise about the meaning of CPR 3.9. One key problem, however, is that that position is undermined by Jackson LJ's rather guarded approval of the Mitchell decision itself (paragraph 98). Interestingly, in a recent lecture to the Costs Law Reports Conference, Jackson LJ began by noting that "I am not responsible for the one matter for which I am constantly blamed – sometime vilified – in the press. I was not a member of the court which decided Mitchell" (for further detail see Legal update, Jackson LJ makes suggestions for further reform in keynote speech to costs conference (www.practicallaw.com/0-583-1568)). That distancing is unsurprising, the fact is that Mitchell provides strong support for the construction of CPR 3.9 adopted by the majority.
  • The half-way house that the majority took in Denton v White Ltd and another, Decadent Vapours Ltd v Bevan and others and Utilise TDS Ltd v Davies and others [2014] EWCA Civ 906 was somewhat concealed by their adoption of an allegedly new approach, complete with tests. What that approach translated into in terms of current debates was considering Mitchell a defensible exercise of the master's discretion, but adopting a more permissive approach to relief from sanctions applications in the future. That will be more welcome to many litigators than a decision to maintain the very hard line seen in Mitchell itself. Nevertheless, there is no doubt that an element of uncertainty has been introduced into the law in the process:
    • The emphasis in the Decadent Vapours and Utilise cases (where relief was granted on appeal) is on the costs risks facing parties who take an uncooperative approach to relief applications and/or decide actively to oppose them. This is of considerable practical importance. It will now be much more common to apply for one's costs of a successful application for relief (perhaps barring the drafting of the initial application materials).
    • Conversely, the decision in Denton (where the grant of relief was overturned) underlines that the new relief from sanctions regime continues to have teeth. Parties making very late applications that will disrupt or compromise trial windows remain at substantial risk.
  • It follows that parties and their advisors will have to gauge carefully, in every case, whether they think the default in issue falls on the wrong or the right side of the line now drawn. Those judgment calls will not be easy, all the more so given continued differences in judicial approach.
  • The immediate effect of Denton v White and other appeals is to make contested relief from sanctions applications particularly high-risk.
  • Nevertheless, and much to the frustration of some judges, such applications will not abruptly cease. Practically speaking, it is not easy for parties to retreat from positions adopted before Denton v White and other appeals even if these were, in truth, ones they would not have adopted in light of it.
  • Those working on the assumption that Denton v White and other appeals has changed everything will need to be alert to the fact that judges who either welcomed the Mitchell approach or became familiar with it will be slow to accept this proposition.
  • Those resolved to oppose relief applications must be alert both to the costs risks of doing so and to the fact that those risks may vary to a degree depending on what form their opposition takes. There is a significant difference between taking a neutral stance but making salient points orally or by letter, and serving very lengthy witness statements in opposition complete with exhibits. The latter, when coming from respondents, will generally be ill-advised unless they tell a compelling story of non-compliance and prejudice.
It will be seen even from this brief summary of Denton v White and other appeals, and the tactical decisions that will arise in the light of it, that the law of relief from sanctions has become more uncertain, and more complicated, than it was after Mitchell. That may simply be the price to pay for a restoration of a degree of balance to the system. The problem, however, is that this price will in many cases be a real price to be paid by clients. Sadly, neither the ECHR nor any other overarching principle of law can alter the equation that complexity is costly. The question, simply, is who will bear these costs? The follow-up question is what effect one's answer to that question will have on the ability of which sections of the public to access the court system? These are, in truth, issues that have never been satisfactorily
resolved since the rolling back of civil legal aid. The more one reads through judicial decisions and reports of intractable length, the more one wonders if judges are necessarily the right people to answer them. All too often the upshot of such approaches seems to be a tacit suggestion that costs would not have been accrued had cases been better litigated. That, it must be said, is a very unconvincing way out of answering the real questions. It becomes a somewhat ridiculous one when one has to prepare for a routine costs hearing on the basis that principles of cost recovery that have been sanctioned by act of Parliament and House of Lords authority for a decade may no longer be
good law.

Posted: 03.10.2014 at 10:42
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