Lord Justice Jackson has decided that the recovery of success fees from defendants is wrong. The senior judiciary has agreed (see for example paragraph 39 of Sousa v London Borough of Waltham Forest [2011] EWCA Civ 194). The European Court of Human Rights has agreed (see MGN Limited v United Kingdom (Application No. 39401/04)). The government has adopted this view as official policy.

How likely is that an application for relief from sanctions, in relation to a failure to give proper notification of funding, will succeed in the current climate?

I mentioned the other day the poll of members of the public commissioned by Irwin Mitchell as part of their anti-Jackson lobbying.

One of the “results” from this poll was:

• Almost half (47%) say that they would be less likely to bring a claim for compensation if they thought they may have to pay some of the legal costs.

Like all these things, it depends quite how the question is phrased. And how much “less” is “less likely”?  Let’s remember, the proposal, which will now be introduced, is that in personal injury claims any success fee recoverable from the claimant will be capped at 25% of damages excluding future care and loss. So for a more serious injury with future care and loss of earnings, the choice a claimant may face is whether to pursue a claim that currently would allow them to keep £100,000 but would, in the future, allow them to keep £90,000. Are 47% of people really not going to bother bringing such claims in the future? Even for low value claims for general damages only, are people not going to bring a claim worth £2,000 if £500 will go to the lawyer in success fee? And, if they don’t, is society really going to be worse off?

However, in a press release following the government’s Jackson announcement, Andrew Tucker, head of Personal Injury for Irwin Mitchell, said:

“Our own research shows that just under half of people (47%) would not bring a valid claim for compensation if they thought that they would have to pay some of the legal costs”.

Since when did “less likely to bring a claim” become “would not bring a valid claim”?

More inaccurate spin, but this time too late to make any difference.

Dominic Regan, writing in the New Law Journal, on claimant lobbying over Jackson implementation :

“All the lobbying and meetings behind closed doors has had as much impact as a blow from a wet lettuce leaf upon Mike Tyson.”

Where did it all go wrong for the claimant lobby?

One problem is that much of the lobbying was so badly thought out. The next issue of Litigation Funding will be publishing an article of mine examining the vaguely farcical evidence produced by the National Accident Helpline in support of the current funding system.

Not to be outdone, Irwin Mitchell commissioned a poll from Populus among more than 2,000 members of the public “showing that key proposals mooted by senior High Court judge Lord Justice Jackson … have little support amongst the public”. The results showed:

• Four in five (82%) people think that the current ‘no win, no fee’ system is fair

• Almost three-quarters (73%) of people think that, if a claimant’s personal injury claim is successful, the defendant’s side should pay their legal fees

Now, members of the public are perfectly entitled to their views of the current system. However, one does have to wonder how many understand the current system or have read the 557 pages of the Jackson Report.

But let’s look at the headline figures from the poll.

So, 82% of people support the current system that makes the defendant pay the successful claimant’s legal fees. However, when asked the specific question of whether they favour a defendant paying a successful claimant’s legal fees, the number drops to 73%. At least 9% of people were happy to express a view on the current system despite clearly not having the faintest idea as to how the current system operates. I’m going to take a wild guess and suggest that the true number was somewhat higher and it was hardly surprising that no weight was given by the government to this kind of “research”.

Interestingly, the poll did not appear to have a question as to whether people approved of a system whereby an injured claimant could recover £2,000 in damages and the lawyer could routinely recover in excess of £25,000 in legal fees. It seems that this is the question that Lord Justice Jackson and the government did ask themselves and the answer was obvious.

Still, I’m sure Irwin Mitchell had the sense to commission this poll on a no win, no fee basis.

The Law Society’s Model CFA agreement, for use in personal injury and clinical negligence cases only, defines “win” as:

“Your claim for damages is finally decided in your favour, whether by a court decision or an agreement to pay you damages or in any way that you derive benefit from pursuing the claim.”

What does “or in any way that you derive benefit from pursuing the claim” mean?  Remember, this is for personal injury and clinical negligence cases only so is not concerned with alternative remedies to damages. 

Judgment was handed down yesterday by the Court of Appeal in Sousa v London Borough of Waltham Forest [2011] EWCA Civ 194. This case concerned a claimant who suffered subsidence damage to his property caused by tree roots of a tree owned by the defendant. The claimant’s damages were insured under an insurance policy between the claimant and an insurer. The claimant made a claim upon the policy. The insurer satisfied the claim and exercised its rights of subrogation to bring proceedings against the defendant in the name of the claimant. The claim was brought under the terms of a Collective Conditional Fee Agreement between the solicitors for the claimant and the insurer. The defendant objected to payment of the success fee. The judge as first instance disallowed the success fee on the basis that as the claimant was never at risk of having to pay costs, because he had the benefit of an insurance policy for the loss, and it was therefore unreasonable for a CFA to be entered into. The claimant successfully appealed that decision and the success fee was reinstated. The Court of Appeal has now dismissed the local authority’s appeal.

The Court of Appeal ruled that the insurer’s had the same right to enter into a CCFA and recover a success fee as the claimant would have done. The House of Lords’ decision in Campbell v MGN (No. 2) [2005] UKHL 61 was followed so that “the mere fact that a person is able to fund litigation without resorting to a conditional fee agreement does not make it unreasonable for him to do so”.

Important though this decision is for cases of this type, what observers were really looking for was the response of the Court of Appeal to the recent decision in MGN v United Kingdom. The Court had received written submissions in light of MGN and it was expected that this would give an early indication as to whether challenges to success fees in light of MGN might succeed.

Ward LJ, giving the leading judgment said:

“I prefer the view of the respondent that the Court of Appeal remains bound by the decision of the House of Lords: see Kay v Lambeth LBC [2006] UKHL 10, [2006] 2 A.C. 465. If the House of Lords regarded the fees as reasonably incurred, so should we.

The appellant floated a second argument, not previously raised. That is that success fees have such a “chilling” effect as to amount to a denial of justice and a fetter on the freedom of access to the court in breach of Article 6. I agree with the respondent that this is not an argument the appellant should be allowed to run at this stage of the proceedings. I am not prepared to entertain the argument: indeed I am far from convinced on cursory examination that it is well founded.”

The Defendant was therefore not given the opportunity of running the Article 6 arguments that would be clearly central to such a challenge succeeding. This fact alone means that this decision is unlikely to be the last word on the matter.

Moore-Bick LJ held:

“Finally, it is necessary to mention briefly the recent decision of the European Court of Human Rights in the case of MGN v The United Kingdom (Application No. 39401/04), in which the court held that the award of costs in favour of Miss Campbell against MGN that included a success fee (upheld in Campbell v MGN (No. 2)) involved an infringement of the defendant’s right to free speech. Mr. Bacon submitted that the decision supported the wider proposition that it is unreasonable for a claimant who can finance the litigation without recourse to a conditional fee agreement to do so and that therefore Mr. Sousa should not be allowed to recover the success fee as part of the costs in this case.

I am unable to accept that submission for two reasons. First, because in MGN v The United Kingdom the court was concerned with the question whether the liability to pay a success fee involved a disproportionate interference with the newspaper’s right of free speech and was unreasonable on that account. The case is not, therefore, remotely comparable to the present. Second, because unless the liability to pay a success fee can be said to infringe the defendant’s rights under the Convention (which is clearly not the case here), questions of proportionality and reasonableness do not arise. It is for Parliament to decide what arrangements viewed overall will best serve the general requirement for access to justice. Moreover, the submission is contrary to the decision of the House of Lords in Campbell v MGN (No. 2), which remains binding on this court.”

The fact that the Court of Appeal has found itself bound by an earlier House of Lords’ decision, not withstanding MGN v UK, is no surprise. The real question is what will the Supreme Court decide if, and when, this issue reaches them?

In Sibthorpe & Morris v London Borough of Southwark [2011] EWCA Civ 25 the Court of Appeal declined to strike down as unlawful (on the basis of champerty) CFAs where the claimants’ solicitors agreed to indemnify the claimants against adverse costs orders.

The February 2011 edition of Litigation Funding reported the claimants’ solicitors as saying that they ran their housing disrepair cases on CFAs and:

“We haven’t lost one of these cases against Southwark since 1994. [We have] probably 30 cases a year [against Southwark]”

The CFAs set the level of success fee at a relatively modest 10%. However, with a 100% success rate over a period of the last 16 years or so, even 10% looks somewhat cheeky.

The other day I posted a somewhat tongue-in-cheek comment about how the need for success fees could be avoided if claimant lawyers stopped bringing bad claims. However, there was meant to be a serious point underlying it.

APIL’s opposition to the Jackson proposals to end recoverability of success fees can be seen from APIL’s president Muiris Lyons comment:

“How can it be fair and just for someone who is suffering because of another person’s negligence to have to pay towards putting things right?”

This question, and the issue of recoverable success fees, of course begs the following questions:

“How can it be fair and just for someone who is not suffering because of another person’s negligence to have their costs of pursing a misconceived claim paid for by another party?”

and

“How can it be fair and just for someone (Party A) who has caused suffering to Party B to be forced to pay to towards the legal costs of Party C who has suffered an injury but as a result of an accident unconnected with Party A’s actions and incurred in the process of a failed claim against Party D?”

Traditionally, legal claims were paid for privately. If a party was able to persuade the other side or the court they had a good claim then their legal costs were paid for by the negligent party. If a party failed in their claim, they paid their own costs (and those of the party they had “wrongly” pursued).

Legal aid transferred the costs of the “bad” claim from the individual who brought the “bad” claim onto the tax payer. Or, arguably, enabled some “good” and “bad” claims to be brought that might not otherwise have been brought at all.

The previous Government’s decision to introduce recoverable success fees transferred the costs of “bad” claims from the tax payer or the individual (often regardless of the ability of the individual to fund the claim privately) onto negligent defendants. Party A, who has negligently injured Party B, has to pay the costs of Party B and also (via the success fee mechanism) the costs of Party C bringing a “bad” claim against Party D.

Recovery of success fees does not pay towards “putting things right” for a person who is suffering because of another person’s negligence. That is paid for by ordinary costs shifting. Instead it pays for the costs of bringing “bad” claims.  Success fees pay for claimant lawyers bringing “bad” claims. 

Any system other than straight private retainers is about producing a system whereby the cost of “bad” claims is shifted from the person making the “bad” claim elsewhere.

There may be very good reasons for this shifting of costs but the claimant lobby does no favours for itself by trying to paint this as being a simple black and white issue.

Click image to enlarge:

www.qccartoon.com

Last week’s Law Society Gazette had an article on the implications of the Jackson proposals for clinical negligence claims.

The proposal to end recoverability of success fees was criticised. The thrust of the objection was that “the proposal will not reduce costs but instead move a significant part of them from a guilty defendant to an innocent claimant”.

Clinical negligence claims against the NHS fall into one of two categories:

• Those where the NHS has been negligent.
• Those where the NHS has not been negligent.

The system of recoverable success fees means that the NHSLA pays for the cost of claims being brought against it where the NHS has not been negligent. This happens through the mechanism of having to pay success fees in cases where it has been negligent; the success fee being designed to compensate the solicitor for those cases that are lost.

The criticism levelled in the article, and raised on numerous other occasions during the Jackson debate, is that ending recoverable success fees will mean that claimants have to pay success fees out of their damages and will thus be under-compensated.

Surely there is no need for claimants to have to pay success fees at all. Claimant solicitors should simply stop bringing claims against the NHS when the NHS has not been negligent. That way there will be no unsuccessful claims. The article was happy to point out that savings could be brought to the current system if the NHSLA admitted liability more quickly when there had been negligence. Given how easy it apparently is to distinguish between a good case and a bad case, claimant solicitors should stop bringing the bad ones. With 100% success rates there will be no need for success fees to be charged and claimants can keep 100% of their damages.

Everything in life becomes simple once the problem is looked at properly.

Specialist costs counsel Dr Mark Friston has put together an invaluable guide to the recent decision in MGN v United Kingdom, concerning success fees. He has been kind enough to allow the Legal Costs Blog to host a copy. It can be read: here. One Blog reader, when thanking Mark in advance for this, commented that they did have a copy of Civil Costs: Law and Practice and this briefing note should perhaps be treated as “excellent after sales service”.

It may be that there is less of a delay than previously expected before we see the approach that the English courts may adopt to the MGN v UK decision. Many readers will be familiar with the case of Sousa v London Borough of Waltham Forest [2010] EW Misc 1 (EWCC). That case concerned a claimant who suffered subsidence damage to his property caused by tree roots of a tree owned by the defendant. The claimant’s damage was insured under an insurance policy between the claimant and an insurer. The claimant made a claim upon the policy. The insurer satisfied the claim and exercised its rights of subrogation to bring proceedings against the defendant in the name of the claimant. The claim was brought under the terms of a Collective Conditional Fee Agreement between the solicitors for the claimant and the insurer. The defendant objected to payment of the success fee. The judge as first instance disallowed the success fee on the basis that as the claimant was never at risk of having to pay costs, because he had the benefit of an insurance policy for the loss, it was unreasonable for a CFA to be entered into. The claimant successfully appealed that decision and the success fee was reinstated. The local authority appealed and the hearing recently took place before the Court of Appeal, with judgment reserved. And then there was the decision in MGN v UK. The Court of Appeal has invited written representations (due by last Friday apparently). It appears that the Court of Appeal wants to take the opportunity to take MGN v UK into account when giving judgment. It is quite possible that they might decide they have little scope to “change” English law on recoverability of success fee but suggest that the Supreme Court might. It is then to be hoped that the matter proceeds to that level swiftly.

So what has been the initial response from claimant lawyers to this decision? So far, they seem to fall into two broad groups. The first have suddenly been trying to accept defendants’ offers on costs that a couple of weeks ago apparently held no attraction. The second group are simply carrying on as though nothing has happened. It is not clear whether this is simply a robust negotiating stance or whether it is because this group has not yet read or understood the potential implications of this case. I suspect that, at least for some, it is the latter. A quick Google search for the costs firms that appear in the top twenty results for the term “law costs draftsmen” and “costs lawyer” produced only one firm, other than Gibbs Wyatt Stone, that has any mention on their website of this case, notwithstanding a significant number having dedicated news or blog pages. Or maybe their clients are simply not interested.

I pop out of the office for a few days to deal with a small detailed assessment hearing (£1.6 million costs claim for personal injury matter involving single claimant) and I miss, arguably, the most important costs decision of the past decade.

Last week the European Court of Human Rights (ECHR) handed down judgment in a decision that may turn out to be the most important costs case of the last decade. Commentators and costs experts are furiously trying to determine the precise significance of the case. One thing, however, is clear beyond doubt: defendants and insurers need to make an immediate decision as to how to respond.

The case of MGN Limited v United Kingdom (Application No. 39401/04) was a case involving the supermodel Naomi Campbell’s right to privacy versus a newspaper’s right to freedom of expression. The House of Lords, as it then was, approved Campbell’s claim for damages. The claim had been funded, in the House of Lords, by Conditional Fee Agreements (CFAs) with 95% and 100% success fees.

MGN argued before the House of Lords that it should not be liable to pay the success fees as it was so disproportionate as to amount to a breach of its right to freedom of expression under Article 10 of the European Convention on Human Rights. Article 10 provides, so far as relevant:

“1. Everyone has the right to freedom of expression. This right shall include freedom to hold opinions and to receive and impart information and ideas without interference by public authority and regardless of frontiers…

2. The exercise of these freedoms, since it carries with it duties and responsibilities, may be subject to such formalities, conditions, restrictions or penalties as are prescribed by law and are necessary in a democratic society, … for the protection of the reputation or rights of others, for preventing the disclosure of information received in confidence,…”

The House of Lords held that the recoverable success fees were compatible with Article 10 and that passing the cost of successful litigation onto unsuccessful defendants was a proportionate measure to provide litigants with access to justice. Further, such a funding scheme was equally open to wealthy litigants such as Campbell.

MGN took the matter to the ECHR. Their complaint as to whether there had been a breach as a result of the decision to award damages for the publication was dismissed. The more interesting question, so far as we are concerned, was whether the award of costs, including the success fees, constituted a disproportionate interference with MGNs right to freedom of expression.

The ECHR accepted many of the criticisms of the current CFA regime highlighted by Lord Justice Jackson in his Review of Civil Litigation Costs. The Court found that that the requirement to pay the success fees in this case constituted an interference with the applicant’s right to freedom of expression under Article 10. The Court concluded that the requirement to pay success fees to the claimant was disproportionate having regard to the legitimate aims sought to be achieved and exceeded even the broad margin of appreciation accorded to the Government in such matters. It was therefore held that there had been a breach of Article 10.

Important though this decision clearly is for publication claims, what impact does it have for wider litigation?

The first observation is that this is almost certainly the final nail in the coffin for recoverable success fees and ATE premiums. The Government had already placed itself firmly behind Jackson LJ’s proposals for ending recoverability. This judgment is the last word on the subject. The claimant lobby can save their breath. Further pleading on the subject is pointless. Jackson will be implemented.

What about existing litigation? Will this decision have an immediate impact even without primary legislation changing the current system?

Horwich Farrelly chief executive, Anthony Hughes, was quoted in Insurance Times adopting the cautious approach:

“Although this case is purely focused on media law, we are interested to see what the implication is for CFAs in general”

At the other end of the spectrum, also in Insurance Times, specialist costs counsel Dr Mark Friston was reported as saying that even though the judgment is not binding, losing parties can use this case to argue for a slashing in success fee costs, with a very high chance of success and the case should translate across to personal injury. Losing parties will possibly be able to slash success fee payments by between 80% and 90%. Friston said:

“For liability insurers it is staggeringly important, and it’s likely to have a dramatic impact. If I’m right, it will have a dramatic effect on what they are paying out.”

Rosalind English, writing on the UK Human Right Blog, expressed the view that:

“This judgment has serious practical implications not just for publication cases but for any civil case not covered by legal aid, and although the ruling is only binding on the government, not on the courts, the potential for its immediate domestic impact cannot be ignored. Defendants challenging costs orders will have this judgment at the head of their arsenal from today; the practical resonances of the case are imminent.”

It is important to recognise that this decision concerned a breach of Article 10. Outside of publication litigation, the argument would have to be advanced on a different basis.

In an article on the judgment from Four New Square, the position is explained further:

“It seems inevitable that paying parties in non-defamation/privacy civil cases will want to develop the arguments considered in this case in a wider context but there will be considerable difficulty in doing so where the right to freedom of expression in Article 10 (which was competing with the Article 6 right underlying the CFA system) is not in play. Given the acknowledged ‘ransom’ or ‘chilling’ effect of success fees being recoverable against the unsuccessful party, it may be possible to argue that litigants have competing Article 6 rights which need to be balanced against one another. Limitations on the right of access to court do also involve considerations of proportionality”

Rosalind English expands:

“It is open to any unsuccessful litigant in a non-media case to make a case for transposition of this Article 10 solution/change by analogy; after all, the Jackson proposals – without which this aspect of the Campbell case may never have seen the light of day – apply to a very wide collection of cases. … So in any given civil case a defendant could reasonably argue that their right to a fair trial under Article 6 is being infringed by a punitive costs regime which is forcing them to settle and thereby depriving them of access to court.”

Article 6, so far as relevant, reads:

“In the determination of his civil rights and obligations…, everyone is entitled to a fair … hearing”

This argument would tie in nicely with Jackson LJ’s view that defendants are equally entitled to access to justice as claimants are and that the current CFA regime does not achieve this.

Although MGN had not argued that it was unreasonable that they should have to pay an ATE premium, there is no reason to suppose that similar arguments could not be mounted against ATE premiums. It will be interesting to see if the judiciary is prepared to start to take a more robust approach to ATE premiums, something it has been incredibly reluctant to do in the past.

The ECHR was mindful of the fact that in this case the claimant was wealthy and not in the category of persons considered excluded from access to justice for financial reasons. Although this does not appear to have been a decisive issue, it does leave open the scope for fresh arguments as to the circumstances in which it is “reasonable or proportionate” to enter into a CFA or take out ATE cover. The obvious categories where such challenges might be made would include:

• The small number of cases where the claimant is a wealthy individual.

• Commercial disputes where the claimant does not “need” to fund a claim with a CFA or ATE policy.

• Subrogated claims brought by insurers under CFAs (see Sousa v London Borough of Waltham Forest [2010] EW Misc 1 (EWCC) (12 January 2010)).

• Claims funded by trade unions through CCFAs and notional insurance premiums. Such claims were funded by trade unions prior to the current regime being introduced and there is no reason to suppose that such claims “need” recoverable additional liabilities.

In addition to direct attacks on recovery of success fees or ATE premiums, this decision does arguably re-open the whole issue of “proportionality”. Since the Jackson Report was published, some commentators have been anticipating an attack on the courts’ current approach to proportionality (see Home Office v Lownds [2002] EWCA Civ 365). This ECHR judgment makes such a challenge that much more likely. The Four New Square article comments:

“Paying parties are also likely to try to develop the arguments in favour of purely discretionary arguments as to reasonableness and proportionality in costs assessments. However, it will have to be kept clearly in mind that ‘proportionality’ for the purposes of the CPR (concerned with whether expenditure on litigation is proportionate to the amount at stake) is a different concept to proportionality for the purpose of the European Convention where the issue is whether a particular measure is proportionate to the legitimate aim to be achieved, having regard to the effect on competing (here Article 10) rights”

Defendants and insurers need to make immediate decisions as to how to respond to this judgment. Should they look to withdraw all current costs offers that include offers for success fee and/or ATE premiums? Should they make offers for these elements in future cases or make significantly reduced offers? Millions of pounds are at stake. Running novel arguments based on this decision will be expensive but there is probably too much to gain for the opportunity to be missed. If challenges are brought, the likelihood is that this will produce a logjam of cases with everything involving a success fee or ATE premium being stayed pending resolution by the higher courts.

This decision will throw the industry back into the confusion and uncertainty that existed with the introduction of recoverability and that led to the Callery v Gray test litigation. The irony is that this new period of uncertainty arises at exactly the same time we know that the current regime is likely to be scrapped.