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  1. Law
September 24, 2014updated 12 Jan 2016 4:06pm

There is no fairness in court costs

By Spear's

The level of legal fees and the cost of litigating a case are sensitive issues; Berezovsky v Abramovich was said to have cost both parties nearly £100 million. When you have two UHNWs knocking ten bells out of each other in court, that is one thing. But as a long-running case which has just been adjudicated by the Supreme Court shows, HNWs fighting people of regular means can end up at a significant financial disadvantage when it comes to wigs and gowns.

In the case of Coventry v Lawrence, Mr Coventry and others were running a speedway and stock-car racing stadium and circuit in Suffolk. Ms Lawrence and Mr Shields owned a bungalow 850 yards away which suffered from noise from the circuit and sued for damages for the noise nuisance. The trial judge found for the houseowners but the Court of Appeal reversed that decision.
On further appeal to the Supreme Court earlier this year, the houseowners won. There is no doubt that this was not a straightforward case, and indeed the first judgment ran to over 110 pages.

The judge ordered Mr Coventry and his co-defendants to pay 60 per cent of the houseowners’ costs. Of course, they would also have to pay their own costs as the losing party, and it was the scale of these which led Lord Neuberger, the president of the Supreme Court, to express his concern. To put it in context, the house itself was worth less than £300,000 and the effect of the nuisance on that value was put at a maximum of £74,000, but the base legal costs came to £398,000.

Now, that is bad enough, but the houseowners could never have taken the case forward at all from their own resources, and there was no legal aid available for this claim, so they had entered into a conditional fee agreement with their lawyers — a ‘no win, no fee’ arrangement. The upside for their lawyers was that, if they did win, they could claim a success fee of up to 100 per cent of most elements of the base costs.

On Mr Coventry’s side, there was also an insurance premium to cover the position if the houseowners lost and were unable to pay his costs because they had no money to do so. The real effect of a 60 per cent liability to costs over a nuisance of not more than £74,000 was a bill for over £640,000.

Counsel for Mr Coventry argued that making him and his co-defendants liable for all these elements meant that, in the balance of the litigation, he was always at a disadvantage, and a double jeopardy when the plaintiff had entered into a conditional fee agreement. If the plaintiff had been a wealthy landowner who paid his own fees, then there would have been no exposure to a success fee, nor to paying a premium to cover his inability to recover costs if he won.

On this argument, the Supreme Court felt that they had to hear a view from the government’s legal officer about where they stood: was there an argument that Mr Coventry’s human rights had been violated since a proportionate remedy was not available? They only did this reluctantly because it meant that there would inevitably be a further hearing. So the case is not yet over.

What is highlighted is the tension which exists between denying access to those with a good case but no resources to pursue it, and penalising litigants with better resources who find themselves engaged in litigation with a party who has no real concern about the financial effects of losing the case. And you can see from the figures how expensive this can be.

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The notion of success fees, allowing lawyers to be rewarded for acting in a case for a poorer party, was a noble attempt to defend the position of the financial underdog against a party with unlimited resources. It also attempted to steer clear of the very different system that applies in the US. There, except in very unusual circumstances, each litigating party bears its own costs.

But success fees in America are not limited to the amount of fees incurred and can be a very significant percentage of the amount of the financial claim. Examples of law firms walking away with millions, if not billions, of dollars are frequent. Is it a surprise that a person being sued in the US will be all too keen to settle a claim, however, outrageous it may be?

Litigation claims or defences require substantial amounts of time and attention to detail, particularly in the light of the adversarial system that underpins the legal system in the UK and the US. It is good that the Supreme Court is so concerned, but we must remain faithful to the principle that the law should be available to all. There should, however, be a mechanism which does not make a wealthier defendant face an outrageous burden.

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