Loathsome reptiles

One of the few intangible benefits of the Credit Crunch and subsequent recession, was to make the banking profession more unpopular with the public than the legal profession and to shine a spotlight on a lot of their more dubious activities, including some actions which were outright criminal.

Earlier this year a number of former bankers from HBOS were jailed in consequence of their activities relating to the impaired assets unit of that bank, unhappily inherited by Lloyds. A lurid account can be found here, in that most guilty of pleasures, the Daily Mail:


Where there is a crime of this nature, there is undoubtedly a civil action: and the Daily Mail dutifully reported on the multi-million claim instituted by that former staple of the BBC’s light entertainment division Mr Noel Edmonds.


That action has not reached its conclusion, and compensation claims from other victims are doubtless yet to come.

But this case is only a tip of one particular iceberg in a sea of financial mis-selling, shareholder’s rights action and civil fraud claims brought out of the wreckage of the Credit Crunch.

Many of these claims, which can be very substantial are backed by litigation funding: which is a necessary element in causing group action or large commercial claims to gain critical mass.

Litigation funding is used to pay for expensive expert evidence, to partly fund the fees of expert commercial counsel who typically work on a partial CFA basis, with base fees due in any event and above all to purchase ATE insurance, the existence of which buttresses arguments that the potential adverse costs liability of any individual claimant to group litigation should be several and not joint.

The role of a solicitor acting for claimants who bring large scale litigation backed by litigation funding, can assume elements of project management as financial implications, the operation of litigation management agreements, and problems of co-ordination of a cohort of many thousands of clients can consume large amounts of time.

Litigation funding is often central to points raised in interlocutory skirmishing, as lawyers acting for defendants will see that it’s existence both fuels the litigation brought against their clients, but also presents an opportunity to derail litigation if the benefit the claimants can draw from it can be curtailed.

The  litigation funder (whose identity may not be apparent) may also form a tempting target both for a security for costs application and a source of non-party costs, should any ATE policy prove inadequate.

Some of these considerations were seen at work, in the Royal Bank of Scotland Shareholder Rights Issue litigation, which reached it’s conclusion this year, in particular there were two lengthy judgments of Hildyard J, which dealt with issues such as the disclosure of an ATE policy, whether litigation funders should be identified, and whether security for costs should be ordered against a litigation funder.

In the first of these judgments The RBS Rights Issue Litigation [2017] EWHC 463 (Ch) the judge had little difficulty in determining both that there was jurisdiction to order disclosure of the identities of litigation funders, but also that there was a low threshold for making such an order:

33. As to (a) above, I am not persuaded that the Court should require to be satisfied, as a condition of making an order disclosing details as to the funder(s), that the applicants have unequivocally determined to bring an application for security for costs once the details are revealed.

34. Such a test would be inimical to the sensible application of the jurisdiction which not only serves to thwart any attempt by a defendant to obtain security against the claimant’s third party funder under CPR 25.14, simply by refusing to provide details of the funder’s identity, but also to enable an applicant properly to consider the merits of an application against the particular funder concerned having regard to its position, whereabouts and substance. Furthermore, such a test would be difficult to apply since it calls for what is likely to be speculation as to true and settled intent, whereas such issues are seldom black and white.

The more difficult part of the application dealt with whether the court should order the disclosure of an ATE insurance policy: English law, unlike federal law in the USA has often taken the view that insurance arrangements are irrelevant, and for example, liability insurance policies are not disclosable documents, as a claimant must “take his defendant as he finds him” including the risk, that that defendant might lapse into insolvency.

Nonetheless there are various cases in the law reports where disclosure of ATE policies has been ordered, under the general rubric that such disclosure is necessary for particular instances of “case management”, an approach that could be said to represent an unhappy fudge between the general rule of English law and a reluctant recognition, that perhaps (whisper it) the American rule is to be preferred.

Hildyard J refused to order disclosure of the ATE insurance policy, first noting:

109. Thus, I accept that generally an ATE policy, which does not impact on the issues in the case now that the premium can no longer be recovered as part of a costs award, will not be relevant. However, there may well be exceptions: for example, where the ATE policy has been deployed in the course of the proceedings whereby to influence or impact on a decision (procedural or otherwise) such as it has been in the present case (see below). That is especially likely, as it seems to me, in the context of group litigation where the considerable benefit to claimants of several liability has been obtained. More generally, I would add that, to my mind, the court will in such a context tend to be more amenable to such disclosure as the price of the other benefits, and to ensure that claimants themselves have transparency.

And then concluding:

122. In my judgment, there is some force in the Claimants’ contention that this limb of the application is to some extent in contrived clothing. It is said to be a matter of case management, rather than going to enforcement, because it would flush out a possible defence to an application, and assist the Defendants whether to bring it at all. But the case management characterisation and rationale is still ancillary to enforcement; and the true or at least primary objective is demonstrated by the form of order sought, which is premised not on the documents being needed for case management purposes, but only that there are efficiencies in making the Claimants determine now their defence to an uncertain application for security which may not be pursued anyway and further or alternatively may be demonstrated (by reference, for example, to the position of the funders) to be unwarranted. I do not think it would be right to exercise case management powers to put the Claimants to an election in respect of a potential application for security for costs to which there may well be other answers, and to which the ATE policy may not be a complete answer anyway.

Sometime thereafter the case returned to court before Hildyard J to deal with the further application pursued on behalf of the Bank, for security for costs against the litigation funders and reported in a judgment at In the Matter of the RBS Rights Issue Litigation Third Party Funders Security for Costs [2017] EWHC 1217 (Ch). He summarised the criteria by which such an application should be assessed in these terms:

19. The potential exposure of litigation funders to orders for costs against them at the end of the day does not, of course, of itself mean that an order for security for costs should be granted. At such an interlocutory stage the court must assess not only whether it is sufficiently clear that the criteria for the potential imposition of liability are fulfilled, but also whether there is a sufficient basis for interlocutory intervention. Of particular relevance in assessing whether an interlocutory order against a non-party under CPR 25.14(2)(b) to secure a contingent liability pursuant to section 51 is appropriate and just will be

(1) Whether it is sufficiently clear that the non-party is to be treated as having in effect become in all but name a real party motivated to participate by its commercial interest in the litigation;

(2) Whether there is a real risk of non-payment such that security against the contingent liability should be granted;

(3) Whether there is a sufficient link between the funding and the costs for which recovery is sought to make it just for an order to be made;

(4) Whether a risk of liability for costs has sufficiently been brought home to the nonparty, either by express warning, or by reference to what a person in its position should be taken to appreciate as to the inherent risks;

(5) Whether there are factors, including for example, delay in the making of an application for security or likely adverse effects such as to tip the overall balance against making an order.

The court then went on to order security for costs against one funder of the claim, but not another, applying the principles to the particular evidence of each funder’s position that was before it.

Perhaps the most interesting part of the judgment relates to the careful analysis of the ATE position, what this might mean for a shortfall in recovery of the defendant’s costs and the fact that delay (these applications were made in 2017), with a trial only months away was not treated as a showstopper, for the purposes of determining the application.


Costs and the rule of law

The working year has begun.

On the horizon are more reforms to the law and practice of costs, including the move to digital bills and J codes, the tortuous marrying up of costs budgets and bills, the introduction of fixed costs for NIHL claims and clinical negligence claims, the rise in the Small Claims Track limit to £5000 for personal injury claims and the abolition of the exception to LASPO 2012, for insolvency proceedings.

Reforms particularly procedural reforms, can often seem to fall into two types: ambitious top down plans, formulated to make existing procedures better or to introduce a new and improved way of doing things or perhaps more commonly, haphazard and bit piece reforms, reactive to a particular perceived deficiency, largely for the benefit of one sectional interest at the expense of another.

In truth, such a dichotomy is false: all reforms have their genesis in sectional interests, who promote vigorously their preferred course of action, seeking to overturn the natural bent to inertia inherent in any system.

If the groundswell for change, is sufficiently wide and prolonged, then reforms can take on a widespread nature and achieve systemic change. Equally, caution and a very human desire to keep to the status quo, means that probably the majority of reforms are piecemeal.

Surveying the landscape of the law and practice of costs, in early 2016, including the wreckage left after the Jackson reforms and the introduction of LASPO 2012, the conclusion I draw is that not only does the current state of the law of costs lack all symmetry or consistency of theme, it is failing to meet some of the most basic requirements of a legal system underpinned by the rule of law.

Confining myself to civil proceedings, it is possible to note that the personal injury market is well served, by an intricate and prolix code of fixed costs for low value claims, notable by its absence in relation to other types of dispute.

Due to the existence of qualified one way costs shifting a person can bring a personal injury claim, and not go bust if they lose: but if someone has an environmental dispute or a discrimination claim they may be practically prevented from bringing it, by the absence of public funding, the absence of costs protection and not even the cold comfort of being able to predict their liability for costs should they lose.

The decimation of Legal Aid, has meant that access to justice is dependent in large part, in lawyers being willing to defer or make contingent their fees, but if lawyers are unwilling to do so, then the current system sees no constitutional problem with the lawyer through their caution, effectively acting as a de facto gatekeeper to the court.

This is a massive constitutional shift, which transfers far too much power to the lawyers, at the potential expense of the citizen, but inevitable for those cases for which contingency fees are the only means of funding litigation.

Public law proceedings are even more restricted by funding restrictions and costs rules; the number of lawyers who have the necessary skillset and are in the right place, to challenge the egregious actions of local authorities or central government is dwindling, and the limited protection provided by the Civil Procedure Rules for Aarhus claims or costs capping orders made under the common law jurisdiction adds a deliciously random quality to the prospects of a public law claim proceeding.

The inescapable conclusion that I draw, is that if you were looking to draw up a fair, reasonable and efficient set of provisions for costs to underpin a fair, reasonable and efficient system of civil justice, not in 100 years of effort would you come up with the present system.

So what should costs law and procedure look like? And is a search for overarching principles a vain pursuit?

I do not believe that it is a vain pursuit: I think that the law and practice of costs needs to return to its origins: as a means of facilitating justice, rather than acting as an impediment to it, and the simplest touchstone is to ask how any rule, provision or criterion, runs with the grain of a civil justice system which does in fact provide justice, the vindication of the substantive rights given to citizens by our laws.

Thus the starting point must be that the first and foremost purpose of the civil justice system is to provide a fair and efficient way for the citizens of this country at affordable cost, to resolve their legal disputes with each other and the state, avoiding civil disorder or self help or simple injustice, by legal rules conferring rights and obligations which conform with the rule of law.

Last year I attended the excellent conference run each October by the Public Law Project and listened with interest to the opening address by Lord Justice Laws, which included consideration of the rule of law, both the “thin” theory and the “thick” theory, beloved of legal jurists to describe different aspects or interpretations of the meaning of the phrase “rule of law”.

The differences between the theories perhaps are less significant than the similarities; most lawyers would agree that the rule of law means as an irreducible minimum, a legal system governed by publically declared and available laws, which apply with prospective effect and which apply generally and with equality and certainty to all.

It follows that any laws (including those pertaining to costs) must also comply with and be part of the rule of law: a settled predictable set of rules, which apply generally and with equality and certainty to all. This in turn means that there must be judges trained in and conversant with the law, a system for appeals to ensure that the laws are actually applied and applied consistently and means of enforcing decisions of the court, made according to law.

In a post industrial society of more than 60 million citizens any body of rules, must cater for the myriad complexities of the society it applies to, will be necessarily complex and thus a need for a legal profession to advise upon and interpret the law is arises, as an essential part of the rule of law. Such a profession must be paid for: the question is by whom and on what basis and the law of costs thus takes on a constitutional role.

The practice of costs shifting, whilst not essential for the rule of law, must if it applies result in predictable awards of costs, whether by fixed costs or otherwise, in order to comply with the overriding requirements of the rule of law.

The courts are for the losers as well as the winners, and it is antithetical to the notion of justice that a dispute must end with the ruin of the losing party, due to excessive costs.

Equally, whilst not essential that the state directly funds the legal profession, it must put in place satisfactory measures, which ensure that the individual can access legal advice and representation and have their claims resolved in court.

Of course, these considerations are far removed from the daily bread of arguing the toss over yet another part 45 issue in the County Court, but by the time we come to leave 2016, we can but hope that the law and practice of costs is in a better state than it currently would appear to be.

Fiat justitia ruat caelum ?

The title of this post reflects the Latin maxim “Let justice be done though the heavens fall”, a principle formulated originally by Terence, or Piso and echoed in famous cases in more modern times, by judges as diverse as Lord Mansfield and Judge James Horton in the infamous Scottsboro’ Boys trial in the 1930s.

It seems to have gone out of fashion in the United Kingdom more recently given the non-event of the decision of the Supreme Court last week in the case of Coventry.v.Lawrence [2015] UKSC 50, a copy of which can be found here:

Coventry v Lawrence [2015] UKSC 50

This case it will be remembered, was set to re-examine the compatibility of the Access to Justice Act 1999 with its scheme of recoverable additional liabilities, with article 6 and article 1 of the First Protocol of the European Convention on Human Rights.

In particular the issue, had been thrown starkly into relief by the decision of the European Court of Human Rights that the scheme breached the article 10 rights of a newspaper publishing company, in the unhappy aftermath of the Naomi Campbell litigation. As noted by the majority judgment at paragraphs 43 and 44:

The system had a number of shortcomings which were described as “flaws” by Jackson LJ in his Review of Civil Litigation which were summarised by the ECtHR at paras 207 to 210 of its judgment in MGN v United The flaws were (i) the lack of focus of the regime and the lack of any qualifying requirements for appellants who would be allowed to enter into a CFA; (ii) the absence of any incentive for appellants to control the incurring of legal costs and the fact that judges assessed costs only at the end of the case when it was too late to control costs that had been spent; (iii) the “blackmail” or “chilling” effect of the regime which drove parties to settle early despite good prospects of a defence; and (iv) the fact that the regime gave the opportunity to “cherry pick” winning cases to conduct on CFAs. At para 217, the court concluded that:

“… the depth and nature of the flaws in the system … are such that the court can conclude that the impugned scheme exceeded even the broad margin of appreciation to be accorded to the state in respect of general measures pursuing social and economic interests.”

These flaws were regarded by the ECtHR as sufficiently serious to lead it to conclude that the system was incompatible with article 10 of the Convention. Mr McCracken submits that the same reasoning necessarily requires the court to hold that the system was also incompatible with article 6 and A1P1.

The issue then in Coventry.v.Lawrence was whether the decision in MGN.v.The United Kingdom could be distinguished by the Supreme Court.

As the majority noted in paragraph 50:

The first question that we must consider is whether the decision of the ECtHR in MGN v United Kingdom requires us to hold that the 1999 Act scheme is incompatible with article 6 and/or A1P1, at least in relation to the respondents in this case. In that case, the claimant sought damages for breach of confidence and compensation under the Data Protection Act 1998 in respect of the publication in The Daily Mirror of an article and photographs of her. She succeeded at first instance, but lost in the Court of Appeal. She entered into a CFA for the purposes of an appeal to the House of Lords. Her appeal was allowed. The respondents challenged the proportionality of the claimant’s costs (including the success fee). The ECtHR held that there had been a violation of article 10 of the Convention (the right to freedom of expression) as regards the success fee that was payable by the respondents. In defending the CFA scheme, the UK Government advanced arguments similar to those that have been advanced by the Secretary of State (as well as by the appellants and some of the interveners) in the present case. The court held that the requirement to pay the success fees constituted an interference with the defendant’s article 10 rights. The central issue was whether the UK authorities had struck a “fair balance” between freedom of expression protected by article 10 and an individual’s right of access to court protected by article 6 (para 199).

The majority of the Supreme Court began its survey of this issue at paragraph 58:

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 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. As Lord Bingham said in Brown v Stott [2003] 1 AC 681, 703:

“Judicial recognition and assertion of the human rights defined in the Convention is not a substitute for the processes of democratic government but a complement to them. While a national court does not accord the margin of appreciation recognised by the European court as a supra-national court, it will give weight to the decisions of a representative legislature and a democratic government within the discretionary area of judgment accorded to those bodies.”

The choices made by Parliament in enacting the 1999 Act followed a wide consultation to enable it to evaluate the various interests at Similarly, in formulating the CPR and the CPD, the relevant rule-makers were (following consultation) in the best position to determine how to effect the reforms and how to strike the appropriate balance between the different types of litigant.

It is interesting to note that the Supreme Court accepted the withdrawal of Legal Aid as a “given”: I recall at the time, that the withdrawal of Legal Aid, was done without any consideration of a fairly obvious cost/benefit analysis.

This was the evident fact that the government or state, would be immediately at risk of picking up a far heavier bill than the net cost to it of providing Legal Aid for personal injury and clinical negligence cases, as it would invariably be paying out large sums to compensate people for personal injuries caused by the state or clinical negligence for which the NHS would be liable.

Equally, the political motivation for withdrawal of Legal Aid (to reduce the number of complaints made to Labour MPs about the failings in the administration of the scheme) or the interesting anecdote about how recoverability was devised as an option in response to a debate at the Oxford Union, does not feature in the Suprem Court’s majority judgment.

The Supreme Court went on:

The withdrawal of legal aid in most areas of civil litigation presented a real problem for the state. It had to decide how to secure access to justice for those who previously qualified for legal aid. Under the first scheme that was adopted (and which was in force from 1995 until 2000), when success fees were permitted for the first time and ATE insurance was first encouraged, the success fee and ATE insurance premium were not recoverable from the opposing party. The problems with this scheme included that (i) it only worked well where appellants sought substantial monetary relief (thereby realising a fund, in the event of success, from which the success fee would be paid) and (ii) damages recoverable by CFA appellants were eroded by the irrecoverable cost of funding and ATE insurance.

These difficulties were overcome by the 1999 Act The first difficulty was overcome because a substantial fund of damages was no longer necessary to secure the payment of success fees and ATE premiums: inter partes costs orders were sufficient. The second difficulty was resolved because damages (or, in a low money or non-money claim, the litigant’s own funds) were no longer eroded by irrecoverable success fees and premiums. In policy terms, the principal shift from the first scheme to the second scheme was to transfer the cost of financing successful claims from winning litigants to losing litigants. The cost of unsuccessful claims remained with lawyers and ATE insurers.

The potential unfairness of the 1999 Act scheme on unsuccessful litigants was mitigated by the fact that district judges and costs judges would perform the role of “watchdog” as Lord Bingham described it in Callery v Gray (Nos 1 and 2) [2002] UKHL 28, [2002] 1 WLR 2000 at para 6. Lord Bingham said that the courts would be astute to check any practices which might undermine the fairness of the new funding regime, which was to “operate so as to promote access to justice and not so as to confer disproportionate benefits on legal practitioners or after the event insurers or impose unfair burdens on respondents or their insurers” (para 10). Thus the base cost and any additional liabilities were to be assessed by the court. As to base costs, where costs were to be paid on the standard basis they were to be judged by the criteria of reasonableness and proportionality. Where costs were to be paid on the indemnity basis, they were to be judged by the sole criterion of reasonableness. As regards any additional liability, a successful litigant was only entitled to a reasonable success fee and ATE premium and (where costs were assessed on the standard basis) a proportionate success fee (as explained in Lownds). In an appropriate case, the court had the ability to make a cost-capping order as was required, for example, by the Court of Appeal in King v Telegraph Group Ltd [2004] EWCA Civ 613, [2005] 1 WLR 2282.

In a sense this is an outrageous glossing upon history. The Costs Wars of the last 15 years arose out of the flaws and unfairness in the system, which caused huge amounts of satellite litigation and repeated amendments to the scheme.

The failure of detailed assessment to control costs is well known and in even clear cut cases where a costs capping order was called for, the court regularly refused to make one, or hedged the issue with such qualifications that few orders were ever made.

The Supreme Court went on:

It was undoubtedly a feature of the 1999 Act scheme that the costs awarded to successful appellants who had the benefit of CFAs could be very high indeed. For that reason, it had the potential to place respondents under considerable pressure to settle before even more costs were incurred. This is the third flaw identified by the ECtHR in MGN v United Kingdom and the second of Lord Neuberger’s four unique and regrettable features. We accept that, in a number of individual cases, the scheme might be said to have interfered with a defendant’s right of access to justice. But for the reasons stated earlier (paras 58 to 63 above), it is necessary to concentrate on the scheme as a whole. 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. It was subject to certain safeguards. 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 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. This is relevant to the question whether the 1999 Act scheme struck a fair balance between the interests of different litigants.

For the reasons that we have given, we are satisfied that the scheme was not incompatible with article 6 or article 1 of the First Protocol.

For completeness, we should add that it was argued that, in any event, at least one of the respondents had failed to establish that he was not “non-ordinary” or “non-rich” (see para 48), either because there was no evidence of his means or because he was in fact insured against liability for For the reasons we have given, it is unnecessary to decide whether that is a well-founded argument. However, the very fact that it has been raised demonstrates the risk of satellite litigation if the respondents’ case is accepted: it would be necessary to assess a party’s means and liabilities, identify the precise terms of an insurance policy that has been mislaid, and then decide whether it covered nuisance by noise.

The above analysis, whilst it displays a remarkable judicial sleight of hand, fails to grapple with the issue in plain sight: who without the benefit of their own insurance policy, owning a home of modest value, and earning an average wage I/e the average person, would be able to gain access to justice if sued by a litigant funded by lawyers acting on CFAs and with the benefit of an ATE policy, without being at risk of insolvency and financial disaster?

In reality there is no sensible basis for a principled departure from the earlier decision of the European Court: the real issue thrown up by this case was whether the Supreme Court should contemplate the consequences of unwinding the unfairnesses of the past 15 years, or act pragmatically, to draw a line under the past.

It did just that:

This is no mere abstract. A decision to declare that the 1999 Act scheme was incompatible with the Convention would have a serious impact on many thousands of pre-April 2013 cases which are in run-off, as well as claims to which the pre-Jackson costs rules continue to apply, such as mesothelioma, insolvency and publication and privacy cases. Any order made by this court in the present case would have no effect on the contractual obligations of litigants to pay success fees to their lawyers and ATE premiums to their insurers. Successful parties would, therefore, still be liable to pay their lawyers and insurers if they won their cases and could not recover them from unsuccessful respondents.

For the reasons that we have given, the 1999 Act scheme was compatible with article 6 and A1P1. We have not addressed A1P1 separately. That is because it has (rightly) not been suggested that, if the scheme was compatible with article 6, it could nevertheless for some other reason be incompatible with A1P1.

The last paragraph of the majority reads curiously defiantly.

I suspect that it is aimed at a potential application to the European Court of Human Rights, should the disappointed litigant in this case seek to take the matter further to Strasbourg.

If (contrary to our view) the scheme was incompatible with article 6 and A1P1, we would not read it down so as to make it compatible and we would not strike the scheme down or disapply it.

This is conclusive in terms of the domestic courts.

Theoretically this is not the end of the matter.

An application could be made to the European Court of Human Rights by the disappointed litigant: but as illustrated in the prisoners voting litigation, such an application if made and successful, would not impose a financial obligation on the United Kingdom, to compensate the insurance industry.

In all probability the European Court would decline to order compensation as part of a decision on just satisfaction, conscious of the risk of conflict with the Supreme Court of the United Kingdom and the concept of a dialogue being necessary between those two courts.

So the heavens have not fallen. It would be easy to write the case off, as part of the ongoing sequence of non events in the world of costs which seem to take place in July each year.

Hourly rates anyone?

But this decision is undoubtedly a milestone, in the increasing intrusion of public law arguments into the world  of costs and litigation funding.

Perhaps the next issue will be whether the LASPO regime is itself flawed, given the inability of vast numbers of litigants who do not benefit from the QUOCS scheme which applies to personal injury litigation to seek access to justice in their own cases,without facing the risk of financial ruin through the possibility of an adverse costs order?

Conditional Fee Agreements and capital

A key problem in obtaining effective justice in litigation is the inequality of arms which will often exist between a well funded defendant and an impecunious claimant. Or to put it another way, the imbalance of capital between two parties which enables the richer party to buy better lawyers, better experts and generally turn its financial advantage into strategic or tactical advantage within the litigation.

From this perspective the key to enhancing access to justice is to facilitate access to capital for the purposes of the litigation by the economically weaker party. This should enable them to pay for lawyers, pay for experts, pay court fees, and make provision for funding any adverse costs consequences which might follow from an unsuccessful court case. There can then be a reasonable prospect that the provision of capital will remove the inequality of arms and the production of a more “just” result.

Now capital used in a broad sense could be provided in a number of ways. In the closing years of the twentieth century and still more so, in the first two decades of the twenty first century the state has lost interest in providing capital through a state funded Legal Aid scheme.

This has not caused the need for capital to diminish: far from it, but rather has required the provision of capital from the private sector. Litigation funding provided by third parties, external to the litigation is one such source of capital: and I believe that developments to date have only scratched the surface of what such external capital can do.

Enabling lawyers to fund (part) of the litigation through making their own fees deferred and conditional on success, is another crucial source of capital for litigation funding, where the lawyers effectively provide capital to an impecunious claimant.

In such circumstances their own client can expect to pay an economic “rent” by way of a success fee for the provision of the capital. From 2000 to 2013 this “rent” could be externalised through the scheme of additional liabilities which existed under the Access to Justice Act 1999.

Accordingly I believe it is entirely possible to view the Costs Wars of this period as a struggle by defendants whether insurance companies, public authorities or private litigants to exclude the introduction of capital into litigation by their opponents, using tools such as champerty, maintenance and consumer protection provisions coupled with the indemnity principle to achieve this end.

Even the mundane struggle to decrease levels of costs through for example the introduction of fixed costs, the Ministry of Justice Portal and more restrictive rules on the recovery of costs generally can be viewed as exercises both in capital conservation and capital restriction.

Although the above analysis is unashamedly economically determinative (positively Marxist in fact) it does shed a light on why 700 years of prohibition on contingency fee arrangements was discarded within the span of a single generation of lawyers: the urgent and pressing need to introduce a source of capital into the system which was readily to hand.

I consider how this came about as an inevitable result of the state being unwilling to provide the capital  to litigants that they required to access a sophisticated and complex system of laws through appropriately skilled lawyers.

Since the Statute of Westminster of 1275, the common law of England and Wales set its face firmly against the introduction of contingency fees (based on payment by results) holding at various times that they “inherently immoral”, “deeply corrupting” or “definitely sinister”. In effect conditional fee agreements were held to be contrary to public policy and would not be permitted. In this context, Conditional Fee Agreements, were not only unenforceable between the parties to them, they could properly be regarded as illegal contracts too.

However, a Green Paper published in 1989, the then Lord Chancellor, Lord Mackay put forward a Green Paper, on contingency fees, inviting consideration of funding litigation by contingency agreements.

The paper reflected two elements which have underpinned the development of the law on conditional fee agreements: namely public funding constraints which have led to the effective abolition of Legal Aid for personal injury claims and a perception that an increasingly broad spectrum of society, was precluded from obtaining access to justice, by not qualifying for Legal Aid by reason of financial ineligibility, yet still lacking the resources to fund lawyers to act in litigation.

In this context, public policy, began to shift. The Green Paper, ultimately led to the introduction of the Courts and Legal Services Act 1990, which contained the first incarnation of section 58[3], permitting Conditional Fee Agreements. It should be noted that that section imposed certain requirements which had to be met, for the Conditional Fee Agreement to be enforceable and in particular created the notion of the “specified percentage” or success fee, which a lawyer would be permitted to charge their client subject to a cap on the amount created by secondary legislation. Further section 58(8) specifically prohibited the success fee from being recovered from the losing side to litigation, under a costs Order. It would remain a solicitor-own client charge.

In parallel with the change of public policy expressed in clear and unambiguous terms by the enactment of the Courts and Legal Services Act 1990, the attitude of the judiciary to Conditional Fee Agreements, began to change, and was expressed most famously in the case of Thai Trading.v.Taylor where it was sought to develop the common law to permit the making of Conditional Fee Agreements. As Millett LJ (as he then was) noted:-

Current attitudes to these questions are exemplified by the passage into law of the Courts and Legal Services Act 1990. This shows that the fear that lawyers may be tempted by having a financial incentive in the outcome of litigation to act improperly is exaggerated, and that there is a countervailing public policy in making justice readily accessible to persons of modest means. Legislation was needed to authorize the increase in the lawyers reward over and above his ordinary profit costs. It by no means follows that it was needed to legitimize the long-standing practice of solicitors to act for meritorious clients without means, and it is in the public interest that they should continue to do so…

The problem with Thai Trading, is equally well known. In the case of Hughes.v.Kingston upon Hull City Council the view taken by the Divisional Court was that the decision of the Court of Appeal and in particular the views of Millet LJ could not stand by reason of the earlier decision of the House of Lords in Swain.v.The Law Society. The matter was put beyond doubt, in the case of Awwad.v.Geraghty & Co (a firm) where Schiemann LJ stated:

I share Lord Scarman’s reluctance to develop the common law at a time when Parliament was in the process of addressing those very problems. It is clear from the careful formulation of the statutes and regulations that Parliament did not wish to abandon regulation altogether and wished to move forward gradually. I see no reason to suppose that Parliament foresaw significant parallel judicial developments of the law. I add that, on the judge’s findings in the present case, it appears that this understanding was shared by the solicitor who successfully endeavoured to prevent the conditional normal fee agreement from being evidenced in writing.

I would therefore hold that acting for a client in pursuance of a conditional normal fee agreement, in circumstances not sanctioned by the statute, is against public policy. IN those circumstances, I would also reject the submission that the Rules were ultra vires, a submission which was premised on the assumption that the Rules sought to forbid what was permitted under the common law.

The effect of the judgment in Awaad was to preclude the common law from having any role to play in the development of Conditional Fee Agreements. Henceforth, they were to be solely creatures of statute.

The statutory power contained in section 58 of the Courts and Legal Services Act 1990, was not implemented until the Conditional Fee Agreements Order 1995 which permitted that three particular types of proceedings would be permitted, namely personal injury claims, insolvency matters and applications under the European Convention on Human Rights to be conducted under Conditional Fee Agreements. The maximum permitted increase on fees would be 100%. A further statutory instrument contained the detailed provisions for implementation of section 58.

Government policy continued to evolve and with the publication of a consultation paper, by Lord Irvine, the then Lord Chancellor in March 1998 it was intended to (a) extend the scope of Conditional Fee Agreements to all types of civil proceedings (excluding family cases) to remove Legal Aid from all personal injury claims (excluding medical negligence) and to introduce recoverability: the proposal that success fees and after-the-event insurance premiums would be recoverable from the losing side to litigation, repealing the prohibition contained in section 58(8).

The proposals, including the notion that success fees should be recoverable from the losing side won the day. These proposals were made manifest in the Access to Justice Act 1999, which heavily amended the Courts and Legal Services Act 1990. The current provisions are to be fund in a revised section 58, a new section 58A. Further detail was contained in the Conditional Fee Agreements Order 2000, the Conditional Fee Agreements Regulations 2000, the Access to Justice (Membership Organisations) Regulations 2000 and the Collective Conditional Fee Agreements Regulations 2000.

The switch to recoverability, prompted an explosion of satellite litigation called the “Costs Wars”, whereby losing parties, funded by the insurance industry, challenged the quantum of recoverable uplifts, and fought detailed technical challenges to the form and content of conditional fee agreements, alleging breach of the formality requirements embodied in the secondary legislation, which in turn mean the agreements were unenforceable, and hence applying the indemnity principle, no costs were payable as the liability of the lay client to their instructed lawyer, under an unenforceable Conditional Fee Agreement was “nil”.

This in turn led to an attempt to simplify the formality requirements with the Conditional Fee Agreement (Miscellaneous Amendments) Regulations 2003 and then the outright abolition of the formality requirements by the Conditional Fee Agreements Revocation Regulations 2005 with effect from the 1st November 2005.

From 2005 to 2013, the formality requirements for an enforceable Conditional Fee Agreement were only that it had to be made in writing and contain a success fee not greater than 100%.

Although that position has changed since LASPO 2012 and the perceived need to regulate Conditional Fee Agreements, each of the legislative developments from 1990 to 2012 can be characterised as a liberation or constriction on the free flow of capital.

Conditional Fee Agreements are here to stay as an essential source of capital. Litigation funding from third party funders will undoubtedly increase, moving from funding individual cases into funding or buying, “books” of cases, with an increasingly porous dividing line between third party funders and legal expense insurers.

But perhaps the most far reaching development of all, will be the  market liberalisation of legal services which will facilitate the introduction of capital into litigation funding on an unprecedented scale. Thus the Legal Services Act 2007 and the changes it has introduced will prove extremely far reaching, perhaps far more so than the removal of the prohibition on contingency agreements.

With law firms bloated by private equity or stock market funding inequalities of arms may well disappear, though new problems of consumer choice and consumer protection can be readily expected to develop between over mighty law firms and their individual clients.