Just as the post-Jackson consultation on abolishing the recoverability of success fees is hotting up, claimants, whose arguments for retention are based on access to justice, have been dealt a blow by the European Court of Human Rights (ECHR).

Most people thought that the Naomi Campbell v MGN saga finished in the House of Lords in 2005, but the defendant took its complaints to Strasbourg. On 18 January, the ECHR handed down a judgment in MGN Ltd v United Kingdom, unanimously finding for MGN: ‘There has been a violation of article 10 of the convention as regards the success fees payable by the applicant.’

MGN v UK Campbell brought a claim for breach of privacy. The House of Lords upheld the claim and awarded her costs. At the Lords stage she had entered into a conditional fee agreement (CFA) providing for a 95% uplift (the bill in the Lords was £850,000 of which £365,077 was uplift). On taxation, MGN raised an issue as to the incompatibility of the uplift with its article 10 rights. The Lords held unanimously, [2005] 1 WLR 3394, that the uplift was recoverable. Article 10 guarantees freedom of expression subject to ‘such … 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 …’. The task for the ECHR was to determine whether the success fee regime was compatible with this.

The government did not seriously dispute that the costs payable interfered with MGN’s article 10 rights. It was agreed that the interference was ‘prescribed by law’. The ECHR accepted the argument that this had a ‘legitimate aim’, namely ‘the widest public access to legal services for civil litigation funded by the private sector and thus the protection of the rights of others within the meaning of article 10’. The issue was the regime’s ‘necessity in a democratic society’ to achieve that aim: ‘[the court] must consider the proportionality of requiring an unsuccessful defendant not only to pay the reasonable and proportionate costs of the claimant, but also to contribute to the funding of other litigation and general access to justice, by paying up to double those costs…’.

The ECHR held that the test of necessity in a democratic society was not met by the current regime. It was influenced by the consultations and proposals for reform, principally in the area of media law, since the decision in the House of Lords. These included the Jackson review. The court also noted a series of English judgments critical of the regime. The court concluded: ‘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.’ It continued: ‘This conclusion is indeed borne out [emphasis added] by the facts of the present case.’

The emphasised words imply that the ECHR was saying that the system of recoverable success fees was itself a disproportionate interference with the right of freedom of expression and that the MGN case was simply an example of this. The case does not necessarily turn on Campbell’s personal wealth.

Impact in media casesThe immediate impact will be political. The government will be under pressure to amend the law relating to publication cases. This can be done by secondary legislation. Indeed, reduction of success fees or even total abolition could be achieved by the CPR since recoverability is ‘subject to rules of court’ – section 58A(6) of the Courts and Legal Services Act 1990 (CLSA).

The more open question pending legislation is, what can the courts do in publication cases?

The courts are public authorities within section 6 of the Human Rights Act 1998 (HRA), and by section 6(1) it is unlawful for a public authority to act in a way that is incompatible with a convention right. However, section 6(1) does not apply if, as a result of primary legislation, the authority could not have acted differently. The most that the courts can do in such a situation is grant a declaration of incompatibility under section 4 of the HRA.

The primary legislation here is section 58A(6) of the CLSA. This provides simply that a costs order may, subject to rules of court, include a requirement to pay a success fee. It is the CPR that make payment of a success fee in CFA cases almost automatic. Accordingly the courts are not bound by primary legislation to allow a success fee – they are merely permitted to do so. It follows that it is, in principle, open to a party on assessment to challenge a success fee on the grounds of interference with article 10.

However, such a party faces a substantial hurdle. While a court is obliged by section 2 of the HRA to ‘take into account’ any judgment of the Strasbourg court, such decisions do not constitute binding precedent. The English rules of precedent are not, save in exceptional circumstances, disapplied where there is an inconsistent Strasbourg decision – Kay v Lambeth LBC [2006] 2 AC 465 at [40]-[45]. Accordingly, an English judge, faced with an argument on MGN, would prima facie be bound to follow the decision of the House of Lords.

The House in Kay recognised as a permissible exception to the general rule D v East Berkshire NHS Trust [2004] QB 558, where the Court of Appeal had not followed a decision of the House of Lords that was incompatible with the convention. The matters that made that case exceptional were (i) the Strasbourg court had disagreed with the earlier House of Lords decision in an application made in the same case; (ii) the House of Lords decision had been given well before the HRA; (iii) there had been no reference in it to the convention; and (iv) the policy considerations underlying the earlier decision had been largely eroded.

Factor (i) is clearly present in the situation under consideration and factors (ii) and (iii) equally clearly are not. Factor (iv) is arguably present, since the policy factors that led the Strasbourg court to conclude that the CFA system constituted an unwarranted interference with article 10 rights were the official reports of committees, the MoJ, Jackson etc, which post-dated Campbell v MGN.

A costs judge may therefore consider it a bold step to follow Strasbourg rather than the House of Lords. Such a judge could, though, make a ruling in accordance with the Lords decision, but give permission to appeal and even leapfrog the appeal to the Court of Appeal, from where the matter could go to the Supreme Court, which would be in a position to revisit Campbell v MGN.

Alternatively, a costs judge could refer the matter to a High Court judge, who could then consider leapfrogging it directly to the Supreme Court.

Wider impactBut what, if any, is the impact outside media cases? The ECHR decision is based on article 10 and not directly applicable to litigation where no issues concerning freedom of expression arise. Nevertheless, one decision can be a spur to another argument.

It is likely it will now be argued that success fees constitute a breach of a paying party’s article 6 right to a fair hearing. It has been held by the ECHR that article 6 includes an implied right of access to the court and such access must be ‘effective’. A paying party could argue that the costs burden imposed under the success fee scheme restricts the effectiveness of its access to court.

While the right of access to a court is not absolute, any restrictions must pursue legitimate aims and be proportionate to those aims. Thus the shape of the argument would be similar to that under article 10 in relation to whether restrictions are ‘necessary in a democratic society’, though, arguably, factors might weigh differently. The inter-relationship between articles 6 and 10 is illustrated by the ‘McLibel’ case, in which McDonald’s sued two campaigners who had distributed leaflets outside its restaurants, in proceedings that lasted more than 300 days. The ECHR held that denial of legal aid to the applicants contributed to an unacceptable inequality of arms in breach of article 6. It further held: ‘The inequality of arms and the difficulties under which the applicants laboured [were] also significant factors in assessing the proportionality of the interference with article 10.’

Some of the ECHR ’s reasons for holding in MGN v UK that the success fees scheme was disproportionate to the aim of achieving access to justice are applicable only to media cases, but other factors – such as the lack of any qualifying requirements, the lack of incentive to control costs and the ‘ransom effect’ – are of potentially broader application.

Although in MGN v UK the ECHR expressed its criticisms of the present regime, the outcome of an article 6 challenge might depend on the type of litigation and/or the nature of the parties. The arguments about the necessity of restricting access to court might not be the same, for example, in what is largely institutionalised litigation (such as personal injury, where the nominal defendant is so often an insurer) as in large commercial disputes or where the litigant is truly an individual.

In the meantime, is it open to domestic courts to restrict success fee recovery in non-publication cases? It would be open in principle for a paying party to make an article 6 challenge, and section 6(1) of the HRA would require a court not to act incompatibly with that convention right. Such a challenge, arguably, would not face the hurdle of binding domestic authority on compatibility that a challenge under article 10 does. Nor, though, would it have the support of an ECHR decision.

Although the House of Lords in Campbell v MGN was not asked to decide the compatibility of the success fee scheme with article 6, Lord Hoffmann, in the context of personal injury litigation, did refer to the scheme’s policy as ‘a rational social and economic policy’; and in considering whether the scheme pursued a legitimate aim, Lord Hoffmann commented that the availability of legal services under a CFA was ‘necessary to provide the access to a court required by article 6’. This might be said, following Kay, to bind domestic courts to allow success fees in principle. On the other hand, these observations were made before the Jackson review.

There is of course a body of domestic authority supporting the inter partes recovery of success fees in principle, but generally this does not consider convention issues. The argument might ultimately be whether, in providing access to court to one party, the scheme could disproportionately restrict the access of another.

Furthermore, we should not forget the position of a receiving party who has entered into a CFA with her solicitor in the expectation that the success fee is, in principle, recoverable. Damages claims can be ‘possessions’ and thus engage the protection of property provided for in article 1 of the first protocol. Might the same be said of an entitlement to costs, so that any retrospective attempt to alter the rules for success fee recovery would violate the receiving party’s own convention rights?

The costs wars may not yet be over.

Benjamin Williams, Robert Marven and Peter Mant are barristers at 39 Essex Street