CEDH · CASELAW;JUDGMENTS;CHAMBER;ENG — 11 octobre 2022

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margin-left:34pt; margin-bottom:0pt; text-indent:-17pt; text-align:justify } .sE5BF05B1 { width:2.33pt; font:7pt 'Times New Roman'; display:inline-block } .s17E903BE { width:3.01pt; font:7pt 'Times New Roman'; display:inline-block } .s2D9C6089 { margin-top:12pt; margin-bottom:12pt; text-indent:14.2pt; text-align:justify; page-break-inside:avoid; page-break-after:avoid } .s69DCC830 { margin-top:36pt; margin-bottom:0pt } .s4598CDF { width:70.9pt; display:inline-block } .sD8AE9261 { width:36.9pt; display:inline-block } .sB1A859A2 { width:116.43pt; display:inline-block } .s5D826FD4 { width:25.88pt; display:inline-block } .s1B61D60 { width:156.43pt; display:inline-block }     FOURTH SECTION CASE OF COVENTRY v. THE UNITED KINGDOM (Application no. 6016/16)     JUDGMENT   Art 6 § 1 (civil) • Equality of arms • Excessive and arbitrary burden on unsuccessful uninsured defendants in conditional fee arrangement litigation due to recoverability of success fees and insurance premiums Art 1 P1 • Peaceful enjoyment of possessions • Scheme exceeding the wide margin of appreciation accorded to the State in matters of social and economic policy   STRASBOURG 11 October 2022   FINAL   06/03/2023     This judgment has become final under Article 44 § 2 of the Convention. It may be subject to editorial revision.   In the case of Coventry v. the United Kingdom, The European Court of Human Rights (Fourth Section), sitting as a Chamber composed of:   Gabriele Kucsko-Stadlmayer , President,   Tim Eicke ,   Faris Vehabović ,   Iulia Antoanella Motoc ,   Armen Harutyunyan ,   Pere Pastor Vilanova ,   Jolien Schukking , judges, and Ilse Freiwirth, Deputy Section Registrar, Having regard to: the application against the United Kingdom of Great Britain and Northern Ireland lodged with the Court under Article   34 of the Convention for the Protection of Human Rights and Fundamental Freedoms (“the Convention”) by a British national, Mr David Michael Coventry (“the applicant”), on 20   January 2016; the decision to give notice of the application to the United Kingdom Government (“the Government”); the parties’ observations; Having deliberated in private on 20 September 2022, Delivers the following judgment, which was adopted on that date: INTRODUCTION 1.     The applicant was an unsuccessful defendant in a nuisance action which the claimants had funded through a conditional fee arrangement (a “CFA”, or “no win no fee” agreement) and “after the event” insurance (“ATE insurance”), which was intended to underwrite their liability to pay the defendants’ costs. He complains under Article 6 of the Convention and Article 1 of Protocol No. 1 about the fact that, by virtue of the Access to Justice Act 1999, the order for costs made against him included both the “success fees”, intended to compensate lawyers working under a CFA for unsuccessful cases for which they would not be paid, and the ATE   premium. THE FACTS 2.     The applicant was born in 1954 and lives in Romford. He was initially represented before the Court by Ms J. Pooley of Pooley, Bendall & Watson Solicitors, a firm of solicitors based in Isleham. From June 2020 he has been represented by Mr S. Kokelaar of Three Stone Chambers. The United Kingdom Government (“the Government”) were represented by their Agents, Mr   C.   Wickremasinghe and Mr S. Linehan of what is now the Foreign, Commonwealth and Development Office. 3.     The facts of the case, as submitted by the parties, may be summarised as follows. THE NUISANCE PROCEEDINGS 4 .     The applicant owned the freehold of a stadium which was used for various motor sports. In 2009 the owners of a house situated close to the stadium issued nuisance proceedings against the applicant and a number of other defendants. At first instance, the judge found that the operation of activities at the stadium constituted a noise nuisance to the claimants and granted them an injunction limiting the levels of noise which could be emitted from the site. In addition to the injunction, he awarded damages against the applicant and the third and sixth defendants in the sum of 10,325 British pounds (GBP), GBP 10,425 and GBP 100 respectively. The judge further ordered that the applicant and the third defendant pay 60% of the claimants’ costs subject to detailed assessment. 5.     The Court of Appeal quashed the judge’s finding of nuisance, but the Supreme Court allowed the claimants’ appeal and restored the judge’s original order, including the order for costs. The Supreme Court ordered a further hearing to deal with a number of consequential matters, including whether the order for costs infringed either Article 6 of the Convention or Article   1 of Protocol No. 1. This hearing took place on 12 May 2014 and judgment was given on 23 July 2014. THE COSTS ISSUE 6.     Prior to 1995, the only means of funding litigation (apart from legal aid) was to agree an ordinary retainer with a lawyer. However, section 58 of the Courts and Legal Services Act 1990 (“the 1990 Act” – see paragraphs   30 ‑ 33 below) permitted lawyers, for the first time, to enter into a conditional fee arrangement (a “CFA”, or “no win no fee” agreement), under which the lawyer was only to be paid if a client won a case. In return for agreeing to act on a CFA, the lawyer could receive a percentage uplift to his fees (otherwise known as a “success fee”). The riskier the claimant’s case, the higher the percentage uplift the lawyer could legitimately charge. At the same time that CFAs were introduced, “after the event” insurance (“ATE insurance”) was developed. A person involved in, or contemplating, litigation could pay an insurer an ATE premium to underwrite his liability to pay the costs of another party. 7.     Neither success fees nor ATE premiums were recoverable from the losing party under the 1990 Act. However, the Access to Justice Act 1999 (“the 1999 Act” – see paragraphs 34-38 below) provided that an order for costs made by a court against a losing party could include both the success fees payable under a CFA and any ATE premium. The Civil Procedure Rules (“CPR” – paragraphs 39-40 below) were amended accordingly. Rule   44.4 provided that the court would only allow costs, including any additional liability incurred under a funding arrangement, which were proportionate to the matters in issue. The CPR were supplemented by a Costs Practice Direction (“CPD”   – see paragraph 41 below). Pursuant to the CPD, in deciding whether the costs claimed were reasonable and proportionate, the court had to consider the amount of any additional liability separately from the base costs, and success fees could not be reduced simply on the ground that, when added to base costs which were reasonable and proportionate, the total appeared disproportionate. 8 .     The Legal Aid, Sentencing and Punishment of Offenders Act 2012 (see paragraph 49 below) subsequently abolished the recoverability of success fees and ATE premiums from the losing party. However, the 1999 Act scheme applied to the present case. Therefore, as the claimants had engaged their lawyer under a CFA, the applicant and third defendant were liable to pay 60% of their base costs, success fees, and ATE   premiums. In its judgment of 22   July 2015 the Supreme Court noted that the claimants’ base costs at first instance amounted to GBP 307,642; the 100% success fee amounted to GBP   215,007; and the ATE   premium was in the region of GBP 305,000. Furthermore, the claimants’ base costs in the Court of Appeal and Supreme Court were GBP   103,457 and GBP 204,226, respectively; their success fees were GBP   71,770 in the Court of Appeal and GBP 92,115 in the Supreme Court; and their ATE premiums were GBP   70,141 in the Court of Appeal and GBP   126,588 in the Supreme Court. THE SUPREME COURT JUDGEMENT OF 23 JULY 2014 9.     Before the Supreme Court the applicant, together with the third defendant, argued that the order that they pay 60% of the success fee and the ATE premium had infringed both Article 6 of the Convention and Article 1 of Protocol No. 1 to the Convention. Although they anticipated challenging the base costs on the ground that they were not reasonably and proportionately incurred, they conceded that the recovery of base costs by a winning party was in principle a lawful interference with Article 6 and Article   1 of Protocol No. 1. They accepted that the costs scheme under the 1999 Act had a legitimate aim, but in their submission it was – as demonstrated by the judgment of the European Court of Human Rights in MGN Limited v. the United Kingdom (no. 39401/04, 18 January 2011) – an unjustified and irrational means of achieving that aim. 10.     The Supreme Court considered that it would be inappropriate for it to consider whether the costs awarded against the applicant and third defendant infringed either Article 6 or Article 1 of Protocol No. 1 without giving the Government an opportunity to address it on the issue. It therefore adjourned the issue for further hearing. 11 .     However, in his leading judgment, Lord Neuberger of Abbotsbury, the President of the Supreme Court, observed that the level of costs in the case were “very disturbing”. He continued: “They give rise to grave concern even if one ignores the success fee and ATE premium. 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. ... ... ... 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 (3 rd 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’ ‘real’ 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.” THE SUPREME COURT JUDGEMENT OF 22 JULY 2015 12 .     Before the Supreme Court the applicant and the third defendant contended that the 1999 Act scheme was incompatible with both Article 6 of the Convention and Article 1 of Protocol   No.   1 to the Convention. They recalled that in his Review of Civil Litigation Costs (“the Jackson review” – see paragraphs 46-48 below) Jackson LJ had identified four “flaws” in the scheme: namely, its lack of focus and the lack of qualifying requirements for being allowed to enter into a CFA; the absence of any incentive for claimants to control the incurring of legal costs and the fact that judges only assessed costs at the end of a case when it was too late to control costs that had been spent; the “blackmail” or “chilling” effect which drove parties to settle early despite good prospects of a defence; and the fact that it gave lawyers the opportunity to “cherry pick” winning cases to conduct on CFAs. In MGN Limited (cited above, §   217) the Court had considered these flaws to be sufficiently serious to 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, and therefore held that it was incompatible with Article 10 of the Convention. The applicant and third defendant argued that the same reasoning necessarily required the Supreme Court to hold that the scheme was also incompatible with Article 6 and Article   1 of Protocol No. 1. 13.     That being said, the applicant and third defendant contended that the real vice of the scheme lay in the CPD (see paragraph 41 below), which based the assessment of CFA uplifts and ATE premiums exclusively on the ex   ante perspective of the CFA/ATE party (CPD   11.7), and expressly disallowed any reduction on the basis that the overall total of base costs and uplifts appeared to be disproportionate (CPD   11.9). It was therefore their contention that the scheme could be rendered compatible with Article 6 and Article 1 of Protocol   No. 1 if CPD 11.9 were read down in accordance with section 3 of the Human Rights Act 1998 so as to provide a scheme incorporating provisions requiring considerations of all circumstances, including the proportionality of the total of base costs and uplifts and premiums, and the circumstances of the payer, including his means, whether he was insured, the importance of fighting the case and his reasonableness in fighting the case. 14 .     By a majority of five to two, the Supreme Court rejected the submissions of the applicant and third defendant. The leading judgment was handed down by Lord Neuberger and Lord Dyson (with whom Lord Sumption and Lord Carnwath agreed). Lord Neuberger and Lord Dyson distinguished MGN Limited , since in that case the Court’s criticisms of the system had been made in the Article 10 context, and it had always given particular weight to freedom of expression. The present complaint was therefore of a “wholly different character”. They further noted that of the four “flaws” identified in the Jackson review and referred to by the Court in MGN Limited , only the third   – that is, the “blackmail” or “chilling” effect of the scheme which could drive parties to settle early despite good prospects of a defence, and which was also identified by Lord Neuberger in the Supreme Court judgment of 23   July 2014 as one of the scheme’s “unique and regrettable features” (see paragraph 11 above) – could have adversely affected the Article 6 or Article 1 of Protocol No. 1 rights of opposing parties. It was this “flaw” which lay at the heart of the present case. 15.     Lord Neuberger and Lord Dyson accepted that under the 1999 Act costs awarded to successful claimants who had the benefit of CFAs could be very high indeed, and therefore had the potential to place opposing parties under considerable pressure to settle. Consequently, they accepted that “in a number of individual cases, the system might be said to have interfered with a defendant’s right of access to justice”. However, having regard to the approach adopted by the Court towards general measures in cases such as Animal Defenders International v. the United Kingdom ([GC], no. 48876/08, ECHR   2013 (extracts)), they noted that the system 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 had been made following wide consultation, and it fell within the area of discretionary judgment afforded to legislators and rule-makers. 16 .     Nevertheless, given that the Court had rejected such an argument in MGN Limited , albeit in the Article 10 context, Lord Neuberger and Lord Dyson proceeded to examine the position more critically. They observed that in creating the scheme the Government had been trying to find a solution to the problem created by the constraining of civil legal aid in 1999, but it proved impossible to come up with a solution that would meet with universal approval. However, the potential unfairness of the 1999 Act scheme was mitigated by the fact that district judges and costs judges would perform the role of “watchdog” to check any practices which might undermine its fairness. Thus, base costs were to be assessed by the court, having regard to their proportionality and reasonableness. As to any additional liability, a successful litigant was only entitled to a reasonable success fee and ATE premium. In an appropriate case, the court could make a cost-capping order, and defendants could themselves enter into CFAs and take out ATE insurance. 17.     Lord Neuberger and Lord Dyson considered whether, in assessing costs under the 1999 Act scheme, courts should be required to take into account all the circumstances, including the proportionality of the total base costs, uplifts and premiums, and all of the payer’s circumstances. However, they found that such a requirement would have imperilled the whole scheme, since lawyers would have been unwilling to enter into CFAs for fear that, even if successful, the agreed uplift could be reduced or disallowed on assessment. Furthermore, since ATE insurance was integral to the provision of access to justice, if a premium was necessarily incurred it had to be regarded as proportionate. Finally, any requirement that the assessment of total costs take into account the financial position of the paying party would likely lead to satellite litigation, with the expenses, delays and uncertainties which such litigation normally involves. 18 .     For these reasons, Lord Neuberger and Lord Dyson were satisfied that the 1999 Act scheme struck a fair balance between the interests of different litigants. In reaching this conclusion, they noted that the merits of the applicant and third defendant’s case – that is, that they were individuals or small undertakings carrying on modest businesses without insurance and faced with one-off litigation which involved them in eye-catchingly large costs exposure – were largely “untested”. In particular, there had been no investigation into whether they had, or could have had, insurance against nuisance. 19.     Finally, with regard to remedy, Lord Neuberger and Lord Dyson noted that even if it had been possible to read down the CPD in the manner suggested by the applicant and third defendant, it would have been wrong to do so since litigants and their lawyers had a legitimate expectation that the court would not decide (at least not without reasonable notice) that additional liabilities were incompatible with the Convention. To find otherwise would have a serious impact on many thousands of ongoing cases to which the 1999   Act scheme still applied. 20.     Lord Mance, with whom Lord Carnwath also agreed, similarly rejected the challenge of the applicant and the third defendant. He agreed with Lord Neuberger and Lord Dyson that the scheme had to be considered as a whole. He observed that the present case was an extreme and unusual one, and that it would be difficult to conceive of any solution that would cater for such cases without imperilling the whole scheme. Furthermore, the scheme had been endorsed by domestic courts for over a decade, and litigants and lawyers had justifiably relied on its validity. Therefore, legal certainty, consistency and the legitimate expectations generated all militated in favour of the Supreme Court upholding the scheme. 21 .     Lord Clarke of Stone-Cum-Ebony (with whom Baroness Hale of Richmond agreed) disagreed with the majority, finding that the principles identified by the Court in MGN Limited in the context of Article 10 applied also to this case, where the applicant and third defendant were relying on their right of access to justice and to a fair trial under Article 6 and/or their right to protection of property under Article 1 of Protocol No. 1. For him, it was discriminatory and disproportionate to burden uninsured defendants with costs which vastly exceeded the fair and reasonable costs incurred by the claimant in order to encourage solicitors to act for other claimants in cases where the claim might fail. In particular, he noted that the way in which the success fee was calculated compounded the inequality and unfairness because the magnitude of the reasonable success fee was in inverse proportion to the strength of the claimant’s case: the riskier the claimant’s case, the greater the success fee his lawyer could legitimately charge. It therefore followed that the stronger the defendant’s prospect of success, the more he would have to pay the claimant in the event that the claimant won. 22 .     In addition, Lord Clarke considered it “a striking feature of a CFA” that it was available to rich as well as poor applicants. Thus, it was not only a means of providing access to justice for those who could not otherwise afford it, but also a “risk free means of providing access to lawyers for those who could fund it in other ways”. Whereas the claimant had a choice about whether to go to court, once that choice was made, the defendant had no choice not to take part. Moreover, since ATE insurance was usually only available to litigants whose chances were “better than evens”, if the claimant had ATE insurance, the defendant would have little or no chance of obtaining it. 23 .     In Lord Clarke’s view, “The system was arbitrary. It singled out from the class of unsuccessful litigants a subset of those who happened to have been opposed by CFA/ATE-funded litigants and imposed on that subset the burden of funding other unsuccessful cases which did not involve them at all. The real vice of the system lay in the CPD, which, so far as relevant, is quoted by Lord Neuberger and Lord Dyson in para 25 above. Paragraph   11.7 based the assessment of CFA uplifts and ATE premiums exclusively on the ex   ante perspective of the CFA/ATE party; and para 11.9 expressly disallowed any reduction on the basis that the overall total of base costs and uplifts appeared to be disproportionate. Decisions on uplift therefore disregarded the financial circumstances of the payer, the importance to the payer of fighting the case and the reasonableness of his decision to fight. The system was not redeemed by the fact that costs were subject to assessment at the end of the proceedings. By that stage, it was too late to control what was being spent. Nor is it an answer to say that the court had the power to cap the costs of a CFA-funded and ATE insurance-protected party at an early stage.” 24.     Finally, with regard to remedy, Lord Clarke observed that it was the court’s duty to balance competing rights. The expectations of litigants were one factor relevant to this balancing exercise, but could not render proportionate the discriminatory treatment of a particular class of defendant. In this regard, although it was true that the strength of the applicant and third defendant’s claims were untested, they represented that class of defendant towards whom the scheme was discriminatory, disproportionate and disregarded their rights. THE COSTS ASSESSMENT 25 .     The applicant’s liability for the claimants’ costs in the High Court and the Court of Appeal was assessed by the domestic courts on 14   September 2017. The applicant did not dispute the claimants’ bill of costs. A default costs certificate was issued ordering the applicant and the third defendant to pay the total sum of GBP 623,203.61 to the claimants in respect of their costs before the High Court; and GBP 223,634.66 in respect of their costs before the Court of Appeal. Before the High Court, the costs payable by the applicant and the third defendant included a success fee uplift of 100% on solicitors costs (GBP 74,176.49); a success fee uplift of 100% on counsel’s fee (GBP   102,528); and an ATE premium (GBP 212,422.32). Before the Court of Appeal, the costs payable by the applicant and the third defendant included a success fee uplift of 100% on solicitors costs (GBP 34,768.92); a success fee uplift of 100% on counsel’s fee (GBP 24,660); and an ATE premium (GBP   77,643.98). The applicant and the third defendant were jointly and severally liable for these sums. 26.     On the date of the latest information available to the Court (15 July 2020), the precise extent of the applicant’s liability for success fees and ATE premiums incurred before the Supreme Court remained to be determined. SUBSEQUENT DEVELOPMENTS 27 .     The third defendant was placed in a creditors’ voluntary liquidation on 12 December 2014 and the company was dissolved on 11 December 2015. The only asset in the liquidation was cash in the sum of GBP 4,200, which was applied to the cost of the liquidation. 28 .     On 9 February 2021 the applicant’s representative informed the Court that the lawyers who previously acted for the claimants in the noise nuisance proceedings had initiated legal proceedings in the Queen’s Bench Division of the High Court on behalf of the applicant against Zurich Insurance Plc and Jelf Insurance Brokers Limited, who were successors to the applicant’s brokers in 2009. In these proceedings it was asserted on behalf of the applicant that the policy wording covered the noise nuisance claim; and that Jelf’s predecessors negligently failed to make a claim on the policy in 2009 and wrongly informed the applicant that the policy did not cover the noise nuisance claim brought against him by the claimants. According to the particulars of claim, the applicant and his representatives had contacted his insurance broker in 2009 to ask about insurance cover in respect of the claim made against him. In response, the broker had informed him that he had notified the insurer of the claim but that the insurance policies did not provide relevant cover in respect of it. 29 .     Those proceedings are still ongoing. RELEVANT LEGAL FRAMEWORK AND PRACTICE THE COURTS AND LEGAL SERVICES ACT 1990 30 .     Section 58 of the Courts and Legal Services Act 1990 (“the 1990   Act”) permitted lawyers in England and Wales, for the first time, to enter into CFAs (see MGN Limited , cited above, § 90). Section 17(1) of the 1990 Act stated that the general objective behind the change was the development of legal services in England and Wales “by making provision for new or better ways of providing such services and a wider choice of persons providing them, while maintaining the proper and efficient administration of justice”. 31.     At the same time as CFAs were being developed under the new statutory scheme, the Law Society developed ATE insurance, which enabled a person involved in, or contemplating, litigation to insure against the risk that he would have to pay the costs of another party. 32.     Success fees and ATE premiums were not recoverable from the losing party under the 1990 Act. 33 .     In Callery v. Gray (No. 1) [2001] EWCA Civ 1117, a case concerning personal injury litigation, Lord Woolf identified two problems which the 1990 Act was designed to cure: “The introduction of the legislation which made conditional fees lawful was motivated primarily by two problems in relation to the provision of legal aid for civil litigation. The first was that progressively fewer members of the public were eligible for legal aid to bring civil proceedings. It was thought that the introduction of CFAs would have the effect of enabling those who could not afford to bring proceedings without the benefit of legal aid to do so. The second problem was that the cost of providing legal aid was growing year on year. Accordingly, the Government decided to reduce the areas of litigation which were funded by legal aid. It was considered that this would not reduce access to justice since those affected could bring proceedings using CFAs. The reason for reducing the areas of litigation eligible for legal aid was not, it was said, to reduce expenditure overall but rather to use the funds saved thereby to meet the need for publicly funded legal services to be provided in a different manner.” THE ACCESS TO JUSTICE ACT 1999 34 .     In March 1998 the Government published a consultation paper entitled “Access to Justice with Conditional Fees”, in which it indicated that wider use of CFAs and ATE insurance would promote access to justice. The majority of those who responded to the consultation supported the proposal that both the success fee and ATE premium should be recoverable. 35.     In December 1998 the Government published a White Paper, entitled “Modernising Justice”, in which it stated that it had decided to make it possible for the successful party to recover the success fee and ATE   premium from the unsuccessful party in order to “make conditional fees more attractive and fairer, and allow respondents and appellants whose case is not about money to use them. This will be a further radical expansion of access to justice”. 36 .     The Access to Justice Act 1999 (“the 1999 Act”) gave effect to this policy decision (see MGN Limited , cited above, § 92). In particular, it added a new section 58 and a section 58A to the 1990 Act. Section 58A(6) and (7) provided as follows: “(6)     A costs order made in any proceedings may, subject in the case of court proceedings to rules of court, include provision requiring the payment of any fees payable under a conditional fee agreement which provides for a success fee. (7)     Rules of court may make provision with respect to the assessment of any costs which include fees payable under a conditional fee agreement (including one which provides for a success fee).” 37 .     As to the recoverability of ATE premiums, section 29 of the 1999 Act provided: “Where in any proceedings a costs order is made in favour of any party who has taken out an insurance policy against the risk of incurring a liability in those proceedings, the costs payable to him may, subject in the case of court proceedings to rules of court, include costs in respect of the premium of the policy.” 38 .     In Callery v. Gray [2002] UKHL 28, Lord Bingham described the three key aims of the funding regime under the 1999 Act as follows: “2. ...   One aim was to contain the rising cost of legal aid to public funds and enable existing expenditure to be refocused on causes with the greatest need to be funded at public expense, whether because of their intrinsic importance or because of the difficulty of funding them otherwise than out of public funds or for both those reasons. A second aim was to improve access to the courts for members of the public with meritorious claims. It was appreciated that the risk of incurring substantial liabilities in costs is a powerful disincentive to all but the very rich from becoming involved in litigation, and it was therefore hoped that the new arrangements would enable claimants to protect themselves against liability for paying costs either to those acting for them or (if they chose) to those on the other side. A third aim was to discourage weak claims and enable successful defendants to recover their costs in actions brought against them by indigent claimants.” THE CIVIL PROCEDURE RULES 39 .     The Civil Procedure Rules (“CPR”) were amended by the Civil Procedure (Amendment No. 3) Rules 2000 to reflect the new approach to CFAs and ATE premiums (see MGN Limited , cited above, § 93). CPR   Rule   44.4 set out the basis of assessment of costs. It included, for the first time, the concept of using proportionality to assess costs. It provided: “(1)     Where the court is to assess the amount of costs ... it will assess those costs - (a)     on the standard basis; or (b)     on the indemnity basis, but the court will not in either case allow costs which have been unreasonably incurred or are unreasonable in amount. (2)     Where the amount of costs is to be assessed on the standard basis, the court will   - (a)     only allow costs which are proportionate to the matters in issue ....” 40 .     Rule 44.5 set out the factors to be taken into account in deciding the amount of costs. It provided: “(1)     The court is to have regard to all the circumstances in deciding whether costs were - (a)     if it is assessing costs on the standard basis - (i)     proportionately and reasonably incurred; or (ii)     were proportionate and reasonable in amount. (b)     if it is assessing costs on the indemnity basis - (i)     unreasonably incurred; or (ii)     unreasonable in amount. ... (3)     The court must also have regard to - ... (b)     the amount or value of any money or property involved; (c)     the importance of the matter to all the parties; (d)     the particular complexity of the matter or the difficulty or novelty of the questions raised; (e)     the skill, effort, specialised knowledge and responsibility involved; (f)     the time spent on the case; and (g)     the place where and the circumstances in which work or any part of it was done.” COSTS PRACTICE DIRECTION 41 .     As envisaged by the amendments that were made to the CPR, an amended costs practice direction was promulgated to supplement CPR Parts   43 to 48 (“the CPD”) in order to give effect to section 58A(6) and (7) of the 1999 Act (see paragraph 36 above; see also MGN Limited , cited above, § 94). Paragraph 9.1 of the CPD stated that “[u]nder an order for payment of ‘costs’ the costs payable will include an additional liability incurred under a funding arrangement.” Section 11 included the following: “11.1     In applying the test of proportionality the court will have regard to rule   1.1(2)(c). The relationship between the total of the costs incurred and the financial value of the claim may not be a reliable guide ... 11.2     In any proceedings there will be costs which will inevitably be incurred and which are necessary for the successful conduct of the case. Solicitors are not required to conduct litigation at rates which are uneconomic. Thus in a modest claim the proportion of costs is likely to be higher than in a large claim, and may even equal or possibly exceed the amount in dispute ... 11.5     In deciding whether the costs claimed are reasonable and (on a standard basis assessment) proportionate, the court will consider the amount of any additional liability separately from the base costs. 11.6     In deciding whether the base costs are reasonable and (if relevant) proportionate the court will consider the factors set out in rule 44.5. 11.7     Subject to para 17.8(2), when the court is considering the factors to be taken into account in assessing an additional liability, it will have regard to the facts and circumstances as they reasonably appeared to the solicitor or counsel when the funding arrangement was entered into and at the time of any variation of the arrangement. 11.8 (1)     In deciding whether a percentage increase is reasonable relevant factors to be taken into account may include: (a)     the risk that the circumstances in which the costs, fees or expenses would be payable might or might not occur; (b)     the legal representative’s liability for any disbursements; (c)     what other methods of financing the costs were available to the receiving party. ... 11.9     A percentage increase will not be reduced simply on the ground that, when added to base costs which are reasonable and (where relevant) proportionate, the total appears disproportionate. 11.10     In deciding whether the cost of insurance cover is reasonable, relevant factors to be taken into account include: (1)     where the insurance cover is not purchased in support of a conditional fee agreement with a success fee, how its cost compares with the likely cost of funding the case with a conditional fee agreement with a success fee and supporting insurance cover; (2)     the level and extent of the cover provided; (3)     the availability of any pre-existing insurance cover; (4)     whether any part of the premium would be rebated in the event of early settlement; (5)     the amount of commission payable to the receiving party or his legal representative or other agents.” 42 .     Pursuant to paragraph 23A.1, the court would only make a cost ‑ capping order in exceptional circumstances. LOWDNS V. HOME OFFICE (PRACTICE NOTE) [2002] 1 WLR 2450 43 .     In Lownds the Court of Appeal gave guidance on the application of proportionality in an assessment of costs on the standard basis. It adopted the following approach: “In modern litigation, with the emphasis on proportionality, there is a requirement for parties to make an assessment at the outset of the likely value of the claim and its importance and complexity, and then to plan in advance the necessary work, the appropriate level of person to carry out the work, the overall time which would be necessary and appropriate spend on the various stages in bringing the action to trial and the likely overall cost. While it was not unusual for costs to exceed the amount in issue, it was, in the context of modest litigation such as the present case, one reason for seeking to curb the amount of work done, and the cost by reference to the need for proportionality.” 44.     The court then continued: “... what is required is a two-stage approach. There has to be a global approach and an item by item approach. The global approach will indicate whether the total sum claimed is or appears to be disproportionate having particular regard to the considerations which Part 44.5(3) states are relevant. If the costs as a whole are not disproportionate according to that test then all that is normally required is that each item should have been reasonably incurred and the cost for that item should be reasonable. If on the other hand the costs as a whole appear disproportionate then the court will want to be satisfied that the work in relation to each item was necessary and, if necessary, that the cost of the item is reasonable. If, because of lack of planning or due to other causes, the global costs are disproportionately high, then the requirement that the costs should be proportionate means that no more should be payable than would have been payable if the litigation had been conducted in a proportionate manner. This in turn means that reasonable costs will only be recovered for the items which were necessary if the litigation had been conducted in a proportionate manner.” 45 .     In Rogers v. Merthyr Tydfil County Borough Council (Law Society Intervening) (Practice Note) [2007] 1 WLR 808 the Court of Appeal adopted the Lownds approach in assessing whether an ATE premium was recoverable by a successful claimant. If the premium was necessarily incurred, it was proportionate, even if it was disproportionately high compared with the amount of damages reasonably claimed. The domestic courts similarly accepted that a success fee that was reasonable in amount was also necessary and, therefore, proportionate. In determining reasonableness, the courts had to consider whether it was proportionate to the litigation risk. A success fee proportionate to the risk of going unpaid was calculated by dividing the risk of losing by the prospect of winning and multiplying the product by 100 to yield a percentage (see, for example, Atack v. Lee [2005] 1 WLR 2643). Thus, if a solicitor only had a 50% chance of earning payment by winning, it was considered commercially appropriate for him to charge a success fee of 100%. THE JACKSON REVIEW 46 .     In late 2008 Jackson LJ was appointed to conduct a fundamental review of the rules and principles governing the costs of civil litigation and to make recommendations in order to promote access to justice at proportionate cost (see MGN Limited , cited above, §§ 111-15). 47.     In January 2010 the Jackson review was published. In relation to CFAs, it noted that England and Wales differed from all other jurisdictions in having success fees payable not by the lawyer’s own client but by the losing party. The benefits of CFAs had been achieved at massive cost, especially in cases which were fully contested. That cost was borne by tax payers, insurance premium payers and by those defendants who had the misfortune of being neither insured nor a large, well-resourced organisation. 48 .     While Jackson LJ concluded that CFAs were not objectionable in themselves, he considered that there were four flaws in allowing success fees to be recovered from the losing party, the consequence of which was to generate disproportionate costs: “(a)     First flaw 4.8     Any person, whether rich or poor and whether human or corporate, is entitled to enter into a CFA and take out ATE insurance. All that such a person needs to do is to find willing solicitors and willing insurers. This gives rise to anomalies and unintended consequences on a grand scale. ... ... ... ... 4.12     The first flaw in the recoverability regime is that it is unfocused. There is no eligibility test for entering into a CFA, provided that a willing solicitor can be found. (b)     Second flaw 4.13     The second flaw is that the party with a CFA generally has no interest in the level of costs being incurred in his or her name. Whether the case is won or lost, the client will usually pay nothing. If the case is lost, the solicitors waive their costs and pay the disbursements, in so far as not covered by ATE insurance. If the case is won, the lawyers will recover whatever they can from the other side either (a) by detailed or summary assessment or (b) by negotiation bas