Evidence submitted by Associated Newspapers
EXECUTIVE SUMMARY
In this submission we make the case for the
reform of Conditional Fee Arrangements (CFAs) in libel cases.
Associated Newspapers is one of the largest
media groups in the UK. Our interests include the Daily Mail,
The Mail on Sunday, the Evening Standard and Metro. However, we
believe that our submission echoes the views of many media organisations
from small independent publications to those of the largest media
groups.
Associated Newspapers is committed to the principle
of access to justice for any Claimant who is justified in bringing
a defamation case.
CFAs were introduced to promote such access,
particularly for Claimants who could not afford the potential
cost of bringing such an action. Essentially a Claimant no longer
need carry any financial risk. If their case is unsuccessful any
costs awarded to the Defendant can be protected through After
the Event Insurance (ATEI) though this is not compulsory. If the
case is successful, the Defendant bears its own costs, plus the
Claimant's costs times a success multiplier as well as any damages
awarded. If the case is unsuccessful the Defendant can have difficulty
in recovering costs from the Claimant even when ATEI has been
taken since the policy may be worthless if the Claimant has misled
the insurer.
In practice, the CFA regime has produced perverse
outcomes. Among these are that:
— Wealthy litigants such as publicity
attracting celebrities who could well afford to pay for litigation,
instead opt for a no risk CFA. But the unsuccessful Defendant
might incur substantial costs at double the normal rate even where
damages awarded are negligible. Subsidising wealthy litigants
in this way was not the intended purpose of CFAs.
— The combination of an absence of
risk to the Claimant and the potential for high success fees for
the lawyer appears to encourage claims which should not otherwise
be brought.
— The lack of any CFA client pressure
to contain legal costs to reasonable levels leads to exceptionally
high lawyers' fees in CFA cases. These are then increased by a
success multiplier to a point that to lose a case could be so
unaffordable that it could close down any but the most financially
robust of publications. This is recognised as the "chilling"
or "blackmailing" effect.
— The fear in such CFA cases of exceptionally
high and largely unconstrained litigation costs risks deterring
free speech in a way which far exceeds the deterrent effect of
any likely award of damages. So CFAs restrict the Article 10 right
to freedom of expression.
— CFAs costs are not being rigorously
controlled.
— CFAs are unbalanced in their impact
as between Claimant and Defendant.
1. INTRODUCTION
Lord Hoffmann in paragraph 36 of the judgement
in Campbell v MGN drew a distinction between CFAs in personal
injury and defamation litigation.
He made the point that the former is characterised
by a very large number of small claims which are met by liability
insurers who are able to pass on those costs to their road user
customers.
In contrast, in defamation cases, which are
typically few in number but with disproportionately high costs,
there are no market forces restraining the levels of success fees
and ATE insurance premiums. The last line of defence is the costs
judge.
Yet, in defamation cases, important Article
10 rights are engaged. The current system is translating into
costs claims approaching £900 an hour in an area in which
Article 10 rights are engaged.
We believe that such costs are excessive by
any measure and the threat of such costs is already forcing changes
in decision making.
There is therefore a clear case for reform of
CFAs in libel cases.
2. THE CURRENT
PROBLEM IN
CONTEXT
To put the costs of a recent action in context,
the cost of defending one article (had the case been lost) would
have been equivalent to the annual salaries of over 100 journalists,
which is enough to wipe out many publishers. Even for publishers
who may be strong enough to absorb such costs, they can have serious
effects upon their financial position.
The annual number of London defamation writs
over the last 5 years has ranged from 128 to 267. There are however,
approaching, 150 solicitors, possibly more, practising in the
defamation field. There is not enough defamation work to go round.
Whereas in a "normal" market situation
such an "excess supply" of defamation solicitors would
exert a downward pressure on rates charged, the opposite is true
with CFAs. This is a perverse outcome of the CFA regime in which
the market for such services is distorted due to the absence of
control over rates by clients and the introduction of an incentive
to behave in a way which can increase the number of hours worked/charged.
In practice a big CFA case can represent a windfall
of unhealthy importance to the practice in question.
The system for assessing costs requires minimal
accountability to a CFA client in key areas. This was commented
on in the House of Lords in Callery v Gray and by Lord
Hoffmann in Campbell v MGN. There is no incentive on Claimants
to challenge fees or the uplift or the After the Event insurance
arrangements ("ATEI"). Furthermore, there is no incentive
to question the allocation of resources to a case or indeed the
case management by their lawyers.
Lord Bingham in Callery v Gray drew attention
to the risk of abuse. He said,
"I would not wish to discount either the
risk of abuse or the need to check any practices which may undermine
the fairness of the new funding regime. This should operate so
as to promote access to justice but not so as to confer disproportionate
benefits on legal practitioners . . . or impose unfair burdens
on Defendants . . . ".
It is quite clear that in some cases Claimant
lawyers recognise the "power" of an impecunious client.
Recently, Turcu v News Group Newspapers Ltd went all the
way to trial at great expense despite the fact that solicitor
and client had largely lost touch. Mr Turcu had not even provided
a witness statement and did not appear at the trial. Whilst not
questioning the Claimant's solicitor's motives in bringing the
case, the fact that News Group would inevitably face irrecoverable
costs approaching half a million pounds for the privilege of winning
cannot be ignored.
Lord Hoffmann referred to the Turcu case,
which he said "vividly illustrated" the problems that
CFAs are currently causing in defamation cases and which he said
gives rise to concern that freedom of expression may be seriously
inhibited. At paragraph 31 he said:
"The blackmailing effect of such litigation
appears to arise from two factors. First, the use of CFAs by impecunious
Claimants who do not take out ATE insurance. That, of course,
is not a feature of the present case. If MGN are right about Ms
Campbell's means she would have been able to pay their costs if
she had lost. The second factor is the conduct of the case by
the Claimant's solicitors in a way which not only runs up substantial
costs but requires the Defendants to do so as well. Faced with
a free spending Claimant's solicitor and being at risk not only
as to liability but also as to twice the Claimant's costs, the
Defendant is faced with an arms race which makes it particularly
unfair for the Claimant afterwards to justify his conduct of the
litigation on the ground that the Defendant's own costs were equally
high."
Furthermore, in CFA cases there is an inbuilt
conflict between lawyer and client which places a special responsibility
on the lawyer.
Miller v Associated Newspapers Limited
came to trial in March of this year. DCI Miller sued over articles
suggesting that his handling of the Hamilton rape investigation
and another serious rape case had been incompetent.
He was initially represented by Carter-Ruck
on a CFA (although the case moved to another firm with the partner
concerned some months before trial) and he was also supported
by the Police Federation.
Four days before trial, we received a letter
confirming that, if successful, Miller would be looking to us
to pay £3.3 million. This included a £615,000 insurance
"premium" payable to the Police Federation who were
in fact carrying the risk themselves and had not taken out insurance.
Mr Justice Eady in his Judgment recognised the
"enormous risk on costs" that Associated faced in spite
of "Associated's best efforts to settle".
Associated won after a three week trial and
in awarding indemnity costs plus interest on our own costs paid
to our solicitors, the Judge said "the Claimant's conduct
. . . in pressing on beyond the offer that was made to him in
December 2003, was unreasonable".
Some limited progress has been made in addressing
the enormous costs burden of these actions, for example by the
imposition of "costs capping" orders. But, as Lord Hoffmann
recognised, this is only a palliative. He said at paragraph 34,
"I would certainly endorse the sentiments
expressed by Brooke LJ in Musa King v Telegraph Group and
hope that judges in lower courts will put his suggestions into
practice. It is, however, only a palliative. It does not deal
with the problem of a newspaper being faced with the prospect
of incurring substantial and irrecoverable costs. In the Turcu
case, News Group Newspapers Limited was financially strong enough
not to submit to pressure. But smaller publishers may not be able
to afford to take such a stand. Furthermore, neither capping costs
at an early stage nor assessing them later deals with the threat
of having to pay the Claimant's costs at a level which is, by
definition, up to twice the amount which would be reasonable and
proportionate."
The Court of Appeal gave guidance in Musa
King v Telegraph on the need for proportionality and recognised
that "something has gone seriously wrong". Brooke LJ
acknowledged that a libel Claimant brings an action "not
only to recover damages but also to vindicate his reputation".
He went on to say, " . . . .that consideration cannot go
far to bridge the gulf between the value of this action to the
Claimant and the value to the lawyers".
He also commented in some detail on the "extravagant
way" in which the Claimant's solicitors had conducted the
litigation and pointed out that equality of arms and/or the need
to get vindication does not mean that a Claimant should have access
to the most expensive lawyers. He said:
"If this means, now that the amount at stake
in defamation cases has been so greatly reduced, that it will
not be open to a CFA Claimant to receive the benefit of advocate
instructed at anything more than a modest fee or to receive the
help of a litigation partner in a very expensive firm who is not
willing to curtail his fees, then his/her fate will be no different
from that of a conventionally legally aided litigant in modern
times".
In the case brought against The Times by
Lance Armstrong, Mr Justice Eady acknowledged that the power existed
to impose a cap but refused to do it because there is no evidence
that The Times would, as the Judge put it, "have to whistle
for their costs" on a retrospective costs assessment.
The difficulty with this, as is recognised by
Lord Hoffmann, is that the prospect of retrospective costs recovery
does not remove the risk that a CFA funded case will be managed
in an unreasonable and disproportionate manner. If successful,
only a proportion of costs are recovered on taxation, so even
after winning and recovering costs the Defendant can be very substantially
out of pocket. Retrospective costs assessment can amount to expensive
satellite litigation that a prospective cost capping order would
avoid.
Associated Newspapers Limited has an ongoing
case brought against them by Alberta Matadeen over an article
criticising the treatment of old people in the home she owned.
A costs cap was imposed in the face of base costs in the Allocation
Questionnaire of £558,000 plus VAT, which with a success
fee of 100% (solicitors but not Counsel were on a CFA) would have
increased to almost £1million. Master Eyre recognised that
the need for vindication may well include a more liberal approach
on costs but scarcely an approach so liberal as to ratify costs
on this "giant scale". He said that a CFA with no ATEI
cover, as was the case in this action, is precisely the kind of
case in which a capping order is appropriate.
Lord Justice Brooke In Musa King and
Master Eyre in Matadeen v Associated Newspapers Limited
when imposing cost capping orders were influenced by the lack
of an ATEI policy. A more recent decision, however demonstrates
why costs capping is just as appropriate where ATEI is, apparently,
in place.
A former Sudanese diplomat, Mr Al-Koronky, is
suing Time Life in relation to allegations that he and
his wife kept a woman in their London home as a slave. Mr Justice
Eady held that the Defendants were entitled to security for costs,
the Claimants being resident in Sudan. The Claimant had taken
out an ATEI policy. When this was eventually provided by Carter-Ruck
to Time Life's solicitors under threat of an application
to Court, it turned out that the policy contained an express exclusion
that where false information had been supplied to insurers they
would not be liable. So, if the Defendants' justification defence
succeeds, the ATEI policy, as Carter-Ruck conceded, will not be
worth the paper it is written on. The same problem has arisen
again very recently in relation to another ATEI insurance policy
against other media Defendants which, aside from possibly not
being available if the justification defence succeeds, also contains
a limit on liability of £100,000.
3. DEVELOPING
A SOLUTION
In relation to the level of costs recoverable
from unsuccessful media Defendants, a radical change is needed.
While the media should have no objection to
famous firms charging their Hollywood style clients £450
per hour base costs (or whatever the client is prepared to pay),
a different issue arises, with Article 10 rights engaged, when
it comes to costs recoverable from Defendants.
A regime is required that will comply with convention
obligations in relation to access to justice, whilst not unnecessarily
impacting on article 10 rights freedom of expression.
COSTS
A starting point to deal with all of these points
would be to overhaul the system of assessment of costs.
1. Dealing first of all with a "post
code lottery"—the hourly guideline rates for solicitors
are found in the official guide to the summary assessment of costs
and depend entirely upon the post code. The current guideline
rate for a Grade A solicitor in EC4 is £359. If the firm
was in WC1, with possibly a slightly shorter walk to court, the
guideline rate instead of £359 would be £276. If they
were a 20 minute bus or tube ride away in say Camden Town, instead
of £359 the rate would be somewhere between £198 and
£232. Even crossing from one side of Chancery Lane (WC) to
the other (EC) can make an £83 per hour difference to the
guideline rate (doubled to £166 in a 100% uplift CFA case).
2. Under this system, a small niche practice
in EC1 is able to benefit from the City of London guideline rates
which are largely based on the costs of Magic Circle and other
large firms.
There is another aspect of the system which
has the effect of inflating the guideline rates. The figures are
produced from surveys of firms in each area which are carried
out by the relevant local Law Society. Each participating firm
provides details of its costs, which are then averaged and divided
by 1,200 chargeable hours per year in the City, Holborn and Westminster
and 1,100 chargeable hours a year everywhere else. This works
out at around 5 chargeable hours per day, certainly less than
most firms achieve, and has the effect of inflating the guideline
rates because the costs have been divided into a lower number
of hours.
3. The chilling effect of exorbitant base
costs on CFA media litigation where Article 10 rights are engaged
could be reduced by applying a special scale of costs recoverable
from the losing party which would not equate Article 10 litigation
with multimillion pound commercial shipping and property disputes
and would not depend on a postcode lottery.
Recoverable costs in Article 10 CFA cases should
be set at a level that would ensure that competent representation
and access to justice exists, but with no incentives to go beyond
that level.
4. The most expensive senior partners and
QCs referred to by Brooke LJ in Musa King would have a
choice in CFA cases, to take a case on "scale rates"
that is scale rates recoverable from Defendants, subject of course
to uplift, or turn the case down and let the Claimant choose a
competent lawyer who is prepared to work on this basis. We believe
that there would be no shortage of willing solicitors and barristers
keen to participate.
5. As far as solicitors are concerned, market
forces would ensure that there would be a range of firms prepared
to take on this work, some already in the market and others would
move in.
6. Senior publicly funded criminal lawyers
dealing with for example, serious rape cases, are usually paid
in the region of £140 per hour. There is no reason why, with
the assistance of specialist counsel, lawyers capable of handling
serious criminal cases should not be able to handle libel cases.
When the Sunday Mirror ran a story headlined "On the
loose, £7 million lotto rapist at the seaside" and carried
a picture of the wrong man, a retired security guard, a local
firm of Weymouth solicitors was consulted. With the help of Joanne
Cash of 1 Brick Court, they recovered £100,000 damages plus
costs.
Mr Justice Eady made the same point in the Gazley
case when he said:
"It is important to recognise that in order
to have the necessary or the proportionate expertise available
one does not always need to instruct London specialist solicitors.
An important factor is that any competent litigation solicitor
in the country can call upon specialist members of the bar at
very short notice. Indeed, as I have already said, Carter-Ruck
themselves took advice from counsel".
7. Lawyers should be required to certify
that their costs are "reasonable" and "proportionate"
and there should be meaningful sanctions where such certification
is shown to be unjustified.
Although these points apply primarily to CFA cases
this approach to recoverability where Article 10 rights are engaged
should apply equally to non-CFA cases. In the Miller case, this
would still have left a potential downside of approaching £2million
all in.
There is a clear case for reform. We acknowledge
that the level of rates recoverable need to be sufficient to ensure
that deserving impecunious Claimants obtain access to justice
with the help of competent legal representation. These rates may
or may not be in line with Legal Aid rates. However, these changes,
along with the need for reasonableness and proportionality, with
the back up of costs capping, would go a long way to preventing
pre-trial letters which seek to deter Defendants by warning of
Claimant's costs of £3.3million resulting from defending
one article.
THE EXAMPLES
OF FRANCE
AND GERMANY
France and Germany have Article 6 obligations
too but do not have systems where costs dominate media litigation.
In France the current position is that the loser
pays a proportion of the winning party's costs which are assessed
by the Judge. A reform is currently being proposed in the French
Parliament that a fixed cost regime should be introduced, as in
Germany.
Costs awards by Judges in France are relatively
small,
10,000 to
20,000 after a first instance trial. This is no doubt
because the system in France for bringing a case to trial is far
more streamlined.
Germany too has a fixed cost regime. The winning
party can recover costs from the losing party in accordance with
a scale of fees fixed by the courts. The scale depends on the
state the case has reached, the value of the claim, the importance
of the case and the size of the distribution of the offending
publication. The average cost of a case taken to a first instance
trial is approximately
20,000 and again, the procedure in Germany is far
more streamlined.
4. NEXT STEPS
This paper has set out the problem and indicated
possible avenues for exploring a solution to this problem. There
may well be others that could work effectively.
Associated Newspapers would welcome an opportunity
to respond to any queries and to give oral evidence to the Committee.
Associated Newspapers
November 2005
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