Evidence submitted by Tony Jaffa, Partner,
Foot Anstey Solicitors
INTRODUCTION
1. The Committee is seeking submissions
from interested parties into the UK's Compensation Culture, including
an examination of "the way lawyers' fees are arranged, in
particular Conditional Fee Arrangements and uplifts....which have
been a particular issue in libel cases".
2. There are approximately 85 regional daily
and Sunday newspapers in England and Wales, and hundreds of paid-for
and free weekly papers. Foot Anstey's Media Team, headed by partner
Tony Jaffa, represents a very large proportion of those newspapers,
and has done so for the last 15 years or so.
3. This submission relates purely to the
specific issue of the effect of Conditional Fee Agreements (CFAs)
and success fees on freedom of expression.
4. The intent of this submission is not
so much to advise the Committee of the law, but rather, to give
an indication of how CFAs operate, and their practical consequences.
CURRENT ARRANGEMENTS
5. As members of the Committee will know,
CFAs, otherwise known as "no win, no fee" agreements,
are complex arrangements between a lawyer and his/her client.
Essentially, they have the following elements:
5.1 If the CFA funded party to the litigation
loses the case, his/her lawyer is not paid.
5.2 If the CFA funded party to the litigation
wins the case, his/her lawyer is paid entirely by the losing party.
5.3 As a reward for taking on the risk of
losing the case, the lawyer is entitled to apply a "success
fee", ie a percentage uplift applied to the lawyer's hourly
rate. Theoretically, the uplift varies according to the risk and
complexity of the case; in practice, the uplift in libel cases
is invariably in the region of 95%—100%, subject to certain
refinements, as described in paragraph 6 below.
5.4 A CFA funded party never objects to
the success fee, because it makes no difference to him/her what
level of success fee is applied. The reason is that s/he never
has any liability to pay costs calculated in this manner: if the
case is successful, the costs are paid by the Defendant; and if
the claim fails, s/he has no liability to pay his/her own costs.
5.5 If the CFA-funded party buys a legal
expenses insurance policy, the substantial premium is recoverable
from the loser as part of the CFA.
5.6 If the CFA-funded party does not buy
a legal expenses insurance policy, any costs order which the defendant
obtains against him/her is unenforceable if the CFA funded party
is impecunious.
6. As a result of criticism directed at
them by the Court of Appeal in the Spring of 2005 in the case
of King v. Telegraph Group, the firm of solicitors which may well
be described as the country's leading exponents of CFAs in libel
actions changed the way in which they apply the success fee. Their
current arrangements are that the success fee is now "stepped",
as follows: 25% from the inception of the CFA to the issue of
proceedings; 50% from proceedings to 45 days before the trial,
and 100% thereafter.
7. Our experience is that the operation
of the CFA system fails to discourage weak claims against the
press, and allows claimants and their lawyers to hold publishers
to ransom by threatening litigation, meaning that publishers risk
incurring huge, irrecoverable, costs.
8. Further, it is our view that CFAs in
libel cases presently operate more to the advantage of claimants'
lawyers than to the claimants themselves. The most prominent firms
of solicitors in London charge their time at rates of up to £400
an hour, which double to £800 per hour after the application
of the success fee (unless the firm involved is operating the
system described in paragraph 6 above). Whether the success fee
is a straightforward uplift or a stepped uplift, such massive
legal fees impose intolerable pressure on the regional press,
and effectively compel publishers to settle cases, irrespective
of the merits of the claim.
9. The serious "chilling effect"
created by such financial pressures on the regional press, despite
the right to freedom of expression guaranteed by the Human Rights
Act 1998, is obvious. This chilling effect was recognised by the
House of Lords in Campbell v MGN (No 2), who deliberated this
issue and whose judgement was delivered on 20th October 2005.
It will be recalled that in this case, the claimant claimed damages
for infringement of her privacy, and was awarded damages of £3,500,
for which costs in excess of £1 million were claimed. Although
the House decided that any change to the CFA regime was a matter
for Parliament, all the Law Lords save one agreed with Lord Hoffman,
who expressed concern about "the problems defamation litigation
under CFAs is currently causing and which have given rise to concern
that freedom of expression may be seriously inhibited".
CONTESTED CLAIMS
10. Allegations of libel are rarely clear
cut. It is usually the case that when a person complains that
s/he has been libelled, there are arguments as to:
10.1 Reference—do the words complained
of refer to the complainant? Has s/he been identified?
10.2 Meaning—what do the words complained
of mean? Do they bear a defamatory meaning? Are they capable of
bearing a defamatory meaning?
10.3 Defences—if the words are capable
of bearing a defamatory meaning, does the publisher have a defence?
Are the allegations true? Is the article protected by Absolute
or Qualified privilege? Do the words amount to fair comment on
a matter of public interest and importance?
11. In theory, if the publisher takes the
view that the words in question did not refer to the complainant;
or are not capable of bearing a defamatory meaning; or if defamatory,
are true, are protected by privilege, or amount to fair comment,
then he may defend the claim and have the issue determined before
a judge and jury.
12. Even if this Utopia existed prior to
the introduction of CFAs, for the regional press to contemplate
defending a claim brought by a CFA funded person under current
arrangements, now demands a financial commitment which many regional
publishers are simply not capable of giving. Small companies simply
do not have the resources to risk being ordered to pay hundreds
of thousands of pounds to a claimant, whether the claim is meritorious
or not.
13. In consequence, it is increasingly common
for the regional newspapers to settle claims which they could
properly and legitimately defend, but do not do so for fear of
losing the case and having massive costs orders made against them.
Our experience increasingly is that the factors which drive a
publisher to settle a claim are not the merits of the claim or
the merits of a defence, but the huge financial risks that accompany
litigation.
14. If the editor of a small weekly newspaper,
far from London, is faced with a complaint from one of the well
known specialist firms of solicitors in London, whom he knows
charge their time at £350 or £400 per hour and whom
he also knows charge success fees of 100%, what is he going to
do? When faced with a threat to the very existence of his title,
he has no option but to take a pragmatic and commercial approach,
and settle the case as quickly and as cheaply as possible. An
examination of the merits of the claim, and the legitimacy of
defending it, are luxuries which are overwhelmed by financial
considerations. In such circumstances, our society's commitment
to freedom of expression is mere lip service.
15. This is not just idle speculation or
scaremongering. For example, I am currently advising the editor
of a small weekly newspaper, circulation 11,000 copies per week,
which published a letter in mid-2005 from a reader on its Reader's
Letters page. The letter was strongly critical of the performance
of the local District Council, its elected Chairman, and its Chief
Executive. The Chairman and the Chief Executive (a solicitor)
took exception to the letter, and threatened to sue the paper
for libel, not on the basis that it was the author of the item,
but that it was the publisher. No similar threat was sent to the
author of the letter, presumably because he is impecunious.
16. The editor was advised that in these
circumstances, he should rely on the defence of Fair Comment,
and that in principle, he could expect this defence to succeed
at trial. However, as soon as it became known that the Claimants
would be represented by solicitors advising them under CFAs accompanied
by a success fee, the editor took the view that as an adverse
costs order would shut down the title, he could not take the risk
of becoming embroiled in litigation. In consequence, the case
was settled with an apology being published and substantial damages
and costs being paid.
17. In the context of freedom of expression,
the more serious effect of this incident is that for the foreseeable
future, it is very unlikely that this particular newspaper will
scrutinise, much less criticise, the performance of the Council
or its members or officers, even if such scrutiny or criticism
is warranted.
18. Although anecdotal, this is a typical
example of the chilling effect of CFAs on freedom of expression,
how the fear of an adverse costs order has successfully silenced
this local newspaper, and CFAs prevented it from serving people
living in that particular area. This is not an isolated incident;
it is a widespread attitude that prevails throughout the industry.
Of course, it has always been the case that in litigation, the
loser has to pay the costs of the winner. What is so new is the
doubling of those costs, and their consequences.
LEGITIMATE COMPLAINTS
19. It may be argued that if a newspaper
makes an error, or intentionally publishes an article which is
defamatory, it is only right that it should bear the financial
consequences, even if those consequences include the payment of
massive legal fees.
20. In all the years I have been advising
regional newspapers, I have never encountered a single editor
who takes a cavalier approach to accuracy or the truth. In my
experience, the stereotype of the hack who does not let the facts
get in the way of a good story, simply does not exist. If a libel
has been published by a regional newspaper, my experience is that
it did so either by mistake, or as a result of a genuine belief
in the truth, public interest, etc, of the article, which later
transpires to be incorrect. In that scenario, the editor always
wants to correct the error immediately, and rectify the harm caused,
not primarily because of the fear of litigation, but because it
is the right thing to do.
21. In such circumstances, no-one denies
that the claimant should receive a public apology, compensation
for the harm done, and if legal advice has been sought, payment
of his/her reasonable legal costs. However, in such cases where
liability is admitted from the outset, it is difficult to see
how any success fee can be justified, let alone the huge uplifts
previously described. In such circumstances, the application of
a success fee, whether stepped or under a flat rate, can only
be explained as an opportunity for the lawyers to make a huge
amount of money at the expense of the local paper.
22. An example of the abuse of the system
occurred in early 2005, before the judgement in King v Telegraph
Group was delivered. In this instance, I advised a regional newspaper
editor in respect of a libel his newspaper had inadvertently published.
The newspaper apologised immediately for the error, and agreed
to pay damages which were agreed with the claimant's solicitors
after minimal negotiation. It also agreed to pay the claimant's
reasonable legal costs, which, his solicitors advised subsequently,
amounted to approximately £20,000. The newspapers own costs
amounted to only £2,000. Even allowing for the extra time
that a complainant's solicitor has to spend in considering a possible
claim, and making an allowance for the additional overheads incurred
by London based solicitors, this claim for costs was clearly excessive,
and arose principally because of the application of a 100% success
fee and the insurance premium (which the claimant had not paid
and would never pay). So outraged was the publisher at this blatant
abuse of the CFA system that it intended to contest the claim
as a "test" case, although in the event, the matter
was settled after the claimant agreed to accept less than 50%
of the amount originally claimed for costs.
23. Although anecdotal, this is a typical
example of the abuse of CFAs, and how they are used as money making
exercises by certain solicitors. Examples of this type of behaviour
are common throughout the country. CFAs do not encourage, or increase,
access to justice; they simply bring the whole system into disrepute
and serve only to increase the turnover and profitability of those
lawyers who operate in this way.
THE WAY
AHEAD
24. In our view, the current system is unsustainable
if Parliament wishes the regional press to continue to perform
its historic role in local life. The financial risk that now accompanies
the publication of contentious opinions or material is now so
great that many editors are forced to engage in self censorship.
25. In our view, this is incompatible with
this country's democratic traditions, let alone the right to freedom
of expression enshrined in Article 10 of the European Convention
for Human Rights.
26. Conversely, given Parliament's stated
aim of improving access to justice and the absence of legal aid
in defamation cases, we accept that it is unlikely that CFAs and
success fees will be abolished.
27. Therefore, we believe that the current
system should be fundamentally reformed, particularly in view
of the fact that the House of Lords in Campbell took the view
that the only remedy for rectifying the current problems is legislation.
28. The most comprehensive proposals for
reform of which we are aware, are contained in a document dated
27 September 2004, submitted to the Department of Constitutional
Affairs by solicitors Reynolds Porter Chamberlain on behalf of
a number of news gathering organisation. The paper, entitled "Submission
by media organisations in response to DCA's consultation paper
`Making Simple CFAs a Reality'" contains a number of proposals
for reform, which we recommend to the Committee as being the most
equitable way of reforming the current system of funding libel
litigation.
SUMMARY
29. Therefore, our views of the way CFAs
operate in the context of libel actions may be summarised as follows:
29.1 CFAs and success fees do not improve
access to justice, but rather, they distort the legal playing
field in libel cases to the detriment of freedom of expression;
29.2 CFAs and success fees have resulted
in freedom of expression being restricted throughout the regional
press, and continue to do so;
29.3 CFAs and success fees, when used as
a means of funding meritorious complaints, are being abused and
operate more to the advantage of claimants' lawyers than to the
claimants themselves, thus creating a climate which encourages
a restriction of freedom of expression;
29.4 CFAs and success fees fail to discourage
weak claims against the press, and allow claimants to hold publishers
to ransom;
29.5 the current system should be reformed
in accordance with the proposals contained in "Submission
by media organisations in response to DCA's consultation paper
`Making Simple CFAs a Reality'", dated 27th September 2004.
Tony Jaffa
Partner
Foot Anstey Solicitors
November 2005
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