Press standards, privacy and libel - Culture, Media and Sport Committee Contents


4  Costs

Introduction

236. Defamation has traditionally been labelled a 'rich man's tort' as libel cases are notoriously expensive and public funding, through legal aid, is not available. Parliament sought to address this through the Access to Justice Act 1999, which extended to defamation proceedings so-called "no win, no fee" agreements, or Conditional Fee Agreements (CFAs), enabling those who would otherwise have been unable to fund the substantial costs involved in defamation claims to bring proceedings. This means that if a party enters into a CFA and wins the case, he or she can recover from their opponent a "success fee", an uplift of up to 100% on top of the solicitor's basic costs. The winning party is also able to recover the premium for taking out After The Event (ATE) insurance, insurance which covers their potential liability for an opponent's costs.

237. The cost of litigation has a direct bearing both on the freedom of expression enjoyed by the press and on the standards of the press. We are aware that there are cases where people wronged by the media are deterred from seeking legal remedy by the combination of cost and risk. We have also heard evidence that journalists and editors sometimes refrain from publishing information for fear of legal action, even where they are sure of their facts, because the costs and risks are too high, and that some wealthy individuals and organisations exploit this fear to intimidate the press. For instance Jeff Edwards, former Chief Crime Correspondent of the Daily Mirror, told us that the newspaper would not publish a story relating to the Russian oligarch Roman Abramovich, even though it was corroborated, as "we do not mess with Abramovich, he is too powerful, he is too litigious".[214]

238. As discussed at paragraph 130, Richard Desmond brought a defamation case against the journalist Tom Bower. Following its failure Mr Desmond was left with a bill reported to be in the region of £1.25 million.[215] Indeed, it is not just in defamation cases that costs are high, and for most people prohibitively so. Max Mosley, a wealthy man, gave us an account of his privacy action against the News of the World, in which he was left out of pocket despite winning his case and £60,000 in damages:

    "In round figures my costs were slightly more than £500,000. The costs that the News of the World had to pay, the so-called taxed costs, were £420,000. There were £60,000 damages and then there were other bits and pieces of expenses that I had to meet myself. I was left with a bill of something of the order of £30,000 altogether. To me it was worth it but to an awful lot of people they would say, 'If in addition to getting everything repeated again, exactly that which I wish to keep private, I am going to have to pay a big bill, I will not do it.' That of course is exactly what the newspaper's calculation is [...]."[216]

239. Paul Dacre described to us the outcome of a libel case in which Martyn Jones MP, using a CFA, sued the Mail on Sunday:

    "The Mail on Sunday believed it had rock solid witnesses and decided to fight the case. In the event they lost and they were ordered to pay £5,000 in damages, a relatively footling sum. The MP's lawyers claimed costs of £387,855 solicitors' costs of £68,000 plus success fees, and the barrister's fees as well. Anyway, the total with VAT and ATE insurance came to £520,000. Everything had been doubled up with the success fees and that was for damages being awarded of £5,000."[217]

240. Mr Dacre went on to ask: "Can it really be right for a QC in a libel case to be paid £7,000 for a day in court whilst the same QC, prosecuting or defending a serious case at the Old Bailey, may receive less than £600 a day - less than a tenth?"[218]

241. Marcus Partington, Chairman of the Media Lawyers Association, said:

    "Some of the people [...] who act for claimants, they charge £500/£575/£650 an hour; if you then double that with a 100% success fee you are over £1,000 an hour; you then add VAT on top and you are talking about a huge figure per hour. On top of that the premiums for ATE insurance run at roughly £68,000 per £100,000 worth of cover. The claimant does not pay for that insurance; they incur the premium but they then claim it back from the defendant. The vast majority of cases against the media are won by claimants."[219]

242. The price in terms of freedom of expression can be high. The NGO Article 19, in its submission, wrote:

    "Costs in defamation cases in the UK have now reached what may, without exaggeration, be called crisis proportions, particularly from the perspective of NGOs. Costs can be crippling, even if one is ultimately successful in winning a case. The pure 'harassment' value of defamation cases has been recognised in many countries, where rich and powerful individuals bring cases which have no chance of success, simply to deter potential critics."[220]

243. Alan Rusbridger of the Guardian summed up the concerns of many journalists when he told us:

    "It is becoming staggeringly expensive to do the kind of journalism that I guess most members of this Committee would believe in, and I think it is a given in journalism that mistakes are made despite the best attempts to get things right, and the attempts we now have to make in advance to try and prevent mistakes being made can cost tens and tens and tens of thousands of pounds, and if mistakes are made the forms of libel defence that are theoretically available to try and settle cases quickly can still end up costing hundreds of thousands of pounds, so I think all this is a great discouragement to the forms of investigative journalism about things that I think everybody would agree are public interest."[221]

244. The matter of costs is subject to some regulation, under rules 43-48 of the Civil Procedure Rules (CPR), the Practice Direction on Costs and by case law. Costs are normally awarded to the 'winner' in a case, but courts have discretion to vary this, for example to penalise parties whose conduct in litigation they consider unreasonable, or because a successful party has lost on some of the issues raised in the case. Courts must also take into account any payment into court or settlement offers previously notified to the court.

245. In England and Wales, after a court has ruled that one party's costs are payable by another, if the parties are unable to agree the amount, the court will 'assess' the costs - in other words determine the amount to be paid. This can be a complex matter, taking into account such factors as the conduct of the parties, the sums involved and the skill, effort and knowledge involved. The then Master of the Rolls, Sir Anthony Clarke, explained to us that the process can also add to costs, as "the cost of a detailed assessment can itself be very great".[222]

246. As with our libel law, in the matter of costs the position in England and Wales stands in contrast to that in many other countries. While, as a general rule, litigants in England and Wales expect to recover virtually all their costs from an unsuccessful opponent, in many other countries there is no such expectation. In Germany, for example, there are statutory limits on the amounts a successful litigant can recover from an opponent. In France, while the unsuccessful party will generally pay court costs, he or she will only ever have to pay a proportion of the legal costs incurred by the winning party.[223] In the US, each party to a civil litigation normally bears his or her own costs, though the US courts have some discretion to vary this.[224]

247. We have also received evidence that access to justice is much more expensive in UK courts than in other jurisdictions. Global Witness cited a number of case studies and stated that:

    "The UK system is characterised by disproportionately high costs and damages which may be affordable by media empires, but not by non-profit organisations. Standards for freedom of expression have already fallen below those protected in countries such as the United States. Furthermore, penalties provided for contravention of libel law in the UK are already tougher than in other European countries, as demonstrated by the recent study conducted by Oxford University A Comparative Study of Costs in Defamation Proceedings Across Europe (December 2008)."[225]

248. We examined this Oxford study, which was commissioned by Associated Newspapers and which compares the costs of defamation litigation in 12 European countries. Though comparisons between countries with very different legal systems (Ireland, Malta, Bulgaria) must be treated with some caution, the study leaves no room for doubt that England and Wales is an extremely expensive place to litigate in defamation cases:

    "Even in non-CFA cases (where there is no success fee or insurance) England and Wales was up to four times more expensive than the next most costly jurisdiction, Ireland. Ireland was close to ten times more expensive than Italy, the third most expensive jurisdiction."[226]

When the costs of CFAs were factored in, the differences became even greater.

Attempts to control costs

249. Successive Governments have tried to curb litigation costs, without much success. One recent attempt followed Lord Woolf's 1996 report, Access to Justice, which recommended measures to make it easier to settle cases early and to allow cases to be brought to trial more quickly. More than a decade on, there is little sign that these measures have had any real impact on costs at all. Lord Woolf himself has acknowledged: "Costs other than those that were fixed not only remain obstinately high but in many instances have risen and remain an impediment to justice."[227]

250. Another relevant measure was the introduction in 1995 of CFAs, which have had a large role in this inquiry's consideration of costs. CFAs enable lawyers to be paid on a 'no win, no fee' basis. Initially available only for cases involving personal injury, insolvency and applications to the European Court of Human Rights, they were meant to provide access to justice for those too rich to qualify for legal aid yet too poor to pay for litigation themselves.[228] The Conditional Fee Agreements Commencement Order 1995 allows a lawyer who wins a CFA case to charge a 'success fee' (also known as 'uplift') of up to 100% of his or her normal fee, though in the early days clients rarely paid that much.

251. At the end of 1990s, in response to pressure on the legal aid system and demands for further reforms to tackle litigation costs, the Government introduced the Access to Justice Bill. During debate on Second Reading on 17 March 1998, Rt Hon Geoff Hoon MP, then Minister of State in the Lord Chancellor's Department, explained the Government's concerns:

    "The existing legal aid scheme fails almost everyone. It certainly fails the great majority of people who pay for it through their taxes, because they are not financially eligible for it. They cannot go to law for fear of the considerable legal costs that they might face. By extending the availability of conditional fees, we create the opportunity for everyone, rich and poor alike, to go to court regardless of their financial position."[229]

252. Crucially, the Access to Justice Act extended the scope of CFAs to defamation and other publication proceedings, and it made success fees recoverable from the losing party. Also made recoverable were ATE insurance premiums. These changes dramatically altered the culture and balance of defamation proceedings, effectively enabling largely risk-free litigation for a CFA-funded party (usually a claimant), while at the same time substantially increasing the financial exposure of the opponent.

253. As the evidence cited above from Messrs Mosley, Dacre, Partington and others demonstrates, these measures, whatever their virtues, have not slowed the rise in litigation costs and may have accelerated it, raising at the same time new problems in relation to press freedom.

OTHER INQUIRIES

254. We are not alone in our concern. While we have been conducting this inquiry, both the Government and the judiciary have been looking into the matter. Lord Justice Jackson has recently concluded an examination of the costs of civil litigation generally and the high costs of defamation actions in particular. The Ministry of Justice, meanwhile, has published a number of consultations with proposals for change in this area.

255. In January 2009, the Master of the Rolls appointed Lord Justice Jackson to review of the rules and principles governing the costs of civil litigation, with the following terms of reference:[230]

·  Establish how present costs rules operate and how they impact on the behaviour of both parties and lawyers.

·  Establish the effect case management procedures have on costs and consider whether changes in process and/or procedure could bring about more proportionate costs.

·  Have regard to previous and current research into costs and funding issues; for example any further Government research into Conditional Fee Agreements - 'No win, No fee', following the scoping study.

·  Seek the views of judges, practitioners, Government, court users and other interested parties through both informal consultation and a series of public seminars.

·  Compare the costs regime for England and Wales with those operating in other jurisdictions.

·  Prepare a report setting out recommendations with supporting evidence by 31 December 2009.

256. In oral evidence to us, Lord Justice Jackson asked the Committee not to treat defamation costs independently of their wider context:

    "It is very important to look at the problems of costs holistically. There are serious issues concerning the costs of defamation proceedings and there are very serious issues concerning the costs of the whole of civil litigation, which is why the Master of the Rolls has taken me out of sitting for a year in order to address them, and I do endorse the point which Sir Anthony Clarke [the Master of the Rolls] has made that we must deal with this problem in principle and across the board and, if I may respectfully suggest it to Members of this House, not embark on piecemeal reform for one tiny part of the civil litigation terrain which may perhaps have a slightly more vocal presentation than others."[231]

257. Despite this view, during the course of our inquiry the Ministry of Justice has published two consultation papers which seek to address issues specifically around defamation costs.[232] In its first consultation it explained why the Government believed that reform of defamation costs was urgently needed and could not wait for the conclusion of a wide-ranging review: "Excessive costs may force defendants to settle unmeritorious claims, which in turn threatens a more risk averse approach to reporting and some argue is a risk to freedom of expression."[233]

258. While the media has been vocal in expressing its concerns,[234] some of the lawyers who represent mainly claimants have naturally argued that there is no real problem with costs, that current measures to control the costs were sufficient and that the fees charged by firms represent a reasonable reward for risks taken.[235]

259. Mark Thomson, then of Carter-Ruck, suggested that a swift apology was the best remedy to the problem of high costs:

    "The reason why there are expensive litigations in my personal experience is because of the way the defendants, who determine the issues in the case, run the case. Most cases [...] settle very quickly with an apology, modest damages and modest costs. It is when the defendants decide to defend cases that the costs escalate on both sides and probably at equal levels."[236]

260. Mr Thomson noted in this context that at Carter-Ruck success fees were normally graded over time, so the full 100% would be chargeable only if a case ran its full course.

261. However Tony Jaffa, who acts for regional newspapers, made the case that it was wrong to compel defendants to settle on costs grounds alone:

    "I think the correct question is: if people have a legitimate claim then the relevant newspaper should apologise. If they do not have a legitimate claim - if there is an issue, whatever the defence might be - then the press should be entitled to defend themselves. At the moment, no regional paper can do that."[237]

262. The evidence we have heard leaves us in no doubt that there are problems which urgently need to be addressed in order to enable defamation litigation costs to be controlled more effectively. We find the suggestion that the problem confronting defendants, including the media, who wish to control their costs can be solved by settling cases more promptly to be an extraordinary one. If a defendant is in the right, he should not be forced into a settlement which entails him sacrificing justice on the grounds of cost.

263. We are aware that machinery exists for defendants to protect their position as to costs by making a payment into court. It does not appear to us that this machinery effectively protects a defendant, who genuinely attempts to settle a claim at an early stage, against a determined and deep-pocketed litigant. This is another issue which needs to be addressed by the Ministry of Justice.

Costs Capping

264. A mechanism exists by which judges, in advance of a trial, can impose a limit on the amount that the successful party will be able recover from the losing party. Costs capping orders are governed by Rules 44.18 to 44.20 of the CPR. Section 23A of the Costs Practice Direction states, however, that: "The court will make a costs capping order only in exceptional circumstances."

265. It has been suggested, both to us and in the responses to the Ministry of Justice's first consultation paper,[238] that the courts' attitude to costs capping is too conservative. This reflects the approach taken by the Civil Procedure Rules Committee (CPRC). As Lord Justice Jackson explained: "The Rule Committee when drafting the new costs capping rules has adopted a conservative approach, in the knowledge that there was about to be a fundamental review of costs."[239]

266. Keith Mathieson, a lawyer with Reynolds Porter Chamberlain, told us:

    "I think the way in which the courts approach the question of costs capping makes it extremely difficult to make out a case for a costs cap. You have got to show that costs are being incurred at a disproportionate rate; and you have got to show that it will not be possible to control those costs retrospectively. Those are pretty hard tests to fulfil. There have been very few cases in which costs capping orders have actually been made for that reason."[240]

267. The 'exceptionality' test has also been criticised as too conservative by the courts.[241] Following the publication of Lord Justice Jackson's preliminary report, the CPRC has therefore agreed to re-examine the operation of the 'exceptionality' test.[242]

268. In oral evidence to us Lord Justice Jackson suggested that in defamation cases costs capping was not used more frequently due to the difficulty in predicting the likely final cost of a case: "The risks may be particularly high in relation to defamation because, as Mr Justice Eady pointed out […], defamation cases, perhaps more than other civil litigation cases, have a habit of taking unexpected and unforeseen turns."[243]

269. The then Master of the Rolls, Sir Anthony Clarke, also urged that costs capping should not be seen as the only or best approach to cost control:

    "If you then focus on the costs capping process, that itself involves identifying what the costs are likely to be and one way of doing that is to conduct something close to a detailed assessment in advance. Now, if you do that, you are then spending a lot of money assessing costs which have not yet been incurred in circumstances where (a) everybody knows that 95% or more of the cases are going to settle, so there will never be a judgment, and (b) even where there is a judgment, the vast majority of costs issues are resolved as well, so there will never be a detailed assessment, but, if you are going to have a costs capping exercise in every case, it has to be very carefully monitored. You would have to have, to my mind at least, a very robust approach so that you did not spend too much money on assessing the costs in advance because that would be another example of the kind of satellite litigation which one is trying to avoid."[244]

270. Instead Lord Justice Jackson's report suggests a range of more sophisticated measures to keep costs under control. These include a far more hands-on role for the courts and giving the courts more discretion as to the level of costs payable by a claimant if they lose their case (known as "qualified one way costs shifting").[245]

271. Initially the approach of the Ministry of Justice to mandatory costs capping in defamation proceedings, or at least mandatory consideration of the need for a costs cap, was favourable 'given the pressures towards disproportionate costs' in such cases.[246] The Ministry said this would enhance access to justice: "A costs capping order would preclude one party putting undue pressure on the other to settle by incurring ever-increasing costs."[247] The consultation accepted that such a course of action would add to the overall costs of proceedings but suggested that preparation and attendance at a one-day costs capping hearing might add only £3,000 costs to either side.[248]

272. However, following consultation, the Ministry of Justice has decided not to alter the current cost capping regime in defamation cases. In particular, the Ministry noted the advice of the CPRC, which echoed concerns raised by several parties responding to the consultation over the expense of costs capping as well as its potential for generating further litigation. Instead, the CPRC proposed a mandatory costs budgeting pilot for all defamation and malicious falsehood proceedings. Costs budgeting aims to ensure the court can manage the costs of litigation in a way that is proportional to both the value of the claim and the reputational issues at stake. The Ministry of Justice described the process adopted in the pilot, as follows:

    "The parties will prepare, exchange and lodge with the court before each hearing costs estimates for the whole proceedings. The parties will be required to monitor costs against the budget and to update each other on the position. The court may also call regular costs management conferences (by telephone where possible). At each hearing the court will consider and record its approval or disapproval of each party's budget, after representations where necessary. The court will also take account of the additional costs of each procedural step when giving case management directions. On any later costs assessment the court will only approve as reasonable and proportionate, costs claimed which fall within the last approved budget and not approve costs incurred outside the budget."[249]

273. The Ministry of Justice went on to say it hoped that the pilot would involve close supervision of hourly costs which it believes are key to controlling costs in this area.

274. Mandatory universal costs capping, if implemented in isolation, is too crude an instrument to introduce greater discipline while preserving flexibility and access to justice. We therefore welcome the costs budgeting pilot which has the potential to impose greater discipline on those incurring costs. Without such discipline, no cost control methods are likely to succeed. We also welcome Lord Justice Jackson's proposal that there should be a more interventionist approach to controlling costs by the courts. Nevertheless, we recommend that costs capping should remain as a remedy to be used in those cases where parties cannot agree a way to make costs budgeting work.

Offer of Amends

275. Sections 2 to 4 of the Defamation Act 1996 provide a statutory scheme for resolving defamation cases through the offer of amends procedure, allowing a party to acknowledge it has made a mistake and settle a claim without the need for a court case.

276. Where the offer of amends is accepted, the parties can reach a settlement on the steps to be taken to fulfil the offer and the level of compensation and costs to be paid by the defendant. If the parties cannot agree on these matters, the court will determine the compensation and costs payable, liability having already been resolved.

277. When a claimant chooses to reject an offer to make amends, the defendant has a statutory defence to defamation proceedings under section 4(2) of the Defamation Act 1996. This defence can only be overcome if the claimant can prove that the defendant knew or had reason to believe that the statement complained of was both false and defamatory, i.e. that the publication was motivated by malice.

278. In theory, this procedure should operate to limit costs in defamation, though it applies only where liability is accepted by the defendant. Also, as discussed in paragraphs 168 to 172 above, the recent case of Tesco Stores Limited v Guardian showed that even where an offer of amends is made, substantial costs can still be incurred.

279. The offer of amends procedure was intended to provide a simple and effective way of acknowledging a mistake, and putting it right at minimal cost to both parties by means of an apology, payment of moderate compensation and suitable costs. Whatever the rights and wrongs of the individual case, headline figures for costs such as those incurred by the Guardian in the Tesco case simply undermine Parliament's purpose in introducing the offer of amends procedure.

Hourly rates

280. The hourly rates charged by solicitors and barristers clearly underpin the costs issue. Actual fee levels are confidential, but the Ministry of Justice has stated that some specialist claimant solicitors regularly charge £400 to £600 per hour,[250] figures confirmed in Lord Justice Jackson's preliminary report.

281. Rates at this level are clearly in excess of the 'guideline recoverable hourly rates' recommended by the Advisory Committee on Civil Costs:[251]
Band A Band B Band C Band D
London 1 402291 222136
London 2 312238 193124
London 3 225-263169-225 162119
National 1 213189 158116
National 2/3 198174 144109

·  Band A: post 8 yrs post-qualification experience

·  Band B: post 4 yrs post-qualification experience (solicitors or legal executives)

·  Band C: other qualified solicitors/legal executives

·  Band D: trainee solicitors

As we have seen, the excess widens further if a CFA success fee is involved. The Lord Chancellor, in oral evidence to us, expressed his disapproval: "I have no comment to make about the level of fees for defendants, but I think that the level of fees for plaintiffs' lawyers is too high."[252] Carter-Ruck has stated in evidence to this Committee that its 'base rate' is "£400 per hour".[253]

282. The Ministry has asked the Advisory Committee on Civil Costs to consider appropriate maximum or fixed recoverable hourly rates in defamation proceedings. In its response to its consultation Controlling Costs in Defamation Proceedings the Ministry noted:

    "Having taken written and oral evidence from claimant solicitors and defendants, and seen a summary of the responses to Question 1 of the consultation paper, the ACCC concluded that they could not recommend an appropriate rate. They gave a number of reasons. A key difficulty was that they could identify no economic or financial basis on which to set a rate that departed from the Guideline Hourly Rates. They were also concerned that setting a fixed rate would lead to pressure to set similar discrete rates for other areas of which would undermine the Guideline Hourly Rates and create a complex and fragmented system. They instead recommended expressly applying the Guideline Hourly Rates to all assessments in publication proceedings (including detailed costs assessments)."[254]

283. The Ministry of Justice decided, therefore, not to pursue the proposal for maximum or fixed costs at the moment, but may return to the issue following the publication of Lord Justice Jackson's recommendations on the issue.[255]

284. In his final report, Lord Justice Jackson proposes that a "Costs Council" should be created, which would be either a free-standing body or an adjunct to the Civil Justice Council, an advisory body which has responsibility for overseeing and co-ordinating the modernisation of the civil justice system.[256] This Council would set guideline hourly rates not only for summary but also for detailed assessment, and would report to the Master of the Rolls and, as appropriate, the Lord Chancellor.

285. Within the context of more active case management by the courts, we can see merit in the proposal that there should be some limitation on the maximum hourly rates that can be recovered from the losing party in defamation proceedings. This should have a significant impact on costs across the board. While we note the difficulties identified by the Advisory Committee on Civil Costs, we agree with the Ministry of Justice that it should reconsider this issue now that Lord Justice Jackson's final report has been published.

Conditional Fee Agreements

286. As we observed above, the provisions of the Access to Justice Act 1999 in relation to CFAs have had some undesirable consequences. Lord Justice Jackson put the matter as follows:

    "There can be no doubt that the decision taken by Parliament and implemented by the Rule Committee to make success fees and ATE premiums recoverable has (a) promoted access to justice for claimants and (b) massively increased the costs burden upon defendants. Claimants can now litigate at no cost and at no personal risk. If successful, they retain the entirety of the damages awarded or agreed. If unsuccessful, they walk away with no liability."[257]

287. Potential costs for defendants increase sharply because of two factors: the success fees, which may double the sum owed to a successful claimant's lawyers, and the ATE insurance premiums, which, we were told by Mr Partington, can be as high as £68,000 for £100,000 worth of cover. Both are normally recoverable from the losing side.

288. As Ian Hislop, editor of Private Eye, put it to us, the prospect of defending an action entailing financial risk on such a scale can be intimidating to editors:

    "If someone comes and says, 'We are suing you, and not only that, we have a CFA, which means we can just make it up. It will be any figure that comes into our head, double it, double it again, and you pay all of it,' that makes you think twice about running a piece."[258]

289. Tony Jaffa spoke in similar terms:

    "I went on record about 15 or 18 months ago in the Evening Standard saying that I cannot see any regional newspaper ever defending a claim in the foreseeable future. That is not because they are poor journalists; not because they publish poor stories; it is entirely due to a small regional newspaper facing costs based on somewhere between £400-£600 an hour times a 100% success fee, plus the ATE premium, plus VAT and so on and so on. That is what it is all about."[259]

290. Since CFAs are not means-tested, there is nothing to prevent wealthy individuals making use of them, and a number have. We have heard allegations, particularly from media groups, that rich claimants have exploited the CFA system, with its pattern of escalating costs, to force the press into settling claims.

291. We should note here that although it is much less common for a defendant to use a CFA, the option exists. David Price, of David Price Solicitors and Advocates, told us in a submission that his firm does a good deal of work for defendants in defamation and privacy cases, and most of those clients would otherwise have no representation.[260] CFAs, however, are overwhelmingly a resource for claimants and are likely to remain so, not least because most lawyers dislike risk and it has long been the case that most cases in publication proceedings are won by claimants.

292. Although some have suggested that CFAs should be means-tested, in practice, given the high costs involved, this would be likely to result in access to justice being limited to the extremely poor and the super rich. The complexities involved also do not lend themselves to a simple or proportionate solution. We therefore do not support the introduction of means-testing for CFAs.

293. No-one has seriously suggested to us that CFAs should no longer be part of the civil litigation system. However the problems associated with them - disproportionate cost, unfairness to defendants and intimidatory power over publishers - raise two main questions. Does the upper limit for success fees have to be set as high as 100%? And, is it right that success fees and ATE premiums are normally recoverable in full from a losing party?

294. In the matter of success fees, the argument is made that they need to be high to compensate for the risks run by lawyers: they need relatively high fees in cases they win to balance the fees that are unpaid in cases they lose. This view is not, however, supported by the data available on the outcomes of cases of this kind. This data suggests that CFA-funded parties win the vast majority of their cases.[261] The system is therefore tantamount to "always win, double the fee".

295. This high success rate is no doubt in part the fruit of careful selection. Indeed common sense and the economic incentives would point to the inevitability of cherry-picking. Mr Thomson spoke to us of the rigorous vetting of cases which took place by Carter-Ruck's CFA committee, saying: "They seem to reject a lot of potential cases when they assess the risk."[262] Jeremy Clarke-Williams, of Russell, Jones & Walker Solicitors, explained his firm's approach:

    "I think it should be pointed out as well that, of course, when the Conditional Fee Agreement is entered into by a firm of solicitors it can represent a very considerable investment by that firm because you are agreeing to act on a 'no win, no fee'. In my firm we have a very rigorous risk assessment procedure at the outset to decide whether or not we are prepared to take on a case on a CFA. So it is not surprising that the cases we do take on CFAs are ones we expect to win."[263]

296. The practice in this country is also out of step with that of comparable jurisdictions. In Australia, where costs rules are otherwise very similar to those in England and Wales, success fees are capped at 25% of the solicitor's costs and are not recoverable from the losing party but treated as a matter between the solicitor and his or her client.[264] In Canada, which generally adopts the UK approach and awards costs to the 'winner', success fees associated with 'no win, no fee' litigation are not normally recoverable, as they are not in Scotland.[265]

297. It should be noted however that David Price told us that he was prepared to take substantial risks with marginal cases, and that he relied on success fees to cover his losses.[266]

298. Lord Justice Jackson told us that the calculation of victories against defeats was not a simple one:

    "There is a clear body of evidence which suggests that, overall, success fees may be bringing too great a benefit to the claimant side, but one has to approach this evidence with caution because claimant solicitors have made the point to me that, when a single case is lost, the costs, if that action has gone all the way to trial, for example, may be enormous and they may need the success fees on a substantial number of won cases in order to cover all their outlay on the lost cases."[267]

299. We asked Lord Justice Jackson for his estimate of the number of cases which needed to be won by a lawyer in order to cover the cost of a lost case. He was not able to provide us with an answer: "I do not know, without the detailed research which, sadly, does not exist, precisely how many won cases one needs in order to cover one substantial lost case, but I do not think one should adopt too simplistic an approach to this."[268]

300. In its latest consultation on the costs of defamation proceedings, the Ministry of Justice seeks views on the appropriate level for success fees, suggesting that they should be capped at 10%.[269] The evidence base used both by Lord Justice Jackson and by the Ministry is data relating to 154 libel and privacy cases against the media, provided by the Media Lawyers Association.[270]

301. There is also the question of whether the cost of success fees and ATE premiums should be borne solely by the loser in a case. It would be possible to make success fees and ATE premiums irrecoverable from the losing party, meaning that the costs associated with them would be borne by the party engaging in the CFA irrespective of whether he or she won or lost.

302. Making such premiums irrecoverable might bring some benefits. Market forces could cause prices in both categories to fall, as it would be in parties' interests to shop around for low success fees and ATE premiums. However, moving the entire responsibility for success fees and ATE premiums to the CFA-funded party could also have unwelcome consequences. There could be an impact on access to justice, as parties face the risk of financial loss whether they win or lose a case, something which CFAs were introduced to address. Other jurisdictions, however, do not enable a party to contemplate essentially "risk-free" litigation by shifting the costs burden entirely. Giving each party an incentive to keep his or her costs relatively low must logically be an important part of controlling litigation costs overall.

303. A step was taken in this direction recently when certain limits were placed on the recoverability of ATE premiums. From 1 October 2009,[271] any party funded by a CFA, if it seeks to recover the premium or success fee, must inform the other party of its funding arrangements, including any staging of any insurance premiums, either with the letter before claim or within seven days of insurance being taken out.[272] Further, in publication proceedings, if an offer of settlement is made by a party within 42 days of being notified that the other party is CFA-funded, the ATE insurance premium is again not recoverable.[273]

304. We have also been concerned during the course of our inquiry to discover that while it is usual for a CFA-funded party to take out ATE insurance, there is often no risk that they will pay the premium, whether they win or lose their case. The website of Temple Legal Protection Limited, a leading provider of such insurance, states:

    "Who pays the premium if the case is lost?

    Temple always provides self-insured policies meaning that part of the cover provided is the premium. Consequently, if your client is unsuccessful and there is a claim on the policy, the cost of the premium forms part of the claim so that your client does not have to pay."[274]

305. In his report, Lord Justice Jackson recommends a package of proposals which he hopes will address the current disparities in the CFA system without impeding access to justice. He suggests that both success fees and ATE insurance premiums should be irrecoverable from the losing party. That being the case, he also makes two recommendations designed to protect access to justice for claimants. Firstly, that damages should be increased by 10%, to take account of the additional costs faced by CFA-funded claimants. Secondly, he recommends the introduction of one-way qualified costs shifting. This would allow the courts to take into consideration the seriousness of the subject matter of the libel or breach of privacy, and the financial resources and conduct during proceedings of all the parties, when making a costs order against the claimant in the event that they lose their case.

306. We welcome steps taken so far to limit recoverability of After The Event insurance premiums in publication proceedings. However, we agree with Lord Justice Jackson that ATE premiums should become wholly irrecoverable. The fact that it is possible for insurance companies to offer ATE insurance at no cost to the policy holder, whether they win or lose their case, is extraordinary and discredits the principle on which ATE insurance is based. We recommend that the Ministry of Justice should implement his recommendations in this respect.

307. All the evidence we have heard leads us to conclude that costs in CFA cases are too high. We also believe that CFA cases are rarely lost, thereby undermining the reasons for the introduction of the present scheme. However it is vital to the maintenance of press standards that access to justice for those who have been defamed is preserved. We do not agree with the Ministry of Justice that the maximum level of success fees should be capped at 10%, nor do we believe that success fees should become wholly irrecoverable from the losing party. However we would support the recoverability of such fees from the losing party being limited to 10% of costs leaving the balance to be agreed between solicitor and client. This would address the key issue and seems to us to provide a reasonable balance, protecting access to justice, adequately compensating solicitors for the risks taken, giving claimants and their lawyers, in particular, a strong incentive to control costs and ensuring that costs to a losing party are proportionate.

308. This is by no means the first time that attempts have been made to control the costs of civil litigation. The Government must ensure that this time measures are effective. Equally, it will be important that the impact of such measures in practice is systematically monitored so that any necessary adjustments can be made.

309. Lawyers must also play their part. Just as the press must be accountable for what it writes, lawyers must be accountable for the way in which cases are run, and that includes costs. The current costs system, especially the operation of CFAs, offers little incentive for either lawyers or their clients to control costs, rather the contrary. It also leads to claims being settled where they lack merit. We hope that the combined effect of our recommendations, the Ministry of Justice consultations and the conclusions of Lord Justice Jackson, will provide the impetus for a fairer and more balanced approach to costs in publication proceedings.


214   Q 333 Back

215   "Newspaper magnate Desmond's £1.25m bill for lost libel case", The Independent, 24 July 2009 Back

216   Q 123 Back

217   Q 496 Back

218   Paul Dacre's speech to the Society of Editors, Press Gazette, 9 November 2008 Back

219   Q 1 Back

220   Ev 422 Back

221   Q 857 Back

222   Q 940 Back

223   Review of Civil Litigation Costs: Preliminary Report, Lord Justice Jackson, Chapter 56, para 1.1 Back

224   Ibid., Chapter 60, para 1.2  Back

225   Ev 238 Back

226   Oxford University, "A Comparative Study of Costs in Defamation Proceedings Across Europe", December 2008 Back

227   "Civil justice system: why we are doing well but can do better", The Times, 11 June 2009 Back

228   Through section 58 of the Courts and Legal Services Act 1990 Back

229   HC Deb, 17 March 1998, col 1092 Back

230   Review of Civil Litigation Costs: Preliminary Report, Lord Justice Jackson, Introduction, para 2.1 Back

231   Q 919 Back

232   Ministry of Justice, Controlling costs in defamation proceedings, consultation paper CP4/09, 24 February 2009; Ministry of Justice, Controlling costs in defamation proceedings: reducing conditional fee agreement success fees, consultation paper CP1/2010, 19 January 2010 Back

233   Controlling costs in defamation proceedings, para 14 Back

234   Ev 26, Qq 10-11,Q 18. Back

235   Qq 66-69, 72-73. Back

236   Q 65 Back

237   Q 4 Back

238   Ministry of Justice, Civil Procedure Rules: Costs Capping Orders: Response to consultation carried out by the Ministry of Justice on behalf of the Civil Procedure Rule Committee, 23 February 2009 Back

239   Review of Civil Litigation Costs: Preliminary Report, Chapter 45, para 7.1 Back

240   Q 3 Back

241   Peacock v MGN [2009] EWHC 769 (QB) Back

242   Controlling costs in defamation proceedings, para 12 Back

243   Q 940 Back

244   IbidBack

245   Review of Civil Litigation Costs: Final Report, Lord Justice Jackson, December 2009, Recommendations  Back

246   Controlling costs in defamation proceedings, para 26 Back

247   Ibid., para 28 Back

248   Ibid., para 32 Back

249   Controlling costs in defamation proceedings, para 4 Back

250   Controlling costs in defamation proceedings, para 15 Back

251   Review of Civil Litigation Costs: Preliminary Report, Chapter 8, para 3.3, Table 8.21 Back

252   Q 999 Back

253   Ev 452 Back

254   Controlling costs in defamation proceedings, paras 8 and 9 Back

255   Ministry of Justice, Controlling costs in defamation proceedings: Ministry of Justice response to consultation document, para 10 Back

256   Review of Civil Litigation Costs: Final Report, Chapter 6, Part 1, Paras 2.15 to 2.16 Back

257   Review of Civil Litigation Costs: Preliminary Report, Chapter 47, Paras 4.2 to 4.3 Back

258   Q 862 Back

259   Q 924 Back

260   Ev 454 Back

261   Review of Civil Litigation Costs: Preliminary Report, Chapter 47 and Appendix 17, Controlling Costs in Defamation Proceedings: Reducing Conditional Fee Agreement Success Fees, para 11 Back

262   Q 88 Back

263   Q 72 Back

264   Review of Civil Litigation Costs: Preliminary Report, Chapter 58, para 2.7 Back

265   Review of Civil Litigation Costs: Preliminary Report, Chapter 61, paras 3.4-3.5 Back

266   Ev 27 Back

267   Q 929 Back

268   Q 929 Back

269   Controlling Costs in Defamation Proceedings: Reducing Conditional Fee Agreement Success Fees, para 22 Back

270   IbidBack

271   Civil Procedure (Amendment) Rules 2009 Back

272   Civil Procedure Rules, Rule 44.15  Back

273   Ibid., Rule 44.12B Back

274   Temple Legal Protection, ATE Insurance, www.temple-legal.co.uk Back


 
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