Judgments - Campbell (Appellant) v. MGN Limited (Respondents)

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    23.  In my opinion these arguments are flawed. The first confuses two different concepts of proportionality. The CPR on costs are concerned with whether expenditure on litigation was proportionate to the amount at stake, the interests of the parties, complexity of the issues and so forth. But article 10 is concerned with whether a rule which requires unsuccessful defendants not only to pay the reasonable and proportionate costs of their adversary in the litigation, but also to contribute to the funding of other litigation, is a proportionate measure to provide those other litigants with access to justice, having regard to its effect on the article 10 right to freedom of expression. MGN do not really deny that in principle it is open to the legislature to choose to fund access to justice in this way.

    24.  The argument therefore depends upon its second limb, namely that funding litigation in this way becomes disproportionate when a litigant does not need a CFA to be able to sue or, in this case, appeal. Regulation 4(2)(d) of the Conditional Fee Agreements Regulations 2000 (SI 2000/692) requires a legal representative, before entering into a CFA, to inform the client "whether other methods of financing those costs are available…". But, as MGN concede, this rule is for the protection of the client, who may have some form of insurance which covers litigation costs and makes it unnecessary for him to enter into a CFA. It is not for the protection of the defendant. Similarly, one of the matters to be taken into account in assessing the percentage to be allowed by way of success fee is "what other methods of financing the costs were available to the receiving party": see section 11.8(c) of the Practice Direction. But that, in my opinion, is also concerned with whether the claimant had the right to have the litigation funded by someone else. It does not contemplate an investigation into his means to decide whether he could have taken the risk of paying the costs himself.

    25.  There is in my opinion nothing in the relevant legislation or practice directions which suggests that a solicitor, before entering into a CFA, must inquire into his client's means and satisfy himself that he could not fund the litigation himself. By what criteria should such an inquiry be conducted? An application for legal aid requires a disclosure of means and sets out elaborate criteria for eligibility. But there is no such machinery for a CFA. And if the solicitor is not expected to make such inquiries in advance, it would be most unfair for the success fee to be afterwards disallowed on the ground that his client had sufficient means.

    26.  Ms Campbell denies that she is so wealthy as to be able to view with equanimity the risk of having to pay both her own and MGN's costs of an appeal to the House of Lords. She says, probably with justification, that there can be few such individuals. But I think that it would not matter even if she demonstrably had ample means to pay. It is true that when one has to balance rights such as freedom of expression against other rights such as privacy or access to a court, there has to be, as Lord Steyn said in In re S (FC)(A Child) (Identification: Restrictions on Publication) [2005] 1 AC 593, 603, para 17, "an intense focus on the comparative importance of the specific rights being claimed in the individual case". So MGN says that in this case, Ms Campbell did not need a CFA and the balance therefore comes down in favour of freedom of expression. But concentration on the individual case does not exclude recognising the desirability, in appropriate cases, of having a general rule in order to enable the scheme to work in a practical and effective way. It was for this reason that the European Court of Human Rights decided in James v United Kingdom (1986) 8 EHRR 123 that Parliament was entitled to pursue a social policy of allowing long leaseholders of low-rated houses to acquire their freeholds at concessionary rates, notwithstanding that the scheme also applied to some rich tenants who needed no such assistance.

    27.  Thus, notwithstanding the need to examine the balance on the facts of the individual case, I think that the impracticality of requiring a means test and the small number of individuals who could be said to have sufficient resources to provide them with access to legal services entitled Parliament to lay down a general rule that CFAs are open to everyone.

    28.  It follows that in my opinion the success fee as such cannot be disallowed simply on the ground that MGN's liability would be inconsistent with its rights under article 10. The scheme under which such liability is imposed was a choice open to the legislature. Mr Spearman QC, who appeared for MGN, suggested various ways in which words might be read into article 3 of the Conditional Fees Order 2000 (which lists the proceedings for which CFAs are available) or CPR 44.3B (which provides for the recovery of success fees) to make them compatible with article 10 by excluding cases such as this from the scope of CFAs or by disallowing the success fees. But in my opinion there is no need for such measures because the existing scheme is compatible.

    29.  I cannot however part with this case without some comment upon other problems which defamation litigation under CFAs is currently causing and which have given rise to concern that freedom of expression may be seriously inhibited. They are vividly illustrated by the recent judgment of Eady J in Turcu v News Group Newspapers Ltd [2005] EWHC 799 (QB), delivered on 4 May 2005:

    "1.  The claimant in these proceedings is seeking damages against News Group Newspapers Ltd, as publishers of The News of the World, in respect of articles appearing in the editions of that newspaper dated 3 November 2002… He issued his claim form under an assumed name (Alin Turcu), almost at the end of the one year limitation period, on 31 October 2003. He only revealed his true identity in early February of this year, about two months before trial, as Bogdan Stefan Maris. He was born in Romania on 26 July 1980 and is thus now aged 24. He appears to have borrowed the name Turcu from someone he knew in prison in Romania.

    2.  The claimant's false identity is not the only respect in which this case is unusual. The claimant has not taken part in the trial and has not even served a witness statement. Mr David Price, a solicitor advocate, has represented him on the basis of the instructions he received from his client, but without the advantage of his evidence to back up those instructions. Mr Maris is apparently residing somewhere in Romania. Indeed, Mr Price told me before the trial began that he had last had contact with his client shortly after the true identity was revealed and, at the commencement of the trial, he remained out of touch and thus was only able to proceed on the basis of past instructions. He did, however, indicate that telephone contact was resumed at some time during the first week of the trial - but still no witness statement was forthcoming.

    3.  The evidence adduced by the defendant, which has not been challenged, is that the claimant is a petty criminal with a list of criminal charges or convictions at least in Romania, Germany, Italy and England. According to the evidence of a senior police officer from Neamt in Romania, "he is known as a very intelligent criminal". He came to England in August 1999 using his assumed name of Turcu and made an application for political asylum on the basis of a statement, which has been produced in evidence, and which contains a largely concocted account of his life and circumstances. His application was rejected, but he was allowed exceptional leave to remain in this jurisdiction until 2004, purely because he had lied, apart from anything else, about his age. He was thought to be 16 years old, whereas in fact by that time he was 19. He had already been sentenced in Romania on three occasions to terms of imprisonment. Had his true identity and age been revealed, he would not have been allowed to remain in this country.

    4.  When he was arrested in 2002 he was found to be in possession of forged Greek and Italian identity documents bearing his photograph but false names. I can readily infer that the claimant had those documents to facilitate the commission of crimes and to mislead the law enforcement authorities. He had been arrested in Italy only eight days before his arrival in England and that may possibly explain why he was seeking pastures new.

    5.  He eventually obtained employment in London on the basis that he was here legally, and thus he deceived his employers also…

    6.  The claimant now seeks a large award of damages, including aggravated and exemplary damages, against the proprietors of The News of the World, who were denied the opportunity not only of cross-examining him but also of even seeing evidence from him denying their published allegations, or to support the serious charges of dishonesty made on his behalf in the course of the trial. He is able to pursue his claim purely because Mr Price has been prepared to act on his behalf on the basis of a conditional fee agreement. This means, of course, that significant costs can be run up for the defendant without any prospect of recovery if they are successful, since one of the matters on which Mr Price does apparently have instructions is that his client is without funds. On the other hand, if the defendant is unsuccessful it may be ordered to pay, quite apart from any damages, the costs of the claimant's solicitors including a substantial mark-up in respect of a success fee. The defendant's position is thus wholly unenviable.

    7.  Faced with these circumstances, there must be a significant temptation for media defendants to pay up something, to be rid of litigation for purely commercial reasons, and without regard to the true merits of any pleaded defence. This is the so-called "chilling effect" or "ransom factor" inherent in the conditional fee system, which was discussed by the Court of Appeal in King v Telegraph Group Ltd… This is a situation which could not have arisen in the past and is very much a modern development."

    30.  After a trial which lasted from 5 to 18 April 2005 the action was dismissed. The defendant's costs were no doubt substantial and irrecoverable.

    31.  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. That was particularly evident in the case of King v Telegraph Group Ltd [Practice Note] [2005] 1 WLR 2282, to which Eady J referred. In that case also, the claimant was without means and had no ATE insurance. Nevertheless, as Brooke LJ observed:

    "58 … There were no pre-action costs other than those associated with preparing the original letter before action, yet the claimant's solicitors revealed that by the time the original statements of case had been exchanged they had already incurred costs in excess of £32,000 (a sum equivalent to a potential liability of £64,000 for the other side on the basis of a 100% success fee). Over 54 hours of partner's time had already been charged out at just over £20,000 and over 48 hours of trainee solicitor's time at over £7,000…

    64 … the claimant's solicitors served a substantial request for further information concerning the defence, to which the defendant responded in detail…

    65 [In reply, the claimant's solicitors] dispatched a ten-page letter … which was settled by junior counsel in as aggressive a style as their letter before action … the preparation of this letter, to which the defendant's solicitors were put to the expense of preparing a courteous and concise three-page [reply] … would be charged out at £750 per hour (assuming a 100% mark-up) not including counsel's fees.

    73 … the claimant's witness statement contained 114 pages…

    74 … [Counsel] observed that large parts of this witness statement were unnecessary…

    75 His main complaint, however, is that this was another area in which, in the context of litigation conducted by a claimant on a CFA without ATE cover, conduct of this kind was wholly out of place. His clients would be put to irrecoverable expense in instructing their lawyers to consider this enormously lengthy statement, and in the event of any settlement into which they might be forced, not by the merits of the case but by purely commercial considerations, the claimant's solicitors would probably be seeking twice their already high hourly costs for the work they did in connection with this statement.

    76 He said that extravagant conduct of this kind could not be effectively policed by robust orders made by a trial judge (if the action ever went to trial) or by drastic surgery by a costs judge because by then the defendant had already incurred the irrecoverable costs of having to respond to it…"

    32.  Brooke LJ was sympathetic to these complaints. He said (at para 99):

    "What is in issue in this case…is the appropriateness of arrangements whereby a defendant publisher will be required to pay up to twice the reasonable and proportionate costs of the claimant if he loses or concedes liability and will almost certainly have to bear his own costs (estimated in this case to be about £400,000) if he wins. The obvious unfairness of such a system is bound to have the chilling effect on a newspaper exercising its right to freedom of expression…and to lead to the danger of self-imposed restraints on publication…"

    33.  The solution, ("the only way to square the circle"), offered by the Court of Appeal in Musa King was for the court at an early stage to make a "cost-capping" order, pre-empting the assessment of the cost judge by fixing a maximum amount (including any success fee) which, if the claimant was successful, the recoverable costs could not exceed. Brooke LJ went on to say at para 102:

    "If this means…that it will not be open to a CFA-assisted claimant to receive the benefit of an 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 conventional legally aided litigant in modern times…Similarly, if the introduction of this novel cost-capping regime means that a claimant's lawyers may be reluctant to accept instructions on a CFA basis unless they assess the chances of success as significantly greater than evens (so that the size of the success fee will be to that extent reduced), this in my judgment will be a small price to pay in contrast to the price that is potentially to be paid if the present state of affairs is allowed to continue."

    34.  In Callery v Gray [2002] 1 WLR 2000 all members of this House agreed that the responsibility for monitoring and controlling the new costs regime lay with the Court of Appeal and that this House should be slow to interfere. And I would certainly indorse the sentiments expressed by Brooke LJ in King's case 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 Ltd 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.

    35.  The Department of Constitutional Affairs, in a consultation paper published in June 2004, after King's case, discussed the problem but did not propose any legislative intervention. It hoped that the representatives of the media and the lawyers who specialise in defamation and associated proceedings would negotiate an agreement in the way in which an agreement on costs had been agreed between personal injury lawyers and liability insurers. The Civil Justice Council offered mediation services, although the consultation paper correctly observed that mediations work only if both sides want to try to find a mediated solution (see para 49).

    36.  There are substantial differences between the costs in personal injury litigation which are the subject of the agreement and costs in defamation proceedings. In personal injury litigation one is for the most part dealing with very large numbers of small claims. The liability insurers are able to pass these costs on to their road user customers. Their own solvency is not threatened. Furthermore, the liability insurers had considerable negotiating strength because they were able to fight what Brooke LJ described as trench warfare, disputing assessments of costs in many cases and thereby holding up the cash flow of the claimants' solicitors. Both sides therefore had good reasons for seeking a compromise.

    37.  In defamation cases, on the other hand, the reasons are much weaker. One is dealing with a very small number of claims to payment of relatively large sums of costs, which some publishers may be strong enough to absorb or insure against but which can have serious effects upon their financial position. The publishers do not have the same negotiating strength as the liability insurers because there are few assessments to be contested and disputing them involves considerable additional costs. Of course, one object of extending CFAs to defamation and breach of confidence claims was to enable people of modest means to protect their reputations and privacy from powerful publishers who previously did not have to fear litigation even if their publications were totally unjustified. Henceforward they would be able to vindicate their rights, which are also Convention rights, in the way that the rich and powerful have always been able to do. There may well be more of these cases in future. Finding ways of moderating the costs of defamation cases would then be in the best interests of all concerned. But the rich and powerful have also had to pay the price of failure. Finding ways of ensuring that the impecunious claimant can also do this may be more of a challenge. In the end, therefore, it may be that a legislative solution will be needed to comply with article 10.

    38.  I would dismiss the petition.

LORD HOPE OF CRAIGHEAD

My Lords,

    39.  I have had the advantage of reading in draft the speeches of my noble and learned friends Lord Hoffmann and Lord Carswell. I agree with them, and I would make the same order as Lord Hoffmann proposes.

    40.  It is perhaps worth noting that, while civil legal aid is still available in Scotland under Part III of the Legal Aid (Scotland) Act 1986 in actions for personal injury, para 1 of Part II of Schedule 2 to the Act provides that it shall not be available in proceedings which are wholly or partly concerned with defamation or verbal injury. But it is open to litigants who would not otherwise have access to justice to enter into what are known as speculative fee charging agreements to obtain legal assistance. These are provided for, in the case of counsel, by the Act of Sederunt (Fees of Advocates in Speculative Actions) 1992 (SI 1992/1897) and, in the case of solicitors, by the Act of Sederunt (Fees of Solicitors in Speculative Actions) 1992 (SI 1992/1879). The primary legislation from which the Lords of Council and Session derived their power to make these enactments is to be found in section 36(2) of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1990.

    41.  Under these agreements the fee is payable only if the client is successful in the litigation. It is open to the advocate and the instructing solicitor, and to the solicitor and the client as the case may be, to agree that the fee, taxed as between party and party (which is the standard basis) or agreed, shall be increased by a figure not exceeding 100 per cent. The amount of the permissible uplift was fixed by the Lord President of the Court of Session in 1992 following consultation with the Faculty of Advocates and the Law Society of Scotland. It was intended to reflect the degree of risk of non-payment of fees which would be involved in undertaking the litigation on the client's behalf. But, in contrast to the system which now operates in England, it is the client who must pay the uplift if he is successful in the litigation. It is not recoverable from the losing party.

    42.  The system of conditional fee agreements which was originally introduced in England under section 58 of the Courts and Legal Services Act 1990 did not, of course, provide for the recovery of the uplift, or "success fee" as it was called in section 58(2)(b), from the losing party. But section 58A of the 1990 Act, which was introduced by section 27(1) of the Access to Justice Act 1999, changed all that. Section 58A(6) provides that a costs order made in any proceedings may, subject in the case of court proceedings to rules of court, include provision requiring payment of any fees payable under a conditional fee agreement which provides for a success fee. Conditional fee arrangements cannot be the subject of an enforceable conditional fee agreement in criminal proceedings or family proceedings: see section 58A(1) and (2). Subject to those exceptions the system is available to litigants, as section 58A(6) says, in "any proceedings". It is not possible to read these provisions as excluding proceedings in cases of defamation or breach of confidence. So, in contrast to the position in Scotland, litigation may now be conducted in these cases in England on the basis that if the client is successful it will be the losing party that has to pay the success fee.

    43.  Under the Scottish system, as was the case in the system which was originally introduced in England, the amount of the uplift is fixed by the agreement which the client has entered into with the solicitor. This then becomes a matter of contract. So it is not open to the client to have the amount of the uplift reduced when the solicitor's account is being taxed, although the figure to which it is to be applied is subject to taxation. The importance of the reference to the rules of court in section 58A(6) of the 1990 Act under the English system is to be seen against this background. It is to the rules of court that one must look to see what protection, if any, is afforded to the losing party under the new arrangement - bearing in mind that he was not a party to the agreement by which the amount of the success fee was fixed.

    44.  CPR rule 44.3A provides for the assessment of costs where a funding arrangement that provides for a success fee has been entered into. The basis of the assessment is set out in rule 44.4, para (2) of which provides that, where the amount of costs is to be assessed on the standard basis, the court will only allow costs which are proportionate to the matters in issue and that it will resolve any doubt which it may have as to whether costs were reasonably incurred or reasonable and proportionate in amount in favour of the paying party. The expression "costs" for this purpose includes any additional liability by way of a percentage increase incurred under a conditional fee agreement: see the definitions of "costs", "funding arrangement" and "additional liability" in rule 43.2(1). These definitions are reflected in section 9.1 of the Practice Direction, which provides that under an order for payment of costs the costs payable will include an additional liability incurred under a funding arrangement.

    45.  In my opinion it is plain that rule 44.2 is intended to provide the paying party, who was not of course party to the funding arrangement entered into between the receiving party and his solicitor, with an opportunity to seek a modification of the amount of the success fee on the ground that is either unreasonable or is not proportionate. The way the rule is intended to operate is described in section 11 of the Practice Direction. Section 11.5 provides that, in deciding whether the costs claimed are reasonable and (on a standard basis) proportionate, the court will consider the amount of any additional liability separately from the base costs. Section 11.9 declares that a percentage increase will not be reduced simply on the ground that, when added to the base costs, the total appears disproportionate. The effect of these directions is that the exercise of applying the tests of reasonableness and proportionality to the percentage increase is, when compared with the task of applying these tests to the base costs, a separate exercise.

    46.  Direction 11.8 states that in deciding whether a percentage increase is reasonable relevant factors to be taken into account may include, among other things, "what other methods of financing the costs were available to the receiving party." This provision should be read in the light of regulation 4(2) of the Conditional Fee Agreements Regulations 2000 (SI 2000/692) about the information to be given to the client before a conditional fee agreement is made. It uses the same expression, adding the words "and, if so, how they apply to the client and the proceedings in question." It refers to other external sources of finance, whether as a result of insurance, membership of a trade union or otherwise, that may be available. This is not a means testing exercise. The means of the client are irrelevant to the question whether or not it was reasonable for her to enter into a conditional fee agreement. The most important question for the court in assessing reasonableness is the risk that the client might or might not be successful: see direction 11.8(1)(a). In evenly balanced cases a success fee of 100 per cent might well be thought not to be unreasonable.

    47.  There remains the question of proportionality. The direction does not attempt to identify any factors that may be relevant, other than directing that the question whether the success fee is proportionate is a separate question from that relating to the proportionality of the base costs. On the other hand it would be wrong to conclude that this is an empty exercise. It is, in the end, the ultimate controlling factor which the court must apply if it is to ensure, in a case such as this which is for breach of confidence, that the right of access to the court of the receiving party to vindicate her right to privacy under article 8 of the Convention is properly balanced against the losing party's article 10 right of free speech. Account must, of course, be taken of the fact that it is to be the losing party that is being called upon to pay the success fee. But any reduction in the amount of the percentage increase that is to be paid by the losing party will have to borne by the client under her agreement with the solicitor. So the rights and interests of both sides must be considered and weighed up against each other in deciding whether, having regard to the interests at stake, the amount was proportionate.

BARONESS HALE OF RICHMOND

 
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