Draft Damages-Based Agreements Regulations 2010 / Draft Conditional Fee Agreements (Amendment) Order 2010 / Education (Student Support) (European University Institute) Regulations 2010 / Correspondence: Post-Implementation Review Inquiry - Merits of Statutory Instruments Committee Contents


APPENDIX 2: CONDITIONAL FEE AGREEMENTS (AMENDMENT) ORDER 2010: EVIDENCE


Letter from Nicholas Green QC, Chairman of the Bar Council

I am writing to you in your capacity as Chairman of the Merits of Statutory Instruments Committee, since I gather that the Committee is due to consider the Order reducing the maximum conditional fee agreement ("CFA") success fee in defamation cases from 100% to 10% at its meeting on Tuesday 16th March 2010.

This measure is being rushed through quite separately from any reforms to the rules on costs recommended by Lord Justice Jackson. It was the subject of a Consultation Paper from the Ministry of Justice published on Tuesday 19th January 2010, which reduced the period for responding from the minimum period of three months stipulated in the Government Code of Practice to a mere four weeks. Requests from the Bar Council and practising barristers and solicitors for the period to be extended were rejected, and the Consultation closed on Tuesday 16th February 2010. Just over a fortnight later, the Government published its Response on Wednesday 3rd March 2010.

Although I am not an expert in this area of the law, I have received a number of representations from practitioners at the Bar who specialise in media and defamation law on both sides. Their concerns do seem to raise matters which should be of interest to the Merits Committee on the grounds that the Ministry's proposed Order is politically and legally important and gives rise to issues of public policy likely to be of interest to the House. The key concerns which have been put to me, and which on the face of it raise matters worthy of parliamentary debate, are summarised below.

(1) The reason given by the Secretary of State for deciding to deviate from the Code of Practice was that "in order to be in a position to implement the proposal as soon as possible (subject to consultation), it will be necessary to shorten the consultation period to four weeks." This wording made it sound as though there was not so much a predisposition to implement the proposal as a predetermination. What is certain is that the rush made it impossible for practitioners to respond with reliable data as to the success and failure rates of actions brought by claimants on CFAs. As one head of a leading set of media lawyers pointed out, it was impossible to assemble such figures in the time available - not least, because client consent needed to be obtained.

(2) "It is vital to the maintenance of press standards that access to justice for those who have been defamed is preserved": this is a quotation from the Report of the Commons Select Committee on Culture, Media and Sport, published on 24th February 2010 (HC 362-I) at paragraph 307. The Committee disagreed with the Ministry's proposal that the maximum level of success be capped at 10%, regardless of whether it is recovered from the losing party or from the client. They saw no reason why any balance should not be agreed between solicitor and client. This is not an option which the Ministry appears to have ever considered.

(3) The weight of the evidence from practitioners in response to the Consultation Paper was that they would be unwilling to conduct defamation cases on CFAs if the success fee were no more than 10%. It is not surprising therefore that the media have greeted the Ministry's response with acclaim, but it has the most serious ramifications for access to justice. The injustice of recoverability from the losing party of 100% success fees, plus after the event insurance premia, is now to be replaced with the injustice of lack of access to justice for claimants and the minority of defendants who have taken advantage of CFAs. This is the consequence of the unsatisfactory nature of the consultation, which contained only one option as an alternative to the status quo - the reduction of success fees to 10%.

(4) The Consultation Paper accepted the principle that a system of CFAs should be cost-neutral, in other words, the maximum percentage success fee should be set at a level at which the success fees recovered in successful cases cover the base costs lost in unsuccessful cases. On that basis, a 100% success fee would be justified in cases where the prospects of success were 50:50 - a win in one case would compensate for the statistical probability of a loss in another. On the basis of cost neutrality, a maximum success fee of 10% could only be justifiable if 95% of all defamation claims were successful. Such evidence as was produced in the limited time available for response indicates that the percentage success rate is much lower.

(5) The Ministry attached great importance to a schedule of 154 cases supplied to Lord Justice Jackson by the Media Lawyers Association (an association of in-house media lawyers and those acting for defendants). This was not, as described, a sample, nor did it include cases against non-members or cases which MLA members won. Such was the weight given to this survey that in the Consultation Paper (paragraph 19) it was suggested that the figures indicated "not a justification for 100% success fees, but rather the abolition of success fees in defamation proceedings altogether". There was no attempt to gauge the number of cases lost, or the cost to practitioners of unrecovered base costs in a case lost after a trial. Obviously success fees incurred in a settlement before trial are infinitely less than fees lost after a week-long trial or longer. The attenuated period for response made it impossible for practitioners to assemble this data, as did the fact that the options for consultation were only the status quo of 100% or the Ministry's proposal of 10%.

(6) Nothing in Lord Jackson's report supports the measure proposed by the Ministry: Sir Rupert suggested an integrated package of measures, including so-called "one-way costs shifting" (under which the defendant pays the costs of a successful claimant, but an unsuccessful claimant does not pay the defendant's costs) and a 10% increase in the level of general damages (including in defamation). Nothing in the report justifies defamation cases being treated separately and differently from other causes of action. If, as appears to be the case, the judicial consultees (the Master of the Rolls, Lord Neuberger and the Senior Costs Judge) were opposed to the proposal, this would appear to be the reason.

(7) In his press release, accompanying the laying of the Order before Parliament, the Secretary of State talked of "levelling the playing field so that scientists, journalists and writers can continue to publish articles which are in the public interest". This ignores the substantial minority of very important cases where scientists and journalists have been defended on CFAs. In the much publicised recent hearing in the Court of Appeal in British Chiropractors Association v. Simon Singh, the scientist defendant was represented by counsel on a CFA, as was the defendant consultant radiologist in GE Healthcare v. Thomsen. In the highly important case of Charman v. Orion Press, involving a Reynolds defence of responsible journalism, the journalist who had lost at trial was successfully defended on appeal by counsel on a CFA. The reduction in the level of the success fee thus threatens to damage the interests of the very people the Secretary of State believes that it will assist.

I would be happy to arrange for a specialist media law practitioner to discuss these issues with you further if that would be of interest. The proposed Order does appear to raise issues of public policy that deserve proper and adequately detailed attention by the House. Justice rushed is justice denied.

March 2010

Submission from Carter-Ruck Solicitors

We write with regard to the above draft Statutory Instrument (the SI), originally laid before Parliament on 3 March 2010, by which it is intended to reduce the maximum success fee in defamation and other media-related cases from 100% of the base costs to 10%. The proposal is intended to cover all proceedings for "defamation, malicious falsehood or breach of confidence involving publication to the public at large" and would therefore embrace all claims for misuse of private information where the publication is to the public at large.

We believe the SI should be drawn to the attention of the House of Lords because of its considerable political and legal importance and the serious issues of public policy raised by it.

As stated in the Explanatory Memorandum, the policy background is that "Conditional Fee Agreements (CFAs) were first made available in 1995 to improve access to justice for consumers of legal services. Changes introduced in the Access to Justice Act 1999 extended their use to most types of civil cases" (save only for certain types of family proceedings). It would appear from the primary legislation that in regard to CFAs Parliament decided as a matter of policy not to distinguish between different causes of action in civil proceedings (apart from family law, which is excluded). We therefore believe that this SI which isolates defamation from the rest of civil proceedings raises serious policy issues which should be brought to the attention of the House of Lords.

The SI has been laid before Parliament following a severely truncated 4 week consultation period, despite some respondents, including the Bar Council, complaining that the four week period was too short and impeded their ability to respond properly or fully. It appears to be the intention to rush this Statutory Instrument through Parliament before the election.

The Explanatory Memorandum to the SI states that out of a total of 57 responses received to the consultation, "more than half (53%) - mainly those representing the media's interests - supported the proposal". This means 47% (i.e. 27 out of 57) did not support it; it appears from the list of respondents, that those who do not support it include Lord Neuberger MR, the Senior Costs Judge, the Bar Council's CFA Panel and The Law Society.

There is, we believe, widespread concern within the legal profession that the proposed reduction in success fees would seriously reduce - if not eliminate altogether - the rights of ordinary individuals without substantial means to obtain access to justice in defamation and privacy cases.

The proposed reduction in success fees appears to be based on unrepresentative data supplied by the Media Lawyers Association that claimants win the vast majority of defamation cases. In fact evidence was submitted to the Ministry of Justice that the success rate of defamation claims is far lower than 100%, and success fees of 100% are not routinely applied.

A second false premise of the SI appears to be that CFAs are only used by claimants; we have just settled a case where we were acting on behalf of a Danish professor who was sued for libel in London by three companies within the multi-billion GE Healthcare Group; there is no way this firm could have taken on a risk of that magnitude if the recoverability of the success fee had at the time been limited to 10%.

The SI, if introduced will, without doubt, lead to this firm and others declining to take the risk of acting on a CFA for clients who have cases which deserve to be heard; without CFAs the vast majority of people of ordinary means simply will not be able to afford legal representation to take on wealthy media organisations.

The logic behind calculating success fees was that, with a basket of cases, the lawyer's remuneration would be "revenue neutral" in that what was lost in terms of fees on one case, would be recovered on cases which were won. Thus, where a lawyer agreed to take on two 50/50 cases, the probability was that he would lose one and win one and therefore, with a 100% success fee, recover on the cases won the same or nearly the same as the sum lost on the unsuccessful cases.

In practice, however, this logic is flawed because no two cases are equal. The cost to the lawyer of one loss at trial, with all the work by then carried out, may exceed the benefit of 50 "wins" where early settlement can be negotiated.

The media objected to CFAs from the outset. To try to find an acceptable balance, this firm achieved an agreement with News International which provided for staged success fees, by which the success fee rose from nil to 25%, to 50% to 75% if the case were settled by agreement at different stages. Only if the case was not settled 45 days or less before trial would a 100% success fee be applicable. The logic of this is that by the stage of trial both sides presumably believe they have a reasonable chance of winning, so the prospects of success are truly 50/50 which justifies a 100% success fee.

Originally, in 2007, the Ministry of Justice agreed that this scheme was workable, but now it seems to have been rejected simply because the powerful media lobby did not like it. We attach a copy of the Protocol agreed between ourselves and News International, which is known as the "Theobalds Park Plus agreement."

We would be happy to provide the Merits Committee with any further information or data which may be required.

Protocol between News International and Carter-Ruck ("Theobalds Park Plus agreement")

PART 1 - success fees in media related cases

Base Costs

1.  O% success fee

Save as provided in 2-7 below, no success fee will be recoverable in cases where within 14 days from receipt of the letter of claim in which notice is given that a funding arrangement has been entered into or within 14 days of receipt of notice that a funding arrangement has been entered into:-

a)  the defendant makes an offer of amends pursuant to Section 2 of the Defamation Act 1996 i.e. effectively admits liability, which is accepted and/or leads to the action being settled with damages and costs being agreed without court proceedings or a Request for Detailed Assessment being taken out.

b)  the defendant's detailed response to the letter of claim pursuant to either the Pre-Action Protocol for Defamation or the Practice Direction on Protocols (for non-libel claims) admits liability and leads to the action being settled with damages and costs being agreed without court proceedings or a Request for Detailed Assessment being taken out.

c)  (proceedings are issued solely for the purpose of a statement in open court.

2.  25% success fee

A 25% success fee will be recoverable where:-

a)  a case settles before service of the defence and the defendant has not responded to the letter of claim as set out in 1. (a) or (b) above.

b)  the defendant makes an offer of amends pursuant to Section 2 of the Defamation Act 1996 which is accepted but agreement cannot be reached on damages and Part 8 proceedings under s. 3 (5) are issued and served.

c)  agreement is not reached on damages and proceedings are issued and served.

d)  costs are not agreed and a Request for Detailed Assessment is taken out.

e)  the parties agree to a binding arbitration on any issue AND the defendant offers to pay for the arbitration, if the action settles under 1 (a) or (b) above as a result of the binding arbitration.

3.  50% success fee

A 50% success fee will be recoverable where:-

a)  a case settles after the defendant states or otherwise indicates in a response to the letter of claim that the defendant will be raising a substantive defence to the letter of claim or there is a denial that the publication is actionable. This includes cases in which the defendant disputes that the publication is (a) defamatory and/or (b) identifies the claimant and/or (c) amounts to a misuse of private information.

b)  a case settles after service of the Defence but on or before the 14th day following first service of witness statements. This period shall be extended, if within the 14 day period following service of witness statements the defendant makes a Part 36 offer which is accepted.

c)  a case settles after the trial of a preliminary issue (save where the time scale envisaged in stage 4 or 5 below has already been reached with regard to the hearing of the preliminary issue, in which case that percentage success fee shall apply).

4.  75% success fee

A 75% success fee will be recoverable where:-

a case settles after the 14th day following first service of witness statements (or any extension thereto as set out above) but earlier than the 45th day before the date listed for the start of trial,

5.  100% success fee

A 100% success fee will be recoverable where;-

a case reaches trial or settles within 45 days before the date listed for the start of the trial

6.  Extensions of time

Any period provided for in this Protocol may be extended by agreement between the parties. If a Part 36 offer is made and subsequently accepted the relevant success fee will be the success fee at the time the offer was made.

7.  Costs of Detailed Assessment

A success fee of 25% will be recoverable on the costs incurred in preparation of and of any detailed assessment hearing if the case settles under paragraphs 1, 2 or 3 above and in other cases will be 50% of the success fee applicable to the case at the point of settlement.

(Nothing in this agreement shall prevent a defendant from requiring a claimant to have its base costs or disbursements assessed by the Court in accordance with normal assessment principles, or from challenging the reasonableness of the claimant issuing proceedings.)

March 2010

Submission from the Law Society

Summary

The consultation paper proposals on which these Regulations are based suggests that very high legal costs "appear" to have a harmful effect on the publication decisions of the media and others. The proposals in the consultation paper represent a fundamental change. To introduce such a change in response to a perceived harm rather than a harm that is demonstrable in the absence of any evidence is, in our view, entirely unreasonable and disproportionate.

Our understanding of the reasoning behind the introduction of the 100% success fee was that as many cases would be won as would be lost. Adopting this approach a reduction in the maximum success fee which a lawyer can currently charge from 100% to 10% of the base costs suggests that claimant solicitors acting on CFAs in defamation actions currently lose only one in eleven cases. There appears to be no evidence whatsoever to support this assertion.

The proposals which are being considered in the current consultation do not reflect the recommendations made by Lord Justice Jackson. The current proposals are completely different to those proposed by Sir Rupert Jackson and appear to have been introduced before any proper consideration of his report has taken place. The Regulations should be withdrawn while the Jackson review is being considered by Government and other stakeholders.

March 2010

Submission from Professor Moorhead of Cardiff University

The Ministry of Justice commissioned myself and two economists (Professors Fenn and Rickman) to investigate the feasibility of research work in relation to, inter alia, conditional fees in defamation cases. The basis of that was a perceived lack of evidence in the field to judge whether the approach to costs generally on conditional fees was leading to inappropriate expense. It should be noted that the Government has instead decided to proceed on the basis of a consultation without the benefit of the research base it originally felt was necessary when commissioning the scoping work. I am aware of no objective evidence base from which the Government could draw its calculations for the 10% fee beyond that provided by those lobbying for one side or other in the debate.

Against that background the outcome, a suggested 10% cap on success fees in defamation proceedings, is somewhat surprising. Without persuasive evidence to support it, the basic economics of conditional fee agreements would suggest that at a level of 10% uplift would prevent all but the most meritorious cases from proceeding on a conditional fee. For rich litigants this presents no problem, for poorer litigants this presents a major impediment to access to justice. That is not to diminish the significant problems that arise in relation to costs in defamation proceedings and the broader public interest issues at stake, but the 10% limit is a questionable reaction in terms of its proportionality. It is also a reaction taking place at a time when Lord Justice Jackson has delivered a report which looks at these issues much more fully and in the broader context of civil costs as a whole.

March 2010

Submission from Which?

On the CFA Order, while we do not have specific evidence on the direct impact on consumers, we can give you our views on the beneficial impact on our organisation - the leading consumer body in the UK - and therefore indirectly on consumers. CFAs are designed to enable access to justice for cases with merit and the uplift should vary according to the merits of the case and its likelihood of success.

As a publishing organisation, we are subject to defamation threats on a regular basis. It is common practice for claimant libel lawyers acting on a CFA basis to have a 100% uplift irrespective of the claimant's chances of success. While we would always seek to defend any unjustified claim, it is possible that some publishers will hesitate to do so because of the potential legal costs, not the damages that may be awarded. By restricting the uplift to 10%, publishers will be encouraged to more robustly defend their position. This should have the indirect benefit of encouraging fair free speech and will enable an investigative and research based organisation such as Which? to continue its work on behalf of consumers. We have no evidence that ordinary consumers will be affected by this CFA Order and we do not know how many 'ordinary' consumers (as opposed to high profile individuals who can afford legal fees without the need for a CFA) are likely to bring defamation cases. However in cases where an 'ordinary' consumer (as opposed to someone in the public eye) does bring a defamation case, we would hope that a maximum 10% uplift would not reduce their access to justice. In our view, what matters is the merits of the case, not the level of uplift in legal fees that may be payable.

March 2010


 
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