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
| 402 | 291
| 222 | 136
|
| London 2
| 312 | 238
| 193 | 124
|
| London 3
| 225-263 | 169-225
| 162 | 119
|
| National 1
| 213 | 189
| 158 | 116
|
| National 2/3
| 198 | 174
| 144 | 109
|
· 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
Ibid. Back
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
Ibid. Back
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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