The problems
Razi is right to say that costs (including those charged by his own firm) have a chilling effect on freedom of expression. He is, however, wrong to suggest that the ‘massive costs liabilities’ to which publishers are exposed will be avoided if they settle. The system currently in operation means that costs are likely to be massive even if they settle. Only by settling at the very earliest stage – not always a feasible option – can a defendant avoid a significant bill from the claimant’s lawyer. Even an early settlement may result in a publisher having to pay a five-figure sum. In a typical case, the claimant’s lawyer will have incurred costs of up to £5,000 (sometimes even more) before the publisher even knows he has a problem on his hands. And if the claimant is planning to take out ATE insurance, the publisher will know that if he does not settle within 42 days, he will be exposed to at least a further £4,000, maybe £5,000, unless he settles within that period – a further incentive to get out on the best terms available.
Razi notes that the level of costs, if not agreed, is assessed by specialist costs judges. What he fails to mention is that assessment is a last resort. The recondite nature of costs assessment means that even experienced litigators have to employ specialist costs lawyers to guide them through the process – at yet more expense. Defendants (known as ‘paying parties’ in the arcane lexicon of the Supreme Court Costs Office) have to fight with one hand behind their backs since they are challenging the time the other side have spent on the case without ever being allowed to see that party’s files (for reasons of legal privilege). In the meantime, the costs clock keeps ticking; and claimant lawyers can even get success fees (up to 100%) on costs assessments – after the case is finished!
The solutions
Lord Justice Jackson’s proposal that success fees and ATE premiums should cease to be recoverable from defendants probably reflects his view that such ‘additional liabilities’ are, in the context of libel claims, unnecessary and disproportionate. According to Razi, damages in the vast majority of cases are insufficient to cover success fees and ATE premiums. While Razi sees this as a reason why the defendant should pay them, I see this as demonstrating the utterly disproportionate nature of these liabilities. I have just settled a libel case in which the claimant’s lawyers said they were absolutely confident of the strength of their client’s case, having received unequivocal advice from Counsel that their client would win substantial damages. Once the case settled, I was faced with a demand for a 100% success fee on the basis the case was 50:50 when the CFA was signed three months previously. The ATE premium for £100,000 of cover in libel cases is now around £72,000 (of which the claimant will of course pay not one penny whatever happens).
In Razi’s opinion, lawyers will only take on cases that are ‘very likely to succeed’ if claimants have to bear their own success fees, meaning some claimants with good cases will lose out. This is open to serious doubt. I have seen little or no evidence that experienced practitioners such as Razi and his colleagues ever take on cases other than those that stand a high likelihood of success. It would be interesting if Simons Muirhead & Burton and other firms representing claimants on CFAs were to disclose publicly the number of CFA cases in which they have failed to recover any costs – so far as I know, this information has never been made publicly available despite having been requested many times over the past few years, including by Lord Justice Jackson. Mark Thomson, at the time a partner of Carter-Ruck, told the House of Commons Culture, Media and Sport Committee on 24 February 2009 that Carter-Ruck was providing anonymised data to “various committees” that were looking at costs. To the best of my knowledge, this data has yet to see the light of day.
Lord Justice Jackson has proposed that in order to mitigate the effect of claimants having to bear their own success fees, damages in defamation and privacy cases should be raised by 10%. While Razi has a practical difficulty with this proposal, my problem with it is more one of principle: I simply fail to see what evidence exists to justify success fees in any libel or privacy case and it follows that I see no reason why damages should be increased to allow such fees to be paid. Most of the media litigation we defend is not pursued with the benefit of CFAs and there is no evidence to suggest that CFA cases would not be pursued if no success fee were available. Success fees in libel and privacy cases appear to me to be nothing more than a windfall profit for lawyers practising in the field.
Razi objects to Lord Justice Jackson’s proposal for qualified one-way costs shifting on the ground that this would require means testing, which Razi says is too expensive. I’m not sure that Lord Justice Jackson does envisage means testing, but even if he did, the courts are accustomed to dealing with statements of assets in cases where a party’s ability to pay is in issue. My objection to one-way costs shifting is that if a claimant is never going to be liable for the defendant’s costs, a defendant has no effective means of incentivising a claimant to settle by means of Part 36 or similar offers. In many cases, a claimant would have the defendant over a barrel.
Practice Direction 51D of the Civil Procedure Rules comprises a pilot costs management scheme for defamation cases. Razi’s paper omits to mention this scheme, which applies to cases commenced after 1 October 2009 and is currently scheduled to end on 31 March 2011. The stated purpose of the scheme is to manage the litigation so that the costs of each party are proportionate to the value of the claim and the reputational issues at stake and so that the parties are on an equal footing. The essential feature of the scheme is that the parties are required to prepare and get court approval for costs budgets for the case. If costs are unapproved, they will be recoverable only in exceptional circumstances. While there are some problems with this scheme (which of course does not apply to pre-action cases which form the majority of libel claims), it is an innovation that should be welcomed by anyone concerned with the costs of defamation litigation and it will be interesting to see whether the scheme has been a success when it concludes in just over four months’ time (though I suspect it may have to be extended further in order to judge its effectiveness).
In the meantime, while I would welcome some of Razi’s proposals – such as the reduction in the maximum success fee to 50% with only 10% being recoverable if the action settles pre-action (an admission, surely, that claimant lawyers on 100% success fees have been taking the mickey for too long) – these suggestions are really just tinkering at the edges of a problem that needs more fundamental reform, including the total abolition of success fees.
Keith Mathieson is a partner at Reynolds Porter Chamberlain, specialising in copyright, defamation, freedom of information and privacy.