Conditional Fee Agreements: how wrong can Governments get them? – Alastair Brett

Many lawyers had hoped that the days of ill-thought-out legal reform and bad legislation – a favourite pastime of the last Government – were long since gone.  But the Legal Aid, Sentencing and Punishment of Offenders Bill suggests otherwise, particularly when it comes to libel actions, access to justice and conditional fee agreements. 

For years, while I worked for a national newspaper, I railed against Conditional Fee Agreements (“CFAs”) with a 100% uplift on a base hourly rate of £500 per hour and how they were misused by greedy solicitors and too often amounted to a crippling penalty on a defendant who had a genuine defence but had only just lost a case.

But while CFAs, or “no win, no fee” agreements, between solicitors and their clients do undoubtedly need reforming, there is not a shadow of a doubt that they do give access to justice to impecunious and middle income claimants in libel actions.  The difficulty is that the Government is now throwing out the baby with the bathwater by abolishing the recoverability of both success fees (even  small ones) and “after the event” (“ATE”) Insurance premiums from losing defendants.  (ATE insurance is taken out by less well-off claimants as protection against adverse costs orders and losing the roof over their head if they lose a borderline case.)

One of the key elements of the Jackson Costs Reforms was qualified one way costs shifting (“QOCS”) in personal injury and clinical negligence cases i.e. a defendant in such a case cannot normally expect to recover any legal costs in defending an action.  But what is really disturbing is whether the Government will extend QOCS into libel actions through High Court Rule changes.  Currently it does not appear to be extending QOCS beyond personal injury and clinical negligence cases. This will have a devastating effect on access to justice for less well-off or middle income claimants in libel actions.

The point is that without QOCS in libel actions, a well off newspaper can threaten to recover its initial legal costs, if successful, for sorting out what may be a key issue in a highly ambiguous article such as what the words complained of actually mean or whether the words complained of are an honest comment or statement of fact?    To determine even this kind of key preliminary issue in a libel action can be both unpredictable and expensive.  Less well-off libel claimants are bound to be advised to take out ATE insurance as protection against an adverse costs order.

But if ATE premiums cannot in future be recovered from a losing Defendant, the claimant will have to pay that ATE premium up front and it will be hugely expensive.  What impecunious or middle income libel claimant can begin to afford a huge insurance premium – £50,000 or more and payable up front – if they already have to resort to a “no win, no fee” agreement with their own solicitors?  In short, what the Government is doing in the Legal Aid bill without suitable amendments through the Rules Committee is cutting off access to justice to those who most need financial help in the libel world.

Last October, the Parliamentary Joint Committee looking at the Defamation Bill stated in its report, it was “sufficiently concerned about them [the Government’s civil litigation costs reforms] to ask the Government to reconsider the implementation of the Jackson Report in respect of defamation actions, with a view to protecting further the interests of those without substantial financial means”.  

This was a clear reference to the Government making CFA success fees and ATE insurance premiums irrecoverable from a losing Defendant in defamation actions and distinguishing libel actions from other forms of personal injury claims.  But the Government now says it “believes that personal injury claimants require the special protection afforded by the cap on the success fees and QOCS (qualified one-way costs shifting) ….. we do not believe that it is necessary to make any special provision in relation to the costs of privacy or defamation proceedings”.  Thus in one easy move the Government has slammed the door on ‘access to justice’ for impecunious or middle income libel claimants.

To show just how little the Government knows about libel actions, it states: “these claimants [libel and privacy claimants] will benefit from a 10% increase in the general damages.”   But a 10% increase in libel damages, which are rarely more than £50,000 in any event, will not begin to cover the uplift that solicitors may want to charge their own clients for taking on a case on a speculative “no win, no fee” basis.    Indeed in the vast majority of cases any 10% increase in damages would get nowhere near paying for a solicitor’s success fee however small.  This means that the claimant would receive no damages at all in the vast majority of cases financed under a CFA system if the Government has its way.

Indeed, it cannot be right that a major national newspaper is able to publish an ambiguous article accusing someone of being a paedophile or there are reasonable grounds for believing that they might be or simply that they should be interviewed by the police, and then for that newspaper to threaten to recover all its legal costs if the claimant has been oversensitive about some horribly ambiguous and hugely damaging article. The truth is that if a newspaper puts an ambiguous and potentially defamatory article into the public domain, it is only fair that it should pay for the cost of determining that critical preliminary issue.  This would mean that both sides would know where they stood – whether the claimant should back off or the defendant make an offer of amends. This should be a simple moral obligation and be part of any new Press Regulatory system.

This is where the Leveson inquiry comes in.  In order to get commercial publishers to sign up to a new voluntary Press Regulator, one of the key principles must be that members of any new body would accept an obligation to pay for key determinative issues to be resolved at the earliest possible opportunity and at the same time renounce any intention of seeking to recover legal costs from a claimant who has a bona fide claim in libel or privacy.

Qualified one way costs shifting and ATE insurance protection are two sides to an indivisible coin which lies right at the heart of any new press regulatory system and the whole concept of “access to justice”.   Newspapers which accept their responsibility to help resolve key issues under a QOCS system should not be liable to pay any ATE insurance premium if they lose a key preliminary issue as it would be wholly unnecessary for a claimant to take out insurance.  However, commercial publishers who do not sign up to a new Press Regulatory body and force claimants into taking out ATE insurance should be open to paying an ATE insurance premium if they lose a libel action.

In the long term, joining a new Press Regulatory body with such a principle lying at its heart would save newspapers huge amounts of money as paying for the early resolution of a key issue at the outset of proceedings is unlikely to cost more than £5,000 while fighting a case to trial is more likely to cost £500,000.  And at the same time, it would give impecunious claimants access to justice.

The tragedy is that the Government has listened to neither sensible claimant lawyers nor long sighted and fair minded newspaper lawyers in deciding that no success fees, however small, nor any ATE premiums should be recoverable from a losing defendant.  A more retrograde step in terms of access to justice cannot be imagined.   The House of Lords must introduce suitable amendments to this legislation before it completes its Report Stage.

Alastair Brett, Media Law Consultant & Managing Director of Early Resolution CIC