ministry-of-justiceOur readers are reminded that the Government’s consultation on Costs Protection in defamation and privacy claims closes tomorrow, 8 November 2013.  Under the proposals, the present costs regime for these cases – involved “Conditional Fee Agreements” and recoverable After the Event insurance premiums – will be abolished and replaced by “qualified one way costs shifting” (QOCS).

It is proposed that a party to defamation or privacy proceedings (whether a claimant or defendant) could make an application for a “costs protection” order.  Such a party would have to file a “statement of assets” – this would, in the first instance, be confidential but the judge could direct that it be disclose to the opposing party (Draft Rule 44.26).

A full costs protection order (“nil net liability”) can be made where the court is satisfied that

(a) the party applying for such an order would suffer severe financial hardship if an order containing that provision were not made and that party were ordered to pay another party’s costs of the proceedings; and
(b) it is in the interests of justice to make such an order” (Draft Rule, 44.22(1)).

Under such an order costs liability would be limited to any damages awarded to the party applying

In relation to parties of “modest means”, the Court may make a “costs capping” order – limiting liability to a specified sum.  Those of “substantial means” will not get any costs protection.

The Government has published “Draft rules” [pdf].

The purpose of the proposed new regime is

“to ensure that access to justice in these cases is as much a reality for poorer litigants as for the wealthy. Poorer parties, whether claimants or defendants, should be able to litigate where necessary, without the fear of exposure to the substantial costs that they might be ordered to pay to the other side in these cases” (see Consultation Paper, Executive Summary, para 9).

The proposals, however, give rise to a number of problems, for example:

  • The risks of satellite litigation: Because, in contrast to the position in personal injury cases, the new regime will not provide “full costs protection” regardless of means, there will have to be at least one additional hearing in every case to determined whether a “nil net liability order” or a “capped order” should be made.  There is an obvious risk that wealthy opponents (whether wealthy defendant newspapers or wealthy claimants suing publishers of modest means) will use these hearings to put pressure on opposing parties – for example, seeking to challenge the “statement of assets” and to argue against claims to severe financial hardship.
  • The potential adverse impact on access to legal representation for claimants: Because the new regime would get rid of “recoverable success fees” it would adversely impact on the availability of legal representation.  The purpose of “success fees” – which involve an uplift on the costs ordinarily recoverable – is to compensate lawyers for the cases which they take on and lose.  In relation to claimants, success fees could still be taken from damages – up to 25% of the damages.  However, in cases where the damages are low – for example most privacy claims – the success fee available to the claimant’s lawyer would be small and may not be sufficient to encourage lawyers to take cases.
  • The very serious adverse impact on access to legal representation for defendants:  The position of defendants is much worse than claimants.  This  because defendants do not recover damages so these cannot be used to pay a “success fee”.  As a result, a defendant of modest means who cannot afford to pay a lawyer cannot offer a “success fee” incentive.  This inevitably means that defendants are going to find it very much more difficult find lawyers to represent them even if they can obtain a “nil net liability order”.  It has been suggested by some commentators that a better approach would be to leave in place recoverable success fees – perhaps at a lower level than the present maximum of 100% – whilst using QOCs to replace recoverable ATE insurance.

All Inforrm readers who have not responded to the consultation are reminded to do so before 8 November 2013.