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The great libel lottery continues to make eyes water at newspapers and across the media world. Now, though, it is less the huge awards of damages doled out by the courts and more the creeping influence of 'no win, no fee' arrangements (and the commensurate inflated legal costs) that are striking fear deep into the hearts of defendants. In one recent case, a firm acted for a claimant on a conditional fee in a case against a TV channel. The £60,000 damages were dwarfed by legal fees of close to £1m.
"It's scandalous - the courts have become a complete claimant-lawyer bonanza," declares David Hooper, a leading libel lawyer and a partner at Reynolds Porter Chamberlain. Many libel lawyers believe that conditional fee arrangements (CFAs) might work well in the relatively straightforward world of personal injury (PI), with its rear-end shunts, but not in the more complicated arena of defamation law.
Under a CFA, the solicitor can charge a success fee to reward their risk-taking in the event of a win. This can be as much as double their fees. Of course, they receive nothing if they lose. The client can take out after-the-event (ATE) insurance to cover their costs if the case fails. The problem is that, as Hooper and others see it, a 100 per cent success fee means some claimant lawyers are charging an outrageous £700 an hour (ie double their normal £350 hourly rate), and because the cost of ATE insurance is beyond the means of most claimants, defendants are exposed on costs win or lose.
Ironically, the arrival of CFAs have been celebrated as a way of righting an old wrong and opening up the libel courts (notoriously once the preserve of the super-rich because of the absence of legal aid) to people of more modest means. Hooper notes the democratising impact of 'no win, no fee'. "But this has gone to the opposite extreme and there's now a casino element to costs and it can be used [to hold defendants] to ransom," he complains. "There's a real threat to the freedom of speech. The pendulum has swung right the other way."
The so-called 'chilling effect' of CFAs in defamation actions is a hot topic following the ruling of Mr Justice Eady in the High Court case of Adam Musa King v Telegraph Limited in June. The claimant, represented on a CFA by Peter Carter-Ruck and Partners, complained about allegations made in two articles run in The Sunday Telegraph in October and December 2001, entitled 'Two white suspects in bin Laden probe' and 'British Muslim targeted by FBI for terror links'. The Sunday Telegraph applied to have the case struck out and one argument was that the means of funding amounted to "an abuse of process". It is the first case in which a court considered the use of a CFA in a defamation action and has now been appealed, to the great interest of media groups.
James Price QC of 5 Raymond Buildings, for The Sunday Telegraph, argued that unless CFAs were properly supervised and controlled by the courts, they were likely to restrict impermissibly the right of freedom of expression.
He contended that, after a long and complicated libel action, defendants would be lumbered with having to bear their own costs if they were successful and, if they lost, would have to pay the claimant's costs, often including a success fee of up to 100 per cent plus damages. This amounted to an enormous incentive to buy out of the litigation irrespective of the merits, the silk argued. According to Mr Justice Eady's judgment, it was claimed the paper could easily find itself facing a bill to the order of £1m, and so on a purely commercial assessment it would be well worth paying out £10,000 or £20,000 at an early stage. This was "the ransom effect" that was there to be exploited by claimant solicitors.
"There's no doubt that Price has highlighted a genuine cause for concern," reflected Judge Eady. "There's certainly the potential for a chilling effect on investigative journalism and for significant injustice." The case is to go to the Court of Appeal.
"You can take it as read that the media are concerned about the ways CFAs are impacting on Fleet Street and Article 6 and 10 rights in general," says Alastair Brett, legal manager of The Times and The Sunday Times. He refers to the leading case of Tolstoy Miloslavsky v United Kingdom, where the European Court of Human Rights in 1995 unanimously held that the size of libel damages (in that case £1.5m) breached the right to freedom of expression.
"What we are seeing now is the other side of the coin - the costs side, as opposed to the damages - and they've become so out of proportion that solicitors are able to recover 'double bubble' with a 100 per cent success fee, simply because they can persuade the client to enter into a CFA arrangement. This is despite the fact that in some cases the client could perfectly well afford the normal solicitor's fees and wouldn't have to do it on a CFA," says Brett.
Defendant lawyers cite the recent case of Sara Cox and her husband Jon Carter against The People newspaper as an example of a case where a claimant could afford the hourly
rate but proceeded on a 'no win, no fee' arrangement (with media firm Schillings). In the landmark privacy case, the couple won £50,000 after the tabloid published photographs showing them naked on a private island resort during their honeymoon.
There is talk of Fleet Street lawyers intervening in the Court of Appeal in the same way they did (represented by Brett) in the David Shayler case.
Dan Tench, a media partner at Olswang, argues that some firms often seek to double their fees on the grounds that defamation work is inherently risky. "A 100 per cent success fee in some cases means lawyers in libel actions getting effectively £700 or even £800 an hour for the case," he says. "This is a lot of money and has a deleterious impact, which puts pressure on a newspaper to settle."
He points to the Government's consultation on simplifying CFAs, which closes at the end of the month, and hopes that newspapers will take the opportunity to make their case. While it may be "optimistic" to suggest that libel cases are carved out of the CFA regime entirely, Tench believes the media could argue that such arrangements should only be allowed where a claimant cannot afford to bring an action other than on a CFA and where any success fee accurately reflects risk.
As Hooper sees it, one of the 'safeguards' built into the conditional fees system was supposed to be ATE insurance. But the insurance industry has hardly been enthusiastic when it comes to embracing 'no win, no fee' outside of PI; and not surprisingly, the notoriously unpredictable world of libel has not attracted many players. "This has been used by claimant solicitors to their advantage," says Hooper.
Hooper reckons that premiums are around 35 per cent of the costs insured, which effectively means that clients proceed without any insurance.
"There's an element of the claimant gambling with the solicitor's money," Hooper says. "There have been one or two cases where people have fallen flat on their faces and one wonders whether, if the clients were paying out of their [own] pockets they would have taken it on."
Jeremy Clarke-Williams, head of litigation and a libel specialist at Russell Jones & Walker, received recent quotes for ATE insurance of between 40 and 75 per cent of the costs insured. "If you're acting for someone without any money, and you tell them the costs of going to court are likely to be £100,000, and the insurance premium that they'll have to pay [to enable them to get to court] is £40,000, they laugh in your face," he says.
Generally speaking, the legal profession has proved remarkably reticent when it comes to CFAs and defamation, with the exception of two pioneering firms - Carter-Ruck and David Price Solicitors & Advocates. Unsurprisingly, both firms are unimpressed with the protestations of the media and the invoking of its right to free speech.
"People don't have much sympathy with the media because it has so much more power than the individuals when it comes to libel," says David Price, founding partner at David Price Solicitors & Advocates. "The idea that it's somehow the poor newspapers facing individuals empowered by CFAs just doesn't wash."
He takes issue with the "emotive" notion of claimant lawyers using CFAs as a tactic to hold defendants to ransom. "I don't think lawyers go around cynically calculating that they have a case which they know isn't any good, but the newspaper might fold," Price adds.
However, he does have sympathy with the defendant line that the uplift is unfair. "The reality of the matter is that a defendant - a newspaper publisher - who is facing a claim from an impecunious claimant represented on a CFA with a success fee and no insurance is put at a significant disadvantage," Price explains. "Obviously, there's an inherent injustice in a defendant who loses a libel action paying the claimant solicitors for time spent on other cases they've lost, but that's what the success fee is there for."
Price is an enthusiastic advocate for 'no win, no fee'. "I totally believe in CFAs, and after all, why should the client have to take all the risk?" he says.
It is not just about opening up the courts to "normal folk", he adds, disagreeing with the defendant argument that there is something wrong with the likes of Sara Cox being advised on a CFA. Why shouldn't rich people have CFAs? Price asks.
Price reels off a long list of defendant clients that have been on his firm's books, including: Vanessa Frisbee, Naomi Campbell's PA, who won in the Court of Appeal in the supermodel's legal action against the Daily Mirror; Mick Jagger's chauffeur Keith Badgery, author of the book Baby You Can Drive My Car; and the family of Cherie Blair's former nanny, who attempted to sell her story of life with the Blairs. He has already won a first by representing the first defendants under a CFA backed by ATE insurance.
Alasdair Pepper, a partner at Carter-Ruck, denies the suggestion that his firm "routinely" puts on 100 per cent success fees. "We make an assessment of what we think the merits of the case are and adjust the success fee accordingly," he says. Pepper claims his firm's use of 'no win, no fee' has enabled those previously shut out from the libel courts to have their legal redress against the powerful media interests.
"It's allowed us to act for people from all walks of life, irrespective of their means. We've been able to help nurses, school teachers, chauffeurs, charities and people with no money at all that have fallen foul of the press," he says.
He reckons that between 20 and 25 per cent of the firm's caseload is done on CFAs. Recently, it successfully acted for Keith Bennett, the election agent to the former Foreign Office minister Keith Vaz, who accepted substantial undisclosed damages for an allegation that he had misused his status in relation to North Korean visitors to the House of Commons.
According to a clerk at a leading libel set, it is still David Price and Carter-Ruck that
are doing the vast majority of CFA work, although there have been inroads made by other libel teams at Bindman & Partners, Russell Jones & Walker and Schillings. He reckons that CFA work is still only around 5 per cent of the firms' workload, although it is rising.
However, clearly, 'no win, no fee' is far from the epidemic that some defendants might suggest. "I don't think anybody likes them, but it's part and parcel of the way things are going," he says. "For some firms it's a huge part of their practice, but for a set of chambers CFAs aren't so straightforward. Barristers are individuals and take the risk on themselves with no one else to fall back on, but they also have a responsibility to chambers."
Of course, the depiction of claimant lawyers holding to ransom rich media barons has to be taken with a rather large measure of salt and the gamble is, more often than not, on the claimant's side. One mega loss could blow a huge hole in a department's finances.
Carter-Ruck admits it has taken its hits which, as Pepper points out, is "a fact of life" in CFAs. For example, there was the case by the accountant John Stuart Condliffe against Private Eye that was discontinued in November 2001. The satirical magazine was awarded £100,000, while legal fees were reckoned to be at £1.75m.
At the end of last year, Russell Jones successfully settled a case for client Elaine Chase, a community nurse, following reports connecting her with an ongoing investigation by Essex police into the deaths of 18 children in The Sun and on BBC television. Clearly, the prospect of losing a case that had involved three solicitors for two years was daunting.
"It would be foolish as a firm to embark upon it lightly with a bit of bravado and the hope that, through bullying, you could muscle a result out," says Clarke-Williams. "But there was no way my client could afford the insurance premium, and she knew if she lost and a court order was made against her she'd be wiped out entirely.
"But she had no alternative other than to pursue the claim, because the allegations had meant her career and, to some extent, her life was over unless she did something about it."