Why celebrity CFAs in libel cases are a moral issue

Conditional fee arrangements (CFAs) or 'no win, no fee' agreements, were once hailed as the great leveller in libel cases, aiding poor individuals in their fight against the cash-rich media giants.

However, following the recent House of Lords decision in Naomi Campbell's successful privacy action against Mirror Group Newspapers (MGN), the adverse effects of CFAs on freedom of speech has once again become a hot topic.

In October, the Lords threw out MGN's appeal against the success fee charged by West End media boutique Schillings after it won the supermodel's privacy claim on a CFA. The Lords ruled that lawyers are not required to means-test clients for CFAs, even if they are wealthy celebrities.

Campbell is one of many celebrities to have used 'no win, no fee' arrangements in defamation cases. For instance, actress Sharon Stone is suing the Daily Mail on a CFA. Stone is understood to have instructed the Queen's law firm Farrer & Co, while Reynolds Porter Chamberlain (RPC) is advising the newspaper.

The recent explosion in the number of celebrities using CFAs in the complicated defamation law arena begs the question as to whether they are milking a system that was meant to provide access to justice in civil litigation in the absence of legal aid.

Ironically, the arrival of CFAs was celebrated as a way of righting an old wrong and opening up the libel courts (once the preserve of the super-rich because of the absence of legal aid) to people with more modest means. But opponents of 'no win, no fee' argue that CFAs have proved deadly to freedom of expression and should be kept well away from libel cases.

Liz Hartley, RPC's head of media and technology, argues: "The provisions of CFAs to give access to justice weren't intended to be used by celebrities. It's my firm's view that they shouldn't do so. I think it's a flaw in the regime."

Harvey Kass, legal director of Associated Newspapers, agrees. In a recent article published in The Lawyer (3 October), Kass wrote: "He [Lord Justice Brooke] was right. The world has gone mad when the cost of defending one article can equal the annual salaries of more than 100 journalists - enough to wipe out many publishers."

In the Campbell case, MGN appealed against the success fee, claiming it was an infringement of the press's freedom of expression, and also arguing that the success fee should be disallowed where a claimant can fund the litigation.

Campbell's appeal to the Lords was the only part of the case fought on a CFA, meaning Schillings charged MGN an uplift of £280,000 as part of more than £1m of costs.

But in his judgment, Lord Hoffmann said: "Means-testing on an individual basis would be impractical." He added that legislation would be needed to change the law. Following the landmark ruling, Davenport Lyons' Kevin Bays, who acted for MGN, said the judgment would have a "chilling effect" on freedom of speech.

Bays argues that access to justice does not necessitate the use of CFAs. "If celebrities can take advantage of this and convince a lawyer to use 'no win, no fee', why not? If it's heads you win, if it's tails you win, then you're going to do it," he says.

But Campbell's solicitor Gideon Benaim, who does not believe celebrities are abusing CFAs, argues: "Regarding the cost element, no assertion was made as to Naomi's welfare. One thing that's important is that Naomi funded the litigation herself. It was only when the Daily Mirror won and we went to the House of Lords that we entered into a CFA."

Most claimants fighting cases on CFAs give themselves an extra security blanket by buying 'after-the-event' (ATE) insurance. A number of recent cases have, however, highlighted an increasing problem where claimants fail to take out ATE insurance. In this event, it is common for a 100 per cent success fee to be charged by the claimant's solicitor because the risks are that much higher.

One such case was the defamation claim brought by nursing home owner Alberta Matadeen against the Associated Newspapers-owned Evening Standard. Charles Russell was fighting the case on a CFA and said that Matadeen had been unable to get ATE insurance. Claimant costs were estimated at £558,000 against just £198,000 for the defendants.

The potential 100 per cent success fee meant that, in the event of a loss, Associated was facing a costs bill of around £930,000 in total. The company, represented by Taylor Wessing partner Niri Shan, argued that the handicap on the defendant in such a case is far higher than on the claimant, and so it sought a cap on the success fee. It was a bold move, as no libel defendant had ever managed to obtain such an order.

But in April 2005, High Court costs judge Master Eyre granted Associated's request and capped the success fee. If Matadeen wins her ongoing case, Charles Russell will be unable to claim its 100 per cent uplift, reducing significantly the risks to the newspaper.

Shan says: "This does set a precedent in cases where claimants are represented under a CFA and have no after-the-event insurance."

Bays at Davenport Lyons agrees wholeheartedly with the concept of a success fee cap. "Losing litigants should pay for the reasonable costs of their opponents," he argues. "CFAs may work with road traffic claims, but they don't with defamation cases. A cap, say of around 10 per cent, should be put on success fees."

Benaim, though, disagrees. "The success fee should be kept at 100 per cent. You have to calculate the risks," he argues.

Very few solicitors will take a case on a CFA with less than a 50 per cent chance of winning it, particularly if the amounts at play are large. Barristers seldom agree to act on a 'no win, no fee' case, because as self-employed practitioners they can potentially lose far more money than a firm of solicitors.

Despite this, CFA cases are not dying out. Campbell's Lords victory in her privacy case gives other celebrities an incentive to fight privacy and defamation claims against newspapers and magazines, and the Lords decision on the success fee may encourage others to bring cases on CFAs in the future.

All media lawyers agree that CFAs are crucial, ensuring access to justice for those who cannot afford to pay their solicitors outright. But the fight over the extent to which CFAs should be allowed, and who ought to be able to take advantage of the system, will continue.

As Lord Hoffmann pointed out, celebrities are not abusing the law by using CFAs. Until changes to legislation are made, the issue will remain moral rather than legal.

By Joanne Harris, additional reporting by Helen Morris