Defamation gatekeepers must exercise caution

Tim Watkin examines the reasoning behind, and consequences of, Peter Carter-Ruck's decision to fight libel cases on a no win-no fee basis.

When Tom Cruise stood outside the High Court last month to proclaim victory for himself and his family over Express Newspapers, it served as a reminder that defamation law is as much the preserve of the wealthy as the designer suit he was wearing. Traditionally, the rich have been the only ones able to afford a reputation.

But this could soon change. Last week The Lawyer revealed that a firm known for championing the interests of the well-healed against the media, Peter Carter-Ruck & Partners, plans to extend the franchise of libel by offering clients no win-no fee contracts.

The intention is to allow people, irrespective of income, the chance to defend their reputation in the courts, as defamation is not covered by legal aid. But questions have been raised as to the feasibility and the legality of the scheme.

Carter-Ruck may perceive himself as a pioneer, but there can be few libel lawyers that have not pondered the idea since the rules on Conditional Fee Arrangements (CFAs) changed in July, extending them to all areas of civil law, except family law.

Re-enforced by the Hughes v Kingston-Upon-Hull City Council ruling just last month, contingency fees, the looser way of offering a no win-no fee policy, are still illegal.

“[No win-no fee policies are] going to come, one way or another,” said one lawyer, “but this is Carter-Ruck characteristically jumping the gun”.

But Carter-Ruck partner Alasdair Pepper says that all the firm is offering are CFAs strictly in line with Law Society rules.

Defamation lawyers agree that, according to both law and ethics, the onus is on the firm to clarify beforehand the details of what happens if an offer is made, what expectations a client might have, and so on.

This notion is underlined by Law Society policy executive Claire Morgan, who explains that the society's rules governing CFAs require firms to “set out all the cost implications”.

But rules are only part of the issue. A firm is only required to consider taking out insurance to cover a client's liability for costs.

Sarah Webb, a partner at Russell Jones & Walker, says uninsured strawpeople, unable to pay costs if they lose, will find themselves vulnerable to defence lawyers' protests. “Frankly, our thinking is unless you are doing it under proper conditional fee arrangements with proper insurance, you are running a huge risk,” she says.

Pepper only half agrees. He does not think insurance is essential. “We don't need to have insurance. It's an option,” he says.

Insurers say that the risks created by CFAs in libel cases would be too high to offer a flat premium across the board. “It's going to be a premium quote case by case,” one warns.

But Carter-Ruck has found firms willing to negotiate fixed rates, taking a big step in making the policy affordable. The only problem with this policy is the risk of having to pay defendants' costs. “In that regard we're currently talking to insurers. They are proposing a premium structure, but it's fair to say the premiums are not cheap,” says Pepper.

At a time when business is said to be quiet for some firms, and the six-figure damages awards of the 1980s are a thing of the past, hunting out new clients makes commercial sense.

People lured by this policy are likely to be those who could not otherwise afford to sue. Such cases have the potential to provide a firm with a high turnover of quick turnaround work.

But they also raise the potential for firms to take risks they would not have previously taken, and be conned by “nothing-to-lose” plaintiffs, even with the protection of a rigorous CFA.

Pepper is adamant that Carter-Ruck's new policy is not born out of desperation. “I know people have been saying libel is slowing down, but we have had the most successful four months of our history,” he says.

Behind the debate over this new policy is the grey truth, of course, that firms have long been taking no win-no fee cases on the quiet if they think a potential client who cannot afford its services has a strong or moral case. As one lawyer notes, it has been common down the years for lawyers to charge poor clients lower or contingency fees just as a doctor may not bill a struggling patient. But as Webb points out, “because everybody is now focusing on this, it's probably more difficult to make those ad-hoc arrangements”.

Henry Hepworth partner Jason McCue says because of this, neither he nor his client papers are running scared of a flood of suits. “No, we don't want more actions. But if lawyers think they've got a good case they'll take it anyway, even if it's in the hope of getting paid at the end.”

So is Carter-Ruck's announcement just outing and formalising an existing practice? Not quite. The most ground-breaking part of the firm's plan is to take a “success fee”, which will be either 100 per cent of the client's fees, or 25 per cent of damages won – whichever is lower. Both are within Law Society regulations, but other lawyers are indignant.

Solicitor Advocate David Price, author of Defamation: Law, Procedure and Practice, says he is already running an “ethical no win-no-fee policy”.

“We don't take a mark up if we win,” he adds pointedly.

Only time will resolve the twists and turns of other ethical issues, but defamation lawyers worry that the issue of money will become all-consuming. The pressure will be on to take cases not because they are worthy, but because they are quick and easy.

On the flip side Price and McCue warn of conflicts between client and lawyer. What if the plaintiff wants to settle for an apology after several months' work? How will Carter-Ruck define a win? What happens when defence lawyers start dragging out cases, as they undoubtedly will, to increase pressure to settle on the unpaid lawyer?

“That type of thing is governed by the CFA as in personal injury,” counters Pepper. “There will be conflict pressures, but it's no different that any other form of litigation.”