Imperfect solutions for access to justice -success fees are no longer recoverable in English defamation and privacy cases

On 29 November 2018, the Government published its response to the 2013 consultation on costs protection in defamation and privacy claims. In particular, the written statement by the Lord Chancellor and Secretary of State for Justice summarizes the amendments to costs provisions, raising access to justice concerns.

In short, the Government has decided to implement s.44 of the Legal Aid, Sentencing and Punishment of Offenders (LAPSO) Act 2012, making claimant lawyers success fees under conditional fee agreements (“CFAs”) unrecoverable from defendants in defamation and privacy cases commencing 6 April 2019. The consolation is that after-the-event insurance (“ATE”) fees remain recoverable. This article considers how these changes perpetuate imperfect solutions that harm access to justice.

What is a success fee and why is their recoverability an issue in these cases?

As some readers will no doubt be aware, CFAs or “no win no fee” agreements are entered into between a client (typically the claimant) and their solicitors. CFAs state that clients will only be liable for their solicitor’s costs in the event their claim is successful. This shifts a significant burden of risk onto the solicitor- in the event the case is unsuccessful they will not be paid at all for their work. As such it is common practice for CFAs to only be granted in cases which are estimated to have over a 90% chance of success, the proverbial “slam dunk”.

For taking on the financial risk of a client’s case solicitors will charge a success fee- this is an uplift on the legal costs they charged, usually from 20-100%. This percentage will vary depending upon the complexity of the case, the point in proceedings and estimated work. This success fee was normally recoverable from defendants in many cases, as part of any settlement or costs order.

However, the case of Campbell before the European Court of Human Rights (“ECHR”) (the background for which can be found here), found that success fees would not be recoverable if they were disproportionately high, such that it interferes with the other party’s article 10 right to freedom of expression. This case was cited by the Government in support of its proposals and only applies narrowly to defamation and privacy claims against the press. In the case, Miss Campbell’s solicitors and counsel entered into CFAs with a 95% and 100% success fee respectively. The success fee, in this case, amounted to £365,077.13 (essentially doubling the legal fees charged), which included two appeals to the House of Lords.

The Court noted that the CFAs provided no incentive for costs to be kept low and that their use was not limited to claimant’s whose financial status and cases merited financial assistance. The Court conjected that the system could easily be open to misuse as they were not means tested. Indeed, in this case, the success fees charged to the defendants were uncharacteristically high:

 “The Court considers, and it was not seriously disputed by the Government, that the requirement to pay these success fees, as an unsuccessful defendant in breach of confidence proceedings, constituted an interference with the applicant’s right to freedom of expression guaranteed by Article 10 of the Convention.” – p.192

Accordingly, the Government recently acted to abolish the provision of success fees being recoverable from defendants in defamation and privacy cases, giving effect to the finding in Campbell and the Leveson Inquiry.

Frankly, the Government’s interpretation  of Campbell uses a sledgehammer to crack a nut, a fact which is borne out by its recent proposals and their implications. Involving two appeals to the House of Lords and an unjustifiable 100% uplift, the case itself did not represent the typical application of success fees and the utility of the case to discuss alternatives was lost.

Safeguarding parties competing rights could arguably be achieved by capping success fees at, the often advanced, 10% of billed costs. Further, their provision could have been means and/or merits tested, thereby falling within the broad margin of appreciation afforded to the Government in making provisions balancing competing rights.

Financial provisions and their bearing on access to justice are always contentious

Access to justice is a foundational value of the English legal system. That justice should not be curtailed due to lack of financial means is self-evident but has always been contentious. Examples can readily be seen in the cuts to criminal legal aid funding, the removal of employment tribunal fees and contested public law family proceeding costs. The inevitable politicisation of such matters makes meaningful headway in reform difficult and contested.

With success fees no longer being recoverable from defendants, there is little incentive for lawyers, and even less so for clients, to enter into CFAs. Time will tell whether this has a severe impact on defamation and privacy claims being brought. Claimant’s can still use ATE, which the Government argues will safeguard access to justice. However, the ATE mechanism is typically used alongside CFAs, meaning this approach may not be an adequate safeguard. Clearly, a number of factors and interests need to be balanced here- encouraging settlement, the costs burden in bringing and defending a claim.

The successful judicial review case of employment tribunal fees, R (on the application of UNISION) v Lord Chancellor [2017] UKSC 51, provides a number of general principles of concern. Although the case concerned tribunal fees rather than the cost of legal representatives, these principles can arguably be extended to cost mechanisms which ensure the affordability and viability of claims. Where costs concerns against media defendant’s raised Article 10 issues in Campbell (on the basis of a “chilling effect” on coverage), where private individuals are concerned, as in UNISION, prohibitive costs may breach Article 6,  the right to a fair trial (see p.113).

In the case, it was considered that if the Lord Chancellor made a fees order which presents a real risk of preventing people from having access to justice it would be outside his legal authority. There is, however, a margin of proportionality at play. A number of factors were considered:

  • The actual impact of any fee provisions on access to justice, for example, represented by a fall in claims issued;
  • How many claimant’s who could have bought a claim did not as they could not afford fees;
  • Any hypothetical scenarios which illustrate the prohibitive character of the fee provision;
  • Whether the fee provision creates a scenario where bringing a claim is futile or irrational; and
  • To the extent that any fee provision impedes upon access to justice could it be justified as a proportionate means to achieve a legitimate aim.

A comment on the Government’s recent position

Practitioners will be familiar with this highly contested issue of costs policy since the conception of the Defamation Act 2013 thrust it into the spotlight. Unfortunately, little constructive headway seems to have been made since then. It is tacit that the recent proposals will have a negative impact on access to justice. Whether this exposes the Government’s decision to challenge by way of judicial review will be a matter of degree. However, such an action would only be permissible in the exceptional case where the Court considers it must intervene in executive policy matters. But, as we have seen in UNISION, if absolutely necessary to safeguard fundamental rights the Courts can and will, especially on compelling public interest grounds supported by substantive evidence.

If recent events are any indication such recourse may be all the more necessary given the current cost dynamics of cases and stalling of meaningful change. This is compounded by the fact that Qualified One-Way Cost Shifting (“QOCS”) may apply in the future to claims against the media. Typically, the successful parties’ costs are paid for by the losing side. Instead, unsuccessful claimants would be protected from paying defendants’ costs and whilst successful defendants are still liable for claimants’ costs. This policy was enshrined, but not implemented, in s.40 of the Crime and Courts Act 2013 to acknowledge the economic disparity between the parties. Whether QOCS will or should be applied is a debate in and of itself. Practically, a successful party will be awarded around 60-80% of costs incurred for their claim in any event.

As such, in cases against the media, the financial risk upon defendants stands to exponentially increase should QOCS apply. Further, regional or niche outlets face the same costs exposure as multi-nationals. It is clear that the potential costs liability on defendants needed to be addressed- though an extreme example in Campbell legal costs amounted to £850,000, £365,077.13 of which was due to the success fees payable. It was this staggering sum which resulted in the appeal to the ECHR. However, the ultimate outcome of this is potentially just as problematic. This becomes clear once it is highlighted that Miss Campbell was awarded just £3,500 in damages along with £10,000 additional aggravated damages.

It should be noted that such an award for defamation and privacy cases is commonplace. Many claimants seek to vindicate their rights, whether to reputation or their private life, in bringing a claim rather than pursue substantial damages (Courts have characterised these damages as compensatory not vindicatory). However, there is only so far such a notion can go before costs and risk become prohibitive. The Court of Appeal has confirmed that the upper limit for defamation awards is around £275,000 and in practice awards of this magnitude are unheard of.

Privacy claims typically result in similar sums, evident from the phone-hacking News of the World case Gulati. In the case, it was considered that an award of £10,000 for each year of serious phone hacking was merited, with awards in excess of £100,000 being extremely rare. An exception can be seen in the recent Cliff Richard case, where the singer complained of invasive coverage taken by the BBC of a police raid on this home. The award, in this case, amounted to £210,000. However, the BBC ultimately agreed to pay £850,000 to cover Sir Cliff’s legal costs in the case.

From the above figures it is clear that, except perhaps in the case of early settlement, awards for defamation and privacy are nominal in comparison to the costs incurred. Since April 2013, an uplift in general damages of 10% is applied to cases following Simmons v Castle [2012] EWCA Civ 1039, a sum which is a drop in the bucket at best. As such, the impact of this change to cost mechanisms is likely to be more pronounced.

In mitigation, it must be acknowledged that the Courts are doing much to promote pro-active costs management under CPR 44, offering forensic costs assessments as in Price v MGN Ltd [2018] EWHC 3395 (QB). This has done much to translate the notion of proportional costs into practice, however, a disparity is still clear. In Price it was noted that the cost of a solicitor to prepare for a preliminary hearing as to the meaning of a defamatory statement would cost, justifiably, between £20,000-£25,000.

Expectedly, cases involving private individuals on both sides, though by their nature rare, serve to further highlight these cost disparities. In Stocker v Stocker [2015] EWHC 1634 (QB) a Mr Stocker advanced a libel case on the basis of a series of Facebook comments by his ex-wife. Ultimately considering an award £5,000 damages, Warby J noted the claimants budget amounted to £260,624.30.

This leaves the outcome of a cost-benefit analysis in little doubt for claimants of modest means. Leveson LJ’s statement that the costs system was the “most bizarre and expensive system that it is possible to devise” still holds true. Indeed, I am of the view that the bespoke costs regime for cases proposed by Leveson LJ in 2013 would have gone some way to ensure that courts were more readily accessible, not only to celebrities, in defamation and privacy cases.

However, the Government has now declined to implement the Leveson II proposals, a decision which has recently been found to be impervious to judicial review as a matter of executive policy. As such, alternative costs mechanisms such as capped fees or bespoke, graded fixed costs seem more likely eventual safeguards (though in practice there is little consensus as to the best alternative). Though any such solution needs to be balanced with alternative means of redress- complaints to the Independent Press Standards Organisation, arbitration or reformation of the Pre-Action Protocol, for example (the Defamation Costs Working Group 2013 considered these issues in depth).

Ultimately, a decline in claims over consecutive years (particularly those with low value), due to CFA’s being less readily available or desirable following the success fee amendment, is likely to signal an unacceptably adverse impact on access to justice. In the UNISION case, a consistent year-on-year fall in claims of 66-70% was of concern. I consider it unlikely that such figures would feature in defamation and privacy cases unless ATE is also curtailed. Unfortunately, the Government’s amendments are likely to impact those who are most in need of alternative financial arrangements come 6 April 2019.

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