The journalist, the tourist, the claim and their lawyers: libel reform – Part 3

The Problem of Litigation Costs

As I said at the end of Part 2, legal costs are a major problem in litigation, including but not limited to libel law (and not limited to the UK, either).  The costs problem I talk about in Part 2 is common to all civil (that is, not criminal) litigation in the UK.  Civil litigation includes things that most normal people have heard of or have unfortunately had some involvement in such as you suing for your personal injuries after involvement in a road traffic accident, or after slipping on the floor of a shop, or boundary disputes between neighbours.  It also includes commercial litigation such as disputes about whether an insurance policy covers a particular risk, or banking disputes (not just fraud), disputes arising out of construction projects and property disputes.

In all of these cases, the winning party is always out of pocket to the tune of about 25% of his legal costs.  And when your legal costs can easily amount to £200k or more (sometimes much, much more – in the type of heavy litigation I do, costs on both sides are frequently in the millions), that is a very big hole.

And that is not all.  Any party in any litigation, no matter how brilliant their case is, must also take account of the risk that he will lose and be ordered to pay the other side’s costs as well as bearing his own lawyer’s costs.  For an individual, this usually represents complete disaster.  It is easiest to see this using hypothetical figures.  Say your legal costs are £200k.  The other side’s are probably about the same.  If you win you have got a hole in your pocket to the tune of about £50k.  If you lose, you are going down for about £350k.

For an individual, litigation usually represents gambling with their house.  For a small business, it is gambling with their business.  For a commercial entity, things are not quite so bad because they have litigation budgets and, of course, large companies tend to be sophisticated litigants who are aware of the costs risks and have other good reasons for wishing to pursue (or defend) the action.

For an ordinary person, costs of this magnitude (just the ones for their own lawyers) can easily prevent them from litigating at all, even when they have a good case and the defendant really ought to be made to pay.  This is known in a piece of depressingly Birtspeak jargon as the problem of access to justice.

Enabling Access to Justice

For years the concern was to ensure that individuals and small companies were able to obtain the redress that they were entitled to by law.

In 1998 there was a wholesale review of civil litigation procedure and, in particular, costs.  Lord Woolf (another law lord) effectively invented some new means by which individuals could fund litigation, which came into effect in 2000.  There were two major ways.

First, the CFA (Conditional Fee Agreement).  A lot of you will have seen these on the telly in those ambulance-chasing adverts, described as a no-win, no-fee agreement.  Anyone who has actually had to take one out will know that it’s not quite as simple as that.

CFAs come in two forms.  The first is where the lawyer agrees to be paid at a discounted hourly rate during the course of the litigation (so that the litigation itself is relatively cheap to run while it is going on).  If you lose, you only have to pay the discounted fees.  Then, if you win, the lawyer gets back the discount on his fees plus an uplift known as the success fee to compensate him for being kept out of his money for the duration of the litigation (usually between 1 and 2 years) and to compensate him for the risk that he wouldn’t get anything extra at all if you lost.  The idea is that because the other side will basically be paying your costs if you win, you don’t care about the uplift.

The second form of CFA is where the lawyer agrees effectively only to be paid by you if you win the litigation.  In those cases the success fee uplift is usually higher, again the reasoning being that it is basically to be paid by the defendant.  These have the advantage for the litigant that the litigation is free while he is conducting it.  Effectively the solicitor is lending the litigant the money so he can sue (or defend).

Lawyers are not generally known for their wild generosity (and anyway, it’s a bit of a weird idea that the whole costs risk should move to the lawyers in circumstances where they’re just doing their job and the outcome of the litigation is not within their control).

So a new form of insurance called After The Event (ATE) insurance came into being.  You can insure various different risks.

A lawyer will probably not agree to enter into the second form of CFA unless you agree to take out an insurance policy which covers his fees (not the other side’s fees) in the event that you lose (it is for this reason that no-win no-fee agreements don’t really exist and you should ignore any advert that tells you they do).

You can also insure the risk that you might lose and have to pay the other side’s fees.  The premiums for this type of policy are much higher because (a) litigation is a risky business and (b) as discussed above, the total bill can be very high.

To put some figures on the above:

Success fees are often put at 100% – ie if you win the case, your lawyer is entitled to claim double his fees (in principle off the other side because the loser pays).  So your legal fees of £200k suddenly become £400k.

ATE insurance premiums can be anything from £25k to much, much more (well over £100k).  If you win, you can claim your ATE insurance premium back off the other side as well.

Chilling effect

The aim of all this was to make sure that ordinary people were not shut out from the law just because of legal costs.

However, the effect of it has been that defendants who lose their cases are massively penalised in costs (even more than they would be already).  Now before you say, well: they deserve it, you need to remember that most cases are not clear cut, that there are two sides to every story and a defendant might have a perfectly respectable case which he is perfectly entitled to run to trial, and still lose.

This is a particular problem in libel cases, because these are usually far from clear cut factually (and the allegation that has been made might be quite hard and/or expensive to prove in a court – such as Dr Ehrenfeld’s terrorism allegations).  This means that any defendant in a libel case (usually a publisher or newspaper plus the actual author of the piece) has to consider what they will be paying if they lose, not only what they will be paying if they win.

Since claimants in libel actions always take out CFAs and ATE insurance, the final costs bill can easily be absolutely enormous.  The inequity of this is compounded by the fact that even rich claimants, who could easily afford to run the litigation without help, take such measures.  In other words, they use the existence of CFAs and ATE insurance as a tactical pressure on the defendant (or sometimes the other way round).

A table showing payments made by defendants in libel cases (whether after judgment or as part of an agreed settlement) can be found here (it is appendix 17 to Jackson LJ’s preliminary report discussed below).  You can see that in many cases no or hardly any damages for the actual libel were paid at all, but the costs were still horrendous.  Even where substantial damages were paid, they were dwarfed by the costs.  The cases at the bottom end of the table where the costs are pretty low will be those that settle at a very early stage.

This has the effect of making publishers and newspapers more cautious about what they will publish.  It also makes defendants more likely to retract whatever was said and/or settle the case in other ways, even if perfectly good defences are available to them.  In other words, it has a chilling effect on freedom of speech.

The Index on Censorship and PEN report is dead right on this point.   Their proposed solution is that base costs are capped and that CFAs and ATE premiums should not be recoverable from the defendant.

Solution?

I’m afraid it’s not changing the law of libel.  This is a very widespread problem which has a particular very serious effect in libel cases.

You probably won’t be particularly surprised to hear that in legal circles this problem has been discussed and complained of for quite some time.  Back in November 2008, Lord Justice Jackson (a Court of Appeal judge) was asked by the government to carry out a wide-ranging review of civil procedure relating to costs and in particular methods of funding litigation.  Lord Justice Jackson is of course a clever man (you don’t get too many thick judges) who has a particularly detailed and careful approach to his cases.  He was therefore a very good choice to carry out this review, which easily wins the title of Most Tedious Task of the Decade.

He produced a preliminary report in May 2009 and his final report in January 2010.  You can get hold of both of them here.  They are very, very long.  Luckily the bits you are interested in are relatively concise (and the actual report itself is quite readable as Jackson LJ is writing for the lay person).

The Executive Summary is short and tells you the main recommendations.  You’re interested in paragraphs 2.1, 2.2, 2.6, 2.7, 3.2 and 5.10.  The discussion about recovery of CFAs and ATE premiums is at Chapter 10 of the final report (pages 108 to 112 in particular).  The specific discussion of defamation actions is at Chapter 32 (page 319 onwards) of the final report.

In summary, what is proposed is this:

1.  CFA uplifts and ATE premiums will no longer be recoverable from the losing side.  The winner will have to bear these costs out of his own pocket.

2. Damages for defamation should be increased by 10%.

2.  A regime of “qualified one way costs shifting” should be instituted.

I am in complete agreement with all three proposals.

It will be obvious that the first proposal will go a very long way to reducing the chilling effect on freedom of speech of the current costs regime.  The second proposal is there to ensure that a defamed individual who needs CFAs and ATE insurance because he is of modest means does not end up with nothing having won his case (it is worth noting that damages in defamation actions in the UK are pretty low in any event – again, see this table).  The third proposal is there to ensure access to justice for the individual but requires a bit more explanation.

“Qualified one way costs shifting” is a horrible piece of jargon.  What it essentially means is that the Court will be empowered to take into account the financial resources of the claimant when making costs orders at the end of the case.  As Lord Justice Jackson comments at paragraph 3.7 on page 325, the paradigm libel case is one where an individual of modest means sues a large organisation such as a newspaper.  In the usual type of case, therefore, it is the defamed party rather than the defendant which has no resources.  It is easy to forget that cases like the BCA’s action against Simon Singh are atypical.  So, depending on the circumstances, in an appropriate case the Court would be allowed to order that despite the fact that the claimant had lost the case, the claimant would still not have to pay any of the defendant’s costs.

The proposed rule is as follows:

Costs ordered against the claimant in any claim for defamation or breach of privacy shall not exceed the amount (if any) which is a reasonable one for him to pay having regard to all the circumstances including:

(a) the financial resources of all the parties to the proceedings, and

(b) their conduct in connection with the dispute to which the proceedings relate.

You can see that the idea is that the Court is allowed maximum discretion to make the right order in any particular case.  This type of provision generally leads to the fairest results.

The government (whether this one or the Tories once they get in in May) will almost certainly accept Lord Justice Jackson’s recommendations.  They do however require some new statutes which require an Act of Parliament.   A major purpose of the current campaign as I see it is to ensure that this issue remains in the public eye in order to make sure that these reforms are given high priority in the next session.

Effect on BCA v Singh

The problem for Simon Singh is that these reforms will not be implemented in time for his case.  He will have to continue to defend the action out of his own pocket (I understand that the Guardian have refused to fund the litigation, presumably due to the risks).  His behaviour in doing so is admirable, and very brave.

This means that the forthcoming decision of the Court of Appeal is very important.  For a summary of what is going to happen next week, see Jack of Kent’s post here.