Recoverability of CFA success fees in defamation and privacy claims to be abolished (but ATE to remain for now)

The government has announced that from 6 April 2019 conditional fee agreement ('CFA') success fees will no longer be recoverable from opponents in defamation and privacy claims.  The Ministerial Statement made by David Gauke the Lord Chancellor and Justice Secretary can be found here.

CFAs - colloquially known as 'no win, no fee' agreements - can allow a party with a good claim to bring proceedings where they otherwise might not be able to afford to do so.  A litigant enters into an agreement with solicitors (who in turn may enter into a CFA with a barrister) that they will only be liable for their lawyers' costs in the event of the claim succeeding.  If a claim does succeed (whether after trial or settled) and a liability for costs arises, these costs are then sought from the unsuccessful party.  If the claim is unsuccessful no fee is payable.  CFAs can also be used by defendants, although such arrangements are less common.

The model works in the same way as a privately-funded case, save that the client is effectively given 'credit' and there is a significant risk that the lawyers will not get paid anything.  To compensate for the risk of not getting paid at all (which if, say, a matter goes all the way to trial can result in law firms being significantly out of pocket), lawyers are permitted to charge their clients a "success fee" of "uplift" based on the level of risk.  In media law claims these typically range between 25% and 100% and will vary depending on the stage the proceedings have reached.

Until now the success fee has always been recoverable from the unsuccessful party in media law cases.  Whilst in theory a shortfall in costs (i.e. an unrecovered success fee) could be sought from a client, in most cases this would significantly or completely negate any damages the client would receive.  Such arrangement would be unattractive for a client and in many instances would render the proceedings pointless for them.

In April 2013 the recoverability of success fees was abolished in most forms of civil litigation, pursuant to section 44 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012.  Similarly, section 44 abolished the recoverability of 'after the event' insurance ('ATE') premiums from opponents.  Such policies are taken out before a claim is issued.  They insure a claimant against the risk of having to pay an adverse costs order if their claim fails.  In media law, the premiums are typically deferred to the end of the case and self-insured.  If the claim is successful, the cost of the premium (sometimes 40-50% of the opponent's legal costs) can be recovered from the defendant.  If the claim fails, no premium is due and the insurer will pay the opponent's costs.  Without ATE in place a claimant will normally be deterred from being a claim.  Even if their case is stronger and the risk is relatively modest, adverse cost orders (which often run into six figure costs orders) can be ruinous.

However, the government delayed implementing the reforms for defamation, privacy and press harassment claims, following a recommendation in the Leveson Report that an adequate costs protection system be put in place first.

A consultation on the reforms, proposing a form of 'qualified one way costs shifting' was launched in September 2013 (see our blog here).   The coalition government's proposal was section 40 of the Crime and Courts Act 2013, which, had it ever come into force, would have made news publishers who were not subject to a Government-approved regulator, liable for a claimant's costs of defamation, privacy, and harassment claims, regardless of whether they won or lost.

Section 40 was deeply unpopular with the media and, free from the shackles of coalition, in November 2016 the government published a second consultation exploring different options (see our blog here).  Last year, section 40 was quietly killed off along with Part 2 of the Leveson Inquiry (see our blog here).

Today's ministerial statement justifies the abolition of success fees in media law cases, citing the decision of the European Convention of Human Rights in MGN v United Kingdon (2011) 39401/04, stating "In the MGN case, the court concluded that the obligation for the defendant to pay a 100% ‘success fee’ to the claimant was disproportionate, and that the conditional fee agreements regime was therefore in breach of the defendant’s rights under Article 10 (freedom of expression) of the European Convention on Human Rights."

The statement says that the provision will come in force for new cases on 6 April 2019.  Presumably this will mean that success fees on CFAs entered into before 6 April 2019 will remain recoverable even if the liability for fees does not arise until after that date.

ATE premiums will continue to be recoverable for "at least for the time being".

The government's belated response to the 2013 consultation can be found here.

Comment

The press will no doubt hail today's announcement as a victory for freedom of expression and one in the eye for fat cat lawyers.  The truth is that it is a victory for the press and one in the eye for victims of press abuse.  The press has scored a victory after years of tireless lobbying (presumably it is a coincidence that the government have made this announcement at a time when they are desperately trying to rally press support for their Brexit agreement).

The clear loser here is the party is the little man who has been wronged by the press.  Success fees made CFA work viable for solicitors - balancing out the claims that did not get off the ground or failed.  Even with a prima facie strong claim, a law firm takes a substantial risk when they act on a CFA.  They are reliant on evidence coming up to proof.  They are backing their client (typically a stranger) to be completely candid with them and to continue to provide instructions.  Without the success fee, there is little attraction for good solicitors to act on CFA - when they can act on private cases and get paid for the work they do without gambling on numerous factors.

The availability of CFAs for victims of press abuse will inevitably dry up.  This in turn, together with the reduced sums at stake where there are no success fees, will embolden editors to once again push at the boundaries of responsible journalism.  This is a step backwards.  The lessons of Leveson seem to have been forgotten by the government or at least pushed aside on the grounds of inconvenience.

On a positive note, the government has not abolished the recoverability of ATE premiums, although the comment that there will be no change "for the time being" sounds ominous.