There is currently before Parliament a draft statutory instrument on reforming the obscene costs in libel cases.
It may go to a vote of the House of Commons this week after being defeated in committee last week.
Both supporters and opponents contend this draft SI will have a dramatic effect should it be enacted.
The draft statutory instrument (SI) does not have a glamorous title - it is called The Conditional Fee Agreements (Amendment) Order 2010.
Nor is it very long: it has only three paragraphs, of which only one is substantive.
Indeed, one could almost tweet it.
The single substantive paragraph contains a single, simple provision.
The "uplift" for lawyers acting on a "no win, no fee" basis (under Conditional Fee Agreements - or "CFAs") in publication proceedings shall henceforth be 10%.
This means that if a lawyer agrees to act in such a case - for claimant or defendant - and wins, then he or she can claim their legal costs from the losing party plus an additional 10%.
The additional 10% has not been earned, incurred, or billed by the law firm; but it goes straight to them (and not their client) as the reward for taking the risk of such a case.
If the lawyer loses then he or she gets nothing, and the client has to pay the fees of the successful side (which may also include an "uplift").
Why is this controversial?
Why are libel lawyers and others so bitterly opposed to this 10% reward for taking on a case on such terms?
To try and answer these questions, one must look at what is taking place at the moment.
The status quo
The current position is that such lawyers are routinely charging an uplift of 100%, and not the 10% proposed in the draft SI.
They double their fees and charge them to the loser.
They threaten to double their fees and so intimidate the potential defendant.
This is not justice; it an abuse and undermines free expression.
And this is in addition to the substantial "after the event"("ATE") insurance premiums which are also payable by the losing side.
The effect of the uplift and ATE insurance is that the defendant is faced with a legal bill which can instantly be 300% of the actual legal fees incurred by the claimant.
As Marcus Partington, Chairman of the Media Lawyers Association, describes:
"Some of the people [...] who act for claimants, they charge £500/£575/£650 an hour; if you then double that with a 100% success fee you are over £1,000 an hour; you then add VAT on top and you are talking about a huge figure per hour. On top of that the premiums for ATE insurance run at roughly £68,000 per £100,000 worth of cover. The claimant does not pay for that insurance; they incur the premium but they then claim it back from the defendant. The vast majority of cases against the media are won by claimants."
And in the words of Ian Hislop:
"If someone comes and says, 'We are suing you, and not only that, we have a CFA, which means we can just make it up. It will be any figure that comes into our head, double it, double it again, and you pay all of it,' that makes you think twice about running a piece."
The barrister Lord Pannick QC in the House of Lords debate on the SI put it in stark terms:
"...a particular and urgent problem needs to be addressed in the context of libel and breach of confidence law. It is an urgent problem because the consequence of the cost regime today is that it is deterring defendants from exercising their freedom of expression. That is a fundamental right for them and a fundamental condition of a free society in which those who are governed are given information about those who govern us, information that people in power, let us be blunt about it, and influential people would much prefer to keep confidential, even if-indeed, often especially if-it touches on matters of public interest".
So how has this situation come to pass?
Why has an uplift designed to be fair to lawyers taking on CFA cases caused such a dreadful situation?
Well, most of the law firms involved do not appear to use the current 100% uplift to actually cover the risk of running unsuccessful cases.
Instead, there is evidence that the firms adopt an approach to risk analysis which means they do not go with unsuccessful cases, but usually with good cases anyway.
Again, in the words of Lord Pannick QC:
"The 100 per cent success fee is a deterrent, whether the journalism is lazy or dedicated. The justification for the success fee of up to 100 per cent, as has been explained, was that it would enable otherwise impecunious claimants to bring proceedings to vindicate their reputation on a conditional fee basis and to compensate lawyers...for the unsuccessful cases in which they act on such a basis. It is a swings and roundabouts approach. This rationale, in my experience, has been undermined by two factors that have not yet been mentioned.
"First, a very large number of the claims in which these success fees are secured have been brought by claimants who were perfectly capable of paying their lawyers a proper professional fee. There is no restriction on these success fees to the impecunious.
"The second problem is that not all but many lawyers operating in the field of libel and confidence choose very carefully the cases in which they act on a conditional fee basis."
Indeed, in evidence to the DCMS select committee, one partner of a law firm stated:
"I think it should be pointed out as well that, of course, when the Conditional Fee Agreement is entered into by a firm of solicitors it can represent a very considerable investment by that firm because you are agreeing to act on a 'no win, no fee'. In my firm we have a very rigorous risk assessment procedure at the outset to decide whether or not we are prepared to take on a case on a CFA. So it is not surprising that the cases we do take on CFAs are ones we expect to win."
Having reviewed the relevant evidence the select committee reported:
"In the matter of success fees, the argument is made that they need to be high to compensate for the risks run by lawyers: they need relatively high fees in cases they win to balance the fees that are unpaid in cases they lose. This view is not, however, supported by the data available on the outcomes of cases of this kind. This data suggests that CFA-funded parties win the vast majority of their cases. The system is therefore tantamount to "always win, double the fee"."
This is the regime which will continue unless the draft SI is implemented.
In the words of Lord Pannick, "there is an urgent and serious problem about freedom of expression".
The proposed reform
The current and urgent predicament for free expression caused by the 100% uplift surely means that the proposed 10% reform should be implemented unless the reform actually makes a dreadful situation worse.
So the key question for those who oppose the 10% reform is whether it would make the current situation worse.
On this, one of the opponents of the proposed, Tom Watson MP, made the following assertions in the last week (emphases added).
An unequivocal assertion in the Press Gazette:
"...this proposal would deny access to many thousands of people".
A more equivocal statement in Liberal Conspiracy:
"It could significantly reduce the chances of people receiving justice."
And in even more equivocal terms in the standing committee debate:
"I must say that the proposals would probably remove every one of my constituents from libel justice".
However, for none of these statements does he provide a jot of evidence.
And if there is no evidence, then it may be that Tom Watson and other MPs are happily promoting a bogus counterargument to the clear and urgent need for reducing the uplift amount.
The correct position is that any reduction in coverage for libel litigants would be entirely in the hands of the current specialist law firms, whom we are supposed to believe will start turning down work.
But many such firms have already separated their risk analysis from their use of CFAs: there is little evidence of the desirable cross-subsidy happening in practice.
The only impact will be on the firm's profit margins.
In the House of Lords debate, Lord Pannick QC correctly observed of the 10% uplift:
"...it will make no difference at all, because the lawyers are understandably anxious to do the work and they will continue to do the work by and large in those cases where they think that they have good prospects of success on a conditional fee basis. If the case is interesting, they may, as many lawyers do, be prepared to do it on a no-fee basis...".
This must be the correct view.
There should be an uplift to reward risk.
But as the standard practice of most libel law firms is already to run the "always win, double the fee" the only disadvantage of the reform will be to the commercial models of those firms.
I would submit that the reason why no evidence has been provided to support the various alarmist statements - both equivocal and unequivocal - about the 10% reform is that there is no evidence.
And, if I am correct in this view, then on the substantial question of the merits of the reform - whether the free speech need for reform outweighs the access to justice objections of its opponents - then the former has to prevail.
With a 10% uplift there will still be access to justice but without the adverse effects for free speech.
Procedural objections
Those opposed to the 10% uplift then resort to two procedural arguments: the lack of consultation and the threat by the government to put the SI to a vote of the House of Commons.
The contention is that the procedures followed in bringing forward the draft SI are flawed.
As substance should never be the slave of procedure - especially when fundamental issues of free speech are at stake - then it would appear that any alleged procedural irregularity must be sufficiently significant if is to be used to defeat a welcome substantial reform.
In fact there have been no such irregularities.
In the circumstances, the procedural objections are spurious.
The consultation period was indeed four weeks, not three months.
But look at again at the draft SI.
It is not a complex measure.
It is knocking out a zero: reducing the uplift from 100% to 10%.
One does not need an additional eight weeks to work this one out.
All a longer consultation exercise would do - and it appears that the demand is for a fresh three month exercise some time in the future - is to allow the law firms involved to amend their commercial model or to mobilise an even more effective lobby against the change.
There has been consultation; there just has not been needless delay.
(Indeed, when I asked an anti-reform lawyer whether he would object to a consultation period of four weeks had the reform been to make the uplift 200%, he said "of course not".)
As for the potential vote of the whole House of Commons to overturn the MPs at the standing committee, it is difficult to see this as a grand constitutional outrage.
The government is not actually proposing to use some form of sneaky executive action to circumvent parliamentary procedure; instead the government is considering actually following such procedure so as to put the matter before all MPs.
For this fundamental free speech matter to be somehow defeated on the basis of the supposed precious rights of the hitherto obscure First Delegated Legislation Committee would be bizarre, especially if the House of Commons as a whole is minded to overturn that Committee's vote.
So I do not think there is even a need to concede there are procedural flaws in this draft SI; but even if there are, such flaws are certainly insufficient to mean the SI should not be enacted on its merits.
Privacy
The only serious objection to the draft SI is not from Tom Watson MP but the Liberal Democrat frontbencher David Howarth MP.
In the standing committee, he noted that it would cover privacy actions as well as libel actions (both of which are "publication proceedings" for the purpose of the SI).
Having considered this carefully, and as someone in favour of privacy law and who who accepts the importance of Article 8, as well as being a personal fan of Mr Howarth, I am afraid I am not with him.
Privacy actions simply do not need the artificial addition of a 100% uplift to make them effective.
There is no reason why a 10% uplift would limit the readiness of law firms to take on winnable cases, just as there is no reason why they would affect libel cases.
And if a newspaper does not defend a privacy case just because of the 100% uplift that is not giving effect to Article 8 of the ECHR: it is effectively removing the ability of the newspaper to rely on the rights it may have to interfere with privacy rights under Article 8(2).
Therefore a 10% uplift is, in my view, more likely to lead to privacy cases succeeding or being defended on their merits under Article 8.
Jam tomorrow
Finally, there is the promise of better reforms some day if this draft SI is defeated: a vague reform package which may lull one into accepting the do-nothing option.
However, practical politics requires one takes the best reforms one can when they become available.
Wider libel reform may never happen; but this draft SI will take effect in days, subject only to a single House of Commons vote.
One should never hold off an actual possible reform just because a better one is promised.
Governments - for various reasons - may just not get round to them - and ask the hereditary peers still in the House of Lords if you disbelieve me.
Reform today
This is a real chance to break the back of the current unfair costs regime which is undermining free expression.
The proposed reform retains CFAs and provides an appropriate 10% uplift for the lawyers prepared to take the risk of a no-win no-fee case.
The alleged procedural flaws are not such to defeat the merits of the substantial reform which is actually now possible.
The alternative is to continue with the obscene costs regime which is undermining free expression.
On any proper analysis, the draft SI is an improvement to this.
If the government puts the matter before the full House of Commons then MPs should support the enactment of the draft SI.
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Monday, 5 April 2010
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10 comment(s):
How can it make sense to have ANY award of costs if the winning side is using a CFA?
Normally a lawyer has some incentive to keep his fees reasonable. There is some chance that his side may lose the case, in which case his client will have to pay his fees. If he loses and his fees are utterly outrageous, clients will choose different, less outrageously expensive lawyers in future.
However, if there is a CFA, the lawyer can literally "make up" his fees, since there is no chance that his client will every have to pay them.
And this applies regardless of whether his "markup" for the CFA is 10%, 100% or 1000000%. The only constraint is I presume, the court's supervision.
The only "reform" that makes sense in this area is to say that, if a lawyer is operating on a CFA, then costs will not be awarded to his client. The lawyer's fees will have to come out of the damages awarded to his client. And if the damages awarded are less than the lawyer's fees, then the case should never have been brought in the first place.
I think I follow the arguments against the uplift, but what is the justification for setting it at 10%? Would it not make more sense to abolish it completely so that lawyers have to be honest up front about exactly what they are charging rather than having a kind of statutory tip added at the end of the process. I can't see anything in the arguments against the uplift that justifies any kind of uplift fee at all.
Strange - Watson's normally pretty sound, so his opposition surprised me. But then there's this from the debate: ": I have used the CFA to get justice in the libel courts and I am pretty convinced that, had the proposals before us been in place at the time, I would not have been able to obtain the justice I got without risking my entire financial livelihood, meagre though it is these days."
It makes more sense now. Indeed, I've been surprised at how much support for libel reform there has been among politicians, given how often they have (in general, not Watson per se) used libel suits to stifle press criticism in the past.
Still, I find this comment of Watson's a bit hard to stomach: "[CFA reform] would probably mean that the libel courts would go back to the bad old days of being the preserve of just the rich and powerful." Is he really willing to argue that the libel courts are not still the preserve of the rich and the powerful? MPs may not be particularly rich as a rule, but they are powerful. And certainly the most high profile and precedent setting cases in recent years have almost all been brought by richer plaintiffs against poorer defendants (with the possible exception of Irving vs Lipstadt - I don't know).
JofK, Can you find out how to fold posts so we don't have to wade through many pages of one post to find the previous one ?
On topic, as a non-UK non-lawyer, I think the uplift is an unreasonable way of making money for lawyers from someone else's misfortune, and I don't understand what the "after the event insurance" is at all.
Why are we concentrating on free speech? The CFA aims to improve access to justice and if it only improves it in cases with a very high likelihood of success, mightn't better regulation of the thing be useful?
Stopping large firms using it as a weapon should be easy, for example.
On the other hand, the proposed plans seem to say either that a poor/middle income person should not have a right to a reputation or that they only should when they have a high chance of success or a lawyer thinks that their case is interesting.
It does seem that you're seeing this through the wrong right. The 'fundamental' rights here appear to be a) access to justice and b) reputation, with freedom of speech coming a poor third. Infact, a) must be THE fundamental legal right, surely?
Cracking reverse burden of proof there, Jack.
Before proponents of 10% CFAs get to ask where the evidence against that particular change is, shouldn't they go through the motions of providing some evidence in favour of it? Not evidence in favour of a change, but evidence in favour of this change.
With respect, I can't see how it's adequate simply to argue "change would be good, this would be a change, therefore this would be good".
The MoJ should take this draft SI away and do it properly.
I've added this comment on the Liberal Conspiracy version of this post, so I thought you might as well have it here as well...
There are certainly problems with the CFA system as it operates in the libel context, but this piece is so tendentious and so prone to misleading/incorrect statements as to lead me to query whether the author properly understands how the system works.
…such lawyers are routinely charging an uplift of 100%
No they aren’t. The way most claimant lawyers work, the uplifts tend to be staggered so that they increase as the case moves through the process. Hence a case that runs the full course to a decision will probably be charged at 100%, but cases that are settled earlier will usually involve a much lower success fee. I think a figure of somewhere between 30-50% is more the norm (and that on much lower base costs as befits the absence of trial prep), although it is difficult to get hold of actual figures. LJ Jackson had some data although even this was partial only
…One does not need an additional eight weeks to work this one out
This is trite. If you appreciated that the issue is more complicated than you allow, you might see that time is needed to gather the evidence that might normally be presented to such a consultation.
You criticise Tom Watson MP – who has offered a perfectly acceptable explanation of his actions on Liberal Conspiracy – for failing to provide evidence to substantiate his position, but are perfectly happy yourself to rely upon the words offered by Lord Pannick who himself – you guessed it – offered no evidence.
You misrepresent David Howarth’s point. He was responding specifically to the justification offered by the Govt as follows:
We are trying to get the balance right and cap the amount of fee that individuals have to pay. In particular, we have been concerned about academics, scientists and others, for example, who are trying to publish material but are finding it difficult to do so due to the high costs incurred—so much so that a lot of information material that should be in the public domain is not put there because people fear the costs that they might incur if they do so.
Howarth’s point is that privacy cases do not involve public debate among academics and scientists, so why apply the rule change to breach of confidence cases? Perhaps because one is more interested in offering a sop to the mainstream media and one recognises that ‘privacy is the new libel’?
… when I asked an anti-reform lawyer whether he would object to a consultation period of four week had the reform been to make the uplift 200%, he said “of course not”.
QED? Hardly. Would you – or others like you – have complained in such circumstances as you outline? Of course. But when its not you who falls foul of such bending by the MoJ of the MoJ’s own rules on consultations you seem not to care.
tbc...
...pt 2
… There is no reason why a 10% uplift would limit the readiness of law firms to take on winnable cases
What is a ‘winnable case’? One with prospects of 85%, 75%, 40% (and a dashing argument)? Claimant firms do have very strict risk analysis of cases taken on. Its doubtful whether many of the above would be run – so under the current system you already have a real access to justice problem.
For information, according to figures produced by Benji Pell and published on PA’s Media Lawyer earlier this year:
Out of a total of 69 defamation cases which have gone to trial from 2005 to the end of last year, the claimants have won 49 while defendants have won only 17.
Whatever way you look at this, it is not the case that claimants only run cast-iron winners, and it is not the case that claimants always win.
So that’s 3:1 of cases that get to trial – ie the ones in which we see the very high costs charged as per Marcus Partington’s complaint. On that basis, the uplift should be cut to around 25%, or slightly less given the number of early bailouts that aren’t reflect in the above figures. One might argue that it should fall lower to take account of these early wins, but then with a 25% uplift only, one would probably see many more cases contested, and so the win-ratio would likely change.
The complaint aired in both houses of Parliament was that the figures justifying the 10% fee level are not available, so why was the Govt legislating in a rush? Why not 20% or 35% or 50%?
A question for you: why pretend there simply is not a problem – access to justice – motivating those who argue against your insistence on immediate ill-considered change right now? The supposition that the Carter Rucks, Schillings and Swan Turtons of this world are motivated simply by avarice is an infantile argument. One thing they have over the rest of us is a real insight into the damage to individuals that can be caused by the publication of false or private information.
I also disagreed when you were applauding Jack Straw for speaking out in favour of libel reform, instead of waiting to see if what he was going to say would be good or not.
It's not enough to just want libel reform, you want libel law to be better than it previously was.
"Hence a case that runs the full course to a decision will probably be charged at 100%, but cases that are settled earlier will usually involve a much lower success fee. "
This seems disingenuous to me. Surely one of the reasons cases would be settled before judgment would be for defendants to avoid the prospect of having to pay the 100% uplift. If your resources are limited and your chances of success highly uncertain (as they often are, even in cases which were eventually won by defendants), better to cut your losses early.
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