Mirror Group Wins ECHR Ruling On Fees Against UK

The European Court of Human Rights has ruled that the “no win-no fee” system of payments for lawyers currently in use in the UK is so flawed that it violates the European Convention on Human Rights. In an appeal filed by the Daily Mirror against the UK (MGN Ltd. v. UK), the Court found that conditional fee arrangements, under which the losing side in defamation and privacy cases pays the attorney fees of the winning party are likely to be so ruinous as to chill the likelihood that even meritorious cases might not be brought, interfere with freedom of expression under Article 10 of the Convention. This case grew out of model Naomi Campbell’s winning lawsuit against the Daily Mirror. Further, reviews of CFAs undertaken since the system was put into place note that legal costs have escalated and access to courts has declined.

192.  The applicant’s complaint, as noted at paragraph 157 above, concerns the impact on it of a costs award which, under domestic law, included success fees calculated at almost twice most of the base costs of two appeals to the House of Lords. 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.

193.  The fact, as emphasised by the Government, that the underlying legal regime was “permissive”, in that it permitted a CFA including success fees to be concluded rather than requiring it, does not change the fact that the applicant was required, pursuant to a court order for costs, to pay costs including the impugned success fees to the claimant.

2. Was the interference “prescribed by law”?

194.  The provisions relating to CFAs, the calculation of success fees by a percentage uplift and their recoverability from an unsuccessful defendant are regulated by the 1990 and 1999 Acts, the Conditional Fees Arrangement Orders 1995 and 2000 as well as the CPR and the relevant Costs Practice Directions, as outlined at paragraphs 89-98 above. It is clear, and the parties did not dispute, that the interference was prescribed by law within the meaning of Article 10 of the Convention.

3. Did the interference have a “legitimate aim”?

195.  The essential objective of CFAs, of which success fees recoverable from an unsuccessful defendant were an integral part, were broader than the individual case and were described by the Government at paragraphs 173-175 above. This system was designed to provide a greater range of funding options to allow the widest possible range of people to have a real opportunity to have effective access to legal services and to the courts in relation to as many forms of civil litigation as possible, and to do so via a fundamental re-balancing of the means of access to justice by resorting to private sector funding rather than use of public funds.

196.  The Court recalls that the right of effective access to a court is a right inherent in Article 6 of the Convention (Golder v. the United Kingdom, 21 February 1975, Series A no. 18). While it does not require state assistance in all matters of civil litigation, it may compel the State to provide, for example, the assistance of a lawyer when such assistance proves indispensable for effective access to court, depending on the particular facts and circumstances, including the importance of what is at stake for the applicant in the proceedings, the complexity of the relevant law and procedure and the applicant’s capacity to represent him or herself (Airey v. Ireland, 9 October 1979, § 26, Series A no. 32; and Steel and Morris v. the United Kingdom, no. 68416/01, § 61, ECHR 2005-II and references contained therein).

197.  The Court therefore accepts that the CFA with recoverable success fees sought to achieve the legitimate aim of the widest public access to legal services for civil litigation funded by the private sector and thus the protection of the rights of others within the meaning of Article 10 § 2 of the Convention.

4. Was the interference “necessary in a democratic society”?

198.   The Court will examine whether success fees recoverable against unsuccessful defendants are “necessary in a democratic society” to achieve that aim. In particular, it must consider the proportionality of requiring an unsuccessful defendant not only to pay the reasonable and proportionate costs of the claimant, but also to contribute to the funding of other litigation and general access to justice, by paying up to double those costs in the form of recoverable success fees. The applicant did not complain about having had to pay any ATE premiums of the claimant.

199. This complaint also concerns the question of whether the authorities struck a fair balance between two values guaranteed by the Convention which may come into conflict with each other, namely, on the one hand, freedom of expression protected by Article 10 and, on the other, an individual’s right of access to court protected by Article 6 of the Convention. As noted at paragraph 142 above, this balancing of individual Convention interests attracts a broad margin of appreciation.

200.  Moreover, a wide margin of appreciation is available to a legislature in implementing social and economic policies and the Court will respect the legislature’s judgment as to what is “in the public interest” unless that judgment is manifestly without reasonable foundation (James and Others v. the United Kingdom, 21 February 1986, § 46, Series A no. 98). The Court later described this margin of appreciation as the “special weight” to be accorded to the role of the domestic policy-maker in matters of general policy on which opinions within a democratic society may reasonably differ widely (Hatton and Others v. the United Kingdom [GC], no. 36022/97, § 97, ECHR 2003-VIII). However, if such general measures produce an individual and excessive burden, the requisite balance will not be found (James and Others v. the United Kingdom, at § 50): put otherwise, the Court may not regard as disproportionate every imbalance between the public interest and its effects on a particular individual but will do so in exceptional circumstances, when a certain “threshold of hardship” on the individual has been crossed (Velikovi and Others v. Bulgaria, nos. 43278/98, 45437/99, 48014/99, 48380/99, 51362/99, 53367/99, 60036/00, 73465/01 and 194/02, § 192, 15 March 2007).201.  However, the Court has found the most careful scrutiny on the part of the Court is called for when measures taken by a national authority are capable of discouraging the participation of the press in debates over matters of legitimate public concern (Jersild v. Denmark, cited above, § 35; and Bladet Tromsø and Stensaas v. Norway [GC], cited above, § 64. It is, moreover, not necessary to consider, in any particular case, whether a damages award has a chilling effect on the press as a matter of fact so that, for example, unpredictably large damages awards in defamation cases are considered capable of having such an effect (Independent News and Media and Independent Newspapers Ireland Limited v. Ireland, no. 55120/00, § 114, ECHR 2005-V (extracts)).

202.  The Court notes at the outset that the essential position of the Government was that any disproportionality visited on an individual case by the CFA/recoverable success fee regime was justified by the need to adopt provisions of general application when pursuing broad social and economic policy objectives. They referred to the reasoning of Lord Hoffman who had similarly responded to the applicant’s argument based on the facts of its case namely, that Ms Campbell was wealthy so that a CFA/recoverable success fee was not necessary to ensure her access to court. Lord Hoffman found that the general policy objectives underlying the CFA/recoverable success fees scheme meant that the scheme could not be disallowed solely on the ground that liability of an individual applicant would be inconsistent with its rights under Article 10 of the Convention (relying on the above-cited James v. the United Kingdom case). He considered the scheme to be a rational legislative policy which the Government could adopt as a general scheme compatibly with Article 10 and which the courts had to accept (Lord Hoffman at paragraph 63 above. See also Lord Carswell, paragraphs 72-73 above).

203.  However, one of the particularities of the present case is that this general scheme and its objectives have themselves been the subject of detailed and lengthy public consultation notably by the Ministry of Justice since 2003. While most of this process transpired after the House of Lords judgment in the second appeal in the present case (2005), it highlighted fundamental flaws underlying the recoverable success fee scheme, particularly in cases such as the present. The Court has therefore set out this public consultation process in some detail above (paragraphs 100-120 above) and has highlighted key elements below.

204.  By March 2006 the House of Commons Constitutional Affairs Select Committee considered that the courts should address the question of disproportionate costs in defamation and privacy proceedings and it made certain proposals including cost-capping. No legislative action was taken. The proposal of staged success fees (re-assessing the risk and the percentage of the success fee as the action progressed) was then included in the “Theobalds Park Plus Agreement” drafted by the CJC following mediation between media organisations and claimants’ representatives. The Ministry of Justice agreed with the CJC’s recommendations that the Theobalds Park Plus Agreement could help ensure that costs of litigation were proportionate and reasonable. As a result, in 2007 it sought views on the implementation of the CJC’s recommendations including on a range of fixed staged recoverable success fees. A slightly revised scheme was published with responses to the consultation in July 2008. The media, in particular, did not support the proposals and the scheme was not implemented.

205.  The Ministry of Justice then published a further Consultation Paper in February 2009. It noted that the high levels of legal costs incurred in publication proceedings had been the subject of criticism and debate in the courts and in Parliament; that excessive costs might force defendants to settle unmeritorious claims which in turn threatened a risk to reporting; and that some had argued that it was a risk to freedom of expression. It sought views on measures to better control costs. While certain minor proposals concerning, inter alia, additional information and control of ATE insurance were proposed and introduced (The Civil Procedure (Amendment) Rules 2009), other matters were left open pending the Jackson Review. Amending the prohibition on reviewing the proportionality of the total costs (paragraph 11.9 of the Costs Practice Directions) was principally considered with respect to defamation disputes because it was mainly in those cases that the key problems addressed in the Paper were seen to arise.

206.  The Jackson Review, commissioned by the Ministry of Justice and published January 2010, was an extensive review of costs in civil litigation and it highlighted four flaws inherent in the recoverability of success fees in civil litigation.

207.  The first flaw of the recoverable success fee regime was the lack of focus of the regime and the lack of any qualifying requirements for claimants who would be allowed to enter into a CFA. He highlighted certain anomalies flowing from this.

208.  Secondly, Jackson LJ considered flawed the fact that there was no incentive on the part of a claimant to control the incurring of legal costs on his or her behalf and that judges assessed those costs only at the end of the case, when it was considered too late to control what had been spent.

This concern was highlighted by the third party submissions to this Court by media organisations (paragraph 186 above). The consequent “costs race” and resulting rise in costs were particularly underlined by the judiciary (the King case at paragraph 99 above and by Lord Hoffman in the costs’ appeal in the present case at paragraph 65 above).

209.  The third flaw was the “blackmail” or “chilling” effect of the system of recoverable success fees. The costs burden on the opposing parties was so excessive that often a party was driven to settle early despite good prospects of a successful defence.

This “ransom” effect of the scheme was highlighted during the earlier public consultation processes (see paragraphs 101 and 107 above), by the judiciary in other cases (the Turcu and King cases, at paragraphs 98 and 99 above), in the judgments of the House of Lords in the second appeal in the present case (Lords Hoffman and Carswell, paragraphs 64 and 72 above) and by the third parties (paragraphs 185 and 189 above).

210.  The fourth flaw was the fact that the regime provided, at the very least, the opportunity, it not being possible to verify the confidential financial records of solicitors and barristers, to “cherry pick” winning cases to conduct on CFAs with success fees. The Court considers it significant that this criticism by Jackson LJ would imply that recoverable success fees did not achieve the intended objective of extending access to justice to the broadest range of persons: instead of lawyers relying on success fees gained in successful cases to fund their representation of clients with arguably less clearly meritorious cases, lawyers had the opportunity to pursue meritorious cases only with CFAs/success fees and to avoid claimants whose claims were less meritorious but which were still deserving of being heard.

211.  Jackson LJ went on to point out that these flaws produced in defamation and privacy cases the “most bizarre and expensive system that it is possible to devise” for reasons which essentially concerned the excessive costs’ burden imposed on defendants in such cases.

212.  Jackson LJ therefore recommended to the Ministry of Justice far-reaching reform. He recommended, for all civil litigation including privacy cases, a return to CFAs whose success fees and ATE premiums were not recoverable from the losing party (the pre-1999 Act position), pointing out that the pre-1999 Act arrangements had not suffered from the above flaws and still extended access to justice for many individuals who formerly had none. If that recommendation were to be adopted, a further two recommendations (specifically concerning defamation and privacy actions) were made to ensure the objective of ensuring access to justice for claimants of slender means: increasing the general level of damages in defamation and breach of privacy cases by 10% and introducing a regime of qualified one-way costs shifting, so that the amount of costs an unsuccessful claimant might be ordered to pay was a reasonable amount, reflective of the means of the parties and their conduct in the proceedings.

213.  The subsequent report of the House of Commons of 2010 again recognised similar flaws of recoverable success fees (the “blackmail” effect on the press; “cherry picking” by lawyers so that CFA cases were rarely lost; and the lack of incentive on lawyers or their clients to control costs). It considered that those problems had to be addressed urgently and it proposed to limit the recoverability of success fees to 10% of the base costs with the balance to be agreed between the solicitor and client.

214.  The further Consultation Paper in January 2010 recorded the particular concern of the Ministry of Justice about the impact of 100% success fees in publication cases. It considered that experience over the past decade had shown that, in defamation proceedings in particular, “the balance had swung too far in favour of the interests of claimants and against the interests of defendants” and it noted that the Government did not believe that the “present maximum success fee in defamation proceedings is justifiable in the public interest”. Pending fuller consideration of Jackson LJ’s proposals, the Ministry sought views on a proposal to reduce the maximum uplift from 100% to 10% of the base costs in defamation and privacy cases. In March 2010 the Ministry of Justice confirmed that legislation had been put to Parliament to reduce success fees. Pending a fuller assessment of the Jackson Review which set out a “clear case for CFA reform”, this was only an interim proposal. However, this interim solution was not maintained given the intervening general election in April 2010.

215.  In summary, within four years of the introduction by the 1999 Act of recoverable success fees to the existing CFA scheme, concerns expressed in the industry about consequent excessive costs orders, notably, in defamation and other publication including privacy cases, led to detailed public consultations by the Ministry of Justice and inquiries by Committees of the House of Commons, as well as a far-reaching review of costs in civil litigation commissioned by the Ministry.

The Ministry of Justice acknowledged in that process that, as a result of recoverable success fees, the costs burden in civil litigation was excessive and, in particular, that the balance had swung too far in favour of claimants and against the interests of defendants. This was particularly so in defamation and privacy cases. Not only was the burden on defendants in publication cases recognised as excessive but one of the acknowledged flaws of the scheme – the opportunity for solicitors to “cherry pick” cases evidenced by the success of publication cases run on a CFA/success fee basis – would appear to indicate that the scheme has not achieved the espoused aim of ensuring access to justice of the broadest range of persons.

Of equal importance, Jackson LJ considered that the pre-1999 Act position achieved that aim without overburdening defendants, a point with which a large number of respondents to the 2010 consultation of the Ministry had agreed (paragraph 119 above). Moreover, pending fuller consideration of the broader recommendations of Jackson LJ, the Ministry of Justice introduced legislation as a first step towards solving the acknowledged problems by drastically reducing the maximum success fee to 10%, precisely the core point impugned by the present applicant. However, the Government were unable to ensure the adoption of the legislation and have not indicated whether this or any other legislation has since been proposed for adoption.

216.  The Government relied on the domestic courts’ ability to control costs in publication proceedings through the provisions of the CPR and the Costs Practice Directions. However, the second flaw highlighted in the Jackson Review indicates that those safeguards were undermined by a combination of an uncontrolled “costs race” provoked by the impugned scheme during an action and the difficulty of a court in effectively assessing those costs after the action. In addition, while those provisions addressed the reasonableness of base costs given matters such as the amount at stake, the interests of the parties and the complexity of the issues, Lord Hope underlined that the separate control of the reasonableness of success fees essentially concerned the review of the percentage uplift on the basis of the risk undertaken in the case and that, in an evenly balanced case such as the present, success fees were inevitably 100% (see also Designer’s Guild Limited, cited at paragraph 97 above). Such safeguard provisions could not, therefore, as Lord Hoffman confirmed, address the applicant’s rejection in principle of recoverable success fees calculated as a percentage of reasonable base costs. Moreover, these safeguards relied on by the Government were available throughout the period of public consultation at the end of which the Ministry of Justice accepted that costs were disproportionate, especially in publication cases, so that a drastic reduction in the maximum success fee was required.

217.  The Government did not address in detail the public consultation process, much of which had taken place after their observations were submitted in March 2009. It is also true that attempts by a State to improve a scheme does not mean, of itself, that the existing scheme is in violation of the Convention (Brecknell v. the United Kingdom, cited above, at § 70).

However, the Court considers that the depth and nature of the flaws in the system, highlighted in convincing detail by the public consultation process, and accepted in important respects by the Ministry of Justice, are such that the Court can conclude that the impugned scheme exceeded even the broad margin of appreciation to be accorded to the State in respect of general measures pursuing social and economic interests (the above-cited case of Tolstoy Miloslavsky v. the United Kingdom, at § 50).

218.  This conclusion is indeed borne out by the facts of the present case.

On the one hand, the claimant was wealthy and not in the category of persons considered excluded from access to justice for financial reasons. Her representatives accepted in the domestic proceedings (paragraph 181 above) that they did not do much CFA work, which limited their potential to act for impecunious claimants with access to justice problems. The applicant’s case was not without merit, in that the Court of Appeal and a minority of the House of Lords considered that the impugned articles did not violate Ms Campbell’s right to private life.

On the other hand, and while accepting that the proceedings were lengthy and somewhat complex, the total costs billed by the claimant, as regards the two appeals to the House of Lords alone, amounted to GBP 850,000.00, of which GBP 365,077.13 represented success fees. It is true that the applicant, in the end, reached a settlement of the costs of both appeals paying the total sum of GBP 500,000.00 (base costs and success fees). However, given the findings of the House of Lords and of the Judicial Taxing Officers in the second appeal (paragraphs 70 and 80, respectively) as well as in the similar above-cited case of Designer’s Guild Limited, success fees were clearly recoverable against the applicant and, further, at the rates of 95% and 100% in the first appeal and 95% for the solicitors’ costs in the second appeal. Accordingly, even if it is not possible to quantify with certainty the precise amounts paid by the applicant which can be attributed to success fees, it is evident that the negotiated costs settlements reflected the obligation on the applicant to discharge substantial success fees.

219.  In such circumstances, the Court considers that the requirement that the applicant pay success fees to the claimant was disproportionate having regard to the legitimate aims sought to be achieved and exceeded even the broad margin of appreciation accorded to the Government in such matters.

220.  Accordingly, the Court finds that there has been a violation of Article 10 of the Convention.

Read the entire ruling here.