CFAs and Success Fees for Defamation and Privacy Cases
In the legal spotlight recently are two publishers who have unsuccessfully challenged the inclusion of success fees and after-the-event insurance (ATE Insurance) premiums in their respective costs orders. The Supreme Court, however, will soon consider the issue on appeal.
From 1 April 2013 onward, Section 44 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO 2012) made success fees under a conditional fee agreement (CFA) unrecoverable, except in certain cases. Section 46 LASPO 2012 similarly made ATE premiums unrecoverable, except in certain cases. Publication and privacy proceedings are among the excepted cases for both.
Case law on the recoverability of CFA success fees and ATE premiums offers ammunition for both those who wish to keep these costs recoverable, and those who would rather not pay them. In
Campbell v MGN  UKHL 22, the House of Lords ruled against the publisher Mirror Group Newspapers (MGN), who lost the libel action and sought to reject the inclusion of a success fee in the costs award. The court concluded it would not be a violation of MGN’s right to freedom of expression as a publisher under Article 10 of the European Convention on Human Rights (ECHR) to include a reasonable success fee. The Supreme Court applied the same reasoning to insurance premiums in Coventry v Lawrence  UKSC 50, and ruled that ECHR rights were not infringed by ordering the recovery of ATE costs.
In the midst of the above developments, an undeterred MGN applied to the European Court of Human Rights (ECtHR) for a declaration that their Article 10 rights had indeed been violated. In MGN v United Kingdom  ECHR 66, the ECtHR sided with MGN. The Strasbourg court declared that MGN’s requirement to pay a success fee was disproportionate, that the UK was in breach of its treaty obligations by allowing the recovery of additional liabilities such as success fees and insurance premiums, and set out what the UK need to do to fall in line and comply with the ECHR. The UK higher courts have since given the ECtHR the jurisprudential cold shoulder on this matter and have yet to find the current costs recovery regime incompatible with the ECHR. The House of Lords and Supreme Court decisions of Campbell and Coventry are still binding on the lower courts, even in light of a conflicting ECtHR decision, as per Kay v Lambeth LBC  UKHL 10. Domestic courts in the UK are not bound by ECtHR decisions. As per section 2 of the Human Rights Act 1998 (HRA 1998), UK courts need only take ECtHR decisions into account.
BNM v Mirror Group Newspapers Ltd  EWHC B1 (Costs)
In early 2011, a primary school teacher who had a three-year relationship with a premiership footballer, lost her telephone. She learned that a newspaper owned by MGN ended up with the phone. Though it was returned to her upon request, she was concerned enough to bring proceedings against MGN seeking an injunction to restrain them from publishing any of the confidential contents from the phone. She also sought damages and the delivery up of the phone’s confidential information.
The claimant, anonymised as BNM, instructed Atkins Thomson. She took out an ATE insurance policy indemnifying her up to £165,000 and entered into a CFA with solicitors Atkins Thomson and with counsel. As part of those agreements, her solicitors and counsel were entitled to a 60% and 75% success fee, respectively, in the event of the case settling.
The case settled.
By consent order, MGN was obliged to pay BNM £20,000 in damages, agree not to disclose her confidential information, and to pay her costs. BNM included in her costs the aforementioned success fees and an insurance premium of £58,000 with an insurance tax of £3,480. Before Senior Costs Judge and High Court Master Andrew Gordon-Saker, MGN challenged the inclusion of these costs, arguing that their inclusion would infringe MGN’s Article 10 rights, and that the court would be acting unlawfully within the meaning of section 6 HRA 1998. Master Gordon-Saker asserted that he did not have jurisdiction to make a declaration of incompatibility. Instead, he allowed the inclusion of additional liabilities, citing Coventy and Campbell as binding authorities.
“I have to conclude that an order permitting the claimant to recover from MGN a reasonable success fee would not be a violation of MGN’s right to freedom of expression as a publisher,” Master Gordon-Saker said. Accordingly, he ordered that MGN pay success fees of 33% for both BNM’s solicitors and counsel. After the proceedings concluded, acknowledging MGN’s express intent on taking their argument to the Supreme Court, he stated:
If, as the points of dispute predict, this issue is considered further, I would mention that in April 2013, at the request of the government, a working group of the Civil Justice Council suggested a scheme which could replace the regime of recoverable additional liabilities in publication and privacy proceedings. As yet the government would appear not to have acted on that recommendation.
Miller v Associated Newspapers (unreported)
Associated Newspapers (AN) seem to be sharing in MGN’s fate. After losing a libel action brought by businessman Andrew Miller, AN argued before Mr Justice Mitting that their right to freedom of expression under Article 10 would be breached if they were forced to pay the success fees of Mr Miller’s lawyers and his ATE insurance premiums. AN cited MGN v United Kingdom in support, and Mr Miller opposed citing Campbell. AN failed to dissuade the judge from including the additional liabilities in the costs award.
Barring exceptional circumstances, Mr Justice Mitting concluded, the court was bound to follow the decisions of the House of Lords or Supreme Court, as per Kay v Lambeth. He did not consider there to be any exceptional circumstances in the case before him. In consequence, Campbell was followed, MGN v United Kingdom was considered, and the success fees and ATE premiums were awarded to Mr Miller.
Mr Justice Mitting was, however, sympathetic to AN’s position, in so far as he acknowledged the stark conflict between Campbell and MGN v United Kingdom. He recognised that the case raised arguable points of law of public importance, and so he granted AN a leapfrog certificate allowing a direct application to the Supreme Court for leave to appeal.
The government is sitting on a recommended replacement scheme from the Civil Justice Council that was commissioned nearly three years ago. The Supreme Court is set to consider the issue of the CFA regime in Flood v Times Newspapers. Whether or not these cases are joined to it, it might be a natural time for the government to revisit the replacement scheme it requested. Or the government and the courts can just as easily continue on as they have without meaningfully reacting to MGN v United Kingdom.