Introduction

The European Court of Human Rights has ruled that UK laws allowing the recoverability of success fees in privacy cases violated a newspaper’s rights to freedom of expression. Last week’s landmark decision almost certainly means that later this year the Government will scrap recoverable success fees and ATE insurance premiums in defamation and privacy cases.

What are Conditional Fee Agreements?

CFAs are “no win, no fee” agreements. They were introduced in the 1990s to help provide access to justice following the withdrawal of legal aid, particularly in areas like personal injury. A lawyer acting for a claimant under a CFA is entitled to charge an uplift – called a success fee – if the claimant wins. This success fee can be up to 100% of the lawyer’s original charges. Initially, success fees were paid by the claimant, typically from damages. In 2000 the law was changed to allow success fees and ATE insurance premiums to be recoverable from an opponent.

Reform

In 2010, Lord Justice Jackson concluded a comprehensive review of litigation costs, which included an analysis of claims data from media cases. His report recommended that success fees and ATE insurance premiums should no longer be recoverable from the losing party and should be paid instead by the claimant. In other words, returning to the pre-2000 situation. In November 2010 the Government announced its intention to implement these recommendations, subject to consultation.

The decision in Campbell v MGN

The facts of Campbell are well known. In 2001 the Daily Mirror published a front page article headed “Naomi: I am a drug addict”. In 2004 the House of Lords found, by a majority of 3 to 2, that the publication of details of her treatment for drug addiction together with covertly taken photographs was a disproportionate interference with her right to privacy. She was awarded £3,500 damages, which included £1,000 for aggravated damages.

Campbell’s total costs for the substantive claim were £1,086,295. Of these, £594,470 were for a two day hearing before the House of Lords, comprising base costs of £288,468 and success fees of £279,981. By contrast, The Mirror’s solicitors’ costs were just £43,084. The Mirror challenged the success fees. Campbell’s costs of dealing with this challenge added a further £255,535 on to the costs, which included a 95% uplift for her solicitors.

The Article 10 Argument

The Human Rights Act 1998 incorporated into UK law a right to freedom of expression in Article 10 of the European Convention on Human Rights.

Any requirement on defendants to pay costs or damages in media cases will in theory interfere with this right. To be lawful, any such interference must be (a) prescribed by law; (b) pursue a legitimate aim; and (c) be necessary in a democratic society. The requirement of necessity includes a need for the interference to be proportionate, and to go no further than is necessary to accomplish the objective.

The decision in MGN v UK

On 18 January 2011 – in an unanimous decision – the ECHR ruled that “the requirement that the applicant [newspaper] pay success fees to the claimant [Campbell] 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”.

The ECHR’s decision can be summarised as follows:

  1. The requirement on the Mirror to pay success fees in breach of confi dence proceedings constituted an interference with the newspaper’s right to freedom of expression.  
  2. Recoverable success fees were “prescribed by law” and helped to further a legitimate aim, namely to provide the widest possible access to legal services for civil litigation. The right of effective access to the court is a right inherent in Article 6 of the Convention.  
  3. The requirement that the Mirror pay success fees to Campbell was disproportionate having regard to the legitimate aims sought to be achieved and exceeded even the broad margin of appreciation accorded to governments in such matters.  

In reaching this decision, the court focused primarily on the fl aws in the CFA system, as well as on the facts of the particular case.  

  • It considered the proportionality of requiring a defendant to pay not only the reasonable and proportionate base costs of a successful claimant, but also to have to contribute to the funding of other litigation and general access to justice through a success fee.  
  • It considered whether the system struck a fair balance between Article 6 and Article 10.  
  • It noted that states have a wide margin of appreciation, not only in striking a balance between Articles 6 and 10, but also in implementing social and economic policies, such as the one relating to CFAs. It said it would respect a state’s judgement “unless that judgment is manifestly without reasonable foundation”.
  • It noted that the UK Government itself had accepted that the current system was in need of reform, and considered in detail the consultations and reviews undertaken in the past few years. The court concluded that the “depth and nature of the fl aws in the system… are such that the Court can conclude that the impugned scheme exceeded even the broad margin of appreciation to be accorded to the State”.

As well as ruling that the whole system of recoverable success fees was legally fl awed, the court also criticised the operation of the regime on the facts of this particular case. It found that Campbell was wealthy and not in the category of persons needing assistance with access to justice, and also observed that the success fee would be unlikely to assist Campbell’s lawyers in providing access to justice to impecunious claimants because the fi rm rarely did this type of work.

Other points to note

  • The decision focused on cases involving rights of freedom of expression, such as defamation and privacy. It is unlikely to affect success fees in other types of case.  
  • The decision did not consider the position of recoverability of ATE insurance premiums. These should be treated in the same way as success fees and premiums should be disallowed where they constitute a disproportionate interference with freedom of expression.

What next?

The Government will now almost certainly implement its proposed reforms, and scrap recoverable success fees and ATE insurance premiums in media cases. Success fees and ATE insurance premiums will survive, but will be paid for by the claimant.

In the meantime, the ECHR decision is not directly binding on the UK courts. However, the Human Rights Act 1998 makes it unlawful for a court to act in a way which is incompatible with a Convention right, so the UK courts will have to take the ECHR decision into account when assessing costs.