MGN Limited v the United Kingdom (Application no. 39401/04) 18 January 2011 European Court of Human Rights (ECHR), concerned an alleged breach of Article 10 of the European Convention on Human Rights (the Convention) in relation to the reimbursement of a "success fee" payable under a Conditional Fee Arrangement (CFA). Under Article 10 of the Convention, everyone has the right to freedom of expression without interference. However, this freedom may be subject to restrictions as are prescribed by law and are necessary in a democratic society.

Naomi Campbell had brought proceedings in the English courts against MGN (publisher of the the Daily Mirror newspaper) for damages for breach of confidence. The proceedings eventually came before the House of Lords and MGN was ordered to pay damages of £3,500. MGN was also ordered to pay Campbell's costs of the appeal to the House of Lords, as it then was, and a later appeal in relation to the recoverability of part of Campbell's costs. Campbell's total costs of the appeals were some £800,000, which included a "success fee" of £365,077 payable under a CFA.

MGN applied to the ECHR which had to decide whether there had been a violation of Article 10 of the Convention in relation to the recoverability of the success fee. While the ECHR accepted that success fees under the CFA scheme did have a legitimate aim in providing access to justice, it noted that the scheme had been criticised in the UK by the Jackson Review and in later consultations. In particular, there were concerns that, as a result of recoverable success fees, the costs burden to defendants in civil litigation was excessive and disproportionate. These flaws in the CFA scheme were borne out by the facts of this case. The success fees which Campbell sought to recover far outweighed the amount which she had recovered in damages (£365,077 success fees against £3,500 damages) and were disproportionate. Therefore, despite the legitimate aim of the CFA scheme, it was disproportionate in respect of the costs to defendants and therefore there was a violation of Article 10 of the Convention.

This case raises serious doubts as to the recoverability of success fees in civil litigation, particularly in defamation and privacy cases. The case will of course be of interest to insurers covering the costs of litigation.