Has Strasbourg Court toppled the no win, no fee regime in media cases?

On 18 January 2011, the European Court of Human Rights (ECtHR) in Strasbourg ruled that the costs claimed by supermodel, Naomi Campbell against MGN Limited were ‘disproportionate’ and were in breach of the publisher’s right to freedom of expression under Article 10 ECHR. These costs related to a breach of confidence claim and a costs hearing, in both instances heard by the House of Lords.

At the same time, ECtHR held that there had been no violation of MGN’s Article 10 (Freedom of Expression) rights as regards the House of Lords’ finding of a breach of Naomi Campbell’s confidence.

Following the House of Lords’ substantive hearing on Ms Campbell’s breach of confidence claim, her solicitors served three bills of costs on MGN in the total sum of £1,086,295.47. Her legal advisers represented her on the basis of a conditional fee agreement (no win, no fee) with a success fee. Her costs for the two day House of Lords hearing were £594,470, of which £279,981,35 constituted a success fee. MGN appealed to the House of Lords seeking a ruling that it should not be liable to pay the success fees as such liability was so disproportionate as to infringe their right to freedom of expression under Article 10 of the Convention. The appeal was unanimously dismissed by the House of Lords. Following this hearing, Ms Campbell served an additional bill of costs of £255,535.60, £85,095.78 of which constituted a success fee of 95% on her solicitors’ base costs. MGN subsequently reached a settlement with Ms Campbell’s representatives on the costs of both House of Lords appeals, paying a total sum of £500,000 (base costs and success fees).

In considering the enormous costs, the ECtHR’s judgment tracks the various consultations that have been taking place in the UK over the last few years regarding conditional fee agreements (CFAs). The Court noted that the CFA regime with its success fees has been the subject of detailed and lengthy public consultation notably by the Ministry of Justice since 2003. This process has highlighted fundamental flaws underlying the recoverable success fee scheme, as recently as in 2010, during the Lord Jackson Review on costs:

"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."

In particular, the court accepted that the "blackmail" or "chilling" effect of the system on freedom of expression.

Despite all of this, the UK Government still has not adopted legislation to address the problem. In light of the findings of the various reports, the requirement that MGN pay success fees to the claimant was disproportionate to the legitimate aims sought to be achieved by the CFA costs regime.

The ECtHR noted the various media intervener’s evidence that even in non-CFA cases, costs in the UK were four times higher than in the next most costly jurisdiction, Ireland which in turn was almost ten times more expensive than Italy.

Comment

The case is without doubt, an enormous success for all those who oppose the current CFA system and the chilling effect that it has on freedom of expression.

It remains to be seen how far the judgment can be taken. In this case, the ECtHR appeared to be particularly influenced by MGN’s arguments that (a) Ms Campbell was a wealthy claimant who could have afforded representation other than through a CFA arrangement; (b) the level of costs were hugely disproportionate to the level of damages awarded (£3,500). It would be interesting to know whether the Court would have come to the same decision in a case where it was faced with a more deserving and impecunious claimant who had been awarded substantial damages. What if the success fee had been less than 100% of base costs?

It also remains to be seen whether this decision opens up the floodgates for other defendants to seek to challenge costs rulings, by bringing similar claims against the UK Government. Could this be the beginning of a trend?

If you are currently facing a claim from a claimant represented on a CFA basis, if the circumstances are right, this decision will help you argue on a costs assessment that the overall costs are disproportionate. The ECtHR has made it clear that when assessing proportionality, it’s not just the base costs which are relevant but the overall costs, including success fees.

In the meantime, the UK consultation on Lord Justice Jackson’s proposals for civil litigation funding and costs ends in February 2011. The Ministry of Justice has indicated that it will introduce any necessary primary legislation in the Spring. Following the ECtHR’s ruling, there can be little doubt that legislation is necessary.

Lawyers Lorna Caddy, Niri Shanmuganathan