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Conditional Fee Agreements (CFAs) and Libel

January 18, 2011

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Today (18.1.2011), “The European Court of Human Rights today unanimously ruled that the payment of success fees of up to 100 per cent in privacy and defamation cases, under CFA agreements, constitutes a violation of the right to free expression.” (Index of Censorship)

I commented on Twitter that was important and positive news, but others were puzzled. Here is a quick explanation as to why our current CFA arrangements are dangerous for free speech.

First of all, what is a CFA?

CFAs were brought in under “access to justice” reforms … They enable lawyers to take libel cases under no-win, no-fee deals whereby they are compensated for the risk of failure by being able to charge the losing side a 100 per cent uplift on their normal fees.” (Press Gazette)

The good thing about CFA’s is that they enable defendants and claimants in libel cases to fight on when normally lack of funds might force them to back down.

The bad thing about CFA’s is that (by doubling the stakes) claimants can use them to effectively bully defendants into backing down. The balance of libel law is already in favour of claimants, so a defendant is in a doubly horrendous position when facing a claimant armed with a CFA.

Before discussing whether we need to reform CFAs, it is important to mention two reforms that are fundamental, and therefore even more important. First, the balance of libel law needs to be made fairer – this is being tackled by the Libel Reform Campaign. Second, the core costs of libel need to be reduced, and this is being discussed as part of the Jackson Review.

Should we reform CFAs?

Let’s look at three options:

1.      Getting rid of CFAs

2.      Keeping current CFA arrangements with 100% success fees

3.      Reforming CFAs by reducing success fee to, say, 25%

 

1. Getting rid of CFAs

This is not a serious option. CFA’s encourage access to justice, so very few people will argue for this option. You will often hear the phrase “get rid of CFAs”, but this typically means getting rid of or reducing the success fee associated with CFAs, which is more akin to option (3).

2. Keeping current CFA arrangements with 100% success fees

This helps poor claimants with no resources, and it can also occasionally help poor defendants with no resources.

However, CFAs can occasionally backfire and damage the claimants who seek them. Imagine a claimant who has a CFA and wins; so far, so good. However, at the end of the case, the claimant has to pay his or her lawyer double the normal fee! Of course, this money can claimed back from the losing side, but typically only 75% of the costs are ever recovered. Hence, the claimant is further out of pocket than would otherwise have been the case, because of the CFA.

The biggers problem with CFAs is that they are not only used by impoverished clients, but also by the rich and powerful. These wealthy individuals and corporations adopt CFA relationships with lawyers in order to intimidate lone writers or even large media outlets. Adopting a CFA means that the cost of a libel case will double and will almost certainly exceed £1 million if the case goes to trial. This means that defendants back down and apologise even if they are confident that what has been written is correct.

3. Reforming CFAs by reducing success fee to, say, 25%

I think that this keeps the advantages of the current CFA landscape, while reducing the disadvantages. Let’s look at four scenarios.

(i) Claimant with a strong case

I think claimants will still find lawyers willing to work on CFAs even if the success fee is reduced to only 25%. In fact, the 25% uplift is a fairer reflection of the lower risks associated with a good case. Moreover, the marketplace will adapt and lawyers will have to accept 25% uplift or else remain unemployed. And if one lawyer rejects a CFA deal, then another will accept it if the case is strong. Access to justice is thus preserved.

(ii) Claimant with a weak case

I doubt weak claimants will find a lawyer who will work on a CFA with 25%, but that is probably a good thing. Unless a claimant has a strong case, then he or she should avoid pursuing a libel case that might ultimately be self-destructive. Imagine that a weak claimant loses a case with a CFA; the good news is that there are no costs to pay to the claimant’s own lawyer, but there will still be the costs of the other side, which will certainly be in excess of £100,000.

(iii) Defendant with a strong case

I think defendants with strong cases will find lawyers willing to work on a CFA with 25% success fee, for the same reasons outlined in (i). This will certainly be the case when libel law becomes fairer and defendants are more likely to win than they are today.

(iv) Defendant with a weak case

I doubt weak defendants will find a CFA lawyer, which is exactly the situation today, and which is probably not a bad thing, as explained in (ii).

 

Some other thoughts

What about defendants or claimants with 50/50 cases. On the one hand, I would argue that a 50/50 case is a weak case, i.e., nobody should start suing for libel from such a haphazard and uncertain starting point. On the other hand, I could imagine many lawyers taking on clients with a 50% chance of success with only a 25% success fee bonus. The alternative for lawyers would probably be twiddling their thumbs, which earns zero fee and zero bonus. Also, if the cost of libel is reduced overall and the process is accelerated (thanks to a reformed and clearer libel law), then a lawyer is more likely to take on a 50/50 client; instead of risking several months of income, the lawyer is risking only a few weeks, and over the course of the year there will be some wins and some losses. The losses will be affordable when we bear in mind that each win could mean that a top libel barrister would earn £800 per hour, with a 25% uplift taking it to £1,000 per hour.

I would add only one more suggestion to revising CFA arrangements; I would suggest that a claimant or defendant would have to prove that he or she could not afford to go to court without a CFA. This would immediately prevent powerful corporations from using CFAs to bully writers.

I am not a CFA expert, so I am keen to hear what the experts think of my argument.

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6 Comments
  1. Tom permalink

    I’m not sure it’s correct that the alternative to a lawyer taking on a CFA with a 25% uplift is to just sit twiddling their thumbs: the alternative is taking on work on a standard pay basis, rather than a CFA. I’m not sure of the exact proportions of CFA and non-CFA briefs, but there’s certainly a substantial quantity of the latter. Most libel lawyers will also do other media and entertainment work, too, so there will be plenty of other options. If it *is* the case that the alternative to taking on a CFA case is taking on a non-CFA case, then reducing the maximum uplift to 25% has a much more significant effect. It no longer becomes worthwhile for a lawyer to take on any client on a CFA if they assess their chances of success at less than 80% – a hurdle at which many worthwhile cases will fall.

  2. w s permalink

    Lord Justice Jackson’s review was already looking at this point.

  3. Nigel Smith permalink

    We did discuss CFAs at the Inforrm meeting you attended last week. Many of the lawyers present were receptive to the proposals to pay a lower success fee, so long as they received interim payment of part of their costs from the Claimant/Defendant they were representing. It reduces the risk that they would not be paid at all. However, a great many of the CFA clients are incapable of paying even a small percentage of costs. Withdrawing CFAs altogether would not only deny access to justice, but hamper the administration of justice, as litigants would continue to bring claims but without any legal representation.The biggest problem with reducing the success fee is that lawyers would have to refuse many cases that are marginal, on the grounds that they need the 100% uplift to compensate them for those CFAs that lose. I’ve been informed that one in three CFAs is successful. So if the uplift is reduced to 25% as per the Jackson reforms, then CFAs would be very rare and only granted to those almost certain to win, or those with the financial muscle who intended to bully their opponent into submission.The Jackson proposals are that the CFA uplift is 25% of the award, but as awards in the English/Welsh legal system are so small, it would result in an even greater imbalance of access to justice. What is really needed is a root and branch review of the costs. Most defamation cases are handled by London lawyers where costs are hugely inflated. Not only that, but the small amount of work needed to conduct a pre-action protocol can run up a bill of many thousands and dissuade any defendant from settling a claim out of court for a sensible apology. If there was a fixed fee for various stages in defamation claims, then more claims might be settled out of court or by mediation. If the costs are more reasonable, then a CFA might not be necessary unless the litigant is impecunious and likely to win.

  4. ReasonAboveAll permalink

    Re: Nigel Smith above.I’m afraid you can’t have a general interim payment of costs in CFA cases under the current legislation unless the "Win" as defined within the CFA has been achieved: before the WIN occures a solicitor has no ability to bill for their work at all.A lawyer can still ask their client for disbursement monies, but nothing for their own fees.The most common definition of "win" is that an agreement or judgment to pay damages is achieved. Up until that point there is no costs liability for the work of the solicitor.Of course if a Judgment in default occurs or a split trial on liability with damages to be done another day happens AND there is no counter claim / contributory negligence issue that would negate the claimant getting damages then at that stage it is contractually possible to bill your client, or as is more common, make an application for an interim payment from the opponent.But, as stated, this can only happen when the WIN has been achieved and not before.In regard to CFA’s in general the problem is the issue of success fees. My own costs work is roughly 50/50 split between claimant and defendant so I have no particular motive here.The problem is that success fees that are recoverable from an opponent are simply not fair or equitable.If I have a valid case against you, why should the total costs claim against you be dependent upon the size of my wallet? Ms Campebell aside (she should never have been using a CFA in the first place), the work required to deal with litigation does not change depending on the type of retainer used.Success Fees are a good idea and can be fair – but only when that element of the fee is payable by a solicitors own client only. If a solicitor is willing to do perhaps 10 years of work (brain damage injury case for example) and risk not getting a penny, then in consideration for that risk the claimant should be willing to pay more in fees if a win is achieved.The Opponent should not have any responsibility for the success fees at all. The retainer is a private agreement between a solicitor and his own client.CFA’s do allow a great deal of people to have access to justice. In the past I have represented people who have not been able to even pay ??150 on account of costs. Without CFA type retainers they would not have access to justice.Similarly some of these actions only achieve damages of say ??1200.00. Taking 25% of the damages (that would be a contingency agreement and not a conditional agreement) as fees ONLY, vastly reduces the point of the claim, and also means no law firm can afford to employ a competent and qualified lawyer to do the work. In a ??1200 whiplash injury claim, if (as some suggest) the lawyer should not be allowed more than 25% of the DAMAGES in total fees, that is ??300.00. You can’t set the file up and get the initial instructions in for that.That is the problem with the Jackson reforms as they are proposed. It will cheapen the entire practice of law. Professional Negligence Insurers are already having trouble with insuring law firms who have endless barns of barely adult file handlers and as the main thrust of Jackson is to bring in fixed costs between the parties that will only get worse.There seems to be an automatic rejection to the idea of considering older systems, just because they were improved / meddled with already.To make the system much fairer we only have to go back 12 years for inspiration.1) Success Fees to be paid by your own client and not your opponent – and actually make them pay it! A claimaint party must have some personal risk, but there should be a "list" of usual success fees for a type of action. We already have that in Road Traffic / Employers liability etc and by and large it works well.2) Legal expense insurance still recoverable from opponents when purchased early enough. Early means cheap and reasonable. Why allow it? Because it protects from bankruptcy when facing an opponents costs order and means that your opponent actually gets their fees if they successfully defend the action. An Alternative would be to make basic insurance compulsory for beginning an action. It woujld make ‘Security for costs’ the default position. With that security the paying party is an equal beneficiary of the insurance.3) A freeze on the SCCO Guideline hourly rates. They are increasing at an amazing rate. A freeze allows a considered and gradual response to the aim of reducing overheads. There should be no ability at all to claim more than the SCCO rates from your opponent. If a client wants to pay an extra ??50 per hour for a luxury choice, then that is his decision alone.A move to fixed fees from an opponent would be a terrible idea. While Jackson’s intention is that the solicitor will charge their client the shortfall between the allowable fixed fees and the actual work done, most clients can’t afford it, and in many cases the damages will be completely swallowed. In reality the law firms will advertise ‘100% compensation’ and accept only the fixed fee element.And that means your litigation will be conducted by a person who last week was workiing in a call centre.

  5. Nigel Smith permalink

    You make some interesting points. If I could respond:1. If the client is forced to make good the uplift from their award, then there maybe no award left to compensate for the mental anguish that the claimant suffered. In that case, it will only be the lawyers that benefit from any litigation and this will encourage the litigants to DIY with all the commensurate problems this will create for the administration of justice.At the Inforrm meeting the other day, Zoe Margolis indicated that she almost suffered a nervous breakdown in her successful action against the Independent on Sunday. I know from bitter experience that the victim of a defamatory attack can suffer a great deal of stress. This distress is entirely the fault of the defamation author, so it is only fair and equitable that the damages compensate for this injury. However, if the compensation is entirely to the benefit of the lawyers, then many will be persuaded to go it alone, even if this means that their claim is at greater risk.2. I agree that legal expense insurance would assist in paying the opposing side’s costs and should be recoverable. After all, you are protecting your opponent’s financial interests, so it is only fair that they pay for your ‘thoughtfulness’. However, as you point out, some claimants are unable to pay even ??150, so making the premium for the insurance compulsory would deny them access to justice. I’m sure that the premium costs would be reduced if more policies were taken out, but it is still a burden too far for some.3. Costs are the key issue that would assist in settling claims at an earlier date. Many claims would be settled out of court if mediation could be requested following a fixed fee letter. Pre-action mediation could reduce the number of claims that are issued, or clarify the risk that the weaker opponent is accepting (that they will suffer greater costs in the end) if they are intransigent in the face of their opponent’s stronger position.Although I understand your point that if you "pay peanuts, you get monkeys!" the fact remains that far too many actions reach court when they could be settled at an earlier date. If the costs are minimised, then the weaker litigant can withdraw and save face. However, if they refuse to do so, then it is their own risk to their financial well being in the long run.I simply do not believe that it would cost more than 5 minutes to compose a PAP letter. Even if three were necessary, then we should be looking at costs of no greater than 0.25 hrs x ??450 = ??112.50 plus vat. If the matter progressed to a pre-action mediation, then the total would not come to more than ??500. However, if the costs are more than a three figure sum, then the opponent will dig in and fight when they should concede.Strasbourg has decided that 100% uplift is unfair under the current circumstances. Whether they would come to the same conclusion if the loser had been frequently warned of the risk they were taking is another matter. If legal costs insurance was cheaper and more available, then it might be possible for 100% uplift or even 50% uplift to be paid without the litigant suffering unduly.Whilst it is not possible for costs to be billed prior to a judgment or decision, it would certainly assist the legal representatives if some funds were lodged with them prior to the decision, so that they are not risking a total loss for their efforts.

  6. Sam permalink

    Interesting points.I am a claimant in a large High Court PI claim. The defending insurance company has placed its instructing solicitor on a 100% uplift CFA, even though liability has been awarded/conceded in 2008 (accudent in 2002). I am funding my own claim out of my own pocket and using my home as security. Not all individuals who use and abuse CFA are penniless lone claimants…some are mega rich insurance companies with bottomless pockets of money!

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