Conditional fee agreements
Campbell v MGN (No 2) [2005] UKHL 61


Costs issues rarely come before the House of Lords, especially when they relate to conditional fee agreements (CFAs). In Callery v Gray [2002] 1 WLR 2000 the Lords gave leave to appeal, only to decide that they should not intervene after all as the responsibility for developing practice in the field lay with the Court of Appeal.


The Naomi Campbell case, however, came before the Lords effectively as a preliminary issue in the detailed assessment of the costs awarded to Ms Campbell after a three-to-two victory in her substantive appeal. The costs decision did not pursue the usual route through the hierarchy of courts but was decided by the Lords as a court of first instance. It was considered by a panel of five Law Lords in view of the important question it raised.


The case turned on the balance to be struck between access to justice and the right of freedom of expression under article 10 of the European Convention on Human Rights. Ms Campbell had instructed her lawyers on a CFA in the Lords, though not below. The costs claimed by her totalled more than £1 million, for a claim where she had received damages of £3,500. In the Lords alone, the bill, including success fees at the top of the range, exceeded half a million pounds.


In Tolstoy Miloslavsky v UK [1995] 20 EHRR 442, the European Court of Human Rights had held that an award of £1.5 million damages to Lord Aldington infringed article 10, which guarantees the right to freedom of expression 'subject to such... penalties as are prescribed by law and are necessary in a democratic society ... for the protection of the reputation or rights of others'. The court held that the award of damages was so great that it provided a disproportionate penalty that could therefore not be 'necessary in a democratic society'. MGN's argument in Campbell was that the same consideration must apply to disproportionate awards of costs.


The practical logic of this apparently ivory-tower argument is compelling. An editor facing the possibility of an excessive award of damages or costs - if he publishes a story that might just turn out to be wrong - will be deterred from publishing. If he does publish, as soon as he gets a protocol letter notifying him that the claim is being run under a CFA, rational economics will make him back down and apologise even where the paper has a good chance of winning.


If, as in King v Telegraph Group [2005] 1 WLR 2282, the claimant is in addition impecunious and without after-the-event insurance, rational economics dictate that the editor ought to capitulate even if his defence is cast-iron, since if he loses he will be paying up to £800 an hour for the claimant's lawyers' time, and if he wins his opponent will not be able to afford to pay the paper's costs.


Campbell, of course, was not a case of an impecunious claimant, but an apparently rich one (though Ms Campbell's means were in dispute). MGN's argument was that in assessing the balance between access to justice and freedom of expression, the court had to look at the facts of the individual case. While access to justice might trump freedom of expression in the case of a serious libel of a claimant of modest means, freedom of expression should win where the claimant had no need of a CFA to give her access to justice.


The Lords rejected this argument. They held that nothing in the legislation required a solicitor to conduct an inquiry into his client's means before making a CFA, and that it would be impractical for the courts to impose such a requirement, as the criteria for the inquiry would be too uncertain and it would be unfair to penalise a solicitor at the end of the case if the court disagreed with his earlier assessment. Lord Hoffmann said in the leading speech: 'Notwithstanding the need to examine the balance on the facts of the individual case, I think that the impracticality of requiring a means test and the small number of individuals who could be said to have sufficient resources to provide them with access to legal services entitled Parliament to lay down a general rule that CFAs are open to everyone.'


All the Lords, save Lady Hale, agreed, however, with Lord Hoffmann's expression of concern about the 'problems that defamation litigation under CFAs is currently causing and which have given rise to concern that freedom of expression may be seriously inhibited'. He cited in support the facts of Turcu v News Group [2005] EWHC 799 (QB), in which the court dismissed a defamation action funded by a CFA which was brought by a claimant with a false identity - a petty criminal with convictions in at least four countries currently residing in Romania, who had not served a witness statement and could not be cross-examined.


Lord Hoffmann spoke of the 'blackmailing effect' of such litigation caused by &150; in some cases, but not Campbell &150; the fact that costs would often be irrecoverable from an unsuccessful claimant, and, in other cases, the potential for the claimant's solicitor to escalate costs all round. 'Faced with a free-spending claimant's solicitor and being at risk not only as to liability but also as to twice the claimant's costs, the defendant is faced with an arms race, which makes it particularly unfair for the claimant afterwards to justify his conduct of the litigation on the ground that the defendant's own costs were equally high.'


Lord Hoffmann commended costs-capping as suggested in King, but took the view that it was 'only a palliative'. It was possible that the only real solution lay in legislation.


Lord Hope, with whom Lords Nicholls and Carswell agreed, added an important point about proportionality. He said propor-tionality was the ultimate controlling factor in the balance between competing convention rights, and that in that context determination of the proportionality of the success fee, as well as of base costs, was not 'an empty exercise'. This suggests that the routine application of an arithmetically determined success fee to proportionate base costs will be insufficient to meet the requirements of proportionality under convention law.


The conclusions to be drawn from this case depend on point of view. Policy-makers will see a strong statement from the highest court in the land that all is not well with CFAs and, echoing the concerns expressed in Callery, a view that legislation may be required to put things right.


While practitioners will conclude that means are irrelevant to the use of CFAs, which will encourage their use in commercial cases as well, Lord Hope's tantalising comments about the determination of proportionality not being an empty exercise leave scope for argument as to how this applies in practice.


Jeremy Morgan appeared for MGN in the Campbell case




By Jeremy Morgan QC, 39 Essex Street, London