Seconds out - the fight on costs
King v Telegraph Group Ltd [2004] EWCA (Civ) 613
According to Senior Costs Judge Peter Hurst's preliminary judgment in the costs assessment in Musa King: 'The way in which defamation actions are conducted in the High Court is unnecessarily confrontational and aggressive.'
Indeed, in the boxing ring that is media litigation, punches have long been thrown where the claimant is represented on a conditional fee agreement (CFA). Now the referee has stepped in, giving a warning to the contestants in his judgment of 2 December 2005 that disproportionate costs constitute a punch below the belt that will not be tolerated.
Musa King attracted publicity in legal quarters in the summer of 2004 when the matter came before the Court of Appeal after Mr Justice Eady refused the defendant's application to strike out the claim. Arguing that success was improbable and any order against the claimant - impecunious and without after-the-event insurance - would be difficult to enforce, the defendant asked the court to take 'a dynamic case-management approach' and order a costs cap. Such an order was indeed later made (see [2005] Gazette, 7 April, 24).
Notable for being the first time that the use of a CFA in a media case had been considered by the appeal court, it was also important because of the criticism levelled at the way the case was run. 'Lord Justice Brooke was extremely critical of the way in which the claimant's legal representatives had gone about certain aspects of the claim,' summarised Judge Hurst. And as regards the 'extravagant' costs, Lord Justice Brooke expected a costs judge 'to take an axe to certain elements of their charges if the matter ever proceeds to an assessment'.
Proceed to assessment the case did, having been compromised by consent in May 2004. The terms included £50,000 damages, a statement in open court and the defendant's agreement 'to pay the claimant's reasonable and proportionate costs of the action on the standard basis to be assessed if not agreed'.
Before any detailed assessment of the costs, the costs judge was asked to decide the preliminary issues of proportionality, success fee, and the backdating of a CFA. Judge Hurst has not been backward in coming forward and expressing his weighty view on the way CFA libel litigation is run.
Proportionality
Judge Hurst had 'no hesitation whatever in stating that the claimant's costs in this case, on a global view, appear dispropor-tionate having regard to all the circumstances and in particular the potential level of recovery'.
He rejected the defendant's suggestion that proportionality should be assessed by having regard to the overall costs figure of base costs plus success fee. What costs do not, in fact, appear a little on the heavy side when looked at globally? The correct approach, he held, was to assess whether both items taken separately were proportionate.
Although the issue of vindication in a libel claim has a value over and above the damages awarded, one method of deciding whether the base costs are proportionate is to ask whether the claimant would, had he had to pay for the litigation out of his own pocket, 'have been prepared to pay that level of costs in order to achieve [the] success [achieved]'. Given the base costs claimed in this case were more than £300,000, and on the claimant's own case damages were unlikely to surpass £130,000, it was 'inconceivable' that this test was met.
Success fee
Maintaining a single success fee throughout a case could, if unchecked, lead to over-remuneration of the claimant's lawyers, the defendant argued.
Risks change throughout litigation - usually to the benefit of the claimant by reducing where an admission and/or concession is made by the opposing party - so the success fee should be reduced accordingly.
But Judge Hurst did not buy this. In KU v Liverpool City Council [2005] EWCA 475, it was held that where a claimant and his lawyer have at the outset of a CFA opted for a single success fee, it is not for the court later to impose staged success fees. However, the correct approach is to adopt staged success fees from the outset.
The CFA in Musa King was entered into prior to KU v Liverpool City Council with the success fee decided having regard to the risk involved. Given that defamation has always been 'particularly risky', Judge Hurst endorsed the success fee sought, considering it 'not surprising that they required a 100% success fee'.
Backdating
It is inconsistent with the statutory CFA scheme - which requires CFAs to be unambiguous, with the paying party notified of the arrangement - for a CFA to be backdated, argued the defendant. CFAs are often backdated in practice.
Solicitors wish to assess the merits of the claim and assess the risks and the appropriate success fee before offering a CFA, but they also wish to recover their costs in doing so before the CFA is entered into.
The costs judge did not find this objectionable given that by signing the CFA the client is effectively 'ratifying what has gone before'. Accordingly, 'there seems no doubt therefore that the claimant is entitled to recover base costs from the date when he instructed his solicitors until the signing of the CFA'.
But what he did find unacceptable was to require paying parties to pay a success fee on the costs for this for a period when they were blissfully unaware of their potential liability, and when the claimant's solicitors had not by then assumed any risk.
'It is of great importance that an opposing party should be aware of any additional liability as early as possible' as this 'may fundamentally affect the way in which they choose to conduct the litigation.'
To allow otherwise would be contrary to public policy and would 'fly in the face' of the CFA regulations and the Civil Procedure Rules.
Hourly rates
The decision on hourly rates may have put the cat among libel lawyer pigeons. London is still generally considered to be 'the libel capital of the world', and specialist lawyers situated within that capital have to date been allowed to recover higher hourly rates than colleagues for the same work.
No more. 'City rates for City solicitors are recoverable where the City solicitor is undertaking City work, which is normally heavy commercial or corporate work. Defamation is not in that category,' said Judge Hurst.
While it is difficult to argue against a consistency of approach between lawyers doing the same job, Judge Hurst has effectively levelled the playing field - not by allowing the grass around the central London law firms to grow higher, but by slicing the turf off the fees of those practising in the City. But Judge Hurst's mission to achieve proportionate costs is clear, and he pulls no punches when he says 'a City firm which undertakes work, which could be competently handled by a number of central London solicitors, is acting unreasonably and disproportionately if it seeks to charge City rates'.
Refereeing this bout of libel litigation, Judge Hurst has given defamation lawyers a clear indication of what he considers to be a proportionate way to run libel litigation.
Those sparring before him in future would do well to heed this warning or they may find themselves hitting the tarpaulin on assessment.
Protecting the media
Miller v Associated Newspapers Limited [2005] EWHC 773 (QB)
Once a year, the great and the good from the media defendant legal world, in-house or in private practice, attend the IBC and Richards Butler conference, 'Protecting the Media'. Last autumn, it was addressed by Harvey Kass, legal director of Associated Newspapers.
If what Mr Kass says is anything to go by, the chill wind whipped up by libel claimants on CFAs, threatening the media's freedom of speech, is a force against which the media needs to be protected. But the decision in Miller may be less chill wind than a welcome breath of fresh air for media defendants.
DCI Miller, represented on a CFA, brought a claim over allegations in the Daily Mail and London's Evening Standard that, he said, suggested that his handling of the investigation of two cases of alleged sexual assault and rape - the more celebrated of the two concerning false allegations against Mr and Mrs Neil Hamilton - had been grossly incompetent. The defendant had made a payment into court of £10,000, which could have been accepted up to 6 January 2004.
However, it was not. The defendants incurred their own out-of-pocket costs in the region of £600,000 while the claimant's costs reached approximately £3 million, including a £600,000 'insurance premium' payable to the Police Federation, which insured the matter, had the claimant won.
The defendant sought to justify the articles; not the claimant's meaning that he conducted incompetent inquiries, but that in respect of the Hamilton investigation, he was among those responsible for important failures by detectives, leading to their unnecessary arrest, and in respect of the other that there were reasonable grounds to suspect him of neglect of duty. After a three-week trial before Mr Justice Eady, the claimant lost, with the judge finding that the allegations were substantially true.
The considerations for the court on costs were: should costs be awarded on an issues basis, or should they follow the event - that is, should the successful party be paid its costs by the unsuccessful party? Should the costs be awarded on the standard or indemnity basis? And should the defendant be entitled to interest on the costs awarded?
Lord Justice May in Reid Minty (a firm) v Taylor [2002] EMLR 347 set out the court's approach to such matters: 'If one party has made a real effort to find a reasonable solution to the proceedings, and the other party has resisted that sensible approach, then the latter puts himself at risk that the order for cost may be on an indemnity basis.' Mr Justice Eady found the payment into court to have been a 'significant approach' and by accepting it the claimant could have had 'everything that he could have hoped for by way of vindication'. But, 'with all that this entailed by way of expense and stress for all concerned, with a view to achieving a modest increase in damages' - he had sought various other sums than the payment into court (at one stage slightly less than £50,000 and then close to the trial, £25,000) - he pressed on to trial.
As a result, said Mr Justice Eady - and despite its offer to settle - the defendant 'had to face enormous risks on costs' placing it 'in a very unenviable position'. The judge rejected the claim that the defendant had itself acted unreasonably by rejecting mediation, as he was not convinced on the facts what mediation could realistically have achieved in this case.
Mr Justice Eady concluded that 'in pressing on beyond the offer that was made to him in December 2003 [the claimant's conduct] was unreasonable'. Accordingly, the defendant was entitled to costs on the indemnity basis from the date up to which the claimant could have accepted the their offer.
'The world has gone mad when the cost of defending one article can equal the annual salaries of over 100 journalists,' Mr Kass told the conference. But he may be comforted beyond the particular success of this case that it might also have wider impact, protecting the media as he seeks to do. Claimants - and defendants - are reminded on pain of indemnity costs and interest, of the need to act reasonably in libel litigation, and to make and consider carefully the possibility of settlement.
While CFAs in media cases that provide for a success fee remain lawful and compliant with the European Convention on Human Rights, as the House of Lords has recently ruled in the case of Campbell v MGN (see [2005] Gazette, 3 November, 20), media lawyers will continue to argue that their employers' speech is chilled by them.
But some greater clarification might yet be in the pipeline. At the beginning of November 2005, the constitutional affairs select committee launched an inquiry into the UK's 'compensation culture' and contingency fees, coinciding with the introduction of the government's Compensation Bill.
According to the committee, the inquiry will 'examine the way lawyers' fees are arranged, in particular CFAs and "uplifts", which have been a particular issue in libel cases'.
It will ask itself whether there is indeed a compensation culture in the UK and what effect CFAs may have had. And the inquiry may eventually result in recommendations that will lead to the protection for the media that some lawyers consider is long overdue.
By Amber Melville-Brown, David Price Solicitors & Advocates, London
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