Conditional Fee Agreements and the fall in the number of defamation claims

Statistics from the Department for Constitutional Affairs show that for many years there has been a steady fall in the volume of claims issued in the Queen’s Bench Division (QBD).

It is generally accepted that this is a result of the reforms introduced by Lord Woolf which have led to a fundamental change in the manner in which civil litigation is conducted.

The adoption of “Pre-Action Protocols” and a “cards on the table approach” result in a very much larger proportion of costs being incurred before proceedings are issued.

At a recent debate at the Law Society in London, attended by 11 key figures in the field of litigation, the immediate past president of the London Solicitors Litigation Association is reported to have said that a protocol letter costs on average £20,000 to prepare with similar costs for dealing with the reply. This encourages early settlement.

In addition, the pressure to participate in some form of Alternative Dispute Resolution (ADR) is increasing.

Compulsory ADR is creeping up on the profession. A scheme has just been introduced in the Central London County Court whereby 20 cases will be selected at random from the court list each week and required to undertake mediation. As the profession becomes more familiar with the use of ADR one might expect earlier settlements.

The fall in the number of cases commenced in the QBD from 2001 to 2002 by 20 per cent may well be as a result of these reforms. However that, in itself, does not explain the greater decline in the number of defamation claims (which are of course issued in the QBD). Over the same period those issued in the Royal Courts of Justice fell from 220 to 128, a fall not of 20 per cent but of 42 per cent.

Might this be attributed to the increasing use of Conditional Fee Agreements to finance defamation claims? A defendant who wins against a claimant pursuing a claim under a CFA faces the prospect of paying his or her own legal costs because the claimant has no money, unless the claimant has after the event insurance.

An unsuccessful defendant faces the prospect of having to pay the claimant’s costs together with a success fee, as well as damages. As recent publications have shown CFAs can give rise to claimant legal costs of as much as £800 per hour. In the case of Adam Musa King-v-Telegraph Group Ltd, Mr Justice Eady acknowledged that a defendant faced with the prospect of paying legal costs in excess of £1m may, for purely economic reasons, make an offer to pay damages of £10,000 to £20,000 regardless of the merits of the claim. Claimant solicitors may take on such cases even when their own assessment of their client’s merits is less than evens. The defendant with a better than evens case may pay the ransom to avoid the punishing costs.

As a claimant can enter into a CFA, even before making a complaint to a newspaper, it is inevitable that many cases never get beyond the first exchange of correspondence regardless of the merits of any complaint.

Lord Woolf intended to create a system where the courts were open to all regardless of means. There must be a genuine concern that the effect of CFAs in defamation proceedings is seriously to undermine that laudable objective.

Jonathan Crusher is a partner in the media team at Farrer & Co.

Jonathan Crusher

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