Costs and the scourge of conditional fee agreements

As any newspaperman who has ever had the misfortune to lose or settle a libel action knows, damages are often just a small part of the total cost, insignificant compared to the legal costs, both the other side’s and his own.  Now, if a claimant’s solicitor is acting pursuant to a conditional fee agreement (CFA) the outlook is bleaker still. He is entitled to mark up his basic hourly rate by a "success fee", assessed by the solicitor in advance but ultimately reviewable by a costs judge.

Recently, a regional newspaper settled a claim after it had published, in conjunction with an article concerning the arrest of three people in connection with child prostitution offences, a photograph of the wrong house.  A correction had been published immediately the mistake was realised. Eleven months later, prominent solicitors acting under a CFA complained that the occupants of the house had been libelled.  The newspaper had no defence and by return made an offer of amends pursuant to Section 2 of the Defamation Act 1996 which was accepted. In accordance with the offer of amends regime, the parties then negotiated over the precise terms to fulfil the offer and the wording of an apology and the damages to be paid were eventually agreed. Absent agreement, a judge alone would have determined these issues. Costs were a greater bone of contention.

Ironically, according to the claimants’ solicitors’ risk assessment, factors entitling them to charge a 55 per cent success fee included:

l"The fact that a high degree of uncertainty and unpredictability is involved in all libel cases, particularly in view of the fact that a trial is generally by judge and jury rather than judge alone;" and l"The defendants may serve a defence of an offer of amends which would offer them a complete defence unless malice can be proved."

The uplifted hourly rate sought for a partner was £542.50, exclusive of VAT.

The newspaper’s solicitors argued that the case was an entirely straightforward one and that as soon as the offer of amends was made, the claimants’ solicitors were no longer on risk. The costs claim was eventually settled on the basis of a lower basic hourly rate with an additional success fee of 35 per cent, only on costs incurred up to the date of acceptance of the offer of amends.

Perhaps not entirely coincidentally, in a costs assessment only days earlier in another case where an Oofer of Amends had been accepted by the same solicitors, a costs officer had rejected a claim for any success fee on costs incurred after acceptance of an Offer of Amends: a victory then of sorts, but the CFA-funded claimant still wields a mighty costs stick.

Nicholas Alway is a  partner in the media department of Farrer & Co

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