Legal Update 09.12.05

A string of high-profile cases have recently highlighted problems
faced by the media in defending libel actions brought by claimants
instructing their solicitors under a Conditional Fee Agreement.

This
is where the claimant’s solicitors operate on a “No Win, No Fee” basis,
but, if successful, can recover costs from a losing defendant with an
uplift of up to 100 per cent.

In the House of Lords last month,
Lord Hoffmann said that the CFA regime could give rise to a
“blackmailing effect”, particularly where impecunious claimants do not
take out insurance cover to pay the costs of the defendant should the
defendant win at trial and, equally, where the conduct of the
claimant’s solicitors runs up substantial costs and requires the
defendant to run up costs as well.

The Court of Appeal in an earlier case of King v Telegraph Group Limited had said that “the only way to square the circle”

was
by a “costs-capping” order made at an early stage, which would fix a
maximum amount (including any uplift) that the claimant, if successful,
could recover in any event.

Marion Henry has sued the BBC over
allegations of mis-management and manipulation of patient waiting lists
for an NHS Trust, at which she was a senior manager. The BBC pleads
qualified privilege and justification (truth) in the alternative.

Mr
Justice Gray has heard submissions on the privilege defence and at the
time of writing, judgment is awaited. If this fails, there may be a
jury trial on justification next year.

However, last month, the
BBC applied for a costs-cap. From October 2004 to October 2005, the
claimant’s estimate of costs which would be incurred through to the end
of any trial had increased from £360k to £694k, excluding VAT and the
uplift (potentially 100 per cent).

Ms Henry had taken out
insurance against losing and having to pay the BBC’s costs and, if
successful, she could claim the premium as well. This gave rise to a
potential exposure to the BBC in respect of the claimant’s costs,
including VAT, of £1.6m. The BBC’s costs had also increased.

The
judge described the BBC’s predicament as “unenviable”. If the BBC wins
at trial, Ms Henry’s insurance only provides cover of £100k. There is
also a risk that the insurers may not pay out, given various exclusion
clauses in the policy. The claimant has equity in her matrimonial home
amounting to only £117k. There would be a significant shortfall for the
BBC.

If the claimant wins, however, the BBC pays its own costs
and the claimant’s costs plus uplift. The BBC claimed that this was
such an un-level playing field that it inhibited freedom of expression.
The judge held: (1) the case was a “prime candidate” for a
costs-capping order, but the court cannot intervene of its own motion;
(2) the BBC should have been informed by the claimant’s solicitors far
sooner about escalating costs, particularly where a CFA can double
them. The BBC also had a right to know the extent of protection
afforded by the insurance policy and details of any exclusion clauses;
(3) costs-caps are prospective so as to allow parties to plan ahead.

The BBC’s application was made too late and too close to trial and it could penalise the claimant.

The
judge had “every sympathy” for the BBC, but reluctantly declined the
costs-cap. Defendants should avail themselves of every opportunity to
require a CFA claimant to produce detailed costs estimates at
significant stages in the action.

Prevarication will be remedied
by an application to the court. Full details of insurance cover must
also be provided. Only a timely application for a costs-cap may go some
way to square the circle.

Benjamin Beabey is a solicitor in the media team at Farrer & Co who acted for the Sunday Telegraph in King v Telegraph Group

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