CFAs: 'Not designed with libel in mind'

Conditional fee agreements (CFAs) are iniquitous, success fees extortionate – and the lawyers are coining it in. Sound familiar? That’s because it’s what the Association of British Insurers – representing some of our most beloved companies – was saying last month as it sought to pressurise the Ministry of Justice ahead of its decision on the way forward after a consultation.

While media organisations play the freedom-of-expression card as they rail against CFAs, the insurers are appealing to more base instincts – if they have to pay more to defend claims, then the public will have to pay more for insurance.

‘No-win, no-fee’was introduced in 1995 and aims to increase access to justice (including for the rich – it’s hard to design it otherwise). It also saved the Government money as Labour replaced Legal Aid with CFAs for personal-injury claims. Many lawyers resisted CFAs because the idea of having a financial stake in the outcome of a case was anathema and threatened the independence of advice given to the client.

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Obscure arguments

At first, the claimant paid the success fee that solicitors can charge on their regular fees, and the after-the-event (ATE) insurance, which covers the other side’s costs in the event of losing. Where it went spectacularly wrong was in 2000, when the Government allowed the winning claimant to recover the success fee and ATE premium from the defendant so as to ensure they kept most of their damages. Another reason was to allow defendants to use CFAs, and some libel lawyers do offer them this way.

All hell broke loose. The costs war, as it is known, has raged in the courts ever since, with defendants trying ever-more obscure arguments in an effort to get out of paying. Hundreds of thousands of cases – mainly in personal injury – have been affected, and the Government has had to intervene several times in a bid to end hostilities.

Hard though this may be to believe, the policy behind success fees is not to enrich lawyers, even if the reality has been otherwise for some. It is the concept of the

‘basket of cases’– within that basket lawyers have a good number of cases that win (and being good cases, they tend to settle earlier when costs are smaller), and a few that lose (which usually lose later on, after much time and money have been spent). Success fees are meant to even out the losses, and the scheme should discourage poor cases.

The Press Gazette article on 4 April mentions a case in which Associated Newspapers was threatened with legal fees of £3.5m, but ‘fortunately… it won”. Wipe away your tears as you think of the hit the claimant’s lawyers would have taken on that one, but that’s what the basket of cases is all about.

‘It’s also worth mentioning that a 100 per cent success fee (which is the statutory maximum, not a set figure) is pretty rare outside of libel, which reflects just how risky the courts view such cases. Even then you could not justify 100 per cent if it was a patent ‘slam-dunk’claim.

Risky cases

The basket of cases idea also applies to ATE insurers, which is why the argument from media groups – that insurance should not be taken out until you know the claim is going to be defended – is a problem. If insurers are only asked to cover what will be by definition risky cases, then premiums will go up, if they are available at all. Ironically, this could add to the number of impecunious litigants without ATE, when it should be falling because of new-style premiums that are only payable on a win.

In personal injury this could all, some argue, destroy the ATE market. As the Government is currently committed to the CFA/ATE model as the alternative to legal aid in delivering access to justice, there are strong public-policy arguments for continuing the status quo.

It is a testament to the power of the media that, first, the Civil Justice Council – which brokered the deals that calmed the costs war in personal injury – and now the Ministry of Justice has taken on this issue in the first place, because libel is very small beer in terms of the number of cases affected.

But this also offers an opportunity, because an exception could be made for libel without doing much harm to the wider CFA/ATE policy. If there are concerns about damaging the principle, the fact is that CFAs were not really designed with libel in mind.

Neil Rose is a freelance legal journalist and the editor of Litigation Funding magazine



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