Campbell's soup

The curious case of Naomi Campbell and the Daily Mirror endorses Lord Justice Jackson's conclusion that the current system of CFAs is flawed, particularly in relation to defamation and personal injury claims.

The European decision in MGN Ltd v UK joins the growing number of influential voices calling for reform, making it increasingly likely that the government will scrap recoverable success fees in defamation and privacy.

In February 2001, the Daily Mirror (a subsidiary of MGN) published a largely supportive front page article headed 'Naomi: I am a drug addict'. It contained covertly taken photographs of Campbell near the Narcotics Anonymous centre she was attending, as well as details of her treatment. In response, Campbell began proceedings for breach of confidence/misuse of private information.

The Mirror's response was to publish further critical articles, featuring the heading 'After years of self-publicity and illegal drug abuse, Naomi Campbell whinges about privacy'.

The House of Lords ultimately held that while the publication of the initial disclosure was justifiable as a matter of public interest, the pictures and the text of the subsequent articles had the potential to cause harm and had infringed her right to respect for her private life. In so doing, the House of Lords overturned the unanimous decision of the Court of Appeal and reinstated the decision of Morland J to award Campbell £3,500 in damages and her legal costs of over £1m (MGN's costs were £43,000).

At detailed assessment, MGN submitted that the success fees (95 per cent of high base rates for the solicitors and 100 per cent for counsel) were incompatible with its article 10 right to freedom of expression and had a 'chilling effect' on them as a media organisation, in that they inhibited MGN's conduct for fear of financial penalty.

The case went to the House of Lords '“ on a second success fee of 95 per cent. The House of Lords acknowledged the 'chilling effect' but again decided in Campbell's favour and approved the success fees, diminishing only slightly the hourly rates on which they were based.

Bare bones

In April 2006, MGN took the matter to the European Court of Human Rights, pleading that both the award of damages for breach of confidence, and the award of costs, including success fees, constituted a disproportionate interference with MGN's right to freedom of expression under article 10.

The ECtHR concluded that the House of Lords' finding on the substantive issues and the award of damages was not a violation of article 10 as the interference was prescribed by law and necessary.

In respect of the success fees, the ECtHR accepted that this was an interference with MGN's article 10 rights but that such interference was prescribed by law. It also accepted that the system of CFAs with recoverable success fees sought to achieve the legitimate aim of providing the widest public access to legal services for civil litigation funded by the private sector and thus the protection of the rights of others within the meaning of article 10(2) of the convention.

However, the ECtHR held that the current system constituted a disproportionate interference with MGN's article 10 rights: 'The court considers that the depth and nature of the flaws in the system, highlighted in convincing detail by the public consultation process, and accepted in important respects by the Ministry of Justice, are such that the court can conclude that the impugned scheme exceeded even the broad margin of appreciation to be accorded to the state in respect of general measures pursuing social and economic interests.'

In reaching these conclusions, the ECtHR focused primarily on the flaws in the CFA system. It considered the proportionality of an unsuccessful defendant paying not only the reasonable and proportionate base costs of the claimant but also funding other litigation and access to justice through the payment of a success fee, which, in the instant case, was nearly double those costs (£365,077.13 of £850,000 in total).

In addition, the ECtHR criticised the misuse of the system on the facts of the case. It found that Campbell was wealthy and did not fall through the gap of access to justice that CFAs were originally intended to plug and that her lawyers were unlikely to use the success fee to provide access to justice for financially needy clients.

You say we pay

Clearly this judgment benefits unsuccessful defendants in defamation and privacy cases: it is no longer a case of 'the winner takes it all'.

It also takes some of the pressure off such defendants to settle early. It remains to be seen whether this judgment will provide unsuccessful defendants with assistance in defeating high-level success fees in cases which do not involve their right to freedom of expression.

Although not binding on the UK government, this judgment may expose the government to claims for compensation from parties who, like MGN, have had to pay success fees. This pressure, combined with the existing clamour about CFAs and defamation law generally, means that the government will almost certainly implement its proposed reforms. In the interim, the courts will be obliged to consider the ECtHR's decision, and any claimant seeking to recover or enter into a high-level success fee should tread carefully.

Meanwhile, while the media celebrates all but the privacy part of the ruling, the pro-CFA lobby is fuming that the debate over CFAs has been stifled, alleging that only the media was afforded opportunity to promulgate its view. It argues that the underlying purpose of CFAs, namely to provide access to justice for members of society who could not otherwise afford to pursue their legal rights, should not be forgotten.

Removing such a lifeline for potential claimants (particularly given the swingeing cuts to legal aid) is, arguably, an infringement of their article 6 rights to effective access to a court. However, the ECtHR has already drawn attention to the balancing act required between the conflicting rights contained in articles 6 and 10, and indicated that national authorities will be better placed to decide whether there is a 'pressing social need' for interference with one or the other.

Jackson LJ's suggestion in respect of defamation and personal injury claims is to limit success fees to ten per cent. However, a more flexible alternative could be a new system of CFAs, similar to the defamation proceedings costs management scheme. Under this scheme, costs budgets are provided to the court to ensure that the costs of each party are proportionate to the value of the claim and the reputational issues at stake, rather than the court deciding on the proportionality of the success fee at the end of proceedings, as is currently the case.

In this way it may be possible to balance the interests of both parties. Given the prohibitive expense of funding claims, and the uncertainty surrounding CFAs and indeed ATE insurance premiums, the responsibility now falls upon lawyers to be increasingly inventive when arranging funding for cases generally.