ECHR decision on Conditional Fee Agreements

10 February 2011
By Michael Hayes

In February 2001, the publisher of the Daily Mirror newspaper (‘MGN’) was sued by Naomi Campbell for breach of confidence and misuse of private information. At first instance, Ms Campbell was successful. The Court of Appeal overturned the decision in 2004 and subsequently, the House of Lords (as it then was) reinstated the first instance decision and Ms Campbell was awarded £3,500 in damages.

MGN was ordered to pay Miss Campbell’s costs of the litigation, in the sum of just over £1 million. £600,000 of this sum related to the House of Lords Appeal in which solicitors and counsel acting for Ms Campbell had acted on a CFA with a success fee.
MGN appealed to the House of Lords (the ‘Costs Appeal’) on the basis that it should not be liable to pay the success fee due to the huge disparity between the amount awarded in damages and the level of Ms Campbell’s costs. MGN argued that the disparity constituted an infringement of its right to freedom of expression under Article 10 of the European Convention on Human Rights (“Article 10”).

MGN was unsuccessful in the Costs Appeal, which was conducted by Ms Campbell’s solicitors on a CFA with a 95% success fee. The House of Lords found that the existing CFA regime, with success fees, was compatible with Article 10, even when used by wealthy litigants. MGN was ordered to pay the costs of the Cost Appeal, which were in the region of £250,000.
On 18 January 2011, the European Court of Human Rights (“ECHR”) found that the requirement that MGN bear the cost of the success fee was disproportionate and a violation of Article 10. MGN’s total costs liabilities were subsequently settled for £500,000.

Four “flaws” in CFAs were particularly noted by the ECHR:
1) The lack of a qualifying requirement for claimants entering into a CFA, so that CFAs can be used by wealthy individuals who are able to pay legal fees;
2) That there is no incentive on the claimant to control costs under a CFA;
3) Than an opposing party would often be “held to ransom” for early settlement due to the excessive costs burden being put on them;
4) That cases funded by CFAs could be “cherry picked” on the basis of their chances of success, which the ECHR considered indicated that recoverable success fees did not achieve the intended objective of providing access to justice to all.

Paying parties in non-defamation/privacy cases will want the principles in this case expanded to all civil cases. However this may prove to be difficult in cases not concerning Article 10, especially if the shield of Article 6 (Right to a fair trial) is used by CFA funded claimants.

The recoverability of CFA success fees was already under attack before the ECHR’s decision in Campbell –v- MGN. However, this decision may hasten the abolition of recoverability which was recommended by Lord Justice Jackson in his review of civil litigation costs. Solicitors will now need to consider alternative ways to fund claims on a basis that Claimants can afford.