Conditional Fee Agreements (CFAs) and Libel

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Today (18.1.2011), “The European Court of Human Rights today unanimously ruled that the payment of success fees of up to 100 per cent in privacy and defamation cases, under CFA agreements, constitutes a violation of the right to free expression.” (Index of Censorship)

I commented on Twitter that was important and positive news, but others were puzzled. Here is a quick explanation as to why our current CFA arrangements are dangerous for free speech.

First of all, what is a CFA?

CFAs were brought in under “access to justice” reforms … They enable lawyers to take libel cases under no-win, no-fee deals whereby they are compensated for the risk of failure by being able to charge the losing side a 100 per cent uplift on their normal fees.” (Press Gazette)

The good thing about CFA’s is that they enable defendants and claimants in libel cases to fight on when normally lack of funds might force them to back down.

The bad thing about CFA’s is that (by doubling the stakes) claimants can use them to effectively bully defendants into backing down. The balance of libel law is already in favour of claimants, so a defendant is in a doubly horrendous position when facing a claimant armed with a CFA.

Before discussing whether we need to reform CFAs, it is important to mention two reforms that are fundamental, and therefore even more important. First, the balance of libel law needs to be made fairer – this is being tackled by the Libel Reform Campaign. Second, the core costs of libel need to be reduced, and this is being discussed as part of the Jackson Review.

Should we reform CFAs?

Let’s look at three options:

1.      Getting rid of CFAs

2.      Keeping current CFA arrangements with 100% success fees

3.      Reforming CFAs by reducing success fee to, say, 25%


1. Getting rid of CFAs

This is not a serious option. CFA’s encourage access to justice, so very few people will argue for this option. You will often hear the phrase “get rid of CFAs”, but this typically means getting rid of or reducing the success fee associated with CFAs, which is more akin to option (3).

2. Keeping current CFA arrangements with 100% success fees

This helps poor claimants with no resources, and it can also occasionally help poor defendants with no resources.

However, CFAs can occasionally backfire and damage the claimants who seek them. Imagine a claimant who has a CFA and wins; so far, so good. However, at the end of the case, the claimant has to pay his or her lawyer double the normal fee! Of course, this money can claimed back from the losing side, but typically only 75% of the costs are ever recovered. Hence, the claimant is further out of pocket than would otherwise have been the case, because of the CFA.

The biggers problem with CFAs is that they are not only used by impoverished clients, but also by the rich and powerful. These wealthy individuals and corporations adopt CFA relationships with lawyers in order to intimidate lone writers or even large media outlets. Adopting a CFA means that the cost of a libel case will double and will almost certainly exceed £1 million if the case goes to trial. This means that defendants back down and apologise even if they are confident that what has been written is correct.

3. Reforming CFAs by reducing success fee to, say, 25%

I think that this keeps the advantages of the current CFA landscape, while reducing the disadvantages. Let’s look at four scenarios.

(i) Claimant with a strong case

I think claimants will still find lawyers willing to work on CFAs even if the success fee is reduced to only 25%. In fact, the 25% uplift is a fairer reflection of the lower risks associated with a good case. Moreover, the marketplace will adapt and lawyers will have to accept 25% uplift or else remain unemployed. And if one lawyer rejects a CFA deal, then another will accept it if the case is strong. Access to justice is thus preserved.

(ii) Claimant with a weak case

I doubt weak claimants will find a lawyer who will work on a CFA with 25%, but that is probably a good thing. Unless a claimant has a strong case, then he or she should avoid pursuing a libel case that might ultimately be self-destructive. Imagine that a weak claimant loses a case with a CFA; the good news is that there are no costs to pay to the claimant’s own lawyer, but there will still be the costs of the other side, which will certainly be in excess of £100,000.

(iii) Defendant with a strong case

I think defendants with strong cases will find lawyers willing to work on a CFA with 25% success fee, for the same reasons outlined in (i). This will certainly be the case when libel law becomes fairer and defendants are more likely to win than they are today.

(iv) Defendant with a weak case

I doubt weak defendants will find a CFA lawyer, which is exactly the situation today, and which is probably not a bad thing, as explained in (ii).


Some other thoughts

What about defendants or claimants with 50/50 cases. On the one hand, I would argue that a 50/50 case is a weak case, i.e., nobody should start suing for libel from such a haphazard and uncertain starting point. On the other hand, I could imagine many lawyers taking on clients with a 50% chance of success with only a 25% success fee bonus. The alternative for lawyers would probably be twiddling their thumbs, which earns zero fee and zero bonus. Also, if the cost of libel is reduced overall and the process is accelerated (thanks to a reformed and clearer libel law), then a lawyer is more likely to take on a 50/50 client; instead of risking several months of income, the lawyer is risking only a few weeks, and over the course of the year there will be some wins and some losses. The losses will be affordable when we bear in mind that each win could mean that a top libel barrister would earn £800 per hour, with a 25% uplift taking it to £1,000 per hour.

I would add only one more suggestion to revising CFA arrangements; I would suggest that a claimant or defendant would have to prove that he or she could not afford to go to court without a CFA. This would immediately prevent powerful corporations from using CFAs to bully writers.

I am not a CFA expert, so I am keen to hear what the experts think of my argument.

Originally posted on slsingh’s posterous