England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

		Royal Courts of Justice Strand London WC2A 2LL
		5 February 2016

1. MR JUSTICE MITTING: On 2 October 2008, an article was published on the front page and on page 4 of the Daily Mail. The headline was, in capital letters, "MET BOSS IN NEW "CASH FOR A FRIEND" STORM". The article stated, correctly, that the Metropolitan Police Commissioner, Sir Ian Blair, was a long standing friend and skiing partner of Andrew Miller, ("the claimant"). He was a founding shareholder and managing director of a management consulting company, Impact Plus Limited ("Impact"). The article also stated, again correctly, that Impact had received more than £3 million for work done for the police. The thrust of the article was that Sir Ian had "used public money to pay a close friend a five figure sum, more than £15,000, to sharpen his image" a so-called "vanity contract" and that no other company had been invited to bid for the contract. An enquiry was established, chaired by Sir Ronald Flanagan, which exonerated Sir Ian and the claimant of wrongdoing but its findings were not published. The claimant considered that he had been libelled by the publishers of the article, Associated Newspapers Limited, ("the defendants"), after fruitless informal efforts to secure a published apology, damages and payment of his legal costs, the claimant issued defamation proceedings on 29 September 2009 against the defendants. Before doing so, on 4 September 2009, he entered into two agreements: (1) with his solicitors, to pay them a 100 per cent uplift on their profit costs and on counsel's fees in the event of success after service of the defendants' defence and, (2), with Temple Litigation Advantage, to pay a premium rising to £65,000, plus 6 per cent insurance premium tax within 45 days of the start of any trial to indemnify him against any reasonable costs which he was ordered to pay the defendants, up to £100,000. I am told this policy was issued by the claimant's solicitors under an authority given to them by the insurers. On the same day, the claimant's solicitors entered into a third agreement with counsel then instructed, under which they agreed to pay an uplift of 100 per cent on counsel's normal fees in the event of success after service of the defendants' defence. Smaller percentage uplifts and a smaller premium were payable at earlier stages in the litigation under the three agreements. Agreements (1) and (3) were for success fees and (2), for after the event insurance, ("ATE insurance").
2. On 26 November 2009, the claimant's solicitors gave notice of the agreements to the defendants and also served the Claim Form and Particulars of Claim. Pre-trial proceedings were protracted. On 31 March 2010, Eady J ruled that the article was defamatory of the claimant but did not have the defamatory meaning for which he then contended: that he had entered into; a corrupt contract with the Metropolitan Police Service. He gave permission to the claimant to amend the Particulars of Claim. Amended Particulars of Claim were eventually served on 29 June 2010. The defence was served on 12 July 2010. Therefore, from that point on under the agreements entered into by the solicitors and counsel originally instructed, their fees were to be uplifted by 100 per cent in the event of success.
3. On 28 July 2011, Orders were made for extensive disclosure by the Metropolitan Police Service, for trial by judge alone and for prior determination of the defamatory meaning of the article. On 11 November 2011, Tugendhat J determined the defamatory meaning of the article: there were reasonable grounds to suspect that the claimant was a willing beneficiary of improper conduct and cronyism because of his friendship with Sir Ian. The defendants' defence was that the words were substantially true. The defendants did not additionally rely on the defence of responsible journalism. On 9 March 2012, the claimant's solicitors entered into a further agreement with new counsel, who was to conduct the claimant's case at trial for an uplift of 82 percent of his normal fees in the event of success. This percentage was based on his assessment of the prospects of success as a little better than even, or 55 per cent.
4. On 15 May 2012, after an exchange of correspondence, the defendants agreed to limit their costs to £360,000 in the event that they succeeded. The claimant entered into a further agreement with the same insurers, on a date that I do not know, to increase cover to £360,000. The total premium payable was £234,000, plus 6 per cent insurance premium tax. That sum became payable from a date 45 days before the start of the trial. The trial took place before Sharp J between 21 and 25 May 2012. She handed down a reserved Judgment on 21 December 2012. She found that the evidence did not support any suspicion of wrongdoing or that the contracts were improperly awarded to Impact and did establish that Impact had done a good and valuable job for which it was appropriately paid. She awarded damages of £65,000, including aggravated damages to the claimant. Judgment was formally entered on 15 March 2013 in that sum and for costs to be paid by the defendants on the standard basis until 11 January 2012 and on the indemnity basis, thereafter, because the claimant had beaten the terms of his Part 36 offer. An appeal to the Court of Appeal was dismissed with costs on the standard basis in a Judgment handed down on 24 January 2014. Success fees for solicitors and counsel were agreed in respect of the appeal, as well as at first instance; 100 per cent for the solicitors and 80 per cent for counsel.
5. A petition for permission to appeal to the Supreme Court was refused on 13 February 2014. The substantive litigation then concluded. The claimant applied to a costs judge for the assessment of his costs, including success fees and the ATE premium. Base costs were claimed in a sum over £800,000 but were, eventually, compromised at £633,006.08. That left outstanding the claimant's claims for success fees and the ATE premium. The defendants dispute liability to pay any part of those claims.
6. On 9 November, 2015, Master Gordon Saker referred the following question to a judge of the Queen's Bench Division:

"Whether the award of additional liabilities to the Claimant would be incompatible with the Defendants' right of expression as a publisher under Article 10 of the European Convention of Human Rights"

I heard succinct and helpful submissions from Mr Miller QC, for the defendants, and Mr McCormick QC for the claimant yesterday, 4 February 2016. This is my judgment on those submissions. Mr Miller submits, on the basis of a Judgment of the Strasbourg Court in MGN Limited v United Kingdom [2011] 53 EHRR 5 that the award of both success fess and the ATE premium would infringe the defendants' rights under Article 10, ECHR, and should be disallowed. Mr McCormick makes three submissions. (1), on a proper understanding of the scheme under which both may be recovered, the defendants' Article 10 rights are not infringed. (2), I, as a first instance judge, am, in any event, bound by the decision of the House of Lords in Campbell v MGN Limited (No.2) [2005] UKHL 61 to determine that the award of success fees to the claimant should, in principle, be made. (3), I should determine that, in any event, the ATE premium should be awarded.

7. It is common ground that the scheme which I have to consider is that which was considered by the House of Lords and the Strasbourg Court. It was contained in primary legislation, the Civil Procedure Rules, and a practice direction made under s.5.(1) of the Civil Procedure Act 1997. The primary legislation is contained in s.58A(6) of the Courts and Legal Services Act 1990 and s.29 of the Access to Justice Act 1999. Section 58A(6) provides:

"A costs order made in any proceedings may, subject in the case of court proceedings to rules of court, including provision requiring the payment of any fees payable under a conditional fee agreement which provides for a success fee."

Section 29 provides:

"Where in any proceedings a costs order is made in favour of any party who has taken out an insurance policy against the risk of incurring a liability in these proceedings, the costs payable to him may, subject in the case of court proceedings to rules of court, include costs in respect of the premium of the policy."

A general discretion to order one party to the pay the costs of another is conferred by CPR 44.3(1). The factors to be taken into account in deciding the amount of costs are set out in CPR 44.5. The basic principle is that the costs must be proportionate and reasonable. Additional provision is made for "additional liabilities" under "funding arrangements" as defined by CPR 43.2, to include an additional percentage payable as a success fee and the amount of an ATE premium. This additional provision is made in CPR 44.3A and B. Success fees and ATE premiums may not be assessed until the conclusion of proceedings, CPR 44.3A(1), and are subject to the limits on recovery specified in CPR 44.3A and B. For present purposes, those in 44.3B(1)(c) and (e) and parts of the practice direction are relevant. CPR 44.3B(1) provides:

"Unless the court orders otherwise, a party may not recover as an additional liability - …(c) any additional liability of any period during which that party failed to provide information about a funding arrangement in accordance with a rule, practice direction or court order…(e) any insurance premium where that party has failed to provide information about the insurance policy in question by the time required by a rule, practice direction or court order (paragraph 9.3 of the practice direction (pre-action conduct) provides that a party must inform any other party as soon as possible about a funding arrangement entered into before the start of proceedings.)"

The relevant paragraphs of the practice direction are 11.7 to 11.10:

"11.7. When the court is considering the factors to be taken into account in assessing an additional liability, it will have regard to the facts and circumstances as they reasonably appeared to the solicitor or counsel when the funding arrangement was entered into and at the time of any variation of the arrangement.

11.8. In deciding whether a percentage increase is reasonable, relevant factors to be taken into account may include:

(a) the risk that the circumstances in which the costs, fees or expenses would be payable might or might not occur;

(b) the legal representative's liability for any disbursements;

(c) what other methods of financing the costs were available to the receiving party.

11.9. A percentage increase will not be reduced simply on the ground that, when added to base costs which are reasonable and (where relevant) proportionate, the total appears disproportionate.

11.10. In deciding whether the costs of insurance cover is reasonable, relevant factors to be taken into account include:

(1) where the insurance cover is not purchased in support of a conditional fee agreement with a success fee, how its costs compares with the likely costs of funding the case with a conditional fee agreement with a success fee and supporting insurance cover;

(2) the level and extent of the cover provided;

(3) the availability of any pre-existing insurance cover;

(4) whether any part of the premium would be rebated in the event of early settlement;

(5) the amount of commission payable to the receiving party or his legal representatives or other agents."

8. These domestic provisions must be considered against the requirements of Article 10 ECHR:

"(1) Everyone has the right to freedom of expression. This right shall include freedom to hold opinions and to receive and impart information and ideas without interference by public authority and regardless of frontiers. The Article shall not prevent States from requiring the licensing of broadcasting television or cinema enterprises.

(2) The exercise of these freedoms, since it carries with it duties and responsibilities, may be subject to such formalities, conditions, restrictions or penalties as are prescribed by law and are necessary in a democratic society in the interests of national security, territorial integrity or public safety for the prevention of disorder or crime, for the protection of health or morals, for the protection of the reputation or rights of others, for preventing the disclosure of information received in confidence or for maintaining the authority and impartiality of the judiciary."

Success fees

9. Naomi Campbell recovered damages of £3,500 for breach of confidence and of her rights under Article 10 ECHR when photographs covertly taken of her leaving a counselling session for her drug addiction were published. The award was eventually upheld by a majority in the House of Lords [2004] 2 AC 457. Her total costs, including a success fee in the House of Lords only, but not an ATE premium were claimed in the sum of £1.086 million. Costs in the House of Lords were taxed on the same principles as those on which they were required to be assessed under CPR 44.4 and 44.5. MGN submitted that it should not be required to pay any part of the success fee in the House of Lords. The House of Lords unanimously dismissed their submission in Campbell v MGN Limited (No.2) [2005] UKHL 61. The leading speech with which all of their Lordships agreed was given by Lord Hoffmann. MGN's basic submissions were summarised by him in paragraph 6 of his speech:

"By a petition presented to the House on 21 February 2005, MGN seek a ruling of the Appeal Committee that they should not be liable to pay any part of the success fee on the ground that in the circumstances of this case, such a liability is so disproportionate as to infringe their right to freedom of expression under Article 10 of the Convention."

Having cited an academic article which referred to a success fee as a penalty, Lord Hoffmann explained the policy behind the 1999 Act in paragraph 16:

"I am not sure that "penalty" is quite the right word but there is no doubt that a deliberate policy of the 1999 Act was to impose the cost of all CFA litigation, successful or unsuccessful, upon unsuccessful defendants as a class. Losing defendants were to be required to contribute to the funds which would enable lawyers to take on other cases which might not be successful but would provide access to justice for people who could not otherwise have afforded to sue."

He noted the effect on the position of the media and their Article 10 rights in paragraph 19:

"It is the effect which the threat of heavy liability may have upon the conduct of a newspaper in deciding whether to publish information which ought to be published but which carries a risk of legal proceedings against it."

He then cited Tolstoy Miloslavsky v United Kingdom [1995] 20 EHRR 442 in which the Strasbourg Court held that an award of damages of £1.5 million infringed the defendant's rights under Article 10:

"The court was concerned with the indirect effect of a high level of damages awards upon the ordinary bona fide work of the media."

He then noted a significant countervailing consideration in paragraph 20:

"The speeches in the substantive proceedings in this case discuss the relationship between the rights of the Daily Mirror under article 10 and Ms Campbell's right to preserve the confidentiality of personal information. This right is one of the means by which our law protects the right to respect for private life guaranteed by article 8 of the Convention. The availability of legal services under a CFA is necessary to provide the access to a court required by article 6 and thereby give litigants an effective means of enforcing their rights."

He then dealt with MGN's two arguments in paragraphs 22 to 27. Having reviewed the circumstances in which it might be necessary under Article 6 for the state to provide support to litigants to permit them to bring cases in respect of Convention rights, he said the following at paragraph 22:

"It is however not necessary to decide that article 6 positively requires legal assistance in actions for defamation and the like in order to come to the conclusion that the provision of such assistance is a legitimate objective which, unless it amounts to a disproportionate burden, a member state is entitled to consider necessary in a democratic society. In principle, MGN accept this argument. But they say that in the circumstances of this case, an award of costs increased by a success fee is for two reasons disproportionate. First, they say that it is necessarily disproportionate because it is more than (and up to twice as much as) the amount which, under the ordinary assessment rules, a costs judge would consider reasonable and proportionate. Secondly, they say that it was not necessary to give Ms Campbell access to a court because she could have afforded to fund her own costs, as she did at the trial and in the Court of Appeal."

He went on to dismiss the first contention on the basis that it confused different concepts of proportionality and the second on the basis that it was, as he noted, MGN "do not really deny" open to Parliament to choose to fund litigation in this way. His overall conclusion was set out in paragraph 28:

"It follows that in my opinion the success fee as such cannot be disallowed simply on the ground that MGN's liability would be inconsistent with its rights under article 10. The scheme under which such liability is imposed was a choice open to the legislature. Mr Spearman QC, who appeared for MGN, suggested various ways in which words might be read into article 3 of the Conditional Fees Order 2000 (which lists the proceedings for which CFAs are available) or CPR 44.3B (which provides for the recovery of success fees) to make them compatible with article 10 by excluding cases such as this from the scope of CFAs or by disallowing the success fees. But in my opinion there is no need for such measures because the existing scheme is compatible."

10. The basis of the reasoning of the House of Lords included, in my judgment, the following: (1) The principles of taxation in the House of Lords were the same as the principles of assessment under the CPR. (2) Parliament was entitled to choose a scheme which included success fees and produced a potential liability for costs substantially in excess of base costs and vastly in excess of the damages awarded. (3) The scheme was compatible with MGN's Article 10 rights. Each step in this reasoning was part of the ratio decidendi which, on classical principles of precedent, binds me in determining the proper approach to success fees at first instance.
11. The Strasbourg Court's analysis in MGN v United Kingdom [2011] 53 EHRR 5 is very different. By then, experience of the operation of the scheme in defamation cases had led Jackson LJ, in his review of 2010, to conclude that it was "the most bizarre and expensive system that it is possible to devise". It also led the Ministry of Justice to conclude, in a consultation paper in 2010, that it was not justifiable in the public interest, that it imposed an excessive burden on media defendants and that it had not achieved the aim of ensuring access to justice of the broadest range of persons. Both conclusions were set out at length in the text of the Strasbourg Court's Judgment. Its overall conclusion was stated in paragraph 17:

"However, 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."

That summarised its conclusion that it was not necessary in the interests of a democratic society that the scheme should exist in the form in which the court considered it.

12. There is, therefore, a stark conflict between part of the ratio of the Supreme Court and the clear ruling of the Strasbourg Court. In such circumstances, my duty is to follow the decision of the Supreme Court unless the exceptional circumstances identified by Lord Bingham in paragraph 47 of his speech in Kay v Lambeth London Borough Council [2006] 2 AC 465 at page 497H obtain (see paragraph 64 of the Judgment of Lord Neuberger in The Queen on the application of RJM v Work and Pensions Secretary [2009] 1 AC 311 at page 333B to D). The exceptional circumstance identified by Lord Bingham does not apply on the facts of this case. I am, therefore, bound to and do hold that the scheme for success fees was compatible with the defendant's rights under Article 10. The issue will be open in the Supreme Court. Mr McCormick has in his skeleton argument advanced cogent reasons to show that the appreciation of the Strasbourg Court in MGN v UK was inadequately informed and its conclusion mistaken. The majority of the Supreme Court in Lawrence v Fen Tigers Limited (No.3) [2015] UKSC 50 acknowledged that there was "a powerful argument that the 1999 Act scheme is compatible with the Convention" (see the Judgment of Lord Neuberger at paragraph 64). No good purpose would be served by adding my, as yet, inadequately thought out views to the debate. I intend to take the appropriate step, the grant of a certificate to permit the Supreme Court to resolve the issue, if it chooses to do so.

The ATE premium

13. Mr Miller submits that the ATE premium should be treated simply as an additional unjustified burden on publishers in defamation cases and condemned for the same reason as success fees. This is not an issue upon which I am bound by a prior decision of an appellate court. However, I do not agree with Mr Miller's submission. There is a different statutory source and the social considerations which underlie s.29 of the 1999 Act, while they overlap those which underlie s.58.6, are not identical. Further, it is possible to envisage an outcome in Strasbourg under which the success fee regime remains condemned but the ATE insurance scheme is not. It is, therefore, necessary to consider it on its own merits. My consideration of the issue is somewhat hampered by the approach taken until yesterday by both sides. The ATE premium issue was lumped together with the success fee issue, in part to ensure that a clear issue of principle was decided rapidly, in time to permit the Supreme Court to direct if it thought it appropriate, that this case should be determined at the same time as a pending hearing on a related costs issue, scheduled to be heard later this year. I make no criticism of the parties for adopting this approach but it does mean that I have to determine the issue without evidence or considered submissions about the functioning of the market for ATE insurance and its effect on defamation litigation. Mr Miller and Mr McCormick have done their best to fill the gap by telling me about their understanding of how the market works. Mr Miller said that in most cases, lost by defendant publishers, costs payable under the scheme as a whole are divided roughly equally between base costs, success fees and ATE premiums, with the result that unsuccessful defendants are usually required to pay a total sum by way of costs which is three times that of the base costs. If so, that would suggest that a defendant's costs of defending defamation proceedings will normally exceed a claimant's base costs by about 50 per cent because the ATE premium is, according to both Mr Miller and Mr McCormick, invariably fixed at 65 per cent of the costs liability covered.

14. I doubt that Mr Miller's submission would be borne out by a thorough examination of the market but if it is correct, it would suggest that the ATE scheme might serve a legitimate social purpose in mitigating the risks incurred by claimants, allowing them to vindicate their rights under Article 8, by reducing the imbalance of risk on costs in such litigation. Mr McCormick tells me that there is a dominant ATE insurer in the market. This does not accord with the evidence collected by Jackson LJ and published in chapter 9 of his final report of January 2010. I was also puzzled that the ATE premium was 65 per cent of the covered costs liability when the claimant's prospects of success were assessed at better than 50:50 but chapter 9 of Jackson LJ's Report provides the answer; only 65 per cent of the premium covers the risk taken by the insurer. The remainder goes on brokerage and administration. It also includes a "self insurance" premium. If so, the premium is more closely aligned with the risk assumed by the insurer than I had thought. Both Mr Miller and Mr McCormick agree that a feature of the market is that a claimant never pays the premium. It must therefore be included in the sums recovered from unsuccessful defendants. I am conscious of the fact that I do not have a clear understanding of the economics of the market for ATE insurance, which include puzzles which I cannot resolve.

It is, however, not necessary for me to resolve them because issues of this type have already been considered by the Court of Appeal in Rogers v Merthyr Tydfil County Borough Council [2007] 1 WLR 808 in which the Court of Appeal ruled as follows, in paragraph 107:

"If the Court concludes that it was necessary to incur the stage premium, then, as this Court's Judgment in Lyons case [2002] 1 WLR 240 shows, it should be judged a proportionate expense. Necessity here is we think not some absolute litmus test, it may be demonstrated by the application of strategic considerations which travel beyond the dictates of the particular case but it may include, as we are persuaded it does, the unavoidable characteristic of the market in insurance of this kind. It does so because this very market is integral for the means of providing access to justice in civil disputes in what may be called the post legal aid world."

The Court was not there considering proportionality in the Strasbourg sense but in the sense in which it is used in simple English, meaning out of proportion. What the Court decided on the facts of that case, was that the insurance premium, even though it substantially exceeded the amount recovered by way of damages, was not out of proportion to the risks and interests at stake in the case.

14. No issue is taken in this case as to proportionality. Other than the impact on the defendant's Article 10 rights of the ATE premium of £243,000. I need, therefore, not further address or attempt to analyse this issue. Mr Miller's challenge is not to the application of the ATE scheme on the facts of this case or to the reasonableness of the premium paid but to its compatibility as a scheme with Article 10. This, I can deal with on the basis of adequate material. The rationale for the scheme overlaps that of the provision for success fees. It included enhancing access to justice by removing a powerful disincentive to claimants who consider that they have been defamed, namely their potential liability for the defendant's costs. There is a close similarity between that and the removal of another powerful disincentive, the liability for a claimant's own costs in the event of failure. To that extent, the rationale for the two schemes is similar but the rationale for the ATE scheme differs in one very significant respect from that advanced by the United Kingdom in MGN v UK to justify success fees, namely enhancing access to justice by persons other than the claimant in the litigation under consideration by encouraging lawyers to fund the risk of taking on doubtful cases out of the profits made on successful ones. Further, the controls on ATE premiums are greater than on success fees, and the need for and the size of the premiums payable can be influenced by the defendants. CPR 44.3(b), (c) and (e) and the practice direction require claimants to notify defendants about an ATE insurance policy within a specified time. The defendants can then, in effect, dictate the maximum level of the premium by agreeing not to claim costs above a fixed amount, as happened in this case, or to remove the need for insurance at all by agreeing to make no claim for costs. Mr Miller suggests that this unfairly interferes with the defendants' Article 10 rights and that a scheme which has that effect is outwith the margin of appreciation available to the United Kingdom. That submission, is, in my judgment, ill founded. Publishing allegedly defamatory material about an individual carries with it an unavoidable risk as to costs. Giving the option to a publisher to bear its own costs, even if successful, is not so disproportionate a disincentive to freedom of expression as to be without the margin of appreciation allowed to the United Kingdom. Further, by the practice direction, paragraphs 11.7 and 11.10, the court retains control over the reasonableness of the costs of insurance. That control is unaffected by the prohibition in paragraph 11.9 on reducing "a percentage increase", simply on the ground that the total appears disproportionate for the simple reason that an insurance premium is not "a percentage increase" but a cost not calculated by reference to a percentage of base costs.
15. Applying the three tests required by Article 10, it is not in dispute that the scheme for recovery of an ATE premium is prescribed by law and that it serves a legitimate social purpose. I am satisfied, that it is necessary in a democratic society that a scheme such as this should exist. It is necessary to permit a claimant who contends that he has been defamed by a newspaper article to vindicate his rights under Article 8, because his reputation is a feature of his private life, by litigation where the risks of the litigation for him are not unacceptably high. I am satisfied that the burden imposed by the ATE premium scheme on defendant publishers is not so large and not so lacking in appropriate controls as to amount to a disproportionate interference in their right to freedom of expression. I do not, on the material which I have considered, believe that the Strasbourg Court, when faced with this as a discrete issue, would conclude that the UK scheme was outwith the margin of appreciation allowed to the United Kingdom. For those reasons, my answer to the question referred to me is that the award of additional liabilities to the claimant would not be incompatible with the defendant's right of expression as a publisher under Article 10.

(11.55)