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Drugs, Naomi Campbell and conditional fee agreements

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Legalese: A key case involving a supermodel could help architects facing claims, writes Mark Klimt

The recent judgement on supermodel Naomi Campbell’s costs in her action against the Daily Mirror would not at first glance appear to be relevant to claims against architects. However, the timing of the judgement, and its potential application to other claims far removed from this case’s defamation and privacy issues, could amount to good news for you and for your insurer.

In 2002, Campbell successfully sued Mirror Group Newspapers (MGN) for breach of privacy after it printed an article exposing her drug addiction. Following a reversal in the Court of Appeal, the decision was reinstated in 2004 by the House of Lords, awarding Campbell £3,500 in damages and also a seven-figure sum to cover her legal fees, which included a ‘success fee’.

MGN then appealed to the House of Lords, claiming that the success fee was so disproportionate as to infringe the newspaper’s right to freedom of expression under Article 10 of the European Convention on Human Rights. Having been unsuccessful, MGN recently appealed to the European Court of Human Rights.

Campbell employed her lawyers on a conditional fee agreement (CFA) basis, which allows a claimant to engage a solicitor on a ‘no win, no fee’ arrangement. If the litigation is successful, the defendant will be responsible for the claimant’s costs, and also responsible for the significant uplift or ‘success fee’ payable to compensate the solicitor’s willingness to bear the risk of not being paid if the claim had failed.

The intention of CFAs is to give claimants greater access to justice, by enabling the decision to pursue a claim to be based on its merits rather than costs. However, critics of CFAs argue that they have precisely the reverse effect and bring cost considerations to greater prominence, making access to justice less likely. The present CFA legislation is under review, following recommendations from the Jackson committee, so the timing of the European Court’s ruling in Campbell’s case is apposite.

The idea of empowering a class of litigants who were previously denied redress by prohibitively high costs does not apply in all cases. CFA claimants usually take out an insurance policy to guard against liability for the other side’s costs, should their action fail.

Insurers will look very closely at a case’s merits before issuing such a policy, and often CFAs are entered into by parties with commercial acumen and a complex agenda, rather than by people whose lack of means would otherwise deny them the opportunity for justice. Where a claimant has a CFA, the defending party faces severe pressure to settle the claim early (when it is often pleaded at its unreasonable highest), or else face the prospect of a success fee uplift of as much as 100 per cent.

For example, if a CFA claim is brought against you for defects and costs overrun, you know that every day spent investigating the adequacy of your design or the contractor’s critical path results in escalating costs. By the time your insurers have identified a relatively small liability, any sensible settlement proposal would have already been undermined by the disproportionate level of the claimant’s recoverable costs. This makes it simultaneously imperative and impossible to settle the claim. It would also seem to contradict the Civil Procedure reforms’ encouragement to both sides to make an early and candid assessment, and to replace such reasonable analysis with poker-playing.

Returning to Campbell’s case, in deciding that MGN’s liability for the success fee was disproportionate, the European Court recognised flaws in the current CFA system, including the lack of any proper criteria as to entitlement, and the excessive cost burden on a defendant that results in undue pressure to settle, regardless of the merits. The European Court appeared to accept that the costs burden had moved too far in favour of claimants, requiring a significant reduction in success fees. The circumstances of this particular case – a wealthy claimant who would not in any case have been denied access to justice – appeared to underscore the point.

The European Court’s decision concerned the appropriateness of success fees in defamation and privacy cases, rather than whether the level of costs payable is proportionate to the size of the claim (which is a Civil Procedure Rules consideration). However, this decision adds to the clamour for CFAs to be revised.

Commentators have also speculated that the decision could be used to develop more general arguments about costs that have not been properly controlled. Architects facing claims will want to know that the rules of engagement allow those representing them to investigate the claims properly, and to make informed decisions as to liability without cost consequences undermining these endeavours.

Mark Klimt is a partner at Fishburns and specialises in professional indemnity insurance, advising architects and engineers, and defending them against claims. He is legal advisor to the RIBA and operates the RIBA Legal Helpline.

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