Libel law is out of control

The Government will have to get to grips with a major threat to free speech next year - and one that is entirely the result of its own policies. Since 2000, it has become increasingly uneconomic for news organisations and other media companies to defend defamation actions brought by claimants who know how to use our flawed libel system.

This law of unintended consequences has a chilling effect on our freedom of expression. It encourages those who may have merely speculative cases to seek damages, costs and an apology. Confident that they will never be out of pocket, they may employ the most expensive lawyers in London.

In the United States, anyone reporting a minor road accident will be besieged by lawyers offering to sue the other driver in exchange for a cut of the proceeds. But these "contingent" fees have been banned in England since 1275.

Instead of receiving a percentage of the damages, lawyers in England and Wales are now permitted to charge an "uplift" or success fee in the cases they win, to "make up" for being paid nothing in the cases they lose.

This is called a conditional fee agreement. The uplift may be as much as 100%, which means lawyers can receive up to double their normal rates.

At first, the uplift was paid by the client. In England and Wales, however, the losing party normally has to pay the other side's costs. So new rules were introduced seven years ago permitting a successful claimant to claim the uplift, in addition, from the defendant.

There is one further complication. Many claimants either cannot afford to pay the defendant's costs if a claim is dismissed or do not want to run that risk. So they insure themselves against it. This is known as after-the-event insurance - or ATE - because it is purchased after the event that gives rise to the claim, in this case the alleged libel.

In theory, ATE insurance should not cost much. If the case is being taken on a no-win, no-fee basis, the claimant's lawyers must be reasonably confident of winning; otherwise they would be working for nothing.

And a high proportion of libel actions are settled, with the defendant paying the claimant's costs in the vast majority of these cases. So there should be little risk of ATE insurers having to pay out.

In practice, ATE insurance in libel cases is hugely expensive. There are just two main companies in the defamation market, each charging up to £68,250 including taxes for just £100,000 of cover.

How can any claimant afford to pay a premium like that? The answer, of course, is that they never have to. ATE policies in libel cases generally carry deferred premiums, which become due only if the claimant is successful. In that event, they can be recovered from the defendant.

Since the person who takes out the insurance does not pay for it, ATE libel insurers can charge astronomic premiums. The cover they provide is generally too low to meet a defendant's likely costs. And insurers may refuse to pay the defendant if the claimant has told lies - which may sometimes be the case if the newspaper has justified the truth of its report.

So even if the newspaper defeats a libel claim, it will have to pay most, if not all, of its lawyers' bills. And if it loses the case, it will also have to pay the claimant's legal fees, plus an uplift of up to 100%, plus a huge insurance premium.

This puts media defendants under great financial pressure to settle cases.

Nearly three years ago, Superintendent Christopher Miller sued Associated Newspapers, publisher of the Daily Mail and the Evening Standard, over articles headlined "Hamilton sex case shambles to cost public £1 million" and "Yard admits it should not have arrested Hamiltons".

The stories were about police investigations into allegations against the former MP Neil Hamilton and his wife Christine, The allegations were entirely false, concocted by a "manipulative liar" called Nadine Milroy-Sloan.

In an offer that Miller's solicitors made to settle the case shortly before the case came to court, the claimant's lawyers made it clear that if he won they would be seeking costs and a notional ATE premium of almost £3.5 million, as well as an apology and damages. In the event, the two newspapers established that their reports were substantially true and they were awarded costs against Miller on an indemnity basis.

Libel costs are now out of all proportion to damages. In June, Associated Newspapers lost a libel claim brought by the Labour MP Martyn Jones against the Mail on Sunday. This simple case largely turned on precisely which offensive term the MP had used in front of a security guard who had asked to see his Commons pass. Jones was awarded £5000 damages, together with his costs. As claimed by his solicitors, the libel specialists Carter-Ruck, these were more than £387,000, including ATE insurance and 100% uplifts for solicitors and counsel.

In addition, the newspaper was responsible for its own costs. Few publishers can risk half a million pounds on a case like this. For many, it is easier to leave readers in the dark by spiking difficult stories, buying off any cases that get through.

In my book Privacy and the Press (2004), I quoted lawyers who argued that a 100% uplift breached the concept of proportionality, an essential ingredient of human rights law. This argument was subsequently addressed in an opinion written for Associated Newspapers by Keir Starmer QC and Anthony Hudson.

Writing last year, they said it was "highly arguable that a system in which costs are awarded against media defendants at a level that is higher than necessary to ensure access to justice...is incompatible with Article 10 of the European Convention on Human Rights" - the right to freedom of expression. The convention also guarantees a fair hearing. But this does not come with a right to legal aid in civil claims. "Still less," the two leading human rights lawyers continued, "is there anything in Article 6 of the European Convention that requires litigants to receive the help of a litigation partner in a very expensive firm in every case."

For more than four years now, media organisations have been trying to reach agreement with claimants' lawyers on ways of ensuring that costs are proportionate and reasonable in libel cases.

These efforts have not been successful, although Carter-Ruck and News International, publisher of The Times, have addressed some peripheral aspects of the problem in a bilateral "draft protocol". In August, the Ministry of Justice launched a consultation exercise to see whether other media organisations would be happy to adopt this approach. My understanding is that they would not. For one thing, the agreement does not deal directly with ATE insurance.

While supporting the other news organisations in a joint submission, Associated Newspapers has submitted its own response to the Government's consultation paper. It is, I am told, gaining increasing support.

The Evening Standard's publisher argues that having to pay claimants' costs at rates of up to £375 an hour has a chilling effect on freedom of expression, even in cases to which conditional fees do not apply. Fees at this level are normally awarded to solicitors in City firms working on commercial, shipping or property disputes in which millions of pounds may be at stake. But libel is not "City" work or anything like it, the publisher says.

A decision given by the Court of Appeal more than three years ago indicates the way forward in defamation cases against newspapers. Costs should be limited or "capped" by a court in advance of the hearing, as Lord Justice Brooke said in the case of King v Telegraph Newspapers.

The Government is willing to restrict legal aid payments where public money is involved. Why shouldn't it limit the legal fees that can be recovered from news organisations where freedom of expression is at stake? Can it be right for a QC in a libel case to be paid £7000 for a day in court, while the same QC, prosecuting or defending a serious case at the Old Bailey, may receive around £600 a day - less than a tenth?

Ministers are relying on competition to drive down the overall cost of criminal legal aid. Competition should also produce enough lawyers willing to take on defamation work for reasonable rates of pay. There may even be some solicitors and barristers in the criminal field who are willing to master a new area of law, as the late George Carman did to such good effect.

All this may look like special pleading by newspapers. It is not. Media organisations accept that access to justice for claimants, represented by well-qualified and competent lawyers, is as important as freedom of expression is for defendants. But the costs should be reasonable and proportionate in each case. Other EU countries manage to handle libel cases much more cheaply with far simpler procedures.

At present, just one day of a libel trial can cost the loser more than £40,000. These cases can last for weeks, enough to put smaller publishers out of business. Tony Jaffa, an Exeter solicitor who represents a large number of regional newspapers, says he cannot remember the last time one of them defended a libel claim in a contested trial. "We now regularly compromise claims simply because of the costs risk," he says. "It will take an exceptional case for a regional publisher to go to trial these days."

MPs should realise the damage this is doing to their local papers. It is not enough for Jack Straw, the Justice Secretary, to tinker with the court rules. Nothing less than full-scale reform is needed if news organisations are to continue in their role as the eyes and ears of the public.