As you may know, Bloomberg News is a global publisher of financial, business and legal news, with more than 1,800 journalists working from 107 bureaus around the world. Much of that news is UK-based and the more than 270 Bloomberg journalists in our London office provide accurate, fair and timely real-time electronic news to financial professionals around the world. Despite our commitment to accuracy, libel litigation and the attendant costs are a reality with which even the most responsible publishers must be concerned.

  In this regard, we hope that our experience as an American publisher with strong British ties might provide a slightly different perspective than supplied elsewhere. As an American company, we are long experienced with the concepts and practice of contingency-fee litigation. It has become a fixture of American law. And so it should be. Our position is that conceptually, allowing contingency-fee cases does indeed provide a greater degree of access to the legal system for those traditionally underrepresented because of socio-economic barriers. In short, we take no position adverse to the goal of allowing all citizens an opportunity to have their damages and deprivations addressed in the courts of law.

  Unfortunately, CFA's as currently practiced in the UK present a cure worse than the disease. Because of the "success bonus" provisions, CFA's have mutated into a windfall for the well-heeled libel litigant. The true cost of these actions is not being borne by media entities, or even their insurers. It is the public who will suffer, because the "chilling effect" of CFA's added costs could force publishers to self-censor news in the public interest.

  The UK system has long had a "loser pays" scheme. Under this arrangement, a media defendant who has been found to have libeled a person pays not only damages, but the claimant's attorney's fees. Thus, the successful litigant has had his day in court, has recovered for his damage, and is not out of pocket for pressing his case. Moreover, his successful lawyer is compensated for the job well done. In short, the system works.

  But under the CFA's "success bonus" scheme, UK lawyers are entitled to tack on an additional fee, sometimes reaching £800 or more an hour, adding hundreds of thousands of pounds to a case. The "success bonus" is a de facto punitive damage award, rather than any form of perceived reward for assuming the risk of taking on a case on a contingency basis. Such a punitive award lacks the moral force of a punishment for willful or intentional wrong adjudicated under principles of due process. American courts have long been reticent in allowing punitive damages in libel cases, because of the high value that our legal system and democracy places on free speech. In one noteworthy case, a US federal court noted that:

Punitive damage awards have within their power not only the ability to punish, but to destroy as well. And although the threat of punitive damages may well deter the false statement, it may deter the truth as well. The mere threat or possibility of a libel action with its vast costs of defense and potential adverse verdict must dampen the enthusiasm for vigorous reporting. If added to that is the specter of punitive damages, awarded with unbridled discretion by juries, then the chilling effect may turn the reporter's zeal to ice.

  Schiavone v Time Incorporated, 646 F Supp. 1511 (DNJ 1986) at 1513. The "vast costs" spoken of in the Schiavone case were present in a matter where the issue at bar involved an allegedly willful and intentional libel. Under the CFA scheme, however, the punitive effect of the success bonus is engaged without regard to the mens rea of the defendant. Punitive damages without commensurate wrongdoing does not comport with due process.

  Aside from the fundamental unfairness of imposing punitive damages in what are essentially negligence cases, the "chilling effect" of such damages also punishes the public, for whom a responsible and free press serves as the eyes and ears. It is the press who examines the goings-on in legislative chambers, halls of government, hospitals and battlefields, and corporate back-rooms, indeed, wherever the public's interest may be decided. It is only a free and critical press that can tell the public about a war in Iraq, about a bomb in Liverpool Street, about hero teachers, horrific mobsters and heartbreaking accidents.

  The House of Lords has already raised in dicta the question of the chilling effect. Lord Hoffman sagaciously noted in Campbell v MGN Limited [2005] UKHL 61 that:

There is no human right to drive a vehicle upon the road free of the cost of litigation arising from road accidents. But there is a human right to freedom of expression with which the imposition of an excessive cost burden may interfere . . . 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.

  Id at ¶19.

  The chilling effect is insidious not only because it throws the censuring blanket of darkness over what is never published, but has also become a weapon of legal extortion. Libel claimants can leverage settlements and retractions of erstwhile justifiable news stories. This is so because media entities, like all corporations, have a fiduciary duty to its shareholders to perform cogent and cautious risk analysis. That analysis is deeply skewed by CFA's. While a defendant willing to defend a libel case might have the financial wherewithal and intestinal fortitude to do so at a cost of £150,000, the risk of loss at trial for £300,000 presents a different picture, and may force even the bravest media defendant to settle an otherwise defensible case. The CFA's success bonus provision appears to serves little other purpose.

  If contingency fees were allowed without the success bonus, claimants' counsel bringing meritorious cases would still be paid. True, those counsel would bear the risk of evaluating whether the case would succeed, but given the extraordinarily high billing rate of UK solicitors (approximately twice that of top-level New York or Los Angeles litigators) it behooves the Committee to ask if that is preferable to making the public shoulder the burden.

  There are some lessons to be learned from the contingency fee experience in the United States. Allowing contingency fees without the success bonus is a fruitful business for lawyers and has put thousands of cases on the US dockets. We have—for better or worse—a court system filled to the brim nationwide with cases brought by the indigent and traditionally underemployed, represented by counsel on contingency fees. These lawyers become experts in their area of law, and work efficiently, collecting on average a third of any damage award. Elimination of the success bonus provision in the UK would not deprive poor citizens of access to the court: it would only require that claimants' attorneys work efficiently. It is also worth noting that any system that acts as a check-and-balance to weed out frivolous cases designed to bring a ransom settlement would be an improvement.

  Bloomberg News again thanks the Committee for the opportunity to raise these issues, and would be glad to provide oral evidence, should the need arise.

Charles J Glasser Jr

Media Counsel

Bloomberg News

November 2005