The Rt Hon Karen Bradley MP, Secretary of State for Culture, Media & Sport

10 January, 2017

Dear Secretary of State,

Please consider this document the formal response from The Financial Times Ltd (“the FT”) in respect of the consultation (“the Consultation”) instituted by the Department for Culture, Media & Sport (“DCMS”) closing on 10 January 2017. We have submitted a response to the Questionnaire, but this document answers the narrative questions asked, and seeks to explain the reasons for our response.

Before setting out our views in full, we would like to make a few preliminary observations to offer context to the debate about media regulation in the UK.

First, the newspaper industry operates in a world utterly transformed since the Leveson Inquiry Part I. The digital revolution – which was not within the Inquiry’s Terms of Reference – has accelerated. Newspapers occupy a small space compared to Apple, Facebook, Google and Twitter. These giant aggregators control the most powerful advertising and distribution channels, and command the public’s attention. Equally, the smartphone and digital technology in general mean, in effect, that everyone can be a publisher, around the clock, every day of the week.

These developments continue to put immense pressure on traditional newspaper business models, many of which remain dependent on print advertising for the major source of their revenues. This is one reason why publishers are so concerned about another public inquiry which would be costly, time-consuming and far removed from their existential struggle for survival, let alone the quest for sustainable profitability.

For the FT, Leveson Part I and its aftermath seemed only remotely connected to our business – which is to provide timely, paid-for information and analysis on business, economics and finance to readers around the world. Newspaper revenues account for less than 50 per cent of our overall turnover. Today, we are a majority digital and content business. Many of our competitors are following suit.

Second, we are primarily a global publication. Our UK market, while important, is less than half of our overall business. Indeed, the UK accounts for less than a quarter of our total global readership. We are owned by Nikkei, the leading Japanese business news publisher and an international pillar in a global media alliance. While other media outlets may boast that they have substantial digital audiences overseas, the FT has seen a majority of its print copies bought outside the UK for almost 20 years. The UK is only one of many markets in which we operate, and it is integral to our editorial independence that we are free of external or quasi-governmental regulation in all of our markets, whether the UK, USA, Russia, China or elsewhere.

This is the main reason why we have elected not to join IPSO, the UK news publishers’ regulator, and instead have formed our own robust regulatory set-up. We have no intention of joining IMPRESS, the embryonic ‘approved’ regulator. In short, we genuinely believe we are operating in a global market where the power of digital technology is fast redrawing the media map. This is the time to look forward, not backwards to journalistic misconduct as unrecognisable to us then as it is now.

Section 40 of the Crime & Courts Act 2013 (“Section 40”) is a widely misunderstood provision. Like several of the criteria in the Royal Charter for recognition of a regulator by the Press Recognition Panel (“PRP”), it is loosely based on one of the recommendations of the report (“the Leveson Report”) by Lord Justice Leveson (as he then was) arising out of his eponymous Inquiry into the Culture, Practices and Ethics of the Press (“the Leveson Inquiry”).

The FT’s position, consistently argued over many months, is that Section 40 is a measure which would inflict disproportionate, unjust and potentially disastrous legal costs on newspapers, irrespective of their record on the ethical issues which initiated the Leveson Inquiry. These pressures affect all news publishers, including global businesses like the FT, but they are particularly acute for publishers of local and regional newspapers. We are already in danger of losing a vital dimension in the UK’s ecology of democratic checks and balances. These arguments, we believe, would be sufficient in their own right to justify the Government asking Parliament to repeal Section 40.

There are those who advocate the implementation of Section 40 because they consider it would deliver what the Leveson Report proposed. The FT is not among them: it believes the section should be repealed entirely and not implemented, even in any partial, or amended, form. We consider it worth outlining in Endnote (ii) below why bringing Section 40 into force would not in fact deliver the Leveson Recommendations, but would go further than was recommended.

We feel it is important to emphasise that the FT itself has never been subject to accusations of unethical behaviour of the type which triggered the Leveson Inquiry. However, the implementation of Section 40 would certainly have the effect of encouraging unmeritorious legal challenges to the FT’s journalism and with that the chilling of journalistic inquiry.

The FT’s journalism, in accordance with its mission to act without fear or favour, naturally attracts the ire of some billionaires and captains of industry. The FT has had relatively few upheld complaints in recent decades, and today it operates a robust model of self-regulation (internal, but independent of both the editorial and commercial functions of the FT), with an Appointments & Oversight Committee overseeing the work of the FT Editorial Complaints Commissioner. The aim of the FT’s approach is to ensure that its journalism is held to the highest standard in a way which reflects its distinctive, global character. A similar model is relied upon by many international news organisations: see, for example, the roles of Public Editor at the New York Times or Canada’s Globe & Mail. We are proud of the system we have developed, and are satisfied that it is as robust as at any newspaper, anywhere in the world.

The FT’s commitment to quality journalism has meant that it has not been involved in substantial media litigation since the Collins Stewart Ltd case in 2004-2006, but that case provides an indication of the scale of the financial issues at stake. Even settling pre-trial, legal costs came to approximately £4 million. It is one thing for a newspaper to be forced to bear its own costs: those can, at least, be controlled to a greater or lesser degree by negotiation with lawyers over rates. But to have to pay the costs of an unreasonable or wealthy opponent, who knows that the FT will almost certainly have to pay that bill irrespective of outcome, would simply invite unmeritorious litigation that would threaten the FT’s journalistic freedom and activity.

It is of concern that it is impossible to predict what arrangements might be put in place under section 40(4) – which is to protect claimants’ costs positions where their lawyers are acting on Conditional Fee Agreements (“CFAs”) – or how indeed Section 40 is supposed to operate in the context of offers made under CPR Part 36. The most satisfactory part of section 40 is perhaps section 40(6), which, although now a dead letter (because IMPRESS has been approved by the PRP) at least has the benefit of being clear and not contrary to the recommendations in the Leveson Report that it appears the section was aimed at enacting.

The position of the FT is clear: Section 40 is not fit to be commenced.

However, keeping it un-commenced on the statute book causes – in more acute form – the very problem to which the press have been most alert. In spite of all of the faults of the Royal Charter, the institution of the PRP, the approval of IMPRESS, and unexplained departures from the terms of the Leveson Report, all of those elements have at their core the common recognition that serving politicians, especially those in Government, must have no role in regulating the press. Keeping Section 40 in place, but un-commenced, appears to give this – and every subsequent – Secretary of State unacceptable leverage with regard to the newspaper industry. It is, for the press, a legislative Sword of Damocles.

The most appropriate solution would be to seek repeal of Section 40 in its entirety. Commencement of Section 40(3) would certainly not be acceptable to the FT, nor indeed the rest of the world’s press, and we consider it would be successfully challenged either by way of domestic judicial review, or in the European Courts. Section 40 has been characterised by some as a costs ‘carrot and stick’ aimed at increasing the number of news organisations that decide to join a PRP-approved regulator. But it would be more accurately described as a ‘carrot and cudgel’.

Insofar as we believe that newspapers should not face an unreasonable disadvantage, logic and fairness dictate that the press – even if members of an approved regulator – should not enjoy a similarly unreasonable advantage in litigation (let alone the commercial advantage over non-members). Accordingly we would not support the commencement of section 40(2) either, especially since we are concerned that the current approved regulator has no major news publishers as members and is funded largely by a trust linked to Max Mosley, a former victim of tabloid press intrusion and vocal advocate on regulatory issues.

If any part of Section 40 is to be commenced, contrary to our position, there would perhaps be a benefit to commencing section 40(5) so as to preserve as much of the discretionary power of the Civil Procedure Rules Committee as possible. However, if section 40(4) is to be commenced, we suggest that the Secretary of State should discharge her duty only in further consultation with the judiciary, the newspaper industry, claimant organisations, media lawyers, the Civil Procedure Rules Committee, and others, not least in light of the consultation currently being run by the Ministry of Justice in respect of Lord Justice Jackson’s proposals for Fixed Costs in civil litigation.

We consider that Part I of the Leveson Inquiry amply considered the role of the press, and that it successfully covered almost all its terms of reference in relation to the newspaper industry. We note that there have been almost no successfully upheld convictions of journalists since the Leveson Report was introduced, and as such, whatever wrongdoing by newspapers remains unaccounted for can be dealt with by recourse to civil litigation.

The FT was necessarily an Interested Party during Leveson I, and sought to assist the Inquiry to the best of its ability. The FT’s own conduct was not particularly at issue, but involvement in the inquiry involved non-trivial costs, in terms of legal fees, and management time. It is also the case that in the years since Sir Brian Leveson commenced his inquiry, the business models of the UK and global news industry have been further reshaped by developments in digital social media, which are not in any sense confined by the geographic boundaries of the UK press as it existed in the 20th century. As long as the Terms of Reference are constrained that the online media ecosystem is out-of-scope, there is even less prospect of Leveson II being relevant to the FT or 21st-century news publishers than Leveson I was able to be.

Our strong preference, therefore, is that the Government should ask Parliament to repeal Section 40. With regard to the case for a second phase of the Leveson Inquiry into the Culture, Practices and Ethics of the Press, the FT believes that this should be abandoned, on the grounds that the concerns to which it speaks have either been, or are open to being, dealt with by the courts. Taken together, Section 40 and Leveson II invite a dangerous weakening of the UK news industry and with it the UK press’s important continuing contribution to holding power to account.

We trust that this submission is helpful to those at DCMS collating the responses.

Yours sincerely,

Lionel Barber,Editor, Financial Times​​​​​ ​​​​​​ | John Ridding, CEO, The Financial Times Ltd

See, for example, the FT editorial of 2 November 2016 ‘UK Press will gain little from Leveson part two’, which is available online (subscription required) at the following URL: https://www.ft.com/content/8f64e324-a0f3-11e6-86d5-4e36b35c3550

The relevant Leveson Report recommendations were those numbered 73 and 74 (see Leveson Report, Executive Summary, pp42-43):

“73.​The Civil Procedure Rules should be amended to require the court, when considering the appropriate order for costs at the conclusion of proceedings, to take into account the availability of an arbitral system set up by an independent regulator itself recognised by law. The purpose of this recommendation is to provide an important incentive for every publisher to join the new system and encourage those who complain that their rights have been infringed to use it as a speedy, effective and comparatively inexpensive method of resolving disputes.”

It is curious to note in passing that the specific costs ‘carrot & stick’ currently on the statute book is not contained within the Civil Procedure Rules, which are secondary legislation made by the Civil Procedure Rules Committee under section 2 of the Civil Procedure Act 1997. If they were, they would be subject to the Overriding Objective in CPR Part 1, including rule 1.1(2)(a) which includes within that objective ensuring that the parties are on an equal footing. Were it so, judges would have a greater latitude to assess costs in light of the true merits and behaviour of parties. Instead, section 40 is in mandatory terms and contained within primary legislation binding on the judiciary, and not subject to the Overriding Objective (although it has its own ‘just and equitable’ exception, which may or may not be somewhat narrower).

“74.​In the absence of the provision of an approved mechanism for dispute resolution, available through an independent regulator without cost to the complainant, together with an adjustment to the Civil Procedure Rules to require or permit the court take account of the availability of cost free arbitration as an alternative to court proceedings, qualified one way costs shifting should be introduced for defamation, privacy, breach of confidence and similar media related litigation as proposed by Lord Justice Jackson.”

Recommendation 74, with which we are primarily concerned, therefore has three distinct elements:

(1) The absence of an approved regulator’s ADR/arbitration scheme to the claimant (because the defendant newspaper is not a member of the approved regulator);

(2) The availability of cost-free arbitration to the claimant (although the recommendation is silent on whether or not this must be offered by an approved regulator, or another body, or can be an ad hoc arbitration) must be taken into account by adjustment of the Civil Procedure Rules (“CPR”);

(3) Qualified One-Way Costs Shifting (“QOCS”) for media litigation if neither of the above elements is present.

The reference to the proposals of Lord Justice Jackson is to his Review of Civil Litigation Costs (“the Jackson Review”), in which he considered QOCS suitable for many forms of civil litigation. It is now contained (for certain forms of case only) in CPR rules 44.13-44.17.

QOCS is a way of ensuring a degree of equality of arms in litigation, where claimants are usually individuals, and the alleged tortfeasors are institutional defendants who have access to greater financial resources as well as a degree of sophistication in the specific area of law in question. Personal injury claimants against major insurance companies are perhaps the paradigm example.

QOCS means that while a losing defendant will, as is usual in English litigation, have to pay both the claimant’s legal costs and their own, a winning defendant will not be able to recover their costs from the claimant. Where the defendant wins under QOCS, the usual position shifts from ‘loser pays’ to ‘each party bears their own costs’.

What section 40 might have provided, if it wereto be faithful to Leveson Recommendation 74, is QOCS in the defendant’s favour if they are a member of the PRP-approved regulator and arbitration is thereby available, but QOCS in the claimant’s favour if the defendant declines to join the approved regulator when it could reasonably be expected to do so, and also fails to offer some other form of arbitration or ADR at no cost to the claimant.

Section 40(2) incorporates the first part of that equation. However, section 40(3) does not. Instead of QOCS (whereby a successful newspaper defendant and a losing claimant would bear their own costs), section 40(3) has the defendant required to pay the unsuccessful claimant’s costs. This is a punitive measure, inexplicably departing from the system of QOCS actually recommended in the Leveson Report. Instead of a ‘carrot & stick’, it has been drafted to act as a ‘carrot & cudgel’. If it were to be drafted to match Recommendation 74, we consider section 40(3) would not read “…must award costs against the defendant…” but rather “…must not award costs in favour of the defendant…”.

There are only two bases for escaping the mandatory costs sanction of section 40(3). Yet the first of these is again a departure from Recommendation 74, which is silent on whether the cost-free arbitration system must be the one which must be provided by an approved regulator. It is inexplicable, as a matter of public policy, why a newspaper offering cost-free arbitration to a claimant under the Arbitration Act 1996 should be so severely sanctioned because its cost-free arbitration is ad hoc or offered by a body other than the approved regulator.

Were a newspaper to offer cost-free arbitration under IPSO, orad hoc via the Chartered Institute of Arbitrators (who provide the white-label system used by the approved regulator, IMPRESS), this would still not be capable of satisfying the requirement under section 40(3)(a). That is indefensible. A claimant who refused such an offer would be defeating the very purpose of Recommendation 74. Any claimant who accepted such an offer would enjoy all the protections enjoyed by arbitral parties who seat their arbitrations in England & Wales, pursuant to the Arbitration Act 1996. Cost-free arbitration is a necessary benefit of an approved regulator, as per the Royal Charter, but it is not an exclusive benefit incapable of being provided except through an approved regulator.

The entire scope of judicial discretion as to costs rests upon the vagaries of section 40(2)(b) and 40(3)(b): “it is just and equitable in all the circumstances of the case to award costs against the defendant”. This saving provision is unlikely to be sufficiently legally certain at the conclusion of a case: it is manifestly uncertain at the early stages of proceedings, where decisions affecting conduct and costs must be made. Given section 40 engages Convention rights (of both parties under Articles 6; of claimants under Article 8 ECHR and of defendants under 10 ECHR), this interference in those Convention rights by the State must be not only necessary and proportionate to the public policy sought to be pursued, but also ‘prescribed by law’.

We consider a general saving for marginal judicial discretion in terms of ‘just and equitable’ is unlikely to be sufficient to satisfy that test, and we anticipate that if section 40 is commenced, it will be successfully judicially reviewed. We consider it more likely than not that a Court would have to rely on section 3 of the Human Rights Act 1998 and Article 10 ECHR to read down (in section 40(2)(a) and 40(3)(a)) the limitation of available arbitration to that offered by an approved regulator, and to read down section 40(3) so that it truly mimics QOCS as proposed by Lord Justice Jackson.

It is also of particular concern to the FT that Section 40(1), when read with sections 41 and 42 (which have been commenced), applies to all non-broadcast (per Schedule 15) news media who are not ‘micropublishers’. It contains no limitation as to domicile or centre of operations – which means it likely encompasses international newspapers like the FT, New York Times, and Wall St Journal, however ethically responsible their journalism. Therefore, even if a claim was brought in the English courts which failed as a matter of jurisdiction (whether under CPR Part 11, or under – for example – section 9 of the Defamation Act 2013), the defendant newspaper (even if domiciled abroad, and who was not properly sued in England & Wales) would still have to pay the costs of the claimant who had negligently or maliciously brought proceedings in this jurisdiction.

With the greatest of respect to the draftsman, assuming it is not entirely pointless, section 40(5) is a somewhat confused subsection. The very purpose of Section 40 is to make mandatory rules as to costs. It is inconceivable that the CPR Committee could rely on it to make rules that conflicted with the terms of section 40 itself, and there is no reason to think that their power is constrained beyond that provided for by section 40 itself.

In summary, Section 40 is simply not fit to be commenced even if, contrary to the view of the FT, it were a proportionate way of providing an incentive to join an approved regulator.

Full details of the Editorial Complaints Commissioner’s role, his Adjudications and summaries of his Quarterly Reports, details of the Appointments & Oversight Committee, and copies of the FT Editorial Code of Practice can be found here.

(no subscription required).

See R v Chapman &ors/R v Sabey [2015] EWCA Crim 539.

We refer in particular to the civil actions and record damages in Gulati v Mirror Group Newspapers Ltd [2015] EWHC 1482 (Ch), upheld on appeal [2015] EWCA Civ 1291, with the Defendant being refused permission to appeal to the UK Supreme Court.