With IPSO opening for business for the first time next Monday, and Impress (the nascent rival regulator which says it is wholly independent of the industry) announcing the membership of its appointments panel, HTFP was right to remind us yesterday of one of the financial consequences of a regulator achieving recognition under the Royal Charter.

The point made in yesterday’s article was that when a regulation scheme gains Charter recognition, section 40 of the Crime and Courts Act 2013 will be triggered.  S.40 is the provision which, on the face of it, may lead to costs being awarded against a publisher even if a claim based on “news-related material” is defeated.

It’s always been the case that journalists have to think very hard about the costs implications of litigation, or threatened litigation, before deciding how to deal with a complaint.  But whilst this is obviously a draconian provision, it’s worth remembering that S.40 does not necessarily mean that you will have to pay the Claimant’s costs even if your defence succeeds.

The basic provision is clear enough: if the defendant in the case is a publisher (n.b. not an individual) of news-related material and it was not a member of an approved regulator at the time the court proceedings commenced, then the Court must award costs against that defendant in favour of the claimant, irrespective of the outcome.  In other words, the normal costs rule (“the loser pays”) does not apply to publishers.

However, this new rule is subject to two exceptions and an opt-out clause, and it is these which suggest that the position may not be as bleak as first appears.

First, the new rule will only apply if it would have been “reasonable in the circumstances” for the publisher to have been a member of the approved regulator.  Obviously, no-one knows what “reasonable in the circumstances” actually means, and it is easy to foresee that sooner or later, this phrase will be the subject of hard fought satellite litigation.

Second, the rule only applies if the dispute could have been resolved using the arbitration scheme of the approved regulator (had the publisher been a member, of course).  Until an approved regulator comes into being, we cannot know the nature and terms of its arbitration scheme, which in turn means that we cannot know whether the dispute could have been settled using that scheme, or not.

But of one thing we can be sure, even at this early stage: the validity and fairness of any arbitration scheme will be the subject of intense scrutiny, and any weaknesses could well be used to support the argument that the scheme was defective, and therefore, could not have been used by the publisher to achieve a fair and safe outcome.

And then there is the opt-out provision.  Irrespective of anything else, the Court can make a different costs order, or make no costs order at all, if it is “just and equitable in all the circumstances of the case” to do so.  And what that means is anyone’s guess. Again, more disputes and more satellite litigation seem likely.

The possibility of a potential regulator gaining recognition under the Royal Charter is an important development for journalists and journalism, for all sorts of reasons.

From a legal and financial perspective, the significance is obvious – though perhaps the consequences are not quite as bleak as might first appear.

As ever, we will only have a true understanding of the financial effect of S.40 when the Courts have deliberated on a test case.  Though this is something which is not going to happen any time soon, it is inevitable that sooner or later, the industry is going to have to address this serious issue head on.

And as I have asked before: what price freedom of expression then?