Costs News

03 September 2015
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CJC calls for recoverable costs to be excluded from DBA caps

Recoverable costs should be excluded from the caps applied to damages-based agreements (DBAs) as part of a major package of reform to the regime, a Civil Justice Council (CJC) working party has recommended.

The working party, chaired by Professor Rachael Mulheron, was set up to advise the Ministry of Justice on both technical drafting issues to improve the 2013 DBA regulations and wider policy questions. Its 156-page report, published yesterday, made 45 recommendations.

Currently, recoverable costs are included in calculating what is paid under a DBA – so that, in a case where a claimant on a 25% DBA wins £100,000 in damages and £20,000 in recoverable costs, he will only have to pay £5,000 from the damages to his solicitor. But under the ‘success fee’ model advanced by the working group, he would have to pay £25,000.

The government should review its policy on this issue given the advantages of this model, the report said, such as avoiding the consequences of the indemnity principle, enhancing access to justice in low-value cases and being easier to explain to clients.

If this approach were to be adopted, however, the statutory caps may have to be reduced “to preclude an inordinately large recovery by the legal representative”.

Among the other recommendations were:
• The 25% DBA cap for defendants who successfully defend a personal injury action should be increased to 50%;
• Lawyers and clients should be free to agree the 'trigger point' at which a DBA becomes payable and the circumstances under which it can be terminated;
• Counsel’s fees – when not working on a DBA themselves – should be treated as an expense outside of the cap;
• VAT should remain within the cap, where not recoverable by the client, but should otherwise be excluded;
• DBAs should be regulated when operating pre-proceedings; and
• The indemnity principle should be abolished, at least insofar as it relates to DBAs.

The report also addressed in detail the question of hybrid DBAs. While ‘sequential’ hybrids are already allowed – meaning a solicitor could, for example, investigate a case under a normal retainer and then move onto a DBA – it is felt that the rules do not permit concurrent agreements, where part of a fee is at risk under a DBA but the rest is paid under a normal retainer. This has meant virtually no take-up of DBAs.

The report said: “The working group noted that this issue has assumed huge importance in the legal marketplace in that, without concurrent hybrid DBAs, lawyers may not see DBAs as being attractive enough to encourage them to take on claimant’s cases. This reluctance is heightened by the innate conservatism of the legal profession.

“In particular, the uncertainty as to whether or not concurrent hybrid DBAs are permissible has had an incredibly chilling effect on the take-up of DBAs. If the government wishes to ban their use, then it owes it to the legal marketplace to make that entirely plain, via its revised drafting of the 2015 DBA Regulations… The present state of uncertainty cannot be allowed to continue.

“The working group also noted that concurrent hybrid DBAs may be better suited to some areas of legal practice than others, such as personal injury claims. Also, they may be quite suited to commercial cases which are litigated (at the considerable expense of both sides) over several years.”

The report acknowledged that there was insufficient evidence as to whether concurrent hybrid DBAs “would have a positive or a negative effect on access to justice/efficiency of litigation”. But it was “certainly conceivable that there will be cases that are meritorious, but which are highly complex or costly to conduct, and which the claimant’s legal representative would be prepared to take on under a hybrid DBA, but not on a full ‘no win, no fee’ DBA (because of the level of risk), nor on a CFA (because the rewards are not sufficiently favourable). Accordingly, permitting hybrid DBAs may provide access to justice in these cases.”

But the group as a whole was divided on the question of allowing concurrent hybrid DBAs. “It concluded that it was a policy decision which was ultimately one for the government. However, the government should be encouraged to evaluate the arguments in favour of concurrent hybrid DBAs, even in the absence of any cadre of cases which have tested the arguments (given the nervousness of the legal marketplace on this issue).”

The Master of the Rolls, Lord Dyson, said: “I welcome the government’s invitation to the CJC to address some of the issues relating to DBAs, and I now urge it consider further modifications to the regulations to help promote confidence in them as one of the funding arrangements available to those involved in a personal injury or commercial dispute… I hope that the changes recommended in this report will encourage the greater use of DBAs.”

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