3 August 2012Print This Post

Caps under scrutiny as CJC working party unveils contingency fee recommendations

Napier: important addition to the menu of funding options

Disputes involving larger businesses should be the only category of case not subject to a cap when contingency fees are introduced, a Civil Justice Council working party has said as one of 18 recommendations on how the new scheme should operate.

A report issued today also said that lawyers working on contingency fees – formally called damages-based agreements (DBAs) – in personal injury cases should be able to calculate their fee from the total damages figure, including future loss. This runs contrary to the government’s intention, which is to limit it to the sum recovered for past losses and general damages.

DBAs – which are being introduced next April as part of the Jackson reforms – will still involve cost-shifting, with the losing party paying costs in the normal way and the client topping up the contingency fee from their damages as required, subject in most cases to a cap.

The working party said the cap in personal injury cases should be 25%, excluding disbursements and after-the-event insurance premium.

Commercial cases are “likely to involve sophisticated purchasers of legal services entering into contractual arrangements where freedom of bargaining should not be inhibited”. However, the working party was split on whether there should be a cap on cases involving consumers and micro-enterprises (fewer than 10 employees and a balance sheet that is less than €2m); if there is to be one, it should be 50%.

The working party recommended retaining the 35% cap for employment tribunal cases.

Its report said a particularly difficult issue was whether recovered costs should be take

n into account when calculating the contingency fee, and ultimately decided that they should. This is in line with how DBAs work in Ontario, Canada, upon which much of the new scheme is based.

The working party called for measures to protect lawyers operating a DBA from liability to adverse costs in line with case law, but third-party funders would be liable for such costs in line with the Arkin rule for conditional fee agreements – that is, up to the value of their investment.

Other recommendations included that the professional regulatory bodies should review their current guidance on conflicts of interest in the light of DBAs; there should be a consistent approach in the regulation of DBAs and conditional fee agreements to avoid the risk of any further ‘costs wars’; professional bodies and specialist litigation associations should prepare model DBAs; and there should be no obligation to notify an opposing party that lawyers have entered into a DBA.

The working party also described as “misguided” the Department of Business, Innovation and Skills’ proposal that contingency fees not be allowed in ‘opt out’ collective actions in competition cases. “The collective action is precisely the type of civil claim that will be benefit from the introduction of DBAs to ensure access to justice.”

Michael Napier, who chaired the working party, said: “The introduction of DBAs will be an important addition to the menu of options for funding civil cases when the new costs regime is introduced in April 2013. But it is not an easy subject and this was a tough piece of work for the working party which had little time to cover  much complex, and at times contentious, ground…

“I am confident that we have produced a report that will help guide or at the least better inform those charged with making the final decisions on how DBAs are to be implemented.”

The findings have been presented to the Ministry of Justice and the regulatory bodies, who will be taking implementation forward.

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