The application of the indemnity principle to damages-based agreements (DBAs) should not mean claimant lawyers lose out if base costs exceed the contingency fee, a leading academic has claimed.
Successful claimants under a DBA will still be entitled to recover their base costs as calculated in the normal way, and last week the Ministry of Justice said the indemnity principle meant that if the DBA fee is less than the base costs, a losing defendant will only be liable to pay the former.
However, well-known legal costs expert David Chalk, of Winchester University, argued that if, under the DBA, the client is liable for costs and additionally for a contingency payment, “then the contingency payment is entirely irrelevant to the opponent and its costs liability”.
He explained: “The opponent will always be liable as usual for the costs of the work done to the extent recoverable. The client is in addition liable for a contingency fee based on damages.”
He said the DBA fee was analogous to the success fee under a conditional fee agreement.
Mr Chalk said that if this was not the case, it would produce an odd result: “The purpose of the DBA regulations is to support access to justice whilst protecting client damages, rather than provide a windfall for the opponent.”
He suggested that the confusion has arisen for two reasons: the draft regulations have been lifted from the regulations governing DBAs in employment tribunals, where there are no recovered costs; and the regime is modelled in part on the one operating in Ontario. “It is always dangerous to borrow just a part of some other system and graft it on to your own system – I fear in this case it simply confuses matters,” he said.
Mr Chalk continued: “Some will say I am wrong because, at least in personal injury, the regulations as drafted make reference to the payment being net of recovered costs and anyway the MoJ thinks there is no liability beyond the contingency fee.
“So what? That does not mean the funding agreement as a whole cannot and does not create a liability for base costs – and that is the only sensible way to use a DBA in litigation.”