The Civil Justice Council (CJC) working party on damages-based agreements (DBAs) has fallen short of calling for hybrid agreements to be allowed, but told the government that if it wants to ban their use, “then it owes it to the legal marketplace to make that entirely plain”.
But in a report published today, it did recommend that recoverable costs should be excluded from DBA caps, making them potentially much more attractive for lawyers to use.
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.
It made 45 recommendations in all, but most focus will be on 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.
This has meant virtually no take-up of this form of funding in civil litigation.
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).”
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.
At the very least, it said, the government should review its policy given the advantages to the success fee model, which the report listed 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 technical recommendations were that the 25% DBA cap for defendants who successfully defend a personal injury action should be increased to 50%, and that 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.
Further, the report said that counsel’s fees – when not working on a DBA themselves – should be treated as an expense outside of the cap, DBAs should be regulated when operating pre-commencement of litigation, and the indemnity principle should be abolished, at least insofar as it relates to DBAs.
“The application of the indemnity principle has the potential to wreak real injustice for claimants’ legal representative, in the context of DBAs,” it said.
The working party also saw no need to incorporate a requirement for independent legal advice before a party enters into a DBA – as Lord Justice Jackson had originally recommended – or that the fact of funding should be notified to the opposing party or the court.
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.”
Professor Mulheron said: “DBAs have been used very sparingly by the legal profession since the Jackson reforms took effect in 2013. This has been unfortunate, given that the use of DBAs in contentious litigation was, arguably, the most novel aspect of those 2013 reforms.”