DBAs and referral fees in spotlight as Ministry of Justice begins LASPO review

MoJ: Report to go to ministers later this year

The reforms contained in part 2 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 are generally working well, the Ministry of Justice (MoJ) said today in a preliminary assessment that marks the start of the post-implementation review of the provisions.

It has, however, indicated a willingness to tighten up the referral fee ban if needed, but not committed to reforming damages-based agreements (DBAs) to improve their take-up.

The MoJ has issued a survey to seek views on the five statutory reforms to costs and funding contained in the Act, while the Civil Justice Council is holding a stakeholder conference which will be a “focal point” of the review.

This will culminate in a report on part 2 prepared by MoJ officials later in 2018, after which it will be for ministers to decide what further actions, if any, to take.

The five reforms under scrutiny are: the non-recoverability of success fees, the non-recoverability of after-the-event insurance premiums, DBAs, increased penalties for failing to beat part 36 offers, and the ban on referral fees.

The assessment published today said: “MoJ officials have held initial discussions with key stakeholders about the impact of the part 2 reforms.

“The views expressed accorded with our initial views: that stakeholders have adapted to the part 2 reforms, and that they are generally working well. There are certain areas of continuing concern, but these centre on rules/regulations and practice, rather than on the statutory reforms themselves.”

It noted that the volume of personal injury cases in the courts fell by 13% to 137,000 a year by 2017, while the volume of other civil cases has gone up.

“In purely volumetric terms, the current position seems reasonable if the reforms are working as expected: the theory of change being that some unmeritorious claims would be discouraged without a significant drop that could indicate serious access to justice implications.”

On the end of recoverability, the MoJ said that “at first sight, it seems that costs have been reduced (by the structural changes) while claims continue to be brought, albeit with a slight reduction overall”.

However, it noted “anecdotal evidence that the maximum success fee is routinely charged without an assessment of the risk in individual cases”.

The MoJ acknowledged some criticism of the DBA regime, specifically that “it does not work on its own terms” and that it should allow hybrid DBAs, which would allow DBAs with concurrent private funding arrangements.

The assessment defended the MoJ’s cautions approach to introducing this new form of funding, and emphasised that “DBAs were intended as an additional form of funding in appropriate cases, not an alternative form of funding in every case”.

“DBAs may therefore be more suited to niche areas, where damages are high relative to the costs, or where costs are not recoverable. For this reason, and given the prevalence of CFAs [conditional fee agreements], it was unlikely that DBAs would be suitable for, say, fast-track or multi-track PI claims.

“However, this distinction highlights one of the risks with DBAs as an alternative to CFAs – which arrangement is better (in financial terms) for the lawyer or the client may not be apparent until the end of the case.

“What seemed preferable for the client at the start of a case with uncertain prospects, may result in a substantial early windfall for the lawyer, at the client’s expense.

“A further risk with hybrid DBAs is that they may be particularly attractive for lawyers in very high-value, speculative litigation. It is questioned what the potential consequences of allowing hybrid DBAs for these cases would be, particularly when CFAs can be arranged for these cases.”

A Civil Justice Council report on reforms to the regime was published in September 2015 but has not been acted on. The MoJ said it would consider the next steps on the report in the context of the findings of this review.

On part 36, the MoJ said it seemed to be working well, “and we are only aware of calls for limited, technical changes to the statutory regime”.

The assessment noted “some concern” about the effectiveness of the ban of referral fees in personal injury cases and its level of enforcement.

“It is sometimes claimed that the current situation has not fully stopped referral fees for personal injury cases as referral fees continue in all but name under different guises such as marketing fees.

“The line has to be drawn somewhere between what is a lawful referral and what is not, and it is inevitable that activity will move to what is lawful.

“If there is evidence that the current arrangements are not working effectively, we would be open to representations as to how the statutory wording of the ban could be improved or how its operation could be made more effective.”

The survey can be found here. It is open until 24 August.

Read more on the Jackson Reforms here.

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