Government to put 50% cap on contingency fees in commercial cases


50%: CJC said cap not necessary for large commercial clients

Lawyers working under contingency fees from next April will not be able to take more than 50% of the damages in commercial cases, the government has revealed.

This is contrary to the recommendations of a government-commissioned Civil Justice Council (CJC) working party, which said there should be no limit with sophisticated business clients.

The news was released quietly in an update on the civil justice reform programme published by the Ministry of Justice (MoJ) last week on a new dedicated page on its website.

The cap on damages-based agreements (DBAs – as contingency fees are formally known) in personal injury will be 25% of damages, excluding damages for future care and loss. The existing 35% cap for employment tribunal cases will remain, while “there will a cap of 50% on damages for all other cases under a DBA in civil litigation”.

Though the first two figures are in line with the CJC working party’s recommendations, the working party said 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 was to be one, it should be 50%.

The update includes more detail on how the 25% cap on success fees in personal injury cases will work. It will cover both the solicitor and barrister’s success fee, plus VAT. The cap will apply to net damages after Department of Work and Pensions benefit recovery.

The lawyer will be required to provide clear information to the claimant on how the success fee has been calculated, including showing the breakdown between solicitor and barrister (if appropriate), and the type of damages that the cap applies to (excluding future care and loss). This will also apply to DBAs.

The cap will not apply to appeal proceedings, meaning that the level of success fee can be negotiated between lawyer and client.

The orders and regulations to support this are now being drafted and the MoJ said they will be consulted on, where required, with statutory consultees.

The update does not reveal any further policy decisions that have not already been announced, but said that drafts of several rules would be going to this month’s meeting of the Civil Procedure Rule Committee. They concern: qualified one-way costs-shifting, increased part 36 sanctions, the amended RTA pre-action protocol to raise the claim limit to £25,000, and a new employer’s and public liability protocol to support horizontal extension of the scheme.

 

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