Solicitors need to be careful to ward against professional negligence claims for mis-selling damages-based agreements (DBAs) or under-settling cases run under them, a QC has warned.
PJ Kirby QC of Hardwicke Chambers said solicitors need to put in procedures that ensure that a full explanation – both oral and written – is given as to the various funding arrangements discussed and why the DBAs was considered suitable.
If a solicitor is not, either generally or in relation to a specific case, willing to undertake a case under a particular type of funding arrangement, then that should be explained and the reasons recorded, he added.
Several commentators have highlighted the difficulty that DBAs work very well for the solicitor, and far less well for the client, if a substantial case settles quickly.
However, Lord Justice Jackson’s recommendation that the client seek independent legal advice before entering in a DBA did not make it into the final regulations – but then the risk of mis-selling was raised again in February by the Legal Services Board.
Writing on his chambers’ website, Mr Kirby said the central issue is whether the client has made a properly informed decision about the funding of its case and whether the method of funding recommended to the client was in the client’s best interests.
“The fact that the DBA turns out to be profitable or indeed unprofitable for the solicitor is not the test as to whether the same was in the client’s best interests at the time that it was entered into,” he said. “It would only ever be the gift of hindsight that would enable the solicitor or client to know which fee arrangement in fact would end up being the best one (and it is most unlikely with the benefit of hindsight that the fee arrangement that turns out to be the best for the solicitor will have also been the best arrangement for the client).”
Mr Kirby said the clients who are most likely to be aggrieved are those who feel that their claims were settled for less than their true worth on the one hand and on the other those clients who consider that the lawyers have received a disproportionate amount of the sum recovered bearing in mind the amount of work actually done by the lawyers.
“There is concern that solicitors may be inclined to advise that claims be settled for less than their true or at least their potential worth in order to ensure that they exclude the risk of loss and no payment, and get paid whilst incurring the minimum level of costs necessary.
“Whilst under CFAs there could also have been the temptation to settle for less than the true worth of the claim in order to avoid the possibility of a loss and no payment, at least with a CFA the more work that was done the more the solicitors would be paid and the greater the amount recovered by way of uplift. Furthermore so long as the uplift was recoverable from the other party the client had no real interest in questioning the amount of the uplift.
“Under a DBA the longer the case goes on the lower the reward for work or effort ratio becomes. Indeed under many DBAs the prospect of the matter going to trial will be of real concern to solicitors who may see any possible recovery under the DBA as being less than the costs incurred on a traditional time-cost basis and much less than the amount due to the solicitor under a CFA with an uplift, yet continuing with the case to trial may be in the client’s best interests.”