Solicitors advising on damages-based agreements (DBAs) should make detailed notes at the time agreement is made in case they are later accused of exploiting the client, one of the leading barristers in solicitors’ regulation has advised.
Speaking at a seminar on costs held this week by 39 Essex Street, one of its silks, Greg Treverton-Jones QC, predicted that the Solicitors Disciplinary Tribunal would be sent cases in which “allegedly avaricious solicitors have entered into agreements which are punitive to the client”. The tribunal would have to “wrestle” with the problem, he said.
Complying with conduct rules on treating clients fairly and acting in the best interest of clients would be hard to judge when discussing funding options, he said. “At the outset of a case nobody knows how long it’s going to take… whether it’s going to settle… whether you’re going to go off and have extensive barristers and experts… so how are you, at the coalface, going to be able to advise your clients?,” he asked.
He gave the example of a commercial claim for £2m undertaken with a DBA at 50%, where costs after trial of £200,000 are recovered from the other side. The client recovers £1.2m and the solicitor receives £1m. However, under a conditional fee agreement (CFA), the same case would have yielded £400,000 for the solicitor even with a 100% success fee, whereas the client would have received £1.8m.
“I think it’s really difficult in those circumstances to be able to justify a solicitor charging £1m,” Mr Treverton-Jones said.
The difficulty in deciding whether an agreement was compliant with professional rules was structural, he added. “The problem with all of this is that there is an in-built conflict of interest between the solicitor and client because the more the solicitor gets, the less the client may get and vice versa.”
The Solicitors Regulation Authority (SRA) was likely to prosecute at some point, he expected, and when it did, the factors influencing a client’s decision to choose a funding agreement would be critical. “Just to give you a steer, I think that [whatever] fee arrangement you enter into with your clients, you are going to have to be able to justify it. So I would strongly advise that if that justification has to be made, a… detailed attendance note is made at the time you enter into the agreement.”
He said his understanding was that DBAs in lower-value personal inury cases were “dead in the water”. He explained: “Nobody is doing them because the maths tends to work in favour of the solicitor doing a CFA with 100% uplift rather than a DBA – because 25% of not very much is not very much.”
The way he has been advising solicitors to “square” this in terms of their ethical obligations has been for them to “simply say to the client ‘well, there are other solicitors out there who will be operating other funding models and there are these things called DBAs – [and] we don’t do them’.”