Damage based Agreements (DBAs), also known as Contingency Fee Agreements, were permitted to be used in contentious work from the 1 April 2013 following the recommendations made by Lord Justice Jackson. However, the lack of firms taking up the option was striking and the Master of the Rolls was asked to undertake a review of the DBA Regulations 2013 and instructed a working group to make recommendations. In its 156 page report a total of 45 recommendations were made – here we look at some of the highlights.
What are DBAs?
So what is a DBA? A DBA is another form of funding whereby if the case is successful then the Solicitors fee is calculated as a percentage of the financial benefit obtained. If the case is lost, no fee is payable to the Solicitor. They are available in Employment, Personal Injury and Civil claims
“Ontario model” v “success fee model”
The current Regulations have in place the “Ontario model”. This means that the Solicitor and client assess the contingency fee at the outset (similar to how success fees were considered). Then, if successful, the client’s recoverable costs will be assessed in the usual way (i.e. time claimed, hourly arte, proportionality). If the contingency fee was higher than the figure arrived at in the conventional way, then the client pays the shortfall from their damages.
However, the working group recommended the use of the “success fee model” which would see the contingency paid in addition to the recoverable costs. This is certainly a more attractive option for Claimant Solicitors following LASPO.
By way of example, a Claimant with a 25% DBA wins £100,000 in damages and £20,000 in recoverable costs. Under the current Ontario model, the client would have to pay £5,000 to make up the shortfall. Under the success fee model, the client would have to pay £25,000 from his damages with the Solicitor receiving that in addition to the £20,000 recoverable costs. The working group considered the advantages to include an enhanced access to justice in lower value cases and being easier to explain to clients.
The main area of contention is the ability – or lack of – to use hybrid DBAs. The current Regulations mean that the DBA has to be a full “no win no fee” agreement and this is seen as the main reason for the lack of take-up.
So what is a hybrid DBA? This is where a Solicitor combines a DBA with another type of retainer.
The current position is that whilst “sequential” hybrid DBAs are allowed, “concurrent” ones are not. A sequential one is where a different type of retainer is used for different stages of a case, i.e. the claim starts under an hourly rate retainer before being replaced by a DBA. A concurrent hybrid is where there are two forms of retainer at the same time i.e. where a part of a fee is at risk under a DBA but the rest is paid under a normal retainer.
The working group noted that concurrent hybrid DBAs may be better suited to certain areas of legal practice, such as personal injury. They also noted the importance of concurrent hybrid DBAs as to whether the use of DBAs is increased, such as where cases where the full no win no fee is too high a risk but the rewards of a CFA are insufficient. The working group however did note that it was unknown if they “would have a positive or negative effect on access to justice/efficiency of litigation” and recommended that the government should be encouraged to evaluate the arguments in favour of hybrid DBAs.
- DBA cap – The working group recommended increasing the cap to 50% on cases where a Defendant has successfully defended a personal injury claim and also recommended that Counsel’s fees should be treated as an expense outside the cap. This would benefit Solicitors who instruct Counsel as they would no longer be on the hook for them. Similarly, they recommended VAT should be excluded unless recoverable by the client.
- Recommendation that the indemnity principle be abolished in relation to DBAs.
- Solicitors and clients should be able to agree a “trigger point” at which the DBA becomes payable and the circumstances when it can be terminated.
It was clear from the Jackson reforms that it was expected that DBAs would take up a prominent position in the post-LASP world. However, less than 2 years after implementation, the Ministry of Justice was lobbied, and agreed to, a review. This shows how keen the government are to promote them as a serious alternative method of funding.
Will it actually happen? In the writer’s opinion, and if the changes recommended are introduced, then yes. It needs the introduction of concurrent hybrid DBAs as well as the implementation of the success fee model and the exclusion of Counsel’s fees from the cap. Should this be done, there could be a real alternative which is financially attractive, particularly to Claimant Solicitors.