LAW COSTS UPDATE: Major overhaul and improvements recommended for new 2015 DBA Regulations

The study was divided into two phases – Phase 1 addressed specific drafting technicalities (of which there were about 20 issues), and Phase 2 addressed various policy issues.

Note – these Regulations will not apply to Employment matters (which will be addressed in separate Regulations).

Highlights include:

  • The recommendations that counsels’ fees should fall outside the fee cap and that the parties should be free to agree the triggers for payment,
  • Confirmation that some well known Funder’ ‘hybrid DBA’ funding models will continue to be compatible with the Regulations,
  • Clarifications about the use of sequential hybrid DBAs (allowing for the use of different methods of funding for different parts of a claim),
  • The recommendation that the Regulations should expressly provide for DBAs for defendants with the success fee cap based on financial value of a claim (money or money’s worth),
  • The recommendations that the Government should consider implementing the ‘Success Fee model’ CFA (where the recoverable costs remain outside the fee cap), and that consideration should be given to abolishing the indemnity principle.

The CJC made the following recommendations:

Technical/drafting issues

  1. Counsel’s fees should always be treated as an expense and therefore outside of the fee cap (50% in commercial cases, 25% of certain heads of damages in personal injuries cases).
  2. Reg. 3(2)(d)(ii)(bb) of the draft Regulations (which provides that the DBA has to specify that the representative’s costs, expenses, etc. will not be payable if the client does not receive the financial benefit stated in the agreement) should be deleted.
  3. The Regulations should clarify that disbursements incurred by the representative include any fees paid or payable to an expert (and not just the report fee), and counsel’s fees.
  4. VAT should remain within the cap where VAT is not recoverable by the client.
  5. In the new Regulations the percentage fee will be calculated on the financial benefit obtained by the client. The draft definition of financial benefit should be changed to read as follows – ‘financial benefit’– (a) includes money or money’s worth; and (b) excludes any sum in respect of the client’s legal fees, costs or disbursements which has been paid or is payable by another party to the claim or proceedings.
  6. It should be open to the legal representatives and the client to define the trigger for payment in the DBA where the case is won. The question of what amounts to a financial benefit should be left to the parties to define in the DBA on a case-by-case basis and the parties to the agreement should be free to agree that the legal representative’s fee should be payable whether or not the client actually recovers any damages.
  7. The new Regulations should make provision for what should happen in the event that a counterclaim is brought against the client.
  8. With the new Regulations expressly providing that the defendants can use DBAs they should set out a methodology by which a defendant’s financial benefit is to be calculated.
  9. The 25% cap which applies to a claimant’s claim for personal injuries should not apply to a defendant’s DBA (the CJC recommends 50%).
  10. Although sequential hybrid DBAs will be allowed the new Regulations should define what a ‘part’ of the claim or proceedings could entail (e.g. whether the part can refer to a time period, or a legal task, or issue, or a claim).
  11. Where a sequential hybrid DBA is used the new Regulations should specify whether the solicitor can retain monies recoverable under a non-DBA funding agreement in addition to the DBA fee, or whether it is intended that the monies recoverable under the non-DBA funding agreement should be offset against the DBA fee.
  12. The new Regulations should clarify that in relation to the part of the claim covered by a non-DBA funding agreement the solicitor’s costs and expenses are payable regardless of whether or not the client receives any of the financial benefit stated in the DBA.
  13. There is nothing in the current draft Regulations to prevent the law firm that enters into a DBA with a client from entering into a second agreement with a Funder for payment of its WIP, provided that the client is not a party to that second agreement.
  14. The new Regulations will expressly provide that Litigation Funding Agreements with Third Party Funders Fall outside their scope.
  15. The new Regulations should clarify that a sliding scale DBA fee – where the percentage recovery depends upon the level of damages – is permitted.
  16. The Working Group also recommended that consideration should be given to amending primary legislation to permit DBAs to be regulated pre-commencement of litigation. This in turn would require further consideration of the position of Claims Management Companies which provide pre-litigation services.
  17. The majority of the Working Group recommended that it should not be necessary for the Regulations to require a first instance DBA to specify whether or not it governed any appeal.
  18. The Regulations should clarify whether the DBA fee can be calculated according to the financial benefit obtained at first instance, or whether the DBA fee should always be conditional upon the outcome of any appeal.
  19. The new Regulations should clarify that where a client enters into a separate DBA with an additional representative directly, the DBA fees recovered by the representatives should not in aggregate exceed the prescribed DBA caps.
  20. Given the risk of unenforceability the specified minimum content of a DBA should be a simple, minimalistic, and as transparently clear as possible.
  21. The new Regulations should clarify that in the event of termination of the DBA the legal representative should be entitled to payment under some separate agreement other than the DBA.
  22. Where a client in a personal injuries matter receives a global sum (i.e. not broken down into particular heads of damage) the division among heads of damages, for the purpose of calculating the DBA fee, should be dealt with as between the client and his/her solicitor.
  23. The new Regulations should specify that where the financial benefit is represented by money’s worth then the DBA must stipulate either the value of that financial benefit or some formula by which the value of that financial benefit is to be quantified.
  24. The new Regulations should provide that the parties to the DBA may agree that the client is obliged to pay the representative’s disbursements regardless of whether or not the client receives a financial benefit.

Policy issues

  1. The government should be encouraged to evaluate arguments in favour of concurrent hybrid DBAs.
  2. Given the multiple difficulties which apply under the current ‘Ontario model’ (whereby recoverable costs are included within the DBA) and given the several advantages of the ‘Success Fee model’ (whereby the contingency fee is treated as the success fee, which can be retained by the legal representative on top of the recoverable costs) a review of government policy (which favours the Ontario model) is warranted.
  3. If it is not tenable to abolish the indemnity principle for all civil litigation (as recommended by Lord Justice Jackson) then the government should at least reconsider disapplying the indemnity principle to DBAs.
  4. In the event that a DBA is unenforceable, no quantum meruit should be statutorily authorised.
  5. The new Regulations should not include any requirement that independent advice should be obtained by the client before entering into a DBA.
  6. There should be no requirement to notify the opposing party or the court about the existence of a DBA.

The CJC’s recommendations should bring much needed clarity the much maligned regulatory framework for DBAs. The recommended changes (if adopted) should see DBAs emerge as a viable alternative to CFAs or third party funding, for commercial and higher value personal injuries cases. However, the government’s continued refusal to countenance concurrent hybrid DBAs will probably mean that CFAs continue to rank as first choice funding option for the majority of clients.

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Michael Heslin

Director (London and Norwich)

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