A working party has been set up to consider the practical and policy issues arising from the planned introduction of contingency fees, or “damages based agreements” (DBAs) as they have more recently been called. The group, which was established by the Civil Justice Council (CJC), will look at some fundamental issues including whether there should be a limit to the percentage that lawyers can charge under DBAs in commercial cases, and whether and in what circumstances lawyers should be liable for adverse costs. The working party has been asked to report to the CJC by the end of July.
At our seminar on 19 January (Litigation: asset or liability? How contingency fees could change commercial litigation) Lord Justice Jackson outlined some of the detailed issues that are still to be worked out in relation to contingency fees and suggested that a working party might usefully be set up to consider those issues, similar to the CJC working group that produced the code of conduct for litigation funders (see post). That has now happened, and we await the group’s report with interest.
One of Lord Justice Jackson’s key recommendations, which is being implemented through legislation currently before Parliament, is to remove the restrictions on DBAs for civil litigation. DBAs allow lawyers to conduct a case in return for a share of any damages.
Although the lawyer’s fee under a DBA will be based on the damages awarded, a losing defendant will only have to pay costs on a conventional basis (i.e. hourly rates and disbursements). The claimant will be liable for any shortfall between the amount recovered and the lawyer’s fee.
DBAs are currently permitted for employment tribunal cases, but not for civil litigation. The fee that can be charged in tribunal cases is capped at 35% of damages (including VAT).
Terms of reference
The working party’s main terms of reference are to consider and make recommendations as to:
- the conflicting interests which are in play when proceedings are brought or defended on a DBA;
- how DBAs should be regulated, for example limiting the percentage that lawyers should be entitled to recover or requiring court approval in certain circumstances;
- whether there should be rules of court in relation to assessment of costs under DBAs;
- what matters should be provided for in any DBA;
- whether, and in what circumstances, a lawyer acting under a DBA should be liable for adverse costs;
- whether it should be possible to enter partial DBAs, analogous to the “no win, low fee” conditional fee agreements (CFAs);
- whether there should be an obligation to notify opposing parties that the lawyers have entered into a DBA.