10 considerations facing the Damages Based Agreements working group
The Damages Based Agreements Regulations 2013 were introduced as part of the Jackson reforms but the use of DBAs by the legal profession has been minimal. With a working group currently considering the 2013 regulations with a view to making changes, what issues have they focused on and would it make a difference to whether you would use a DBA to assist in funding litigation?
Damages based agreements were previously used for non-contentious work but the Jackson Final Costs Reports advocated their use in litigation to supplement the funding options already available such as CFAs, which were to be the subject of radical changes with the abolition in most cases of being able to recover success fees. The DBA regulations apply to employment, personal injury and civil claims, although each has slightly differing provisions within the regulations. The issue which arose when practitioners considered whether to use the DBAs in practice it became clear that there were issues with the regulation, not least the inability to provide hybrid DBAs which could be used as part of a concurrent package of funding measures; hybrid funding measures are available for CFAs.
The difficulties encountered with the DBAs led to MOJ being lobbied for changes and last October the Master of the Rolls was asked to undertake a review of the regulations and suggest any amendments which were required. The MOJ clearly stated that this review was not to involve the use of hybrid DBAs. It also stated that the employment aspect of the regulations would be taken out of the regulations and so there was no requirement to consider those.
The Committee is chaired by Professor Rachael Mulheron who was involved with the drafting of the 2013 regulations. It is considering the application of the 2013 regulations to personal injury and other civil law matters. The approach the Committee is taking is to apply a light touch in terms of any amendments required. Those anticipating a complete rewrite to deal with issues will therefore be disappointed.
What matters are being considered?
David Greene of Edwin Coe LLP is a member of the working group reviewing the 2013 regulations. At the recent Association of Costs Lawyers conference he gave an enlightening talk setting out the principle matters under consideration by the Committee. These are:
Currently these are excluded from the cap. Will they or won't they be included under any amendments? This is one of the key issues for practitioners. The current position is that such fees are included within the cap.
These are an expense and will continue to remain so; therefore being outside the cap. However, the Committee are still consider drafting issues in relation to such fees.
Arguments to include and to exclude have been considered. No decision has yet be reached as to what stance to take.
A number of issues arose as to what the cap should be applied to. The 2013 regulations refer to cash recoveries but this raises questions as to whether it includes costs, counterclaims or set offs. Those regulations also only apply to first instance proceedings but if a client appeals successfully this could make a marked difference to the recovery under the cap. These issues are all being considered by the Committee.
Consideration is being given as to whether there should be a different cap in place for the claimant and defendant. This involves considerations of consumer protection especially in personal injury claims where the defendants tend to be insurers.
The Committee is considering how the 2013 regulations may amended to ensure that it can be used to cover non-money claims. The issue is how non-money claims should be valued.
The government is still opposed to hybrid DBAs. However, the 2013 regulations do allow for a DBA to be used for part of the proceedings and so this would enable eg an application to be covered by a DBA but other forms of funding to be used for the rest of the proceedings. However, it is essential to be aware that any funding agreements cannot run concurrently and therefore any funding agreement in place would need to terminate before the DBA commenced and then a new one would need to be entered into after the DBA terminated.
Sliding scale payments
The use of these is being considered by the Committee and it has raised policy questions about their use. However, third party funding allows such payments and it would therefore seem appropriate to allow a solicitor and their client to do the same.
The government policy is that future pecuniary losses cannot be subject to the success fee percentage. Such losses will therefore be excluded.
The Committee is also considering how to deal with the issue of lump sum payments
The Committee is also looking at wider policy issues:
- hybrid DBAs--it would seem the Committee has not given up entirely on these
- the treatment of recoverable costs
- the application of the indemnity principle
- the non-availability of quantum meruit if the DBA is held to be void and unenforceable
- the fact that there is no requirement to obtain independent advice