The draft Damages Based Agreements Regulations 2013 have been laid before Parliament. They allow for “contingency fee agreements” in all types of contentious litigation, not just employment matters as was previously the case.
How does a Damages Based Agreement work?
The Regulations allow a solicitor to enter into an agreement where the client will pay a percentage of the sum recovered in the action to the solicitor. The amount will be :
- net of costs, disbursements and counsel’s fees recovered from the other side; and
- capped at a maximum of 50% of the sum recovered, or 25% of general damages and past losses in personal injury cases.
In a personal injury case let’s say the percentage agreed was 25% and the claimant recovered £100,000 in general damages and past losses. The solicitors costs (time spent multiplied by reasonable hourly rate), disbursements and counsel’s fees recovered from the other side amounted to £18,000.
The claimant would have to a DBA payment to the solicitor of 25% of £100,000 less £18,000, a net payment of £7,000.
Therefore, in a personal injury claim, if the costs recovered from the paying party are more than 25% of general damages and past losses then the DBA payment will be reduced to zero and the client will keep all of their compensation.
In other types of case if the costs recovered from the paying party are more than 50% of the sum recovered then the DBA payment will be reduced to zero.
The effect is likely to complicate the process of advising clients about the best method of funding, not least because solicitors stand to recover more with a DBA in high value cases which they can settle – there could well be a conflict arising which was presumably behind the original Jackson suggestion to require clients to take independent legal advice before entering into a DBA – a suggestion which has not made it into the draft regulations.