DBAS – CAN YOU CHARGE DISBURSEMENTS?

With massive employment tribunal fees coming in and with it being compulsory to have a Damages-Based Agreement if acting on a no win no fee basis in such cases the issue of disbursements under a DBA is crucial.

It is unclear whether the Regulations allow the solicitor to charge the client

– disbursements in the event of defeat;

– disbursements, excluding counsel’s fee, over and above the maximum of 25% in personal injury cases and 50% in civil cases.

It would be difficult to make the Regulations any harder to understand.

On the face of it the charge made to the client, including disbursements, is capped at a percentage of monies “ultimately recovered by the client” (Regulation 4(2)(b), (personal injury), 4(3) (civil), and 7 (employment).

So, no recovery no disbursements as any percentage of £0 is £0 and no charge to the client for unrecovered disbursements, classically an after-the-event insurance premium, over and above the maximum percentage.

However it is not as simple as that.

Regulation 4(1) reads:

“(1) In respect of any claim or proceedings, other than an employment matter, to which these Regulations apply, a damages-based agreement must not require an amount to be paid by the client other than –

(a) the payment, net of

(i) any costs (including fixed costs under Part 45 of the Civil Procedure Rules 1998);

(ii) where relevant any sum in respect of disbursements incurred by the representative in respect of counsel’s fees,

that have been paid or are payable by another party to the proceedings by agreement or order; and

(b) any expenses incurred by the representative, net of any amount which has been paid or is payable by another party to the proceedings by agreement or order”.

Thus (b) is unrecovered disbursements, but disbursements do not include counsel’s fees, which are regarded as core costs forming part of the agreed percentage.

Thus if 20% was agreed in a personal injury matter settling for £100,000, then counsel’s fees MUST be included within that 20% and if there were unrecovered disbursements of up to £5,000 then these could be charged as there is £5,000 spare before the overall 25% cap of £25,000 is reached.

The issue is whether, in a case where the figure is 25%, including by law counsel’s fees, the solicitor can charge extra for unrecovered disbursements, The logic is the same if the case is lost – 25% of nothing is nothing, but can the solicitor charge extra for unrecovered disbursements?

The key factor is the use of the word “payment” which appears to be used as a noun, with a specific, statutory meaning as set out in Regulation 1(2), rather than meaning the overall sum paid, which is its obvious, natural English use.

The statutory definition of “payment” appears in Regulation 1(2).

“payment” means that part of the sum recovered in respect of the claim or damages awarded that the client agrees to pay the representative, and excludes expenses but includes, in respect of any claim or proceedings to which these regulations apply other than an employment matter, any disbursements incurred by the representative in respect of counsel’s fees.

Pick the bones out of that.

What that appears to mean is that a solicitor can charge the maximum percentage as a “payment” AND charge non-counsel unrecovered disbursements on top and that the references in Regulation 4(2)(b), Regulation 4(4) and Regulation 7, to a percentage capped “payment” is indeed a reference to the statutory definition of a “payment”, rather than a reference to, er, well, a payment.

Presumably the letter to the client must read:

“Please make payment of 25% of the damages. In relation to the after-the-event insurance premium please do not make payment, but rather give me cash, a cheque, a debit or credit card non-payment”.

I am slightly reinforced by this view by the use of the phrase “must not require an amount to be paid other than” in regulation 4(1) BEFORE, and applicable to, both the concepts mentioned in Regulation 4(1)(a) and 4(1)(b).

The situation is the same for employment matters except that there counsel’s fees are specifically treated as a disbursement and so can definitely be charged on top of the agreed contingency fee, provided that the total is within the 35% maximum.

However it is clear (as mud) from what I have said above that my view is that in an employment matter you can charge disbursements AND counsel’s fees over and above the 35%.

So that is that then. Well not quite. The “Explanatory” Notes to the Regulations are anything but.

Take this:

“DBAs are a type of ‘no win, no fee’ agreement under which a representative ……….can recover agreed percentage of a client’s damages if the case is won (“the payment”), but will receive nothing if the case is lost”.

Does “nothing” mean that the client will pay “nothing” or that the solicitor will get no financial benefit?

Thus a client pays the new Employment Tribunal fee of £1,200 and the case is lost. The solicitor has had the money to pay the fee, but has paid it out and so, arguably, has received “nothing”.

Imagine the following dialogue:

Client: “I have sent you £1,200 for the court fees”

Solicitor (who has got that £1,200): “I have received nothing from you”.

In relation to employment matters the Explanatory Notes say:

“Regulation 7 provides for the maximum amount that is payable to the representative from a client’s damages under a DBA in respect of an employment matter, so that the amount of the payment, including VAT, must not be greater than 35% of the sum ultimately recovered by the client in the claim or proceedings”.

Now, Explanatory Notes do not form part of the Regulations and were clearly written by someone who has no knowledge of the law, but “maximum amount that is payable” takes the definition beyond the statutory one of “payment” (Even the headnote is wrong “(This note is not part of the Order)” – these are Regulations, not an Order.

On balance I believe that disbursements are chargeable over and above the agreed contingency fee.

Contingency fees are simple and valuable. Damages-Based Agreement are amongst the worst ideas in history. Hence Don’t touch with a BArgepole.