DAMAGES-BASED AGREEMENTS – DEAD ON ARRIVAL – THE NEW CPR

Here I deal with the provisions relating to Damages-Based Agreements (DBAs) as set out in The Civil Procedure (Amendment) Rules 2013.

 This is a truly exciting scheme as it can involve you taking all of the risk and earning nothing and actually paying your client for the privilege of winning!

 Other blogs – Contingency Fees – Ontario Model – Jackson’s Casablanca Moment, and Contingency Fees and Damages-Based Agreements, deal with the wider issues.

 I will unify these blogs in due course.

 Indemnity Rule applies

The final nail in the DBA coffin is confirmation that the indemnity principle applies to DBAs. Thus a solicitor will never be able to recover from the losing party a sum in excess of the amount chargeable to one’s own client under the DBA, which sum itself is capped by Regulation 4 of The Damages-Based Agreement Regulations 2013.

 Thus in a personal injury case the DBA is capped at 25% of damages, that sum includes VAT and counsel’s fees. Maximum recovery, after a trial, is limited to that sum, which net of VAT is 20.83% profit costs, less counsel’s fees.

 Let us take an Employer’s Liability case where £15,005 is awarded at court.

 Act on an hourly rate basis, getting paid win or lose, and the proposed fixed recoverable costs (FRC) are £12,517.80 including advocacy fees and VAT.

 In addition you are free to charge the client extra non-recoverable solicitor and own client costs and you are free to charge the client full solicitor and own client costs in the event of defeat.

 Have a conditional fee agreement with the client and in the event of a win you can have all of the above and a success fee.

 Thus a DBA provides by far the greatest protection to the client. The application of the indemnity principle benefits only the tortfeasor, as credit must already be given to the claimant, £ for £, for costs recovered.

 This is a lawbreaker’s Charter.

 Here is how it works on a DBA:

 

 Maximum fee (25% of £15,005)                                            £3,751.25

Less

Counsel fixed advocacy fee including VAT                            £1,980.00

                                                                                                      £1,771.25

Say counsel’s fee for conference, advice, etc.   

£1,500.00 + VAT                                                                         £1,800.00

Fee to solicitor for taking risk and winning            MINUS  £     28.75

 

So you take all of the risk – and win.

Recovery is limited to £3,751.80, all of which – and more – is spent on counsel’s fees.

 The defendant gets a windfall of £8,766.55 (FRC of £12,517.80 minus MAXIMUM DBA of £3,751.80).

 Alternatively act by the hour and charge what you want.

 In due course I will deal with other aspects, for example that it renders a claimant beating its own Part 36 offer meaningless, no indemnity costs as all capped at the DBA rate.

 As everyone knows I am a big fan of contingency fees. The Ontario train crash is bad enough – having to give credit for costs recovered when you have to do no such thing with a CFA success fee.

 Adding to it the indemnity principle wrecks DBAs for all matters. I doubt whether one will be signed, except in Small Claims matters.

 This is the last-ditch rearguard action of the old guard – the establishment who are scared of contingency fees and the access it gives ordinary people to the courts.

 Shame on you.

 

The eyes are not here

There are no eyes here

In this valley of dying stars

In this hollow valley

This broken jaw of our lost kingdom

 T.S. Eliot – The Hollow Men