Kerry Underwood

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

with 4 comments


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

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Written by kerryunderwood

February 15, 2013 at 3:36 pm

Posted in Uncategorized

4 Responses

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  1. I think the DBA works as and when the small claims limit goes up to £5k…not that it helps!.( Presumably the suggested £15K limit was toy throwing and hand waving) The other strange, but unpleasant way a DBA could work is to create a raft of unrecoverable disbursements that equate to the shortfall in question so you recover inter partes costs limited to the DBA % but create disbursements that have to be paid from damages. (photocopying £1K……..Horseburgers £3K……….Asteroid Protection Insurance…..£2K)

    Brevitas

    February 15, 2013 at 4:19 pm

    • Costs dressed up as disbursements will not work. True that DBAs work for small claims, but why bother? Just have an hourly rate but cap total – client is protected, indemnity principle is not relevant and statutory caps and red tape is avoided.

      Worrying thing is that the apparently loony-tunes CPR, forced on the CPR by the in-contempt of Parliament MOJ I am told, may in fact be no such thing, but a carefully-worked out set of Rules for a £15,000 small claims track.

      This is what happens when you replace the Lord Chancellor’s Department with the Ministry of Justice and have a non-lawyer as Lord Constitutional Chancellor of Affairs Justice Windscale/Sellafield. It just does not work.

      kerryunderwood

      February 15, 2013 at 4:27 pm

  2. Kerry thank you for this very informative article,

    Is it true then, as has been described to me, that you can have a CFA with 100% uplift on your costs which is claimable from damages as long as limited to 25% of their damages.

    So if your costs are say £1200 for dealing with the claim, 100% uplift so £2,400, – knock off the £500 is £1,900 so can take up to that as long as not more than 25%?

    If you got £3k you take £620 ish + VAT to make it £750 along with your £500 portal costs?

    Chris

    March 4, 2013 at 9:04 am

    • Not as simple as that. Please do not rely on “as described to me” as being the law of England and Wales!

      The success fee in personal injury cases is double-capped, that is it is the LOWER of 25% of damages or the uplifted costs, but it is necessary to risk assess that uplift, and in RTA matters that is likely to be between 10% and 20%, not 100%.

      These are matters of the utmost complexity and require professional advice from a CFA expert lawyer. 🙂

      kerryunderwood

      March 4, 2013 at 9:34 am


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