Kerry Underwood

CMCs, DBAs & RECOVERED COSTS

with 3 comments


 

Look here for Kerry’s new course on this subject

Where a claims management company (CMC) enters into a Damages-Based Agreement (DBA) direct with a client and then the matter goes to a solicitor, who receives costs from the other side, the claims management company is obliged to give credit, pound for pound, to the client for everything received by the solicitor in costs from the other side.
Thus a practice whereby the claims management company arranges to take 25% out of damages at the end and passes the matter to the solicitor is illegal, both because it breaks the Damages-Based Agreements Regulations 2013 and is an illegal referral fee. The SRA specifically warns against solicitors passing damages to a CMC.

Thus a claims management company must give credit for something it has not itself received.

All references are to the Damages-Based Agreements Regulations 2013.

Regulation 1(2) is an interpretation regulation and the relevant part reads:

“representative” means the person providing the advocacy services, litigation services or claims management services to which the damages-based agreement relates.”

Thus there is no doubt that the CMC is a representative, whether or not there is also a representative providing advocacy services or litigation services. That same sub-section also defines client and states:

“client” means the person who has instructed the representative to provide advocacy services, litigation services (within section 119 of the Act) or claims management services (within the meaning of section 4(2)(b) of the Compensation Act 2006 and is liable to make a payment for those services;”

Regulation 4(1) then regulates the charge that can be made to the client, either by the CMC or the solicitor. That regulation reads:

“4. – (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 –

  • the payment, net of-
  • any costs(including fixed costs under Part 45 of the Civil Procedure Rules 1998); and
  • 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

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

Thus the agreement between the CMC and the client must provide for credit to be given against its charges in respect of any costs received from the other side.

Fairly obviously any other rule or interpretation would allow the ban on referral fees to be avoided by the device of the CMC charging the client what would have been the referral fee and preventing the client from utilising costs received from the other side to reduce that fee.

Please see my related blogs:-

CONDITIONAL FEE AGREEMENTS, DAMAGES-BASED AGREEMENTS AND CONTINGENCY FEES

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Written by kerryunderwood

November 23, 2015 at 8:01 am

Posted in Uncategorized

3 Responses

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  1. […] Kerry Underwood on CMCs, DBAs & Recovered Costs […]

    • I got an unsolicited text from a company the other night and looked into there T and Cs which are copied below. It is apparent that the CMC is taking a % under a DBA and the solicitor is taking one also under the CFA as well as costs recovered from the TP. It is implicit that the solicitor is not offsetting the recovered costs from the client’s liability under the DBA. ATE also appears to be mandatory and I suspect a referral will be being paid back to the CMC. I was also contacted in breach of the code. I don’t know who the law firm are but I would like to draw this to the attention of somebody. Is it the SRA or MOJ or both ? It’s no wonder we PI solicitors have such a bad name when people climb into bed with these types.

      “PiClaims4U inform you that if the panel firm of solicitors act for you on a No Win No Fee*, Conditional Fee Agreement (“CFA”) basis and only if your claim for personal injury and/or associated losses is successful then you may be liable for (i) payment of the uplift on the panel firm of solicitors legal charges known as the “Success Fee” and (ii) payment of the cost of the “after the event” legal expenses insurance policy taken out by the firm of solicitors on your behalf to protect you in respect of any costs that you may be liable to pay relating to the opponents legal costs and your own disbursements, for example, the cost of the medical report(s), court fees etc if your claim fails, as unfortunately the success fee and the after the event insurance policy premium further to the recent government reforms to personal injury litigation are both no longer recoverable from the opponent as part of your legal costs even if your claim succeeds.

      On instructing PiClaims4U to act on your behalf under the Damages Based Agreement contract, a type of ‘No Win No Fee’ agreement, you will agree that only on your claim being successful you will pay PiClaims4U a Contingency Fee (“management fee”) inclusive of VAT of up to 25% of your compensation for general damages for pain, suffering and loss of amenity, that is the personal injury element of your compensation which is awarded to you in the claim covered by this contract for only the investigative and advisory claims management services provided by PiClaims4U to include administration of your claim, completing the initial accident claim form, completing any documentation and providing any translation and general client care services during your personal injury claims process.”

      dominicmoss

      November 24, 2015 at 10:19 am

      • SRA as far as the solicitor firm agreeing to accept instructions on that basis, MOJ re claims management company, but do not hold your breath about them doing anything. See my series “Insurers At It Again” – all set out in my new book of Selected Writings. If you are not a solicitor you can get away with anything.

        kerryunderwood

        January 22, 2016 at 3:58 pm


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