CMCs, DBAs & RECOVERED COSTS
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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.
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