DBAs – usable with care? Part III

The caps

A cap applies to the amount of financial benefit from which a contingency fee can be taken. In personal injury, the cap is 25 per cent of damages excluding future pecuniary loss inclusive of VAT. In employment tribunal cases the cap is 35 per cent inclusive of VAT. In all other cases the cap is 50 per cent inclusive of VAT.

Note: In all cases other than employment tribunal cases the capped fee must include counsel's fee.

Disbursements

Other than in employment tribunal cases, disbursements can be charged in addition to the contingency fee but counsel's fee must be included in the contingency fee.

Compensating the risk of losing

A Damages Based Agreement (DBA) is a no win no fee agreement. The compensation for running the risk of recovering no fees for the work done can only be achieved where the damages recovered significantly exceed the costs incurred. In such a case the contingency fee will provide a sum over and above the cost of the work done if charged conventionally.

A recent example where a DBA would not provide any compensation for the risk of losing is Willis v MRJ Rundell & Associates Ltd & Anor [2013] EWHC 2923 (TCC). In a claim valued by the time of the case management conference at £1.1m, the claimant's budgeted costs were already £821,000. Coulson J refused to approve any budget but gave an example of an approved budget of £900,000 with a costs recovery of only £450,000. Such figures would be a disaster for a firm under a DBA.

Terminating a DBA

Other than in employment tribunal cases the DBA regulations make no provision in respect of termination. This is generally regarded as a problem area both for the client and the lawyer. There may be circumstances where, as the case develops, the client regrets having a DBA and others where it is the lawyer who has the regret. In the absence of regulation therefore it is a matter of contract and careful drafting. It is instructive to note the decision in Harcus Sinclair (a firm) v Buttonwood Legal Capital Limited [2013] EWHC 1193 (Ch) that a third party funder could terminate the funding agreement on the basis of the prospects of success.

Lawyer liability for adverse costs

A third party funder is liable for adverse costs under the decision in Arkin v Borchard Lines [2005] EWCA Civ 655. Where a lawyer is retained under a conditional fee agreement, the Court of Appeal in Hodgson v Imperial Tobacco Ltd [1998] EWCA Civ 224 stated that the lawyer was in no different position in respect of liability for adverse costs than one acting under a conventional retainer. What is unclear therefore is whether a lawyer acting under a DBA has an Arkin liability of a Hodgson protection.

Model DBAs

Only the Chancery Bar Association has produced a Model DBA. The Law Society and the Bar Council have each issued statements critical of the state of the DBA rules and declining as a result to propose a model DBA.

DBAs, caps and Part 36 penalties

Unless the DBA contingency fee exceeds conventionally incurred costs the penalty of indemnity costs will seemingly not apply because the contingency fee caps recovery of costs.

DBAs and ATE insurance

As with any litigation it is necessary to assess adverse costs exposure and consider. Where a DBA is used consideration could be given to an ATE policy where premium is contingent on and scaled to recovered damages.

David Chalk is a consultant for DAS LawAssist. He is a Senior Fellow in the Faculty of Business, Law and Sport at the University of Winchester. David was the University's founding Head of Law from 2006 to 2009 having joined from Anglia Ruskin University where he was Principal Lecturer in Law. He has taught law at undergraduate level for over 30 years and has also taught at Masters level and at the vocational stage for both barristers (BVC) and solicitors (LPC).