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‘Difficult to see a principled basis for the distinction’: CJC calls for wholesale change of DBA rules

The Civil Justice Council has recommended a raft of changes in a bid to increase the number of law firms willing to take litigation on a damages-based agreement (DBA).

With Lord Justice Jackson’s civil litigation reforms now two years old, the Council has put forward 45 recommendations after law firms shunned their new ability to enter into DBAs, or no win no fee deals. The funding option for litigation sees the lawyer’s fee, if the case is successful, calculated as a percentage of the financial benefit gained while if the case is lost no fee is payable.

The Council’s working party, chaired by Professor Rachael Mulheron of Queen Mary University of London, recommended raising the caps on the amount of damages lawyers can agree to take if a case is successful and new measures to encourage defendants to use DBAs.

The review, which was prompted by a Ministry of Justice request last November, also recommended the government revisit arguments in favour of hybrid DBAs – a scheme that combine a DBA with some other form of retainer such as hourly rates but which the government ruled out in setting up the review. However, the study clarified that government’s objection is only to ‘concurrent hybrids’, where the two forms of retainer exist at the same time. It does not object to ‘sequential hybrids’ where there are different types of retainer for different stages of a case.

The group also called for the government to clarify whether solicitors can retain the fees payable under the non-DBA funding agreement in a sequential DBA, or whether that sum must be offset against the DBA’s contingent fee.

Maura McIntosh, a professional support consultant at Herbert Smith Freehills and a member of the group, told Legal Business that the complexity of the government’s take on hybrid DBAs will continue to delay their use. She argues: ‘It is difficult to see a principled basis for the distinction, and it is likely to lead to real difficulties. At the moment, it remains opaque precisely what sorts of arrangement offend against the government’s policy – for example, could a lawyer agree an hourly rate up to but not including trial, and then a contingency fee for the trial work?

‘It is not even clear whether, under the government’s policy, the solicitor should be able to retain the fees payable under the non-DBA element or whether it has to swap these for a contingency fee once the DBA is agreed. Until there is greater flexibility, or at least clarity, on these issues, it seems unlikely that we will see the widespread use of DBAs.’

Language will also be changed to allow defendants to use DBAs, with lawyers and clients to agree a ‘trigger point’ at which a DBA becomes payable, and the circumstances under which it can be terminated.

The Master of the Rolls welcomed the report and said: ‘DBAs were envisaged by Lord Justice Jackson in his report Review of Civil Litigation Costs as an important funding option available to those wishing to pursue or defend a claim. They have, however, been used infrequently since then by lawyers and their clients as a method of funding litigation. I hope that the changes recommended in this report will encourage the greater use of DBAs.’