Solicitor James McNally looks at the latest method of funding a compensation claim: the damages based agreement
The Government’s view was that responsibility for legal costs had to be put back on the shoulders of the injury Claimant. If Claimants were guaranteed 100% of all compensation and weren’t responsible for legal costs, win or lose, then there was no disadvantage to them in bringing dubious claims. The Government’s thinking is that if a Claimant is responsible for legal costs they might think twice about bringing a claim in the first place.
This is all part of the Government’s attempted crack-down on the perceived ‘claims culture’. Cynics have suggested that it is more likely the result of concerted lobbying by insurance companies, keen to drive up profits at the expense of the injury victim. Whatever the true political reason behind the reforms, the legal landscape has been fundamentally altered.
The legislation which embodied these changes, the Legal Aid, Sentencing and Punishment of Offenders Act 2012, or LASPO as its become known, impacts upon Personal Injury Claimants in three main ways:
- Success fees are no longer recoverable from the losing opponent, but are instead paid out of the Claimant’s compensation.
- The cost of an ‘After the Event’ Legal Expenses Insurance policy is no longer recoverable from the Defendant but is payable by the Claimant.
- Compensation for Pain, Suffering and loss of amenity will be increased by 10%.
Claims can be pursued under either a Conditional Fee Agreement (CFA) or a Damages-Based Agreement (DBA).
Conditional Fee Agreements have been around for years, but Damages-Based Agreements in personal injury law are new. So what exactly is a DBA?
The law defines a DBA as:
“(a)…an agreement between a person providing advocacy services, litigation services or claims management services and the recipient of those services which provides that –
(i) the recipient is to make a payment to the person providing the services if the recipient obtains a specified financial benefit in connection with the matter in relation to which the services are provided, and
(ii) the amount of that payment is to be determined by reference to the amount of the financial benefit to be obtained;”
s58AA Courts and Legal Services Act 1990
Previously it was thought wrong that a lawyer should have a direct financial interest in their client’s case, but the Government no longer has such qualms and has lifted the restrictions that previously prevented injury claims from being pursued on a contingency fee basis.
In layman’s terms a DBA is still a No Win, No Fee agreement where, if you lose, you don’t pay your solicitor’s charges. But if you win your lawyer gets paid an agreed percentage of your damages. This is not the same as a success fee in a CFA. The success fee is a percentage uplift based on your lawyer’s charges (so if the bill is £1,000 and success fee 100%, they receive another £1,000). The percentage in a DBA entitles the lawyer to a fixed amount of your compensation. So if you are awarded £1,000 and the DBA figure is 25%, your lawyer receives £250 of the award.
Before entering into a DBA a client and their solicitor will agree the percentage to be deducted from any compensation recovered. In personal injury claims the maximum amount that can be agreed is 25% of the total award for pain, suffering and loss of amenity and past losses. This percentage will cover not only the solicitor’s charges, but also barrister’s fees and VAT. It does not include disbursements such as expert fees. The solicitor and client will also agree an hourly rate, so that in the event of a successful claim the solicitor can attempt to recover the costs from the Defendant for the work they have done.
If the claim is successful a bill is sent to the losing opponent which will include solicitor’s fees (based upon time spent at the agreed hourly rates) together with disbursements and VAT. Importantly those charges cannot be higher then the solicitor would have received from the client under the terms of the DBA. Therefore in the example above, where the DBA entitled the solicitor to £250, if the time they spent on the case equated to £500 they would still only be able to recover £250 from the Defendant.
Any disbursements (including experts fees) and expenses which cannot be recovered from the Defendant are payable by the client in addition to the DBA percentage fee.
In most instances a CFA is likely to be more advantageous to a personal injury client than a DBA because on a DBA, if a claim is won but the amount of work carried out is relatively low then the amount payable out of the compensation could be much more then the client would have been responsible for on a privately paying basis or on a CFA. For example if a claim settles for £10,000 after just one letter on a DBA of 25% then the client will pay almost £2,500 whereas under a CFA they would be responsible for just a few hundred pounds.
As with all methods of funding, DBAs must comply with various statutory requirements. They must:
- Be in writing.
- Set out the details of the claim, the situation where additional costs will be payable and the reasons for setting the amount of the additional costs at the given level.
- Not allow the amount paid by the client to exceed 25% of the total award received for pain, suffering and loss of amenity and other losses (not including future losses) net of recoverable benefits.
DBAs are unlikely to become the main method of funding for injury claims and several practitioners have already labeled them a waste of time. However, there could be circumstances where a DBA is the most appropriate method of funding and its an option that we will consider in all new personal injury claims we take on.
For further details about bringing a personal injury claim under a Conditional Fee Agreement or a Damages-Based Agreement give us a call on 0333 888 0408
