As personal injury lawyers prepare to kiss goodbye to recoverability of after-the-event insurance premiums and success fees in conditional fee agreements from next April, so they will be waving hello to the new kid in town, the damages-based agreement. Will DBAs prove to be the hero of the hour, rescuing access to justice for wronged personal injury claimants?
Frankly, that looks unlikely.
DBAs are a sensitive issue in personal injury, because they are based on the principle that a lawyer is paid by taking a slice of an injured person’s compensation. In return, the solicitor carries the risk that if they lose the case, they won’t get paid. Clearly there is a balance at play here. The DBA enables claimants to bring their case, but it also means they will not be fully compensated. So the government has put in safeguards to ensure that greedy lawyers do not take too much of their client’s compensation.
Firstly, the maximum percentage that a solicitor will be able to take from damages is 25%. The theory is that lawyers will compete on this percentage, and market forces will mean that some firms will offer to act for a lower percentage. But not everyone is convinced that is going to happen; it will depend on the economics.
The other crucial factor is the type of damages on which this percentage can be claimed. Jackson recommended that it should apply to general damages only – not damages for future loss. But a few months ago, a government-commissioned Civil Justice Council working group on DBAs looked at this issue. It concluded that in order for solicitors to be able to offer DBAs, they should be able to take a percentage of future damages as well as general damages. General damages tend to be relatively modest compared to future damages.
The CJC group did take into consideration ‘the fear of excessive inroads into damages required for future care, if the contingency fee is deducted from future care costs and future losses’. But it also noted that ‘75% of something is better than 100% of nothing’. In other words, if you don’t allow lawyers to take a percentage of future losses, they may not be able to offer DBAs at all, and some claims will never be brought.
So the CJC working group’s report may have given some hope to personal injury lawyers that - if they can take a stake of damages for future loss – DBAs just might be worth the risk. But that hope was dashed earlier this month. In an update on Jackson implementation, the Ministry of Justice confirmed that contingency fees cannot be taken from damages for future care and loss. It chose to ignore the recommendation of the CJC group it had commissioned, which was largely made up of lawyers, and had striven to find a solution that the members of the group believed would work in practice.
For some claimant lawyers, the exclusion of future damages – combined with the 25% cap – poses a giant question mark over the viability of DBAs in personal injury. The regulations governing DBAs are now currently being drawn up; and some solicitors still hold out hope that, in the final regulations, the MoJ will only exclude damages for future care, and not future loss of earnings.
After all, while there is a clear reason why the government would want to make sure that a claimant’s care needs are safeguarded, the same logic does not necessarily apply to future loss of earnings. If it is acceptable for lawyers acting under a DBA to take a stake of compensation for past loss of earnings, why not future ones as well?
It will be a few years before we really see how the market will respond to DBAs. But let’s hope that in adopting such tight measures to protect claimants from the potential risks posed by money-grabbing solicitors (who, after all, are already heavily regulated), the government does not inadvertently close down what might be the last option for claimants to bring their case at all.
Rachel Rothwell is editor of Litigation Funding magazine, providing in-depth coverage on costs and the financing of litigation.
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