Lord Justice Jackson yesterday urged caution over setting limits on the percentage of damages that lawyers will be able to take in commercial cases under his reforms.

The Court of Appeal judge also acknowledged that his wide-ranging changes to civil justice may not come into force until next year.

Jackson said the time had come to decide on the detail of how the new damages-based agreements to be introduced by his reforms would be implemented. One issue to be addressed is whether a cap of, for example, 35% of damages should be imposed on lawyers’ fees in commercial cases. There will be a 25% cap in personal injury cases.

The judge said he had an ‘open mind’ on whether contingency fees should be capped for commercial litigation. But he added that there was ‘force’ in the argument that sophisticated clients with their own in-house counsel should be able to reach whatever agreement they wanted with their solicitors.

Jackson cited an example of a commercial client that may want to proceed with litigation that had only a 55% chance of success. He said in these circumstances, solicitors may only be prepared to take on the work for a high fee, and there was no reason why the two ‘adult parties’ should not agree a 55% contingency fee.

Jackson said his reforms were intended to ‘widen the funding options’, adding that ‘we must be very cautious before we cut down on those options’.

The judge suggested that a working group should be set up to examine the detailed implementation of damages-based agreements (DBAs).

On the timing of his reforms, Jackson said he did not know whether the changes would be introduced ‘in late 2012, or some time in the first half of 2013’. There has been recent speculation that the reforms may be delayed until April 2013. In such a case, if a working group were to be set up, ‘there is enough time to study these issues in appropriate detail'.

Jackson, who was speaking at a debate on contingency fees organised by City firm Herbert Smith, also predicted that there will ‘inevitably’ be an expansion of third-party funding as a result of his reforms.

Another speaker, Leslie Perrin, chair of the new Association of Litigation Funders, questioned why law firms undertaking DBAs would not be subject to any capital adequacy requirements.

Perrin noted that while funders who have signed up to the new code of conduct will be required to show they have enough capital to fund their cases for three years, ‘the responsibility of solicitors is to notify the Solicitors Regulation Authority five days after they have gone bust. You might say that’s a little unequal.’

A full report of the debate will appear in the February issue of Litigation Funding magazine.