It is crucial that prospective claimants get an ‘early case assessment’ of the potential scale of any settlement under Jackson’s new damages-based agreements.
Legal reforms 1 April 2013
Following concerns held by the senior judiciary about the cost of civil justice, where the costs of litigation were often disproportionate to the issues, on 1 April 2013 the government reformed the Civil Procedure Rules to restore balance to the system to try and reduce litigation costs. These are the Jackson reforms.
Changing face of commercial litigation
Perhaps the biggest of the reforms arising from Lord Justice Jackson’s review is the introduction of contingency fees or damages-based agreements (DBAs) for all types of civil litigation. This will make English litigation similar to US-style commercial litigation. These DBAs will allow law firms to charge their fees on the basis of a percentage of the final damages actually received.
Other reforms also include the introduction of procedures for judicial ‘costs management’ of cases in all but the most complex cases arising out of business disputes.
Impact on experts
Overall, these reforms should impact an expert’s duties very little. Whilst experts, under the ‘costs management’ changes, will now be required to provide an estimate of their charges (with the result that the recovery of expert’s fees and expenses may be limited by the court if an expert exceeds his or her budget), there will still be an express prohibition on retaining experts under conditional fee or contingency fee agreements. This is because such arrangements are still regarded as being likely to compromise the fundamental requirement of independence and objectivity expected of experts.
Early case assessments
However, the one area where prospective experts are likely to be called upon to assist as a result of these reforms is in providing a much earlier ‘early case assessment’ (ECA) of the potential scale of damages in dispute in any case where a prospective claimant is considering entering into a DBA. If then ultimately successful, a DBA binds the claimant to pay the legal representative a pre-agreed proportion of their damages.
How ECAs can inform DBA decisions
The issue comes, however, when the prospective claimant is negotiating the DBA. A DBA will be required to specify the claim or proceedings or parts of them to which it relates (ignoring the current concern voiced by some commentators of whether partial DBAs are allowable); the circumstances in which the representative’s payment, expenses and costs, or part of them are payable; and the reason for setting the amount of the payment at the level agreed. An indemnity principle will also apply. This means that a party may not recover, by way of court assessed costs, more than the total amount payable by that party under the DBA.
For prospective claimants, this means that an informed opinion of the scale and recoverability of any potential damages is key. This is particularly true of commercial cases where the DBA cap is higher. This is where ECAs delivered by accountants used to quantifying damages or valuing losses in cases will prove most helpful.
Obtaining accounting input as part of an ECA may enable a prospective claimant to understand better the value of his or her claim. It can also assist with providing an acceptable range regarding the value of settlement. Similarly, an ECA can provide the benefit of early advice on the expert evidence that would typically be needed to support a claim, whilst on the other hand highlight shortcomings in a claimant’s case in terms of causation.
An ECA therefore not only enables a prospective claimant to check the numbers behind a claim, but equally as important, it enables them to probe the robustness of the value of a claim. In terms of negotiating future DBAs this type of information could prove to be invaluable.
When seeking to agree the level of any future DBA, the information thrown up by an ECA could provide the necessary information for them to undertake the critical balancing act required to decide not only the level of financial incentive to be offered to the legal representative to pursue the claim, but also to inform the claimant’s own litigation strategy. This may be particularly the case where the unintended side effect of a DBA might be to encourage a less beneficial early settlement.
Of course, it will however be some time before the true impact of DBAs can be properly assessed. What is clear, however, is that they will provide a completely new set of challenges to claimants contemplating how to fund claims, and in such a scenario more information on the prospects of their cases can only be a good thing.
Kevin Haywood-Crouch, director in the forensic team at BDO LLP