In our last post we talked about the abolition of recoverability of CFA success fees from losing defendants. In this post we will look at what is to replace this method of litigation funding.
The LASPO Act introduces Damages Based Agreements (DBAs). These will be permitted for all civil disputes. Under a DBA, solicitors will only be paid if the claim succeeds and then they will be entitled to a percentage of the damages awarded to the successful claimant.
This sounds more drastic than it may turn out to be – the draft DBA regulations indicate that solicitors’ basic costs will still probably be recoverable from a losing defendant, it is merely the ‘success fee’ element – effectively the solicitors’ compensation for taking a risk on the claim (since if the claim is lost the solicitors will get nothing) – that will henceforth be payable from damages.
Also, the amount payable to solicitors will be capped at 50% of the total damages award (and only 25% for personal injury claims).
What does this mean in practice?
- First, only the strongest claims will go to court. Neither solicitors nor claimants will want to risk getting nothing.
- Second, lower value claims are unlikely to make commercial sense – if the claimant must pay out a share of his winnings to his solicitors, the claim needs to be big enough to make this payment and still leave a residue for the claimant – otherwise it’s simply time wasted for the claimant.
A word of caution – the government has drafted new DBA Regulations to provide for the way in which the new DBAs are to operate. These have recently been laid before Parliament. However there are apparently some very serious flaws in the proposed DBA Regulations, likely to increase the risk of satellite litigation – clearly the government is so anxious to bring in the new legislation that it is willing to take the risk. Watch this space!