…with both a practice note for firms undertaking what are now called “Damages Based Agreements”, and a call to the (by now old) government to repeal the regulations governing their use.
By way of reminder, the charging of a contingency fee – where the amount charged by the representative is a percentage of the compensation recovered – had gained great popularity in the last few years. Costs are not normally payable by the losing party in the Employment Tribunal, so the DBA model provides one of the few funding options for the impecunious client. There are problems however, and for my discussion of the conflicting pressures on a DBA funded representative, and the background to the government’s decision to regulate them, see my previous post here.
The Damages-Based Agreements Regulations 2010 came into force in April. They provide for the formal requirements of DBAs, the information that must be provided and, importantly, a 35% cap on the percentage charged, including VAT.
As a former solicitor I still receive email notices of new Law Society practice notes – they are usually prosaic in the extreme, and I delete them, but this bulletin contains the following (controversial?) advice:
Tribunal proceedings are non-contentious business under the Solicitors Act 1974 (“the Solicitors Act”) and, so far as solicitors are concerned, a non-contentious business agreement compliant with Section 57(1) of the Solicitors Act could be used for Employment Tribunal matters.
A conditional fee agreement (as opposed to a DBA) would be enforceable and would not be caught by the Regulations. Such an arrangement might enable you to achieve a greater success fee than would be possible under the Regulations, and still avoid your client risking liability to you if the claim fails.
I don’t know if any solicitors have tried this. But the attitude of solicitor-practitioners shines through, and indeed the Law Society have called on the government to repeal the regulations, contending that the 35% cap will withdraw the possibility of representation from some needy claimants.
Read all, here.
The Law Society makes an interesting point about non-contentious business agreements, but I don’t think complying with section 57(1) would oust the DBA regs if what you are in essence agreeing with your client is a DBA – i.e. a fee which is determined by reference to damages awarded. My guess is that no-one will try this, because the risk is that all your fees are irrecoverable.
The regs also seem to be very wide. A query came up as to whether a no-win-no-fee agreement whereby fees were based on normal hourly rates but capped at 50% of damages would fall foul of the DBA regs. I took the view that it probably would. Although these regs are well intentioned, I think the effect will be to reduce the funding options for clients beause the cap is set so low that solicitors will think twice before taking on complex cases (and lets face it, cases are getting much more complex these dayes) unless the damages are likely to be high.
I agree with you Mark – the arrangement you describe most probably would be caught by the regulations. It seems a shame that a simple hourly rate charging basis can continue, but one with a cap will not, when the cap benefits no-one but the client.
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