Jackson skittles MoJ on damages deals

At the end of last month the great and the good of the legal costs world gathered at the Grosvenor Hotel in London, at the invitation of the Civil Justice Council (CJC).

In a packed conference room, a royal flush of judges, litigators, barristers, costs lawyers, academics and civil servants – all with an interest in costs – were shunning the sunshine to spend the day contemplating the effect of the 2013 Jackson reforms, marking the start of the government’s five-year review of the changes.

Surprisingly, however, the Ministry of Justice had somewhat jumped the gun by publishing its own ‘initial assessment’ of the reforms, 24 hours before the CJC event. The controversial part was what it had to say about damages-based agreements, which are widely regarded by litigators as an utter failure thanks to the government’s policy stance that it will not allow so-called ‘hybrid’ DBAs, coupled with its atrocious drafting of the DBA regulations. Clearly, the MoJ anticipated that lawyers at the CJC’s seminar would be calling for meaningful changes to the DBA rules, and decided to pour cold water on that notion before any sparks of hope began to appear.

The MoJ’s document highlighted the need for ‘caution’ in introducing DBAs, giving various flimsy reasons in support. So when Sir Rupert Jackson (pictured), architect of the reforms, stepped up to the lectern at the CJC event the following day, he wasted no time in knocking these arguments down like skittles in a bowling alley.

First, on the government’s claim that DBAs may be best suited to ‘high-value’ claims, Jackson pointed out that they can be used for very-low-value claims in group actions. Next, he dismissed the suggestion that a ‘cautious’ approach is necessary at all, given that DBAs are already used widely overseas; and in some jurisdictions such as South Africa they are actually the main means of funding litigation. The former Court of Appeal judge then rejected the government’s perplexing suggestion that DBAs should be confined to ‘niche’ areas, noting that they have been used successfully in employment tribunals for years; and indeed often in low-value employment claims. That was three skittles toppled.

Next he took aim at the government’s argument that DBAs would encourage high-value, ‘speculative’ litigation, pointing out that the same criticism could be made of third-party funding. In truth, he said, both third-party funding and DBAs simply provide another means of funding for those who cannot otherwise afford to pursue a claim. Claimants would rather receive two-thirds of their award – with a third going to their lawyer or funder – than nothing at all.

The last skittle to fall was the government’s rejection of a hybrid DBA option, which would have allowed a ‘no win, low fee’ agreement, rather than only a bald, all-or-nothing arrangement. As hybrid conditional fee agreements are already allowed, there is ‘no reason’ not to allow the same for DBAs, he said. Perfect logic.

As the day got under way, the need for workable DBA regulations proved a recurring theme, and one on which all who spoke on the topic were agreed. One litigator gave a first-hand account of how the current regulations can leave a solicitor exposed to a ‘cunning client’. He described how he had conducted extensive work for a client in relation to a £1m claim over the mis-selling of an interest rate hedging review product to an SME. The firm had presented oral evidence to the bank at a challenge meeting, in which the bank made clear that it was about to make a substantial offer. The wily client then disinstructed the firm and terminated the retainer, so that it could take the offer without paying its lawyers their DBA fee. The law firm is now locked in a battle with the client to obtain payment, and like most of these disputes, it is more likely to settle than make its way into the courts to allow judges to create binding case law on the issue.

This gaping lacuna surrounding the termination of DBAs is something that could be fixed very easily. All the work on this and the myriad other technical problems with the DBA regulations has already been done. In 2015 a working group chaired by Professor Rachael Mulheron laid out a series of detailed proposed amendments that have yet to be implemented.

But while this five-year Jackson review may lead to some tidying up around the edges of the DBA rules, what we will not see is wholesale change that will bring these contingent fee arrangements into the mainstream of litigation, as CFAs are. That much is clear from the MoJ’s announcement ahead of the CJC conference.

Despite the weighty and eloquently made arguments in favour of the expanded use of DBAs, government is not at all keen. That begs the question, why not? One can only assume that the large paying parties – defendant insurers, together with large corporates and financial institutions – have been wielding their influence on civil justice reform once again.

Rachel Rothwell is editor of Gazette sister magazine Litigation Funding