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Damages-Based Agreements, Cost Management Orders and Mediation

1 April 2013 sees major changes to the litigation in England and Wales. Perhaps the most significant of these are the introduction of The Damages-Based Agreement Regulations 2013 and Cost Management Orders (“CMOs”) which will now be routinely ordered by the courts.

The changes come on the back of complaints made by litigants that they have regularly had no understanding of their costs liability in the event of a win, lose or draw and that costs expenditure spiralled out of control. It has to be said that an unfortunate feature of litigation in the UK is that the recovery of costs often becomes more important than the principal claim. All too often clients end up reflecting on why they bothered to litigate in the first place! Damages Based Agreements (“DBAs”) and “CMOs” are set to change this undesirable feature of litigation once and for all.

The changes are designed to give effect to the “Woolf” and latterly “Jackson” reforms which essentially were introduced to manage and control litigation costs and to make the recovery of those costs, where so ordered by the court, proportionate to the sums in dispute. They will have a significant impact on the conduct of litigation in England and Wales and change how solicitors and barristers will be rewarded by their clients, or not, in cases that ultimately come before the courts.

It is not for me to comment on the operation of DBAs and CMOs in detail. It is, however, sufficient to say that fully contingent fee agreements, where lawyers take an agreed percentage of the awarded damages and recovered costs, are likely to the order of the day. Costs will be managed by the court through reference to an agreed budget set at the outset of the case and ultimate recovery will be ordered by the court by reference to the approved budget. Only in very exceptional cases will parties be entitled to recover costs in excess of the approved budget.

For claims that are neither personal injury nor employment claims, lawyers may agree with their clients that their remuneration will be limited to a percentage of an amount which, including VAT, is equal to 50% or less of the sums ultimately recovered by the client.

I am sure that no lawyer would pursue an action in the courts that it did not fully support but, just to be sure, clients will now be able to insist that their legal team is appointed under a DBA. This means that legal teams will be operating on a fully contingent or “no win no fee” basis for clients. .

Will all this lead to a drop in litigated cases? Who knows? Time will tell. But if cases are to be litigated on the premise that the legal team is to be rewarded on a DBA basis with CMOs being routinely ordered by the court, it is just possible that one of the outcomes will be that mediation will now be considered at a far earlier stage in the proceedings. That’s the good news for mediators, now for the bad.

More often than not, parties to a mediation will look to settle a claim by making a lump sum offer of an amount of money inclusive of costs. If the legal team is the subject of a DBA, how will it be remunerated if settlement is to be agreed? Will this mean that the Mediator will need to undertake a further mediation internally between a client and its legal team so everyone knows who gets what share of the pie? This all sounds like more work to me, but if the outcome of all this is that clients receive a fairer deal, then surely this has to be a good thing.