Nick Rowles-Davies examines the arguments swirling around the litigation world over damages-based agreements and third party funding
England's Civil Justice Council’s (CJC) working party on damages-based agreements (DBAs) has prompted debate in the litigation funding world following its recommended draft for the regulations on DBAs published in July. Third party litigation funders are worried that the implementation of the recommendations and proposed draft Damages-based Agreement Regulations 2012 set out by the CJC will leave them at a disadvantage and create an uneven playing field when it comes to them competing for business with solicitors proposing to fund cases under a DBA.
Solicitors acting under a conditional fee agreement (CFA) currently have immunity from adverse costs orders. This is in stark contrast to the current position as regards third party litigation funders and their responsibility to pay adverse costs in a case which loses.
The Association of Litigation Funders (ALF) has expressed concern over the CJC proposals and suggests that the history of costs in this area means that solicitors who fund litigation should face similar adverse costs exposure to that of litigation funders.
A level playing field
The argument from funders is that the playing field should be a level one. Additionally the suggestion has been made that some funders, in the event that there is no adverse costs liability imposed on lawyers acting under a DBA, may decide to change their methods and operate through some form of Alternative Business Structure, thus escaping the liability to adverse costs.
Both of these outcomes may occur to a lesser extent. It seems unlikely that the mainstream funders will look to change their models any more than they were doing in any event. It would also be surprising if a phalanx of law firms suddenly decided to take a far larger risk-based case load than previously, merely because the returns are now better. Solicitors are relatively risk averse and whilst the upside in a DBA is a better proposition than in a CFA case, the risks remain.
It seems highly feasible that in fact what will happen is that funders will continue to fund base costs and that lawyers acting under a DBA and third party litigation funders will work together as they do under the existing CFA and discounted CFA regime. In fact funding may increase even more than it has in the last few years, once clients have become used to the concept of sharing the proceeds of litigation, something which is currently alien in the English system.
No great change
A likely scenario is that there will be no great change in things. All of the discussion over who will be better placed and whether funders or lawyers on a DBA will be at an advantage is fairly academic and irrelevant. Why is this?
In short, whilst the landscape may have changed and things look different, they are not so different. Lawyers still have the same professional obligations through the SRA code of conduct and they owe the same duties to their clients that they always have done. Solicitors are still obliged to advise their clients about the funding of litigation and their potential liability to adverse costs. Furthermore, solicitors who fail to advise their clients properly in respect of the potential liability for adverse costs and those who do not take steps to protect their clients by way of after the event legal expenses cover, will be negligent.
Realistically, these professional obligations do level the playing field. If a client is faced with the choice between instructing a solicitor on a DBA with no costs cover, or using a litigation funder who has a liability for costs and both are looking to share in the proceeds of the case, then it seems highly unlikely that the client will go for the option where they have no adverse costs protection.
But, that is never going to happen, in both cases the adverse costs scenario will have to be provided for - so the reality is that the it makes little difference in the end and whilst both sides will do all they can to protect their positions, in fact, it looks very much like they are on the same side.