Proposals to regulate damages based agreements
19 May 2009
The Ministry of Justice has announced plans to clamp down on ‘no-win, no-fee’ lawyers who are exploiting vulnerable clients by taking a large proportion of the damages they are awarded as payment for excessive legal fees.
These damages-based arrangements, known as ‘contingency fee agreements’, are most common in Employment Tribunal proceedings. They are largely unregulated and concerns have been growing about claims that some solicitors have been exploiting these contingency fee agreements unreasonably.
The government is therefore today announcing its intention to introduce provisions in the Coroners and Justice Bill, currently before Parliament, to enable proper regulation of damages-based agreements by putting in place protection for vulnerable claimants against unfair or unreasonable agreements.
The Justice Secretary, Jack Straw, said:
‘Unregulated contingency fee arrangements have been stretched to breaking point by some no-win, no-fee lawyers who have exploited vulnerable clients by taking huge slices out of their damages, failed to provide them with proper information, and imposed unfair terms and conditions that have locked them into unreasonable deals. The time has come for these arrangements to be subject to proper regulation to protect the interests of consumers, and that is what the government will legislate to do.’
These arrangements – unlike, for example, conditional fee agreements – have been without statutory regulation because of an anomalous and long standing interpretation of the law which has classified proceedings in Employment Tribunals as ‘non-contentious’.
The department will shortly publish a consultation paper seeking views on the details of the regulatory requirements.
However, it is intended that regulations will include:
- a cap on the percentage of damages that can be recovered by the legal representative
- a requirement that legal representatives provide claimants with clear and transparent information on total costs
- a requirement that legal representatives clarify the deductions made from the claimant’s award which are to go to the representative as their fee for taking on the case
- a requirement that they provide explicit information on alternative methods of funding.
As well as regulating their existing use, the proposals will also allow the Justice Secretary to extend or restrict the use of these agreements in future should the need arise.
Notes to editors
- The term ‘no-win, no-fee’ is often used to describe private funding agreements including conditional fee agreements and damages based contingency fee agreements. The Courts and Legal Services Act 1990 (as amended by the Access to Justice Act 1999) regulates Conditional Fee Agreements also a type ‘no-win, no-fee’ arrangement, however, there is no specific regulation of damages based contingency fee agreements.
- Damages based contingency fee agreements are known to fund a range of disputes in the Employment and VAT and Duties Tribunals. The key feature of a damages based contingency fee agreements is that the representatives are not paid fees if they lose a case and a fee based on the percentage of damages recovered if they win.
- It is intended that the proposed regulatory requirements will apply to England and Wales only.
- Lord Justice Jackson is conducting an independent review of civil litigation costs commissioned by the Master of the Rolls. He is considering the use of ‘contingency fees’ as a method of funding litigation (where their use is currently prohibited) as part of his review. The department will consider the role of Damages Based Agreements more widely in light of his recommendations. Lord Justice Jackson published a Preliminary Report on 8 May 2009. His final report is expected in December.
- For more information, please contact the Ministry of Justice News Desk on telephone 020 3334 3536.
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