The Jackson reforms were implemented on 1 April 2013.
Before 1 April 2013, the only type of "no win no fee" agreement that was recognised in law was a "conditional fee agreement" or CFA. Under this arrangement the lawyer's payment is conditional on the case being successful. If the case is lost, the lawyer is not paid. If the case is won, the lawyer is paid the normal fee plus an “uplift” or “success fee” in addition to his basic fee. The success fee can be up to 100% of the basic fee. So this limit (which remains unchanged) forms a natural "cap" on a lawyers expectations or how much he is personally invested in achieving a particular outcome. At most, if successful, the lawyer looked to recover double his basic fee.
All that had now changed with the introduction, from 1 April 2013, of "damages-based agreements" or DBAs. Under a DBA, as with a CFA, if a case is lost, the lawyer is not paid. However if the case is won the lawyer may take a percentage of the damages recovered for their client as their fee. This is a move towards a more “American-ised” way of funding litigation. The maximum payment that the lawyer can take out of the damages is capped, in civil litigation cases (of which rights of light claims form part) at 50% of the damages recovered.
This is particularly unsettling in the rights of light sector. Potential damages, calculated on the classic Tamares basis of a one third share of developers profits, can be very significant. This is a natural function of the current commercial climate where developments, in order to be profitable, are increasingly more ambitious and of a larger scale. Although one must fall back on the sense check of what “feels right” by reference to other factors including book values, the stark fact is that in the post-Heaney world, developers are facing increasingly more aggressive claims and for larger sums of money. The introduction of DBA’s, whereby solicitors are directly and personally interested in the outcome in terms of the amount of damages recovered, can only serve to make this area of the law more uncertain and potentially more expensive for developers. Now even small residential or commercial impacted neighbours can legally reach an agreement with their lawyers under which they incur no legal costs whatsoever in return for ultimately sharing their damages pot with the lawyer instructed, who will perhaps be motivated to aggressively pursue as large a figure as possible, knowing he can take up to half.
Will these reforms lead to a new “breed” of lawyer in the rights of light sector and yet more headaches for developers?
For more information on any of the issues mentioned above, please get in touch.