50% cap on contingency fees for commercial cases

The government has given further details of its plans to introduce contingency fees, or “damages based agreements” (DBAs), for civil litigation. It has said that in non-personal injury claims (excluding employment tribunal cases) there will be a 50% cap on the amount of damages that can be taken as a contingency fee (see the new webpage launched by the MoJ to provide further information on its civil justice reforms being implemented in April 2013).

The decision to impose a 50% cap is in contrast to the recommendations of the working party set up to consider this and other issues relating to the introduction of DBAs. The working group recommended that there should not be a cap on the level of contingency fee that could be charged in commercial cases. It could not agree on whether there should be a cap for consumer / small business claims, but said that if there was to be such a cap, it should be set at 50% (see post). The government has adopted this level of cap for all non-personal injury cases (save for employment tribunal cases, where there is a 35% cap).

It is not clear whether this cap is intended to operate on the total level of the contingency fee that the lawyer can charge (including amounts recovered from the opponent) or, alternatively, on the net fee that can be deducted from the client's damages (excluding amounts recovered inter-partes). Nor is it clear what will be the effect of exceeding the cap. We anticipate that these aspects will be clarified by the regulations which, the MoJ has indicated, are now being drafted and will be consulted on under statutory requirements.

The government has also said that for personal injury claims there will be a 25% cap on the amount of damages that can be taken as a contingency fee, excluding damages for future care and loss. This again differs from the approach of the working party, which recommended that the cap should be calculated based on ALL damages, not excluding damages for future care/loss (but should apply to the total level of the contingency fee and not just the excess over recoverable costs).