Government rules out "hybrid" Damages-Based Agreements (DBAs)

The Ministry of Justice has asked the Civil Justice Council (CJC) to review the regulations governing DBAs to consider possible improvements, but has ruled out the introduction of "hybrid" arrangements where a lawyer could combine a DBA with some other form of retainer such as hourly rates. According to the CJC's press release issued today, the government has ruled out such arrangements as it considers they "could encourage litigation behaviour based on a low risk/high returns approach".

The exclusion of hybrid DBAs came as a surprise to the profession when the draft regulations were published in January 2013 (see post), as there was no advance warning of the restriction and it went against the recommendations of the working party set up to consider such issues. The restriction has been widely criticised, including by Lord Justice Jackson in his keynote speech at a recent Law Society conference. Lord Dyson, Master of the Rolls and Chairman of the CJC, has expressed disappointment at the government's decision not to permit hybrid DBAs.

The CJC working group will be chaired by Professor Rachael Mulheron of Queen Mary University London and its membership and terms of reference will be published shortly. The issues the group will consider are said to include changing the regulations so that defendants will be able to use DBAs; currently they are available only to claimants (or counterclaimants) and not defendants to an action.

To date there has been very little take-up of DBAs in commercial cases. This has been attributed, in large part, to the inability of firms to offer hybrid arrangements, though other problems with the drafting of the regulations may have contributed to their lack of use. If that is indeed the key factor, then whatever improvements are made to the regulations as a result of the current review may do little to increase the popularity of DBAs.