Legal Cost Specialists

Costs budgets and DBAs

Last week Hailsham Chambers held their annual Costs Group Seminar and it was another excellent, thought provoking event. I understand an audio recording of the seminar exists and hopefully this will be made available as a podcast.

One of the questions from the floor concerned the interrelationship between DBA and costs budgets. The rules do not appear to contain any requirement to advise the other side that a matter is being funded by way of DBA, but consider the following example.

A claimant has a claim for professional negligence and the claim has a full valuation of £100,000. The DBA is set at 50% of the damages recovered. Although a court may not award the full £100,000 if the claim succeeds, it is known that this is the maximum value of the claim. The maximum the claimant can be liable for in legal costs is therefore £50,000. The indemnity principle applies to DBAs meaning the maximum costs recoverable from the other side, if the claim succeeds, is £50,000. For simplicity’s sake, let us suppose there are 10 relevant sections to Precedent H and the solicitors estimate the costs of each section at £10,000. That would give a total budget of £100,000 but the maximum the client would ever pay is £50,000. So what does the solicitor put in the budget, for each section and globally, and what figure should the court allow for each section of the budget, given it cannot allow a total of more than £50,000? (We’ll ignore the fact the solicitors would have been unlikely to take the case on based on these figures.)

3 thoughts on “Costs budgets and DBAs”

  1. For each section, whatever is deemed appropriate in the usual way (i.e. time versus rate). Globally, the maximum possible value (i.e. the DBA percentage share of the known, maximum spoils) – where that maximum possible value is not known, I would suggest an open explanation of the position is necessary, although it is easy to see how prejudicial that might be (i.e. telling your opponent that no matter how ‘ugly’ the litigation gets, no matter how much work might be required, the indemnity principle will apply to cap the costs). The court should then consider each phase in the usual way, subjecting only the final figure to the DBA cap.

    This is necessary by reason of PD 2.2A CPR 22 (applied by PD 3E1 CPR 3) which dictates the form of the mandatory statement of truth as follows:

    ‘The costs stated to have been incurred do not exceed the costs which my client is liable to pay in respect of such work. The future costs stated in this budget are a proper estimate of the reasonable and proportionate costs which my client will incur in this litigation.’

    The client will not, of course, incur more than the DBA cap.

    This is no different to capping a between the parties bill for detailed assessment at the sum of solicitor/client bills rendered throughout any piece of litigation – save that it is being done prospectively (the whole point of costs management). As long as the indemnity principle remains (and it should remain, in my view), this position cannot change. And as long as the indemnity principle remains, DBAs are “dead on arrival” as Kerry Underwood blogged so very well indeed.

    But then there are reportedly very few DBAs in existence such that this might just be an academic reservation. Who knows, maybe this is/was one of the (many) concerns behind the unpopularity of the DBA. The promised re-working of the DBA regulations (due by October) might change that, particularly if the revised rules pave the way for hybrid retainers.

  2. Charles Wheatcroft

    I’ve not seen a DBA up close but I assume that there is a clause somewhere that allows recovery of costs from the client in the event that they fail to meet their obligations as there is in CFAs?

    If so, the solicitor must assume that full costs may well be incurred and approach the budgeting process on that basis. If the case succeeds the solicitor can say “bad luck, but on the plus side, my client’s success has triggered a ceiling on the costs which your client will benefit from”.

    It seems a nonsense to try to apply a pro rata cap during the budgeting phase (which itself is complicated by the cap imposed on each section of the budget) that may or may not apply depending upon the result.

    The indemnity cap only applies when the claimant wins in which case why try to apply it at all until the end? The current indemnity principal deals with this situation. The problem is the sectional caps on the budget. A budget should be a budget not a series of budgets.

  3. Simon,
    I posed that question and whilst I was grateful to Simon Wilton – Counsel for his answer I can’t help feeling that if (and it will happen) budgets are approved based on a Claimants costs actually incurred only for it to then transpire the Claimant was acting on a DBA the Defendant will undoubtedly be screaming blue murder on being misled and perhaps if not equally important so perhaps will the court!

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