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Is there a way to "escape" the limit of recoverable costs imposed by a Damages-Based Agreement in between the parties assessment?

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In the case of Dial Partners LLP & Dial House Consultants LTD v Eastern Airways International Limited & Others Master James was required to resolve an issue arising from the change in funding arrangement which resulted in a significant increase in the Defendants' liability for costs.

The Claimants entered into a Damages-Based Agreement (“DBA”) with their legal representative on 19 March 2015. The agreement provided that the Claimants would pay 50% of proceeds recovered in the claim. On 2 November 2016, less that two weeks before the Trial was due to commence, the Claimants entered into a Conditional Fee Agreement (“CFA”) with their legal representative which replaced the DBA entered into previously. The Claimants’ claim was resolved in the sum of £625,000 inclusive of VAT and interest on the eve of Trial.

The Claimants served the Bill of Costs in the total sum of £523,032.76.

The Defendants' Points of Dispute stated that their liability for costs should be capped at £250,000 plus disbursements except for Counsel's fees. The Defendants submitted that the Claimants failed to give notice of the change of the funding and the settlement amount offered accounted for the anticipated payment of costs in line with the DBA.

The Claimants accepted that they did not inform the Defendants about the change in funding arrangement but suggested that both the DBA and CFA were valid and enforceable retainers. In addition it was suggested that post-LASPO the Claimants were not obliged to inform the Defendants about any change in the funding arrangement. Furthermore the Claimants averred that there was no evidence to suggest that the Defendants had indeed relied on and/or factored the DBA “cap” into their settlement considerations.

The Defendants also argued that the change in funding arrangement was unreasonable. They submitted that the Claimants' claim was originally pleaded at £4.5 million. Had the main action resolved at this level the Claimants' legal representative would have been entitled to recover costs in a sum considerably over £1 million under the terms of the DBA. The Defendants submitted that the funding arrangement was changed when it transpired that the Claimants' dispute was in fact for the sum of £26,500,000 which meant that potential recoverable costs under DBA would not be sufficient to cover the expense of a contested Trial. On this basis the Defendant argued that change in funding arrangement was unfair.

The Defendants sought to rely on the case of Kellar v Williams [2004] UKPC 30 where it was held that, where a costs agreement was amended after Judgement the paying party could elect to pay costs under the old agreement or the new, as best suited their client. The Defendants also quote from the case of Oyston v Royal Bank of Scotland [2006] EWHC 900053 (Costs) where SCCO Judge Hurst stated that:

“Following the decision of the Privy Council in Kellar, it cannot be right that a Deed of Variation can be used to impose a greater burden on the paying party that existed before Judgment. The fact that the client is in agreement, is of no assistance."

Master James considered all the facts and the submissions made by both parties and accepted the Claimants' position that the change from DBA to CFA was not a mere tactical step. In addition Master James found that the Defendants had not raised a genuine issue concerning the reasonableness of the change in funding arrangement. Master James stated that:

“The change in funding arrangements from a DBA to a CFA is not objectionable per se.”

To summarise Master James stated:

“However, upon the specific question of whether it is against the Kellar principle to switch from a DBA to a CFA in the way that the Claimant has done here, I found that it was not, and on the question of whether it was reasonable to do so I find that the Defendants have not reached the threshold of a genuine issue (per Surrey v Barnet and Chase Farm Hospital and other) and as such my comments above to the effect that it does not at first blush seem unreasonable, are perhaps obiter."

This is a useful decision for any practitioner who is considering whether a funding arrangement should be changed. That being said the decision was made in High Court so it is not binding but is considered persuasive.