Damage based agreements
A damages based agreement (DBA) is a type of ‘contingency fee’ arrangement between a client and their solicitor, which shares the risk of litigation.
It will usually mean instead of being paid on a conventional hourly rate, the solicitor’s legal fees are only payable in the event that the instruction is successful.
Typically, a solicitor (or other legal representative) will be paid a percentage sum of the damages recovered for the client from the losing party.
A DBA can apply to both contentious litigated legal proceedings and non-contentious instructions to recover assets or realise interests.
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Access to justice at a proportionate cost
A popular US-based legal funding model, a DBA was first introduced in the UK in 2013 following a government review of legal funding arrangements.
Lord Justice Jackson’s Review of Civil Litigation Costs determined that the Conditional Fee Agreement was not fit for purpose and imposed too great a burden on losing parties.
The reforms are intended to promote access to justice at a proportionate cost. They present radical changes to previous rules relating to claims procedure, costs and the ways in which litigation can be funded.
A solicitor is now entitled to enter into an agreement with his/her client that does not impose any greater burden on the defendant, other than the traditional order for standard rate legal costs.
How does a DBA work?
Once you enter into a DBA, your solicitor’s legal costs will only be payable upon the outcome of the matter instructed on.
Legal costs will be due as a percentage sum of the sums recovered or paid over and will usually reflect the risk taken by your solicitor (e.g. likely period of time to resolve the matter, the lack of cash flow funding for the instruction, your prospect of success etc).
If you are a claimant in litigation proceedings, you remain entitled to claim your solicitors’ standard time costs (in addition to the sums claimed). The recovery of such costs from the defendant may serve to partially underwrite the percentage payable to your solicitor under the DBA.
It is important to note current legislation suggests DBAs cannot be used to fund defence cases and secondly, that payment is due not only where a solicitor obtains a favourable outcome on your behalf, but only after a monetary sum or some other ‘specified financial benefit’ is actually recovered.
What percentage will be payable to my solicitor?
The solicitors’ payment is capped to a maximum 50% in commercial claims, 35% in employment claims, and 25% in personal injury claims.
Importantly, this percentage sum includes VAT and the barrister’s fees, the latter of which are the solicitors’ own responsibility to pay if the claim fails.
Disbursements, such as court fees and experts’ fees, are not included in the percentage sum and are your liability to pay if your claim fails, unless covered by after the event (ATE) insurance.
If your case is successful, disbursements will usually be recoverable from the losing party.
Furthermore, in the event of success, your solicitors’ costs are recovered from the losing party on a conventional basis. If the sum due to the solicitor under the DBA exceeds what would be recoverable under a normal fee agreement (based on hourly rates), the successful client makes up the difference due to the solicitor from the sums recovered.
If, on the other hand, costs on the normal hourly rate basis exceed what would have been recoverable under the DBA, the ‘indemnity principle’ imposes a cap on the costs recoverable to the sum payable under the DBA.
Is a DBA the best option for me?
In a challenging economic climate, it is no surprise that claimants may be reluctant to embark on expensive litigation with its inherent risks.
The DBA model presents an opportunity to access justice and pursue your claims with the added confidence that because of the shared litigation risk, solicitors and their clients are working towards the common goal of recovery from the opposing party.
However, DBAs pose a considerable risk to solicitors in so far as they may receive no payment for their services as well as being liable to unrecoverable barrister’s fees. As such, a DBA is only likely to be offered to clients with a high value claim and a strong prospect of success and recoverability.
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The RLK Litigation team
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