A damages based agreement (DBA), also known as a contingency fee agreement, is a type of arrangement made between a client and a solicitor in which the solicitor agrees to fund their case and share the risk of litigation. In return, the solicitor will be paid a percentage sum of the damages recovered as long as the client’s case is successful.

DBAs provide that, instead of being paid on a conventional hourly rate, the solicitor’s legal fees are only payable in the event that the case is successful. Therefore, these types of agreements allow clients the opportunity to pursue a case without having to worry about the solicitors’ fees associated with it. In some circumstances; however, fees for Counsel and other disbursements may still be payable by the client.

Damages based agreements and other variations of no win no fee commercial litigation funding arrangements can be flexible on a case by case basis. Annecto Legal are happy to discuss the finer points and hybrid agreements that may prove to be beneficial for your case. Disputes can be inconvenient and disruptive, and we understand that covering the cost of the legal support you require is not always easy.

Access to Damages Based Agreements

DBAs were first introduced in the UK in April 2013 following a government review of legal funding arrangements. A review of Civil Litigation Costs conducted by Lord Justice Jackson determined that the original Conditional Fee Agreement was not fit for purpose as it imposed too great a burden on losing parties, who before the reforms, were responsible for paying claimant success fees.

It was also determined that a DBA can include a clause that entitles a legal representative to payment on a time cost basis if an early termination occurs.

Damages based agreements are intended to promote access to justice at a proportionate cost. The reforms also present changes to previous rules relating to claims procedure, the ways in which litigation can be funded and costs.

Damages Based Agreement process

Once entered into a DBA, the solicitor’s costs will only be payable upon the conclusion of the matter they have been instructed on. Legal fees will be due as a percentage amount of the sum recovered and will typically reflect the risk that the solicitor has taken. The predicted time period to resolve the matter, the prospect of success and the cash flow for the instruction will all be taken into consideration to calculate this risk.

Claimants in litigation proceedings remain entitled to claim their solicitors’ standard time costs in addition to the sums claimed. The recovery of these costs from the defendant may serve to partially underwrite the amount payable to the solicitor under the Damages Based Agreement.

It is also important to note that current legislation and confirmation from the Court of Appeal means DBAs cannot be permitted to fund defence cases and that payment is due not only where a solicitor obtains a favourable outcome on your behalf, but after a monetary sum or another ‘specified financial benefit’ is recovered.

Some solicitors are reluctant to take on a DBA for cash-flow reasons. In this scenario it can be useful to combine a DBA with some level of non-recourse third party litigation funding. The legal team can be certain of some level of their fees being paid, whilst still aligning their interest in the outcome with that of the client.

Third party funding and damages based agreements. 

Damages based agreements do not always have to be entered into directly with a solicitor. They can also be used to obtain the necessary finances to pay for legal costs via third party funding. Where the risk may be too high for a solicitor to consider entering a DBA, third party funding can be a useful solution for clients seeking recourse to solicitors without the ability to do so.

This is an attractive option for insolvency practitioners, acting as either administrators or liquidators, who may otherwise be unable to issue any proceedings or obtain the necessary legal advice needed on recovery matters.

After the event insurance

After-the-event (ATE) legal expenses insurance is perhaps best thought as a form of ‘swap’:

For either no upfront fee or a small upfront fee, the insurer takes on the risk of a potential adverse costs award. 

The client has swapped their obligation to pay the defendants in the event of a loss, with the obligation to pay the insurer in the event of a win. 

This is generally an attractive swap as the client is likely to be in a better financial position following a win than following a loss. 

Also, the payment to the insurer will only be a percentage of the adverse costs, rather than the whole amount. 

The actual amount the client will pay for the insurance will depend on how long it takes to settle the case: 

An early settlement and the client could pay as little as 10-20% of the amount insured (the adverse costs) as an ATE premium.

If the case goes to trial, it is more likely to be in the 40% to 65% range (depending on the insurer and the case) of the amount insured.

In some cases, after the event insurance (ATE insurance) can be used to protect clients from an order to pay the opposing party’s legal costs if they lose. ATE insurance can be used on a no win no fee basis with a deferred premium.

Therefore, a claimant lacking in financial resources using a DBA with a deferred premium can litigate knowing that if their case is successful, they will recover a fixed share of the damages recovered and if their case is unsuccessful and they are the losing party, they will pay nothing.

Who can Annecto Legal assist?

Annecto Legal has provided advice and assistance to a variety of individuals and companies seeking Damages Based Agreements. Clients with a strong legal claim or an interest that cannot otherwise pursue due to the costs of obtaining legal advice on these matters typically benefit from DBAs.

DBAs present an opportunity to pursue a claim with confidence due to the shared risk between clients and the legal team. This means that they are working towards the common goal of recovering from the opposing party, and they will only be liable to pay if the case is successful.

This contingency fee or no win no fee commercial litigation funding approach is not available from some commercial litigation lawyers because they prefer their clients to take all of the risks. However, Annecto Legal has a specialist network of solicitors that will consider all options to fund and manage risk around your commercial dispute.

How can Annecto Legal assist with Damages Based Agreements?

Annecto Legal help clients realise the value of their commercial litigation claims. Annecto Legal was established to help businesses pursue claims for their financial benefit and remove any perceived cost barrier to litigation.

The application and process of utilising Damages Based Agreements can be complex for the unwary. Therefore, we recommend that you contact our team as soon as possible so that we can provide the guidance you require.

Get in touch with an expert member of our team to find out whether a Damages Based Agreement or another form of commercial litigation cover is the right litigation funding choice for you.

Call us today 0800 612 6587, or our Director, Mark Beaumont, can be contacted by email mark.beaumont@annectolegal.co.uk