Damages-Based Agreements: finally viable?
A recent Court of Appeal decision in Zuberi v Lexlaw  EWCA Civ 16 has finally resolved a key stumbling block for this important case funding mechanism, Damages-Based Agreements also known as “DBAs”.
What are DBAs?
Under a DBA, legal fees and expenses in litigation are only paid by a litigant to his legal adviser if the claim is successful, and those fees and expenses are usually calculated as a percentage of the damages secured. They differ from CFAs, where the successful party pays a sum based on the number of hours spent by his legal adviser, with a percentage uplift applied.
DBAs were introduced in 2013 following a review of costs in civil litigation by Sir Rupert Jackson, who concluded that there should be more funding options available to litigants in order to promote better access to justice.
DBAs: the problem
However, uptake of DBAs was low due to some drafting and consequential practical issues encountered with the Damages Based Agreement Regulations 2013 (the “Regulations”) which governed DBAs. The most important of these problems related to the termination of a DBA by the client. As drafted, the Regulations suggested that (save for employment matters), there was no ability for the legal adviser to charge for any of their costs and expenses where a client terminated the retainer before a successful conclusion. The risk that legal representatives might carry months or years of work, and face having the retainer terminated without any payment, meant that few firms felt able to offer them widely.
The issue before the court in Zuberi
In Zuberi, a client entered into a DBA with Lexlaw, her legal adviser. The retainer provided for Zuberi to pay any costs and expenses incurred by Lexlaw up to the point of any termination of the retainer by Zuberi. Zuberi terminated the DBA and Lexlaw sued for their fees, relying on this provision in the DBA. Zuberi relied on the wording of one of the Regulations which arguably prohibited a DBA from requiring a client to pay anything other than the percentage success fee, which did not arise here.
What was decided?
The court found in favour of the Lexlaw at first instance, and the client appealed. All three judges dismissed the appeal, finding in favour of the legal adviser, though each judge reached their conclusion on a slightly different basis. The court found that reading the Regulations strictly literally would make no commercial sense and that the proper interpretation of the Regulations should be to permit contractual clauses allowing recovery by a legal adviser where a DBA was terminated by the client if clauses to that effect had been included in the retainer.
What does this mean?
Zuberi provides a safety net for legal advisers, who now have some comfort that, in the event that a client terminates a DBA before the conclusion of the case, they can nevertheless rely on an agreement in a retainer that they can at least recover some or all of their time costs up to that point. This should be good news for clients too, enabling law firms to feel more confident in offering DBAs to their clients. We also understand that a working-group focussed on re-drafting the Regulations to add additional clarity and certainty plan to let the Government have a further draft of the Regulations in early 2021. No doubt, these changes will address issues raised in the Zuberi case.
Prospective litigants should discuss funding options early on their claim with their solicitor, as there are many funding options available. For the first time, DBAs might now be entering the mainstream.
Greenwoods GRM has a wide knowledge of DBAs, and was one of the first firms to offer them. Head of Disputes Huw Wallis has written on the topic a number of times and featured in webinars, including for LexisNexis.
This update is for general purposes and guidance only and does not constitute legal or professional advice. You should seek legal advice before relying on its content. This update relates to the prevailing circumstances at the date of its original publication and may not have been updated to reflect subsequent developments. If you have general queries about our updates, please email: email@example.com