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My experience of damages based agreements

The position prior to the Jackson Reforms in April 2013

The Jackson reforms to litigation have not been embraced by the profession. The position prior to the Jackson reforms was that a solicitor could enter in to a no-win no-fee arrangement with a client called a conditional fee arrangement (“CFA”). A CFA meant that the client would not have to pay any fees for their claim. If the claim was successful then the losing party would pay the solicitors fees plus an uplift on those fees (e.g. a 50% uplift). The client could also take out an after the event insurance policy which would insure them for adverse costs if they lost. If the client was successful then a premium would be payable to the insurer and this would be met by the losing party. Therefore, the client could put themselves in a position that if they were successful they would end up paying no (or little) costs and the losing party would have to pay the uplift due to the clients’ solicitors and the premium due to the clients’ insurer. If the client lost then they would still pay no fees to their solicitor and they would not have to pay costs to the winning party as they had an insurance policy that would pay those fees.

What changed in the Jackson reforms?

CFA’s were dramatically changed in the Jackson reforms. The liability to pay the solicitors uplift on their fees and the insurers premiums now fell on the client and not the losing party. Therefore, if you had a claim for £1m, your solicitors’ fees were £500,000 with a 100% uplift and you had an insurance policy with a premium of £750,000 then you would end up paying more than you recovered. The reason being that the losing party would pay your solicitors fees of £500,000 but you would have to pay the uplift of £500,000 and the insurance premium of £750,000 meaning that you would have to pay out £1,250,000.

I rarely entered in to CFA arrangements as I did not think that they benefited either party. The reason I say that is the solicitor would undertake a lot of work for an uplift which may not reflect the risk that the solicitor took on. The client may have had a good deal but I do not think CFA’s encouraged solicitors to achieve results. CFA’s ended up encouraging mass litigation for personal injury lawyers who used it as a way to give a client a fully protected product whilst the solicitors would try and maximise their costs to increase the amount that they would receive. I do not think that CFA’s were good for high level litigation.

The Jackson reforms opened up the way for a new form of no-win no-fee litigation known as Damages Based Agreements (“DBA”). A DBA means that the client enters in to an agreement with their solicitor that they pay no fees for the whole claim and the solicitor will, if they are successful in the claim, receive a percentage of the damages recovered as payment. For example, if the damages recovered are £10,000,000 and the solicitor has a agreed a DBA at 40% then the solicitor receives £4,000,000. A DBA can only be for a maximum of 50%.

My experience of DBA’s

DBA’s are controversial because they are seen as an American form of funding litigation and it is perceived that they could lead to a conflict of interest between solicitor and client because the solicitor has a stake in the outcome of the claim. DBA’s effectively mean that the solicitors are funding the litigation as a business/commercial proposition. Many solicitors have not taken on DBA’s because they are concerned that they will do a lot of work for no reward. I have been fortunate to be involved in a few cases involving DBA’s and both my own experience and that of the clients has been very positive. I think that many solicitors’ reluctance to enter in to DBA’s are due to a lack of understanding. If the quantum is high enough, the case is strong enough and the chances of recovery are high then the DBA can be a great experience for all involved. Rather than causing a conflict of interest, the solicitor has a real stake in the claim. It is almost as if the solicitor has entered in to a business venture with the client. This helps bond the relationship between solicitor and client, it creates an atmosphere that is conducive to all parties driving forward in the same direction and the result can be that your chances of success and of achieving the recovery of all the damages are higher than otherwise. The client is happy because you have achieved for him; the solicitor only wins if the client wins and the solicitor feels part of it.

In the right circumstances a DBA can work.

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ELS Legal is an international law firm based in London with more than 50 partner offices across the world. As part of the Cathay Associates global legal network, we are the first choice law firm for a number of British businesses and overseas clients.


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