Damages-based agreements: aligning our interests with our clients
A Damages-Based Agreement is a contingency agreement between a client and solicitor wherein the solicitor’s legal fees are only payable in the event that the client is successful.
Damages-Based Agreements have been a very popular funding option in the US legal system for a number of years and it has only been recently that we have seen this popularity grow within the UK’s legal system.
Why consider a Damages-Based Agreement?
A Damages-Based Agreement (a ‘DBA’) is often a sensible option to consider in matters where the client has a claim which the solicitor believes has a strong percentage chance of success, but the client does not have the financial stability to fund the solicitor’s legal fees to pursue the matter.
There is always a risk in litigation of a client incurring significant legal fees before receiving any damages from the other side, if of course they are successful in their claim. A DBA eliminates the running solicitor’s fees throughout the process by only seeking any payment once the client themselves has received a return. This therefore allows the client to pursue their claim with the necessary legal guidance and without the worry of the running fees.
Entering into a DBA is of course a decision to be made between the client and solicitor and it is often the case that a law firm will only be willing to enter into a DBA if it is reasonably assured that the client will be successful and will recover a significant sum of damages.
How does a Damages-Based Agreement work?
Once the client and solicitor have entered into the DBA, the solicitor’s legal fees will only be payable upon the outcome of the matter and upon actual receipt of damages from the other side.
The sum the solicitor will receive for their fees will be a percentage of the sums the client ultimately receives as damages once successful.
The percentage is agreed between the client and solicitor and is often reflective of the risk being taken by the solicitor in not receiving cashflow potentially for a significant period of time and of the prospect of success.
Under the Damages-Based Agreements Regulations 2013, the percentages are capped at the following levels:
- 25% in personal injury claims
- 35% in employment matters
- 50% in all other matters
What are the advantages to the client of a Damages-Based Agreement?
The main advantage of a DBA for a client is that they do not have to pay legal fees throughout the matter. Both the risk and the costs of the litigation are shared between the client and the solicitor.
If the client is unsuccessful in their matter, the client is not liable for any fees to the solicitor. The only costs that may be payable are disbursements and expenses such as Counsel fees or Court fees.
What determines a success?
What constitutes a “success” should be set out clearly in the DBA.
At Calibrate Law we determine a “success” to be a situation where the claim is finally determined in the client’s favour whether by the Court, or by agreement, or in any other way, whereby the client derives a benefit from pursuing the claim.
Are the other side still liable for any costs?
If the client has entered into Court proceedings and is awarded a costs order against the other side, the recoverable costs will be assessed in the normal way with reference to the solicitor’s time recordings.
The recoverable sum is likely to include solicitors’ fees and may therefore cover part of the percentage payable to the solicitor under the DBA. It must be noted that if the sums recovered from the other side are not sufficient to cover the full fee percentage owed under the DBA, the client is liable for the balance.
In addition, the indemnity principle still applies, so it is not possible to recover a greater sum for fees than the percentage payable under the DBA. For example, if, once assessed, the solicitor’s fees total a sum of £30,000, but under the DBA the solicitor would receive fees of only £20,000 upon success, the amount recoverable from the other side will be limited to £20,000 and the solicitor will suffer a shortfall of £10,000.
What are the risks associated with Damages-Based Agreements?
The risks of DBAs mainly lie with the solicitor. The solicitor will not receive any payment for their fees until the client has been successful. This could be a significant period of time. In addition, a DBA is a form of “no win, no fee” arrangement and therefore the solicitor will not be paid for any work done on the client’s matter if the client is unsuccessful.
One risk to the client is that it may be a more expensive way of funding legal advice. If, for example, the matter were to resolve quickly, the solicitor may receive a significant sum for only a minimal amount of work. However, while it is a risk the client will be made aware of, this is not often the case at Calibrate Law as believe in putting a lot of focus on top-loading the way we structure a client’s matter, concentrating on a substantial amount of detailed work at the beginning. This helps not only with the matter itself but also to ensure that if the matter were to resolve quickly, the fee received would be justifiable by the work conducted.
Clients must note that if they are unsuccessful in their claim, whilst they will not be liable for their own solicitor’s fees, they may be liable for adverse costs of the other party.
Do Calibrate Law offer Damages-Based Agreements?
One of the founding principles of Calibrate Law is that we align our interests with our clients and believe a DBA is the perfect way to demonstrate this.
It is often the case that solicitors charge high hourly rates, charging for each individual email and dragging the matter out as long as possible. Whilst earning higher fees in this way might be in the interests of the solicitor, it is certainly not in the client’s best interest.
Under a DBA it is in both the client and the solicitor’s best interest to get the matter resolved as quickly as possible so that the client can receive damages as quickly as possible and the solicitor can receive their fee. Not only this but both the client and the solicitor share the risk of the litigation. The interests of both client and solicitor are subsequently aligned.
We are committed to ensuring costs and process are clear and transparent to our clients.
If you wish to discuss a litigation matter further with us, please contact [email protected]
This paper is intended to be a brief note for clients and other interested parties. The information is believed to be correct at the date of publication but should not be relied upon as a substitute for professional advice. Please speak to a member of our team.