What Is It?
A Damages Based Agreement (DBA) is a private funding arrangement between a representative and a client whereby the representative’s agreed fee is contingent upon the success of the case and is determined as a percentage of the compensation received by the client. Under a DBA the representative may not recover costs more than the total amount chargeable to the client under the DBA, and will receive nothing if the case is lost.
Contingency fees, or damages based agreements have long been implemented in US litigation but such arrangements have not been permitted for contentious work in England and Wales. As of the 1 April 2013, damages based agreements will be permitted for all civil litigation claims in England and Wales. Lawyers will be able to conduct litigation in return for a share of the damages.
Damages Based Agreements – An Overview
There will be a cap on the Damages Based Agreements in personal injury cases of 25 per cent of the combined sums recovered for general damages for PSLA; and damages for pecuniary loss other than future pecuniary loss, net of any sums recoverable by the CRU; and a cap of 50 per cent in all other cases (the 35 per cent cap in employment cases will remain unchanged). The cap includes VAT and Counsel’s fees, so in a personal injury claim the cap is actually 20.83% for profit costs less Counsel’s fees.
Costs will be recoverable against opposing parties on the conventional basis (reasonable hourly rate, time and disbursements) and not by reference to the contingency fee. Where the fee agreed under the DBA exceeds what would be chargeable on the conventional basis, the claimant will pay that difference from their damages to the solicitor.
If the assessed costs that the Defendant has to pay are higher than the amount chargeable under the DBA, the Defendant only has to pay the lower figure due to the indemnity principle, and there is nothing further for the claimant to pay.
MRN ‘s Outlook
A Damages Based Agreement binds the claimant to pay the legal representative a fixed proportion of their damages if the case is successful. This is believed to be beneficial to the Claimant as the Solicitor handling the case is financially motivated to achieve the maximum payout possible as this will directly affect the amount they get paid upon successful conclusion of the case. The benefit for the Solicitor is questionable, particularly in low value claims, as they may end up taking all of the risk and ending up with nothing; or even worse owing money to the client, dependent on the damages recovered and payment of Counsel’s fees.
It is important to note that recoverable costs are limited to the amount chargeable to the client under the DBA due to the indemnity principle; therefore in low value claims it is entirely possible that the representative would end up with less than fixed recoverable costs.
On the other hand it is likely that Defendants will be using Part 36 offers more tactically than ever in an effort to minimise the amount of damages and costs paid. Due to the operation of the indemnity principle, beating your own Part 36 offer may end up meaningless if indemnity costs are capped by the DBA. It is therefore vital that Claimant solicitors consider the Defendant’s Part 36 offers vigilantly, without of course being intimidated by the same.
Claimant solicitors are also advised to carefully weigh up the pros and cons when contemplating issuing proceedings. Ultimately there may be less for solicitors to gain by litigating a claim, even if damages are increased slightly due to the same as costs will be fixed on a contingency fee basis. It is likely that Defendants will pitch low Part 36 offers and invite court proceedings in an attempt to lure Claimant solicitors to settle, rather than incurring the expensive costs of court proceedings which may outweigh the costs recoverable on a DBA.
CHRISTOPHER KNIBB & RAFI GROSSKOPF