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.

This model allows clients to pursue claims without bearing the upfront costs of legal representation, aligning the interests of the solicitor and the client in achieving a favourable outcome. Although, in some circumstances, fees for Counsel and other disbursements may still be payable by the client.

DBAs must adhere to the regulatory framework set out in the DBA Regulations 2013, which outlines the permissible structure and enforceability of these agreements. These regulations provide guidelines on how DBAs should be structured and the limitations imposed on them.

DBAs and other variations of no win, no fee commercial litigation funding arrangements can be flexible on a case by case basis. At Annecto Legal, we can assist clients in obtaining legal finance to address any potential legal disputes that may arise.

The Damages-Based Agreement Process

The process of entering into a DBA begins with an initial consultation and case assessment. During this stage, the solicitor evaluates the merits of the case to determine whether it is suitable for a DBA arrangement. This involves reviewing the strength of the claim, potential damages, and the likelihood of success.

Once a client enters 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 spent 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 may be hesitant to accept a DBA due to cash flow concerns. In such cases, combining a DBA with a form of non-recourse third party litigation funding can be beneficial. This approach ensures that the legal team receives a portion of their fees while maintaining an alignment of interests with the client’s success in the case.

Benefits of Damages-Based Agreements

Reduced financial risk for clients – One of the most significant benefits of DBAs is that they reduce the financial burden on clients. Since solicitor fees are contingent on the success of the case, clients do not need to pay upfront legal fees.

Access to justice – DBAs help to level the playing field by allowing clients with strong legal claims but limited financial means to pursue justice. Without the need for upfront payment, clients who might otherwise be unable to afford legal representation can still take legal action and seek fair compensation for their claims.

Alignment of interests – In a DBA, the solicitor’s fee is tied to the success of the case, meaning both the client and the legal team are working toward a shared goal. The alignment of interests creates a powerful incentive for solicitors to work diligently on the case to achieve a successful outcome.

Predictability and transparency – With DBA, clients know upfront the percentage of any potential damages that will go toward legal fees. This transparency allows for better financial planning and reduces surprises, as clients understand exactly what they will be liable to pay if the case is successful.

Flexibility in funding – DBAs are versatile and can be combined with other forms of litigation funding. This flexibility helps clients manage additional costs, like expert witness fees or potential adverse costs, making it easier for them to navigate the financial aspects of litigation.

Alternative litigation funding and DBAs

Alternative litigation funding methods can complement Damages-Based Agreements by addressing some of the financial and risk-related challenges. While DBAs allow clients to pursue claims without upfront solicitor fees, they do not necessarily cover all litigation costs. Alternative funding methods can help bridge this gap, making DBAs more viable and attractive to both clients and legal professionals.

Third party litigation funding

In some cases, solicitors may be reluctant to take on a DBA due to cash flow concerns or the high risk of an unsuccessful outcome. Third party litigation funding involves an external financier covering the legal costs in exchange for a share of the damages if the case is successful. When combined with a DBA, this funding ensures that solicitors receive partial payment throughout the case, making the arrangement more financially sustainable. It also allows clients to access legal representation without the risk of paying out-of-pocket for litigation expenses.

After-the-Event (ATE) Insurance

A significant risk of DBAs is that if a case is unsuccessful, the client may still be liable for certain costs, such as disbursements and potentially the opponent’s legal costs (if adverse costs are awarded). ATE insurance mitigates this risk by covering these potential liabilities. When paired with a DBA, ATE insurance enhances financial security for clients, ensuring they are protected from unforeseen legal expenses if they lose the case.

Hybrid DBA Arrangements

Solicitors working under a DBA only get paid if the case succeeds. However, this structure can create financial uncertainty for law firms. Hybrid DBAs – which combine a reduced hourly rate fee with a success-based contingency payment – are prohibited under the Damages-Based Agreements Regulations 2013. However, it is possible for solicitors to be funded by third parties, just not by the client, which is why litigation funding can be used in conjunction with a DBA arrangement, to manage risks and cashflow.

Who can Annecto Legal assist?

Annecto Legal has provided guidance and support to numerous individuals and businesses seeking Damages-Based Agreements (DBAs). Clients who have a strong legal claim but are unable to pursue it due to the high cost of legal representation often find DBAs to be a valuable solution.

By sharing the financial risk between the client and the legal team, DBAs offer a practical way to proceed with a claim with greater confidence. This arrangement ensures that both parties are aligned in their goal of securing recovery from the opposing party, with legal fees only becoming payable if the case is successful.

This litigation funding approach is not available from some commercial litigation lawyers as 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 dispute. They will provide expert legal services to assist you throughout your case.

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.

Understanding that some clients may have concerns about the financial risks associated with litigation, Annecto Legal connects clients with a network of specialists who offer alternative litigation funding methods. These options help to mitigate the risk of being liable for opponent’s costs and ensure you can proceed with confidence.

The application and process 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.

If you have been involved in a dispute, get in touch with an expert member of our team to find out which litigation cover is the right litigation funding option for you to reduce your commercial litigation costs.