Are DBAs viable for funding commercial litigation?

16 June 2020

A Damages-based Agreement (DBA), as stated in the Explanatory Memorandum to the Damages- Based Agreements Regulations 2013, is a “private funding agreement between a representative and a client whereby the representative’s agreed fee (‘the payment’) is contingent upon the success of the case, and is determined as a percentage of the compensation received by the client.”

 DBA is the final of numerous alternative methods of funding proposed by Lord Justice Jackson. Since the introduction in 2013, there has been a slow up-take in the use of DBAs, however, there is a vision and proposals to amend the operation of DBAs, with the hope of encouraging more practitioners (their clients) to use this form of funding.

To understand DBAs better, it is useful to have a brief overview of a few key points to this funding method:

  • Provide access to justice
  • Suitable all types of civil and commercial litigation
  • Payment to own Solicitor’s costs is ‘contingent’ to the outcome being successful
  • No need for any up-front payment of own Solicitor’s costs
  • Manage cash flow
  • Only suitable for monetary claims
  • Only available for Claimants or counter-claim Claimants
  • Up to 50% share of damages to cover Solicitor’s costs (up to 35% in employment cases and 25% in personal injury cases that concludes at first instance), regardless of how much time the Solicitors spent on the matter
  • Disbursements may still need to be paid up-front
  • Agreement might not be accepted by Solicitors if potential damages amount is insignificant
  • If the matter cannot be resolved between parties and court proceedings are to be issued, there could be a risk of having to pay the opponent’s costs if the matter later becomes unsuccessful.
  • A hybrid DBA which allows for an additional form of retainer is prohibited

With the above perceived limitations in mind, in December 2018, the Ministry of Justice invited independent review and reform proposals from Professor Rachel Mulheron of Queen Mary University of London and Nicholas Bacon QC. As such, a re-drafted Damages-based Agreements Regulations 2019 was produced and has been open for feedback and consultation.

The proposed reform includes changes such as widening the use of DBAs to include non-monetary claims, for example seeking to recover personal property; to include a defendant to a claim or proceedings to be entered into a DBA given the financial benefit may be represented by the amount saved from having to pay out in the of a defence being successful; and hybrid DBA is permitted, such as a reduced hourly rate during the running of the case and contingency payment if the matter is successful. It is envisaged that with these changes or enhancements, more practitioners would be encouraged to utilise DABs as an alternative to the main funding routes. The re-drafted Regulations also provide for replacement of the Ontario model with the Success Fee model. This means that in the event of a successful outcome and a financial benefit is achieved, recoverable costs are paid in addition to the DBA payment but with the maximum share of damages reduced from 50% to 40% for all cases except Personal Injury and Employment cases and 25% to 20% for personal injury cases (Employment matters will continue to be governed by the DBA Regulations 2013); and flexibility and clarity to both Solicitor and client to agree terms surrounding termination of the DBA, such as payment terms and the ability to keep the DBA valid.

Professor Mulheron and Nicholas Bacon QC are due to produce a supplementary report based on the feedback received in 2020, so an update should be expected shortly. The Ministry of Justice is urged to constructively review proposed reforms to the existing DBA Regulations in order to significantly increase the use of DBAs in the near future, whilst offering adequate protection for clients who wish to take up this funding method and also providing a viable and effective alternative to the more popular funding routes, especially where clients may be high net worth individuals or the cases being worth a substantial amount. 

FURTHER INFORMATION

This blog was written by Daphne U, Costs Draftsperson in our Costs team.

You may be interested in our Litigation Funding Options page, Litigation Funding FAQs and/or our Commercial and Contract Disputes page.

If you would like further information on the issues raised in this blog, please contact  a member of the Dispute Resolution team or Richard Foss, Head of the department.

 

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