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Is it now sensible to take another look at Damages Based Agreements (DBAs), post the Court of Appeal decision in Zuberi v Lexlaw Limited? Let’s have a look at some DBA basics.

Have DBAs seemed like too much of a risk previously due to the ambiguities and uncertainties previously placed upon the provisions of the Damages-Based Agreement Regulations 2013?  The Court of Appeal has been asked to examine some issues relating in Zuberi v Lexlaw Limited [2021] EWCA Civ 16, and now seems a good time to have another look at the Regulations and provisions for DBAs, along with the Court of Appeal decision.

What is a DBA?

DBAs were unlawful for contentious proceedings before the introduction of s.58AA of the Courts and Legal Services Act 1990, which was added by s.45 of LASPO 2012.  Prior to this there had been earlier provisions for DBAs in employment tribunal matters, and they were occasionally used in other non-contentious tribunals and such proceedings.

A DBA, or contingency fee agreement, is different from a Conditional Fee Agreement in that it provides for payment to be determined by reference to the amount of recoveries, the statutory definition being:

“(a) a damages-based agreement is an agreement between a person providing advocacy services, litigation services or claims management services and the recipient of those services which provides that—

(i) the recipient is to make a payment to the person providing the services if the recipient obtains a specified financial benefit in connection with the matter in relation to which the services are provided, and

(ii) the amount of that payment is to be determined by reference to the amount of the financial benefit obtained.”

There has been much talk about the present DBA Regulations being amended due to drafting issues, with the Court of Appeal commenting that “nobody can pretend that these Regulations represent the draftsman’s finest hour”.  There were further draft DBA Regulations in 2015 and 2019.  There may be changes made still, with the 2019 draft looking to clarify issues such as whether between the parties recovery fall outside of the DBA payment, whether costs recoveries between the parties are due to the solicitors in addition to the DBA payment (which would make their use possible in lower value cases), the use of DBAs by Defendants etc.


What are the requirements of a DBA?

Per the 2013 Regulations (art.3) a damages based agreement must specify:

(a) the claim or proceedings or parts of them to which the agreement relates;

(b) the circumstances in which the representative’s payment, expenses and costs or part of them are payable; and

(c) the reason for setting the amount of the payment at the level agreed, which, in an employment matter, shall include having regard to, where appropriate, whether the claim or proceedings is one of several similar claims or proceedings.

Like CFAs, DBAs remain unlawful for criminal proceedings, apart from proceedings under section 82 of the Environmental Protection Act 1990, and family proceedings.


What are the cap limits on DBAs, and what is included in the limit?

On a solicitor/client basis the cap under a DBA varies depending upon the work type, as follows for first instance proceedings:

  • In a claim for personal injuries the sums relevant are general damages for pain, suffering and loss of amenity; and damages for pecuniary loss other than future pecuniary loss, the payment not exceeding 25% thereof,
  • In employment matters the cap is 35%, and
  • In other proceedings the cap is 50%.

The cap includes the solicitor firm’s fees, Counsel’s fees and VAT – but is exclusive of disbursements other than Counsel’s fees.

There is also a cap in terms of what can be recovered between the parties under a DBA.  The indemnity principle applies, and with reference to CPR 44.18(2)(b) a party may not recover by way of costs more than the total amount payable by that party under the damages-based agreement for legal services provided under that agreement.  Although this may change if the 2009 draft Regulations come into effect.


What issues have the Court of Appeal sought to clarify?

Mrs Zuberi had sought to terminate her DBA with Lexlaw (which was not accepted by Lexlaw) after extensive work was undertaken, and after a significant financial benefit was obtained (the correct calculation for the financial benefit being in dispute between the parties).  She then argued that the DBA with Lexlaw was unenforceable, with no payment due, notably because it included an obligation upon in the event of termination for her to pay legal costs (being time charges at an hourly rate) and expenses (third parties and disbursements) incurred up to the point of termination to Lexlaw.


The Court of Appeal determined whether the existence of the termination clause invalidated the whole contract, and unanimously found that it did not, although the conclusion was arrived at by different routes.

In reaching the majority decision (Lewsion and Coulson LJ) adopted a narrow interpretation of the meaning of “DBA”, finding that the “DBA” does not compromise the entire retainer but only those parts concerning the sharing of recoveries, so did not preclude hybrid DBAs being “concurrent” or “sequential”.  However, Newey LJ considered the legislation and history did not permit this construction, preferring a broader definition of a DBA to encompass the entire retainer.

This was an important case in which the Bar Council intervened, but where there were issues left open, such as the question of severance.  So far as there are outstanding issues some comfort can be taken from the purposeful interpretation taken and the comment of Coulson LJ, at paragraph 84 of the judgment, “the statutory purpose of section 58AA, … was designed to encourage the use of DBAs, not make them commercial suicide for the lawyer”.


So, if you now are tempted by DBAs, is there anything further to consider?

This is not an exhaustive list, but matters for consideration could include:

  • Any effects to set-off and counterclaims upon ascertaining the sum payable (the Regulations referencing the ‘sums recovered’, which has been considered by CJC working committee, but their recommendations have yet to be brought into effect). The dispute as to the relevant sum for the calculation of the financial benefit in Zuberi v Lexlaw related to sums said to be written off as part of a settlement agreed with the Banks in the substantive proceedings that preceded the solicitor/client proceedings.
  • If you are going to be using Counsel, then what arrangements will be agreed with them? If Counsel is acting under a DBA how would this affect recoveries under the solicitors DBA?  If permissible for Counsel to be payable privately then what are the fees due from the firm in the event of there not being success.
  • How to account for the effects of Part 36 offers, say when the client does not wish to follow advice relating thereto.
  • Whether to include protection from a client who obtains judgment but then fails to enforce it, or consider whether the firm would need to enforce judgment (Regulation 4 provides that the client can only be required to pay to their solicitor net of amounts paid or payable by another party).
  • Would costs assessment proceedings need a separate provision? Regulation 4(2)(b) provides that payment is with reference to ‘the sums ultimately recovered by the client’, which could encompass interest and costs.
  • Could there be any liability for adverse costs fall upon the solicitor, if so is there a need for ATE insurance or similar (and who pays the premium/is insured thereunder)?

The Costs Lawyers Standard Board has a Guidance Note for contingency retainers, and the Bar Council has a note for direct access cases (which is not ‘guidance’) and frequently asked questions, but there isn’t much relating to DBAs readily apparent on the Law Society website.


A&M’s comments

Not all cases will be suited to DBAs, and not all clients would want to enter into a DBA, but there are likely cases where the same would be preferable to a CFA or a discounted CFA.  In those cases the risks can be shared by the client and the solicitors (say where the damages are yet to be fully quantified, and depending on the stage a matter concludes there could be a vast difference in the sum payable under a DBA as compared to a CFA), and DBAs are likely to be preferable to private retainers for clients who do not want to face monthly bills.

Cases which settle early under a DBA are likely to produce better results for the solicitors than the client due to the extent of the work required to the point of conclusion.  See Bolt Burdon Solicitors v Tariq & Ors [2016] EWHC 811 (QB), where a DBA was held to be fair and reasonable when the case had settled relatively early, and where the solicitors had brought a claim for their professional fees against their clients, who in turn contested the reasonableness of the fees.

We would anticipate there being more of a shift towards using DBAs in appropriate cases, bolstered by the Court of Appeal’s decision, as the rewards can be very significant under such arrangements.  Whatever your legal costs and retainer issues A&M Bacon are here and happy to assist.

Caroline Cousins, Costs Lawyer of A & M Bacon Limited – 11th March 2021

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