Damages Based Agreement
Damages Based Agreement
A Damages Based Agreement or DBA is a private funding arrangement between a legal advisor and a client whereby the legal advisor’s fee is contingent upon the success of the legal case and is calculated as a percentage of the damages or compensation awarded and received by the client.
The legal advisor will receive no fee if the case is lost, and cannot recover more costs than the total amount chargeable to the client under the DBA.
Damages Based Agreements have only been available in England and Wales since April 2013, meaning your legal advisor is now able to conduct litigation in return for a share of the damages, which was previously not legal.
Damages Based Agreements – How Much will they cost?
In commercial disputes there is a cap on the Damages Based Agreement of 50%. It is 35% for employment DBA’s and 25% for personal injury DBA’s. The cap includes VAT and Counsel’s fees, but excludes ATE or After the Event insurance.
So if you had entered into a Damages Based Agreement with your legal advisor with a 40% fee, if you had won and received £1,000,000 in damages, your legal advisor would be entitled to £400,000 of that award for the risk he has taken in not being paid anything if the legal case had lost.
Legal costs and expenses will also be recoverable from the defendant on the standard basis (reasonable hourly rate, time and disbursements) and not by reference to the DBA fee.
If the assessed costs and expenses that the defendant is ordered to pay are higher than the amount chargeable under the DBA, the defendant will only have to pay the lower amount due to the indemnity principle, meaning you can’t get more back than you incurred.
Damages Based Agreements – Positives
A Damages Based Agreement is easy for the claimant to understand, and aligns the legal advisor fully with the legal case as they will only get their fee if the case is successful.
This DBA model is also beneficial to the claimant as the legal advisor handling the case is financially motivated to achieve the maximum amount possible as this will increase the amount the legal advisor will get paid upon successful conclusion of the case.
Damages Based Agreements – Negatives
Damages Based Agreement fees although easy to understand for the claimant, may also prove to be very expensive from the claimants perspective, and potentially a lucrative windfall for the legal advisor.
If a legal case settles very quickly, for example post letter of claim but well before legal proceedings are issued, then it may be considered that the legal advisor and team didn’t really do very much for their fee. i.e. they got their 40% for a few months’ work rather than a few years work.
Also some legal advisors may be reluctant to issue proceedings as there may be less for your legal advisor to gain by litigating your claim, even if damages are increased slightly due to the increased level of costs and expenses.
It is a common defendant tactic to pitch a low Part 36 offer, and invite court proceedings in an attempt to lure your legal advisor to settle your legal case, rather than incurring the expensive costs of court proceedings which may outweigh the costs recoverable on a DBA.