Legal Business Blogs

‘A fundamental misunderstanding of DBAs’: Government rules out hybrid Damages Based Agreements

In what constitutes the latest controversial move over Damages-Based Agreements (DBAs) regulation, the Government has ruled out hybrid versions of the agreements after tasking the Civil Justice Council (CJC) with reviewing some ‘technical revisions’.

Yesterday (10 November), it was announced that the Government had ruled out the model, where additional forms of funding litigation can be coupled with a DBA to conduct a case, as it ‘considers such arrangements could encourage litigation behaviour based on a low risk/high returns approach’. 

DBAs, which came into force under the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO), entitle a lawyer to claim a percentage of their client’s damages by way of fees and have generally failed to take off among the disputes community with the agreements causing great uncertainty for lawyers unwilling to risk facing serious cash flow issues during a case.

Speaking to Legal Business, Nick Rowles-Davies, managing director at Burford Capital commented: ‘It’s a surprise – it could be either a lack of understanding or intensive lobbying by business groups. The suggestion is that hybrid DBAs could encourage no win low fee arrangements meaning low risk and a big reward – that’s a fundamental misunderstanding of DBAs. You can’t justify a very high uplift if you’re also being paid as you go along. The profession needed to show an appetite for using them but that’s a bit difficult where you don’t want to be the first to take a risk and get it wrong.’

Annabel Thomas, partner at litigation boutique Enyo Law, added: ‘No sensible law firm will enter into a DBA without considering it very carefully – it’s a mammoth exercise and requires a lot of careful consideration before going into it. It’s a surprising position for the Government to take and I’ve not seen any evidence for them to back this.’

The issue was considered a major embarrassment for the Government last year, which according to one insider, was aware of the need to provide for hybrids but failed to do so in error. Notably, after LASPO came into force, a spokesperson for the Ministry of Justice (MOJ) confirmed that it was looking at ways to improve the system. 

Now a CJC working group, chaired by Professor Rachael Mulheron of Queen Mary University London, will instead look at clarifying that different forms of litigation funding cannot be used during a case when a DBA is being used to fund litigation; changing regulations so that defendants will be able to use DBAs through widening the application of regulations where the party receives a specified financial benefit; and clarifying that the lawyer’s payment can only come from damages, and should be a percentage of the sum ultimately received (not awarded or agreed). Lastly, it will assess whether the regulations should contain provisions on terminating the DBA.

On the latest developments, Lord Dyson, Master of the Rolls and CJC chairman, commented: ‘While I am disappointed that the Government has decided not to permit hybrid DBAs, the CJC will – as ever – seek to assist and review the regulations in the areas suggested, and in the light of experience’.