Legal Business Blogs

All or nothing: Only a handful of DBAs entered into as confusion reigns over hybrid model

‘It’s an extraordinary thing – hundreds of lawyers should have entered into Damages-Based Agreements (DBAs) by now.’

So says Leslie Perrin, former managing partner and senior partner of Osborne Clarke who is now chairman of litigation funding group Calnius Capital, with around £40m of capital to invest in litigation.

Instead, DBAs, which came into force under the Legal Aid, Sentencing and Punishment of Offenders Act 2012 and entitle a lawyer to claim a percentage of their client’s damages by way of fees, have failed to take off at all and Perrin adds: ‘The confusion around the regulations has been such that I don’t think more than a handful of DBAs have been entered into all across the country.

‘There’s so much ambiguity and grief for the first people going down that road and I think disputes lawyers are unanimous in holding this position.’

DBAs, brought in as the government banned the recoverability of success fees, have been plagued since their inception with concerns over whether the existing rules permit a hybrid, reduced fee model or are straight no-win-no-fee.

Law firms including Herbert Smith Freehills and a number of the Magic Circle have submitted lengthy submissions to the Ministry of Justice calling for a hybrid version of the DBA to be brought in, including the option to blend fixed fees or hourly billing with a DBA.

Law firms say that without some means of generating revenue along the way the current model is unworkable, as firms will face serious cash flow issues.

According to Professor Dominic Regan, a solicitor and special adviser to Lord Justice Jackson, changes are already underway and hybrid DBAs can be expected by April 2014.

The situation is an embarrassment for the government, which according to one insider was aware of the need to provide for hybrids and failed to do so in error. Immediately after LASPO came into force a spokesperson for the MoJ confirmed that it was looking at ways to improve the system.

‘There is no doubt they have completely screwed up. They know that hybrid DBAs were absolutely central to the whole concept of DBAs that was consulted on and subject to the Civil Justice Council working party chaired by Michael Napier QC. They knew they were supposed to produce regulations that would permit hybrid DBAs,’ one City litigator comments.

Meanwhile, law firms continue to explain to clients that they are waiting for the issue to be cleared up, as Lewis Silkin explains in its DBA marketing material: ‘As an alternative to receiving no fee, it may be possible for us to agree terms of a DBA with you which allow us to charge a discounted fee in the event of a loss (possibly in conjunction with third party funding). However, the regulations governing DBAs are currently unclear as to whether lawyers are permitted to charge a discounted fee, or whether the DBA must be ‘no-win-no-fee’. It is hoped that this grey area will be cleared up soon.’