Litigation and legal fees

The Court of Appeal has recently handed down a judgement on the topic of Damages Based Agreements (DBAs). These sound somewhat dry, but the outcome of the judgement may result in many more people being able to access court proceedings than would otherwise be the case – for this reason, it is an important judgement.

In recent years, the availability of public funding (legal aid) to enable members of the public to have their legal fees paid, has been vastly reduced. This has resulted in many people who may have had a legal claim being unable to pursue their matter via the courts simply on the grounds of being unable to afford to do so.

However, lawyers in England and Wales are permitted to enter into fee agreements with clients, one being a conditional fee agreement and the other, a DBA. The former is an arrangement whereby a lawyer and client effectively share the risk of the court proceedings by agreeing that part or all of the lawyers' fees will only be payable by the client if the proceedings are successful. It is often referred to as a 'no win, no fee' arrangement.

A DBA is an arrangement whereby a lawyer agrees to carry out the legal work on a litigation matter in exchange for a percentage of the damages recovered if the matter is successful.

DBAs have been regulated since 2013 but very few firms have been prepared to offer these funding agreements to their litigation clients because the regulations have been poorly drafted and there was much uncertainty as to how payment would be made if the agreement was terminated early. Indeed, many have viewed a DBA as being unenforceable. Even a Court of Appeal judge said: 'nobody can pretend that these regulations represent the draftsman's finest hour'.

The Court of Appeal has provided much needed clarity and has held that the termination fees in a DBA do not fall within the ambit of the regulations, thus removing much of the uncertainty around the enforceability of a DBA.

Some commentators have described this as a 'watershed moment', and hope that the decision results in many more law firms being willing to enter into DBAs to assist their clients in pursuing litigation. However, as is often the case, this might not be the end of the story. It is possible that the losing party in the case might appeal to the Supreme Court. So, DBAs might not be out of the woods yet but this decision is certainly a very important step in the right direction.

To discuss this or any other litigation matter, contact us.

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