Draft Damages-Based Agreements Regulations have surprising implications

The government yesterday published the draft Damages-Based Agreements (DBA) Regulations 2013, which were laid before Parliament on 21 January. Subject to approval by resolution of each House of Parliament, the Regulations will come into force on 1 April this year.

As drafted, the Regulations appear to have the surprising effect of precluding partial or "hybrid" DBAs, whereby a lawyer could receive for example a reduced hourly rate as the case proceeds which is payable win or lose, plus a contingency fee in the event of success. In other words, if a lawyer agrees to act under a DBA this must be a full "no win no fee" agreement, so that the lawyer receives no fee if the client recovers no damages. This goes against last summer's recommendations from the DBA working party (see post) which concluded that there was no reason to prevent parties instructing their lawyers under partial DBAs, analogous to "no win lower fee" arrangements that are permitted where a lawyer is instructed under a conditional fee agreement or CFA.

We understand that these sorts of hybrid arrangements are used by commercial claimants in US litigation. Such claimants will not normally agree a “traditional” contingency fee, where the lawyer gets 30% or 40% of any recovery but no fee if the claim is unsuccessful, but may agree a modified fee arrangement, with for example a discounted hourly rate combined with a smaller contingency fee or uplift in the event of success.

We had expected that the introduction of contingency fees for civil litigation would allow greater flexibility for firms wishing to meet the demands of commercial clients for more creative billing solutions. It appears, however, that the Regulations will leave little room for flexibility.

In fact, as drafted, the only payment a solicitor acting under a DBA would be permitted to receive if the claim failed would be non-counsel disbursements, which means that the solicitor would be on the hook for counsel's fees where counsel was not acting under a DBA and those fees were incurred by the solicitor as a disbursement. This seems unlikely to have been the intention of those drafting the Regulations.