City litigators highlight “surprising implications” of new DBA regulations


US: hybrid contingency arrangements common

The draft Damages-Based Agreement (DBA) Regulations 2013 have “surprising implications” because they appear to preclude partial or hybrid DBAs, one of the City’s top litigation firms has argued.

Herbert Smith Freehills said its interpretation of the regulations, which were laid before Parliament earlier this week, is that if a lawyer acts under a DBA, this must be on a full ‘no win, no fee’ basis.

They would not be able to agree an arrangement where, for example, the lawyer receives a reduced hourly rate as the case proceeds which is payable win or lose, plus a contingency fee in the event of success.

In a briefing issued yesterday, the firm said: “This goes against last summer’s recommendations from the [Civil Justice Council’s] DBA working party, 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.”

It said 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,” Herbert Smith said.

“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.”

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