A small City law firm that took on a major case on a damages-based agreement (DBA) is set to receive one of the largest pay-outs yet under this still novel form of funding after the High Court awarded its client nearly £9m in damages and interest.
Eight-lawyer ELS Legal acted for holiday business and property developers Harlequin in successfully suing their ex-accountants, Wilkins Kennedy, for professional negligence. Counsel Nicholas Davidson QC and Hefin Rees QC from Essex Chambers also acted under the DBA.
In a 350-page ruling earlier this month, Mr Justice Coulson found for Harlequin on only one, albeit sizeable, part of what was a claim worth nearly £50m in total.
Wilkins Kennedy was accused of breaches of contract and/or duty arising in connection with the development of a luxury resort at Buccament Bay in St Vincent and the Grenadines, in the Caribbean.
The one upheld claim was based on its negligent advice in advising the claimant not to have a contract with ICE, the building contractor, which resulted in the absence of any binding valuation process relating to the construction works.
The court found that the defendant, as the claimant’s de facto chief financial officer, thus oversaw a system whereby ICE was paid far more than the value of the work which it was carrying out.
The court actually relocated to St Vincent and the Grenadines for part of the hearing.
Richard Spector, one of ELS’s two partners, said: “This was a hard-fought, complex and high-value case that we started working on in October 2013. We were up against a highly respected law firm [Kennedys] and a professional indemnity insurer who spent over £5m in defending the claim and fought to the wire. We are obviously delighted that our client got the right outcome.
“There are very few firms prepared to commit to large and complicated cases on a DBA. Because of the experience we are building in this area, we are increasingly being asked to provide guidance to other firms on how these arrangements can be created. We believe this win will create even more demand for our litigation service.”
Mr Spector explained to Litigation Futures that with the client unable to pay in the traditional way, the firm decided to take on the case under a DBA because they believed it had a good chance of winning, involved substantial damages and any award should be recoverable. They did secure disbursement funding.
“We’re a proactive, growing firm and in business you have to take risks,” he said, while admitting that they did think there was “a decent chance” of the case settling rather than going to court.
He said DBAs created greater pressure than conditional fee agreements because their fees were dependent on the damages, the level of which the defendant worked hard to minimise during the case. At the same time, it was a “nice feeling” to win and to have aligned the firm’s interests so closely with its client’s.
The financial outcome is unlikely to be much different than had the firm been paid on an hourly rate, Mr Spector said, but it was the type of case that a firm of ELS’s size was unlikely to get on that basis – and it has now proven that it can handle large matters and raised the firm’s profile significantly.
“DBAs give an opportunity for smaller firms to engage ‘big’ cases and to be financially successful as a result,” he added.
In the costs ruling, Coulson J recounted that the claimant’s overall costs bill was just over £5.1m, with the defendant’s total costs put at £4.7m. He awarded Harlequin 60% of its costs to reflect the fact that it lost on several of its claims.
Under the DBA regulations, the claimant’s recoverable costs are assessed in the conventional way, and if the contingency fee agreed with its lawyers is higher than the final figure, then the claimant has to pay the shortfall out of the damages.
However, the indemnity principle still applies, so if the agreed contingency fee is lower than the assessed figure, the defendant only has to pay the lesser sum.
The damages have been paid into an escrow account for the time being and another hearing will determine where they go.