2 April 2013Print This Post

DBAs are “a game-changer” but how should firms fund them?

Stewart: DBAs will change the revenue model for litigation teams

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Damages-based agreements (DBAs) will change the face of commercial litigation and generate new funding problems for law firms, it was predicted today as the Jackson era properly began.

Peter Stewart, head of dispute resolution at City law firm Field Fisher Waterhouse, said client expectations will change over the next 12 months, with in-house legal teams “very much aware of the new DBA regulations” given the pressure on them to reduce legal spend and their Cisco 642-436 exposure to risk.

He explained: “I believe DBAs will become commonplace over the next three years. There is every prospect that the UK litigation market would start to become more like the US. We will provide clients with the whole spectrum of litigation funding options. However, there is no doubt that providing DBAs in the UK is a game changer.

“UK firms are traditionally very conservative at sharing risk but for us offering DBAs is key to meeting the changing needs of our clients. It is also an important ingredient in competing with the US litigation powerhouses.”

Mr Stewart acknowledged that DBAs will change the revenue model of litigation teams, and firms will need to be skilled in choosing the cases they take on. One of the key questions, he continued, is how firms will fund themselves when they offer DBAs given the huge work in progress they will absorb.

“Dispute resolution teams will therefore need to be funded by partners in the firm or by external sources such as banks or funds providers seeking to capitalise on DBA arrangements. Obtaining funding from third parties runs the risk of diluting the benefits of DBAs and not providing the same returns.

“Needless to say, if DBAs do not prove a fruitful investment for law firms over the next three years, there will no doubt be a wave of litigation partners entering early retirement.”

Meanwhile, London law firm Manches has claimed that businesses are at risk of an ‘overcompensation culture’ because of the new penalty of up to £75,000 for defendants who fail to beat a claimant’s part 36 offer.

Alex Fox, head of litigation, said: “At a time when businesses need a helping hand, these new rules back them into a corner… It is likely businesses will settle over and above what the claimant actually should receive [to avoid the risk of the penalty].”

He also argued that businesses will also suffer from “a significant front-loading of costs” because of the need to have a detailed budget at the outset. Failure to do so means the party cannot recover any of their costs, even if successful, save for the nominal court issue fee. “This draconian penalty simply ramps up the costs of litigation further,” Mr Fox said.

Meanwhile, solicitors took the pre-Jackson era to the wire, with after-the-event insurer Keystone Legal – which had promised to stay open to midnight on 1 April – receiving a request for cover at around 11.55pm on the 31st.

By Neil Rose