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Ministry of Justice: we are already reworking DBA regulations


Dunn: no reason why the DBA Regulations rule out hybrid agreements

The government is already planning changes to the rules governing damages-based agreements (DBAs), it has emerged.

The news comes as a leading litigation funder argues that concerns over whether the existing rules permit hybrid DBAs are misplaced.

Professor Dominic Regan has suggested that the Ministry of Justice recognises that the DBA Regulations are unworkable.

While not using that language, a Ministry of Justice spokesman told Litigation Futures: “The Damages-Based Agreements Regulations came into effect on 1 April and allow for DBAs to be used for the first time in civil litigation. We are now considering suggestions which have been put to us for ways to further improve the system.”

There is no detail on what areas of the regulations are under review, but hybrid DBAs are likely to be on the agenda. The likes of City firm Herbert Smith Freehills [2] and the Bar Council [3] have said that they only permit a lawyer using a DBA to work 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.

However, Susan Dunn, head of litigation funding at Harbour Litigation Funding, said there is nothing on the face of the DBA Regulations that expressly prohibits hybrid DBAs. “Regulation 4(1) caps the amount to be paid by the client (contingency fee less deductions and expenses), but it expressly applies that cap to the amount to be paid under the DBA itself, and not in respect of the claim or proceedings generally,” she said.

“The explanatory note in the DBA Regulations describes DBAs as a type of ‘no win, no fee’ agreement under which a lawyer can recover an agreed percentage of a client’s damages if the case is won but ‘nothing if the case is lost’.

“While this has led some commentators to suggest that a hybrid DBA is not permissible, we note that similar language was used in the regulations governing conditional fee agreements (CFAs) when they were first introduced to allow an increase above standard hourly rates but not a percentage of the proceeds. The position under the CFA regulations was clarified by case law and hybrid CFAs have now been widely deployed in practice for several years.

“We can, therefore, see no reason why the DBA Regulations rule out an arrangement whereby there is a separate agreement for the payment of a reduced rate, together with a ‘no win, no fee’ DBA.”

Ms Dunn said the Civil Justice Council working party on DBAs supported hybrid DBAs “with good reason” as few lawyers would be prepared to run cases that could last two years or more on a pure ‘no win, no fee’.

She added: “Although it is disappointing that uncertainty exists in the DBA Regulations around hybrid DBAs, the collective desire of lawyers to enter into such arrangements in preference to full ‘no win, no fee’ DBAs should go some way to clarifying the position.”

Ms Dunn said third-party funders could also help with arrangements such as ‘contingency fee splitting’ and ‘double DBAs’.

In the former, the claimant would enter into a ‘no win, no fee’ DBA with its lawyers and the lawyers enter into a separate funding agreement with a litigation funder to get backstop funding for the lawyer’s work in progress and costs in return for a portion of the fee.

In the latter, the claimant enters into a DBA with its lawyers (eg, for rates) and a second DBA with a litigation funder (eg, for disbursements and adverse costs). The litigation funder may also be able to cover a portion of the lawyer’s rates under this structure.