The Court of Appeal’s recent ruling in Zuberi v Lexlaw Ltd [2021] EWCA Civ 16 provides some much- needed clarity around one of the funding options available to litigants: damages-based agreements (DBAs).
DBA’s are a form of contingency fee agreement whereby a law firm can be paid up to 50% of the damages recovered by a client, whether in settlement or at trial. This form of agreement has not to date been widely taken up by the legal community. This is largely because of the inflexibility of the regulatory framework- the Damages-Based Agreements Regulations 2013, including the uncertainty as to whether provision for payment of a firm’s fees may be included in the event of early termination by the client.
On 15 January 2021, the Court of Appeal handed down judgment in Zuberi v Lexlaw Ltd [2021] EWCA Civ 16, where it unanimously scrutinised the Regulations and ruled that the DBA Regulations permit payment of time, costs and expenses to solicitors if the DBA is terminated early. The Court diverged on how widely or narrowly a DBA should be construed under the Regulations; the reasoning of the majority of the Court is significant because it means that the DBA Regulations do not prohibit the use of hybrid DBAs (where a DBA is combined with, for example, a payment of reduced hourly rates). As Lord Justice Lewison explained in the Court of Appeal’s decisions:
“There are two possible views of what the DBA consists of. One view is that if a contract of retainer contains any provision which entitles the lawyer to a share of recoveries, then the whole contract of retainer is a DBA. But another view is that if a contract of retainer contains a provison which entitles a lawyer to a share of recoveries; but also contains other provisions which provide for payment on a different basis, or other terms which do not deal with payment at all, only those provisions in the contract of retainer which deal with payment out of recoveries amount to the DBA”.
There is hope that the proposed new Regulations will address the issue, but, in the meantime, the court was at least unanimous in upholding the use of early termination provisions.
The judgment is good news for law firms, as it allows them to build in a degree of protection otherwise lacking when using a DBA. But it is also a positive development for the clients of law firms, since it should make the use of DBAs more attractive for solicitors, in turn offering a genuine option to consider funding a claim.
In the current economic climate, being able to have easy access to clear and transparent forms of alternative litigation funding is especially important. If you desire further information about this form of funding, please contact John Szepietowski at Audley Chaucer Solicitors on 01372303444 or email us at admin@audleychaucer.com or visit our Linkedin page.
