Damages Based Agreements v Conditional Fee Agreements

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The impending introduction of Damages Based Agreements in April 2013 will give rise to an interesting problem for lawyers.

Should we recommend to our client that they enter a Damages Based Agreement when it may well be that the client will be best served by entering into a Conditional Fee Agreement?

It is a lawyer's responsibility to advise their client on the best method of funding, regardless of whether that method is more or less lucrative to the lawyer themselves.

So where do DBA's come in?

It would seem that a DBA would be the best form of funding for the client in cases where the value of the claim is fairly low but the matter is likely to be complicated and drawn out.

And CFA's?

A CFA might be the best form of funding for the client on high value cases and where a swift settlement is likely to be achieved.

The test will come in deciding where to draw the line. The Jackson reforms are likely to see a rise in the amount of solicitor-client disputes and this is also likely to include arguments as to whether the client was appropriately advised on the methods of funding at the outset.

It is important that all lawyers record accurate file notes in relation to any consideration, advice or discussion with the client in relation to the methods of funding to ensure that any issues raised by the client at the conclusion can be addressed effectively.

For example, if a client instructs us to act on a case with a value of around £10,000.00 and it seems that the case is complex and that liability will be denied, it may be that a Damages Based Agreement is the best form of funding.

If we have entered into such an agreement, but the case subsequently settles on the basis of an offer accepted shortly after the service of a letter of claim, then the client may well view the advice to enter into a DBA as being poor.

The success fee under a CFA and the percentage of damages under a DBA are to be set at a maximum of 25%. If the costs incurred to date on such a case were £5000.00, then the success fee under a CFA would be £1250.00. The client would be required to pay £2500.00 to the lawyer if such a case were to settle under a DBA.

It remains to be seen how many solicitor-client assessments will be required as the market adapts to the new regulations but it would seem that an important factor that should not be overlooked is the importance of accurately advising your client on methods of funding.

Nobody has a crystal ball and cases will often settle far earlier than expected. By the same token, fairly simple claims can be defended to trial. What will be important though is ensuring that whatever we do advise our clients in relation to methods of funding is accurately recorded on the file to ensure that we are in the best place to address any challenges as and when they arise.