Damages-based agreements: A positive step by the Court of Appeal

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).

DBAs, where a law firm takes a share of damages in lieu of payment of legal fees, have not to date been widely taken up by the legal community. The 2013 Regulations brought in to govern agreements of this nature were  “not the draftsman’s finest hour” in the words of the Court of Appeal. In particular, the Regulations have generated uncertainty as to whether provision for payment of a firm’s fees may be included in the event of early termination by the client.

The Court of Appeal scrutinised the Regulations and this issue in Zuberi, upholding the High Court’s ruling that early termination provisions were not caught by the Regulations (see our article here on that judgment). The court diverged on how widely or narrowly a DBA should be construed under the Regulations, leaving open a question as to what degree a “hybrid” arrangement may be permitted (whereby a DBA is combined with, for example, payment of reduced hourly rates). There is hope that proposed new Regulations will address this issue but, in the meantime, the court was at least unanimous in upholding the use of early termination provisions.

Ostensibly, this is good news for law firms, since 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 (or less risky) for solicitors, in turn offering a genuine option to consider for 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. Our bespoke funding product Feesible is designed to meet this aim, and decisions such as that of the Court of Appeal in Zuberi and the prospect of future legislative reform are to be welcomed when looking to structure funding for a claim and managing risk.