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Damage Based Agreements are hot

Damage Based Agreements are a hot topic at the moment and as Brokers, we are having increasing numbers of discussions with firms exploring options and regulations.

For those that have not (yet) come across them, Damage Based Agreements offer an alternative basis of remuneration from the traditional fee paying model. Instead of paying on the basis of solicitor’s time, clients instead agree to give the lawyer an agreed percentage of their damages at the conclusion of the claim, with nothing payable if the case is unsuccessful.

For clients, the benefits are clear: no upfront (or ongoing) costs whilst pursuing their claim, the basis of remuneration is results rather than hours incurred, with the lawyer sharing in the risk of pursuing litigation and potentially losing the claim. As a consequence, many law firms are beginning to explore the competitive advantages of offering DBAs and a very different approach to litigation.

The agreed DBA percentage is known as the ‘contingency cap’ and is the maximum amount that the solicitor can retain. Therefore, the starting point is that if a claim is being run on a 50% DBA, (under statute, the contingency cap is set at a maximum of 50% for commercial litigation) the client is entitled to retain half of their damages. However, as with everything in life, it is not quite that simple. Costs are recoverable on the normal basis and are retained by the solicitor. The recovered amount is deducted from that owed by the client (50% in this example) to meet the agreed remuneration percentage – no double bubble if you will.

A few examples may help here! For ease, let’s imagine that a claim is being run on a 50% DBA, with quantum of £100k.

Within their agreed share solicitors must budget their time costs and non-recoverable disbursements, and therefore firms must get their budgeting spot on or risk their margins against the cap.  It is here that QLP come in. Like knights to the rescue, our TPF and ATE solutions (from WIP funding for the firm to bespoke funding on a case by case basis) may help to mitigate the risks to law firms presented by DBAs, protecting cash flow. Talk to us to find out more…