Civil Litigation

CFAs and DBAs – Why They Are Good For Lawyers

Ever since they received the Right Honourable Lord Justice Jackson’s endorsement in his landmark 2010 report, the use of Conditional Fee Arrangements (CFAs) and Damage Based Agreements (DBAs) has increased substantially in the UK. Not only have these types of agreements provided clients who may have struggled to fund litigation greater access to justice, their growing acceptance has opened the door for solicitors and their clients to take advantage of litigation funding on a more strategic level than ever before.

CFA and DBA arrangements help to attract litigation funders because they demonstrate a clear commitment by the law firm to the case.  In return, litigation funding provides a layer of diligence when managing the budget, so although firms are shouldering the risk by entering into a CFA or DBA, they have support managing their costs.

Thus, all parties to litigation benefit.

CFAs and DBAs – the essentials

CFAs

Popularly known as ‘no win, no fee’, in most cases, if the case is lost, no fee is payable to the solicitor.

If the case is successful, an extra amount will be paid at the end of the litigation (court process). This is in addition to the solicitor’s costs. This increase in the solicitors’ costs, which can be likened to a bonus payment, is agreed in advance and is called a success fee. The solicitor takes this fee from the client’s damages.

If the CFA was entered into after 1 st April 2013, the client is responsible for the payment of all CFA monies owed.  The success fee is not recoverable from the losing defendant. The exception is where the type of case is subject to transitional arrangements.

The maximum uplift on the basic costs which a solicitor can charge is 100% except in specified proceedings.  For personal injury cases, there is a cap of 25% on the uplift that can be charged.

DBAs

DBAs are less common than CFAs (they are often referred to as Yetis, because everyone has heard of them but no one has actually seen one).

The major difference between a DBA and a CFA is that a DBA provides for the payment of a fee to the solicitor by the client, which is calculated as a percentage of the damages recovered by the client. The percentage payable under a DBA cannot be more than 25% in PI cases and 50% in other cases (with the exception of employment cases where the cap is 35%).

Should you use a CFA or a DBA?

Deciding whether to use a CFA or a DBA can be tricky and a balance must be struck between the best arrangement for the client and what will provide the solicitor with a reasonable return on their investment and risk.

Points to consider when trying to strike that balance are:

  • DBAs will yield significantly higher profit costs but lower client retention in cases where the damages are high and the case concludes quickly.
  • If the damages are high and the case goes to trial, then the solicitor will do better under a CFA and the client will do better under a DBA.
  • If the damages are small and the case settles quickly, then the solicitor will do better under a CFA and the client will do better under a DBA
  • If the damages are small and the case takes a long time to settle, then the solicitor will do better under a CFA and the client will do better under a DBA.

Managing Budgets

When approaching a litigation funder with a full or partial CFA it is imperative that the figures are worked out correctly.  We often have to advise solicitors that if the case does not settle by a certain point, they will not make any money.

To have confidence in a matter, litigation funders need to know that the solicitor is financially incentivised to work on the case, through to its conclusion.  Therefore, it is important to align the numbers to the risk correctly, so if the case has to go to trial, the figures still stack up.

Working together

With the help of a litigation funder, case budgets can be strictly managed.  Solicitors need to perform a cost-analysis at the beginning of a matter, estimating as accurately as possible the amount of disclosure required and the cost of expert witnesses etc.

Once funding is secured, both the funder and the solicitor can work as a team to manage the budget and costs.  It is advantageous for a lawyer to have an extra pair of eyes monitoring the spend on a case, as it allows them to get on with their job without having to spend precious time crunching numbers at the end of the month.

By taking advantage of these benefits, solicitors who use litigation funding and provide alternative fee arrangements can reach out to a wider range of potential litigants, confident that their risk is well-managed and has a strong chance of yielding strong returns.

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