A Damages Based Agreement is an agreement whereby a solicitor’s legal fees are based on the damages that his client recovers (i.e. the Court judgment). In legal proceedings, this is limited to 50% (including VAT) of the sums recovered but can be for any % outside of Court proceedings.
As a standard, clients of solicitors firms will usually agree to pay the solicitor his/her fees on the basis of their hourly rate and the time spent on the matter. A solicitor will almost always require that any such anticipated costs are paid in advance to their client account, where the monies will be held on account for this purpose.
However, for a lot of individuals and companies, there may not be the funds available to pay a solicitor’s fees, which are rarely inexpensive. At the same time, the client may have a very strong claim or defence and so it may be preferable for both the client and solicitor to enter into an arrangement for the solicitor’s fees to be paid directly from the proceedings.
Please see our webpage here for more information on the various types of funding arrangement you can enter into with your solicitor.
One of the most popular types of arrangement, which has been encourage by national government for the purpose of funding a solicitor’s fees in contentious litigation proceedings, is a Damages Based Agreement. More comprehensive information on a Damages Based Agreement can be found here.
A Damages Based Agreement (or “Contingency Agreement”) is one where the solicitor agrees that instead of his professional fees being paid on the basis of his hourly rate and time spent on the matter, it is determined by an agreed % share of the proceeds of the claim to be issued or an interest they are seeking to recover.
Accordingly, a Damages Based Agreement is not appropriate to Defendants in litigation proceedings. However, it is very useful for individuals or companies seeking to issue a claim or for those same parties seeking the assistance of a solicitor to realise an asset.
We find it to be an extremely useful tool for minority shareholders, who may not have funds to manufacture an exit from their shareholding but who may be willing to agree to forfeit a portion of the shareholdings value to fund a solicitor to properly advise, conduct negotiations and draft all forms of corporate documents including Shareholder Agreements and Shareholder Exit Agreements.
A Damages Based Agreement also forms a powerful tool to continue funding the solicitor through to legal proceedings where, in addition to any judgment sum or decision made on your interest (whether that be a shareholding or otherwise), you can also seek recovery of your solicitor’s legal fees, which s/he is still required to keep a record of (even though they have no right to claim it against the client under the Damages Based Agreement).
The Damages Based Agreement will not usually cover expenses incurred by a solicitor. However, unless the solicitor is instructed to deal with litigation proceedings, expenses will normally be minimal.
In the event you make no recovery, either in litigation or generally as part of your solicitor’s instruction, then you will not be liable to pay any of your solicitor’s fees. Accordingly, outside of formal litigation proceedings a Damages Based Agreement is risk-free.
In litigation proceedings, there is of course the risk of you being liable for your opponent’s legal costs (notwithstanding the Damages Based Agreement) and this risk can be avoided by taking out an insurance policy, commonly referred to as an After the Event Insurance policy. Information about these insurance policies can be found here.
At Francis Wilks & Jones we are extremely familiar with all types of funding models and will seriously consider entering into a Damages Based Agreement, subject to assessment of the claim or proposal, and an appropriate risk assessment.
Please call any member of our commercial litigation team for your consultation now. Alternatively e mail us with your enquiry and we will call you back at a time convenient to you.
