Learning Outcomes
After reading this article, you will be able to explain what a Damages-Based Agreement (DBA) is, identify the regulatory requirements and statutory fee caps for DBAs, distinguish DBAs from other funding options, and apply the key legal and ethical rules to practical scenarios. You will also be able to spot common pitfalls in drafting and advising on DBAs for SQE1-style questions.
SQE1 Syllabus
For SQE1, you are required to understand the main funding options for legal services, including damages-based agreements. In your revision, focus on:
- the definition and legal basis of DBAs
- the statutory and regulatory requirements for valid DBAs
- the fee caps and calculation of solicitor’s entitlement under a DBA
- the enforceability of DBAs and consequences of non-compliance
- ethical and professional conduct duties when advising on or entering into DBAs
- comparison of DBAs with other funding options (e.g., CFAs, private funding, legal aid)
Test Your Knowledge
Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.
- What is the maximum percentage of damages a solicitor can recover as a fee under a DBA in a general civil claim?
- What are the key formal requirements for a valid DBA?
- If a DBA is unenforceable, what is the solicitor entitled to recover from the client?
- Can a DBA be used in a personal injury claim, and if so, what is the relevant cap?
Introduction
Damages-based agreements (DBAs) are a type of funding arrangement where a solicitor’s fee depends on the client obtaining a financial benefit, usually damages, in litigation. DBAs are regulated by statute and are subject to strict requirements. Understanding DBAs is essential for SQE1, as they are a key funding option in civil litigation and raise important regulatory and ethical issues.
Key Term: Damages-based agreement (DBA)
A funding agreement where the solicitor’s fee is calculated as a percentage of the damages or financial benefit recovered by the client, payable only if the client succeeds.Key Term: Fee cap
The statutory maximum percentage of damages that a solicitor can recover as a fee under a DBA, set by regulation and varying by case type.Key Term: Enforceability
The legal validity of a DBA; if the agreement fails to comply with statutory requirements, it is unenforceable and the solicitor cannot recover any fee.
Regulatory Framework for DBAs
DBAs are governed by section 58AA of the Courts and Legal Services Act 1990 and the Damages-Based Agreements Regulations 2013 (SI 2013/609). These rules set out who can enter into a DBA, in what types of cases, and the requirements for a valid agreement.
Types of Cases
DBAs are permitted in most civil litigation, including commercial and employment cases. They are also allowed in personal injury claims, but not in criminal or family proceedings.
Formal Requirements
A valid DBA must:
- be in writing and signed by the client
- specify the claims or proceedings covered
- state the circumstances in which payment is due
- explain how the payment is calculated and what is included (e.g., counsel’s fees, VAT)
- set out the reasons for setting the fee at the agreed level
- inform the client about potential liability for opponent’s costs and disbursements
Failure to comply with these requirements renders the DBA unenforceable.
Statutory Fee Caps
The maximum fee a solicitor can recover under a DBA is capped by law:
- General civil litigation: 50% of the sums ultimately recovered by the client (including VAT and counsel’s fees)
- Personal injury: 25% of damages for pain, suffering, loss of amenity, and past pecuniary loss (excluding future loss)
- Employment tribunal: 35% of sums recovered
If the DBA sets a higher percentage, it is unenforceable.
Key Term: Statutory fee cap
The maximum percentage of damages a solicitor can recover as a fee under a DBA, as set by the Damages-Based Agreements Regulations.
Payment and Costs
If the client wins, the solicitor receives the agreed percentage of the damages, less any costs recovered from the opponent. If the client loses, the solicitor receives no fee but the client may still be liable for disbursements and the opponent’s costs.
Enforceability and Consequences of Non-Compliance
If a DBA does not comply with the statutory requirements, it is unenforceable. The solicitor cannot recover any fee from the client, even for work done.
Key Term: Unenforceable DBA
A DBA that fails to comply with statutory requirements, meaning the solicitor cannot recover any fee from the client.
Worked Example 1.1
A solicitor enters into a DBA with a client for a commercial claim. The DBA sets the solicitor’s fee at 60% of the damages recovered. The client wins £100,000 in damages. What is the solicitor entitled to recover?
Answer: The DBA exceeds the statutory cap of 50%. The agreement is unenforceable, so the solicitor cannot recover any fee from the client.
Worked Example 1.2
A client enters into a DBA for a personal injury claim. The solicitor’s fee is set at 25% of damages (excluding future loss). The client recovers £40,000, of which £10,000 is for future loss. What is the maximum fee the solicitor can recover?
Answer: The fee is calculated on £30,000 (damages excluding future loss). The maximum fee is £7,500 (25% of £30,000).
Ethical and Professional Conduct Duties
Solicitors must ensure that DBAs are fair, transparent, and in the client’s best interests. They must:
- provide clear information about the agreement, costs, and risks
- avoid conflicts of interest (the solicitor’s financial interest must not override the client’s interests)
- ensure the client gives informed consent
- not overcharge or set fees above the statutory cap
Exam Warning
If a DBA is unenforceable, the solicitor cannot recover any fee—even for work done. This is a common pitfall in SQE1 questions.
Revision Tip
Always check the statutory cap and formal requirements when advising on or drafting a DBA. If in doubt, advise the client to seek independent advice.
Comparison with Other Funding Options
| Feature | DBA | CFA (Conditional Fee Agreement) | Private Funding |
|---|---|---|---|
| Fee basis | % of damages | Uplift on hourly rate (success fee) | Hourly/fixed rate |
| Payment if lose | No fee | No fee (or reduced fee) | Pay all fees |
| Statutory cap | Yes | Yes (success fee cap) | No |
| Covers disbursements | No (client pays) | No (client pays) | Yes |
| Covers opponent’s costs | No (client pays if lose) | No (client pays if lose) | Yes |
Key Point Checklist
This article has covered the following key knowledge points:
- DBAs are funding agreements where the solicitor’s fee is a percentage of damages, payable only if the client wins.
- DBAs are regulated by statute and must comply with strict formal requirements.
- Statutory fee caps apply: 50% for general civil, 25% for personal injury, 35% for employment.
- If a DBA is unenforceable, the solicitor cannot recover any fee.
- Solicitors must provide clear information, avoid conflicts of interest, and act in the client’s best interests.
- DBAs differ from CFAs and private funding in how fees are calculated and paid.
Key Terms and Concepts
- Damages-based agreement (DBA)
- Fee cap
- Enforceability
- Statutory fee cap
- Unenforceable DBA
