Damages-based agreements: how they work and what can be recovered

A DBA is an agreement under which the lawyer’s payment is a percentage of the financial benefit obtained by the client. If the case fails, the lawyer usually receives nothing for their own time, though disbursements may still be payable. DBAs are permitted in civil litigation in England and Wales under the Damages-Based Agreements Regulations 2013.

The regulations set out what the agreement must specify, including the claim it relates to, the circumstances in which the payment is due and the reason for setting the percentage at the agreed level. Failure to comply can make the agreement unenforceable.

The payment, including VAT, is capped. In personal injury claims, the cap is 25% of general damages for pain, suffering and loss of amenity and damages for past pecuniary loss, net of recoverable benefits. In employment matters, the cap is 35%. In other civil claims, the cap is 50% of the sums ultimately recovered.

These caps are maximums. The percentage should reflect the risk and likely value of the case, and clients are entitled to a clear explanation of how the figure was chosen.

When a client with a DBA wins, recoverable costs are assessed in the conventional way, by reference to time, rates and disbursements, subject to proportionality and any fixed costs regime. The regulations then require the client to pay the DBA percentage less any recovered costs, so the opponent effectively contributes towards the lawyer’s payment.

The indemnity principle still limits recovery. The opponent cannot be required to pay more than the total amount payable under the DBA. Time recording therefore remains important, even though the client is not being billed hourly, because the bill of costs must still be prepared and justified on assessment.

Hybrid DBAs, where the lawyer receives reduced fees if the case fails, have been the subject of litigation and reform discussions. Their status under the current regulations should be checked carefully before use.

The Supreme Court’s decision in PACCAR in 2023 held that certain litigation funding agreements were DBAs, prompting widespread renegotiation and proposals for legislative change. Anyone using a funding arrangement linked to a share of damages should take advice on whether the DBA regulations apply and on any later reforms.