Damages Based Agreements (DBAs) are a form of “no win no fee” agreement but operate quite differently from the more usual Conditional Fee Agreement (CFA) used in “no win no fee” type funding.

A Conditional Fee Agreement is based on the idea that the solicitor, in a winning case, gets paid the legal costs you recover from the losing opponent plus a success fee, which is deducted from your compensation/damages. That success fee is calculated by reference to the actual costs incurred. So, a lawyer may say to their client, “My costs are chargeable at £180 an hour and I expect to recover most or all of those from your opponent if you win. But in return for taking the risk that you may lose, and I get paid nothing, I want a success fee which amounts to 25% of my costs on top, and that will be deducted from your damages.” So, in return for taking the risk of not getting paid anything if you lose the lawyer gets their normal costs plus a percentage of those on top from your damages.

That type of Conditional Fee Agreement works when costs are recoverable from an opponent. But in some types of case, you cannot recover costs from your opponent even if you win. The most common of these types of cases are Employment claims. Usually if you win an Employment tribunal case or settle it, you will get compensation or damages, but the employer will not be ordered to pay costs on top. That means that if you want a “no win no fee” contingency fee arrangement with a lawyer to pursue that type of claim, the only source of funds to pay the lawyer if you win are your compensation/damages.

Damages Based Agreements cater for that sort of situation. With Damages Based Agreements the lawyer will usually agree not charge you their fees if you don’t win but will deduct a percentage of your compensation or damages if you do win. That percentage is a percentage of the damages, not a percentage of their costs as it would be in a Conditional Fee Agreement.

There are certain caps on the maximum amount that can be deducted in different types of cases. The rules can be quite complex but in Employment cases the cap is 35%, for instance. A lawyer could agree with a client to take less than the cap but it’s important to know when you enter into such an agreement what the maximum cap is.

It’s also important to appreciate that the success fee in a Damages Based Agreement is for the lawyers’ fees and not disbursements like court fees or experts’ fees. That means that you could end up losing more than the capped amount from your compensation so it is important to discuss and understand with the lawyer what those disbursements may be.

Damages Based Agreements are not as widely used as Conditional Fee Agreements, but they are useful in cases like Employment claims, if a client cannot afford the legal fees but has a good case.

However, it’s also important to understand that lawyers don’t have to offer them. As they are a form of no win no fee contingency agreement, where the lawyer runs the risk of not getting paid if you don’t win, lawyers are not required to offer them. Different lawyers may take different views on how strong a case is, so one lawyer may take a case on a Damages Based Agreement where another lawyer would not. Different lawyers may also offer a different percentage deduction. If a lawyer thinks the prospects of success in a case are low, they may offer a DBA with a high success fee, if they offer one at all.

All of this means that it may be worth shopping around to see what different lawyers will offer by way of Damages Based Agreements and percentage success fees. But it’s equally important to make sure that the lawyer you choose can run the case well and has the experience/skills to do so. It is pointless to choose a lawyer who cannot run your case properly and loses, so that you get nothing. It may be better to have a lawyer who charges a higher success fee but is more experienced in the area and is more likely to win or get bigger damages, which still leaves you better off.

As well as the prospects of success in a client’s case the lawyer will also assess the likely amount of damages. This is because if they are taking a percentage of the damages they will need enough damages to make that percentage worthwhile. So, if a lawyer thinks it may cost them £3000 to run a case and the damages are only £1000 then a 35% success fee would only give them £350. So they are unlikely to run that sort of case on a Damages Based Agreement. However, if the damages were £100,000 and they were on a success fee of 35% they may get £35,000 even if they had only spent £3000 on it. The lawyer would say that is compensation for the risk of not getting paid at all if the client lost.

In most instances involving DBAs, there is a clear win or lose, but it is important to look at the agreement being offered and understand what your liability as a client is, if it does not get that far. Do you have to pay anything for example if you decide to pull out of the claim?

DBAs are most common in Employment cases, but they can be offered in some other types of legal claim. They may be offered for example, where the lawyer thinks that the compensation or damages could be quite high, for the reasons given in our example above. But the lawyer is taking a double risk there that the case will be won, and the damages are high enough to merit a DBA.