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UK's first hybrid DBA launches

Litigation funder to get share of damages under private agreement   

17 October 2013

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By Manju Manglani, Editor (@ManjuManglani)

Burford Capital has launched a new product that allows the third-party funder to get a share of damages awarded to clients.

The first of its kind in the UK, Burford said the litigation funding arrangement would enable law firms to calibrate and hedge litigation risks, spreading these across a range of cases.

The hybrid DBA is intended to be more flexible that conditional fee agreements and more certain than damages-based agreements between law firms and their clients, while enabling firms to earn a pre-agreed portion of their regular hourly fees.

Andrew Langhoff, CEO of Burford UK, believes that few law firms have recently engaged in damages-based agreements with clients due to regulatory uncertainty in the wake of the Jackson reforms.

“We believe this lack of uptake is due to uncertainty surrounding the regulation of these client agreements – particularly the inability of firms to enter into so-called ‘hybrid’ agreements, whereby firms receive some amount of their hourly fees, while also sharing in the potential upside the damages award,” he said.

At the core of the new product offering is a standard litigation case funding agreement between the law firm’s client and Burford, in which Burford would agree to fund the litigation in exchange for a percentage of the damages in the event of success. For the funding agreement, the law firm and the client would enter into a retainer agreement.

A third agreement – the Burford Hybrid DBA – would then be entered into between the law firm and Burford, setting out the payment terms for the funder and law firm relating to the damages. The law firm’s share would come from the proceeds initially collected directly by Burford.

"The agreement with the client is that Burford will get a portion of the damages and Burford will share a percentage of its percentage with the law firm to circumvent the current DBA regulations," Steven Savage, head of marketing at Burford, told Managing Partner.

"The government was all for this kind of hybrid DBA but the regulations were so poorly drafted that law firms are unclear if they will be open to legal challenges if they use hybrid DBAs, so we have come up with a creative solution that is positive for both businesses and law firms."

However, Tamar Halevy, a litigation partner at Lewis Silkin, has suggested that law firms may be resistant to using third-party litigation funding.

“A number of third-party funders have indicated that they would be prepared to offer law firms backstop funding to cover a proportion of the law firm's fee, in exchange for their own fee in the event of success, so as to simulate the share-of-risk effect that would be in place with a hybrid DBA. In this scenario, the funding arrangement would be separate from the fee arrangement with the client. The latter would be no-win, no-fee, thereby complying with the DBA regulations,” she said in her Managing Partner article Winning fees: Alternative litigation funding in commercial cases.

“However, there is a question mark over whether the commercial terms of such funding arrangements (which are likely to involve a multiple of funds committed rather than a proportion of damages recovered) are likely to be commercially acceptable to law firms.

“Leaving aside backstop funding, a number of firms, like our own, will still be willing to consider no-win, no-fee DBAs in appropriate cases. However, it seems likely that the majority of commercial firms would be unprepared to take on the risks involved,” she concluded.

Burford says its hybrid DBA has been fully reviewed and approved by external legal and compliance experts, who have examined Solicitors Regulation Authority principles, the SRA Code of Conduct, the Damages Based Regulations 2013 and other rules and regulations applicable to law firms.

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