Sophisticated clients should not be bound by DBA regulation
Reforming the legal regime regarding the use of damages-based agreements (DBAs) in the UK is a vital, and long overdue, development. It’s a step that needs to be taken if the settled policy of allowing lawyers to fund cases for their clients in return for a share of the recovery is ever going to become an important tool for financing litigation in this jurisdiction. The reform proposal that is on the table is a helpful step in the right direction. Yet when you read the proposal you get the sense that in the end it will simply replace one flawed regulation with another that, although better in many ways, still overly restricts and complicates the arrangements between the parties. So much so that potentially it could just end up being another roadblock to the uptake in the availability and use of DBAs that it is actually intended to promote. This would be a real unforced error. In particular, while financial protections for consumers or smaller claimants is a good idea, unnecessarily hamstringing the freedom of commercial claimants (or defendants) from crafting a DBA that is actually fit for purpose will not protect the client, the lawyer or the legal system in any real way. The more likely effect will be that DBAs will remain an outlier in the finance options available to litigants. The promise of this relatively simple, and economically effective, solution between a lawyer and its client will be unfulfilled.
My recent article, Breaking the chains, sets out the argument for exempting DBAs for commercial claims by more sophisticated clients from the bulk of the economic restrictions in the proposal. There is a clear parallel for this approach found in financial regulation which recognises the difference between consumers and commercial counterparties and accordingly has different rules for the two. It’s time to break the chains and allow more freedom of contract for lawyers and their clients.