Legis Finance is convening a working group of interested UK law firms to support initiatives designed to encourage broader adoption of damages-based agreements (DBAs) in the UK for appropriate cases and clients. Our ongoing discussions with lawyers in the UK have shown us that there is keen interest to use DBAs more widely than they are being employed now. While there is definitely a movement towards greater market acceptance of DBAs and their use by firms, there remains concerns centred around the economic and contractual challenges posed by the current regulatory environment. We believe that a working group of law firms and other interested parties could start to address this by initially focusing on two threshold hurdles that we have identified: (i) the lack of a standard form DBA for use by solicitors for commercial litigation, and (ii) the lack of data regarding the uptake of DBAs and the issues that firms face when using or proposing their use with clients.

A Standard Form DBA for Commercial Litigation

The drafting challenges posed by the Damages-Based Agreements Regulations 2013 are well known in the market, as are the drastic consequences of having a DBA challenged and found unenforceable due to non-compliance with the Regulations. While the Bar has published a standard form DBA for barristers’ use, solicitors have largely been left to their own devices to draft DBAs, often with specialist advice. There is no obvious commercial advantage to having a “better” DBA, it is in everyone’s interests to see DBAs consistently found enforceable when challenged if wider use and acceptance of DBAs in the market is the goal. A standard form DBA does not by itself remove the question of enforceability, it could certainly still be challenged. However, lawyers would be able to take greater comfort that the form of agreement that they start with has been thoroughly vetted by their peer firms and to the extent that any risks cannot be mitigated via careful drafting, at least they can be knowingly accepted or managed.

The experience of standard form contracts in other markets has shown that they can be incredibly useful for driving market growth and legal certainty. For example, in the financial markets, the ISDA Master Agreements and the various master agreements covering repos and stock loans have been hugely successful in providing legal certainty and clarity in those markets facilitating their growth. While the market for DBAs in the UK is of course smaller and narrower than global finance markets, bringing practitioners together in any market to solve common problems jointly will yield benefits for the whole industry.

A Survey of the Legal Market Regarding the Current Use of DBAs

There are important issues at stake when a firm considers adopting or avoiding DBAs. From our conversations with firms, we have heard a variety of these expressed but often with a real interest in how other firms are considering the question and if they have similar or different issues or concerns. As with a standard form DBA, lack of clarity does not confer a commercial advantage. We would propose conducting a survey of law firms asking questions such as whether DBAs are currently being used or are being considered and what issues are driving their use or avoidance. The working group could make suggestions for the questions to be included and the responses would be anonymous. The data resulting from the survey could be used by the group to consider other initiatives that would further the goal of DBAs gaining more traction in the UK market.

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