In Bolt Burdon v Tariq & Ors [2016], we have the first case where a court has approved, and enforced, a pure contingency fee agreement (also called a DBA). The solicitors billed circa £500,000 in a case where, on an hourly basis, they might otherwise have billed a tenth of that sum.

Facts

The underlying claim was brought by the defendants against AlIied Irish Bank over a mis-sold interest rate swap. Bolt Burdon initially declined to act after identifying significant difficulties with the case, but the defendants persuaded the firm to act on the basis it would receive 50% of any recovery via a pure contingency fee agreement. The agreement (as defined in section 57 of the Solicitors Act 1974), also known as a damages-based agreement (“DBA”), set fees by reference to a percentage of damages recovered.

An offer of £821,045 was accepted by the defendants, and under the DBA Bolt Burdon sought £498,083, including VAT and disbursements. The defendants refused to pay, claiming that the DBA was unfair and unreasonable under the Solicitors Act 1974.

Judgment

Mr Justice Spencer rejected these arguments, stating that the agreement was “not unfair” as Mr Tariq knew “exactly what he was agreeing to”, that the firm fulfilled its duties, and no realistic alternative funding option had been available. Further, Mr Tariq was put under no pressure to sign the agreement.

As to the reasonableness of the agreement, the judge said there was “an obvious disquiet in permitting solicitors to recover fees of some £400,000 for work which might otherwise have been billed, on the basis of hourly rates, at only some £50,000 … However, on proper analysis this ignores the commercial realities which faced the parties when the agreement was made. In truth the agreement represented a speculative joint business venture in which the solicitors were taking all the risk and the client was exposed to no risk at all".

Analysis

It is the first time that a section 57 contingency fee agreement has come before a court and the fact that it was enforced despite a large "windfall" to the solicitor firm, will encourage further such agreements.

High value, high risk claims suit these arrangements. Claimant lawyers would generally prefer cases where partial funding was available, even if the rewards are far lower and the DBA regulations do not yet allow partial or “hybrid” DBAs. The £10,000 claim form issue fee alone is a big investment.

In other words, this will not presage a tsunami of DBAs. We shall see the odd speculative case, such as this one, where the claimant law firm is persuaded the upside is worth the risk of being paid nothing.

After-the-event ("ATE") insurance will play an important role in filtering out many speculative claims. It covers the risk of a party having to pay an opponent’s costs, as well as their own disbursements, and is likely to be seen as essential. However, the more speculative claims will not have access to ATE cover.

As for professional negligence claims, they present particular problems for the claimant lawyer. The usual significant legal hurdles of causation and remoteness, not to mention proving the requisite duty of care and its breach in the first place, often lead to lengthy litigation which of course increases the investment, and thus the business risk, for the claimant lawyer. This militates against the use of DBAs. However if litigation funding proves unobtainable to the claimant, we can see DBAs being considered with a view to achieving an early settlement and on the basis that the proceedings are not pursued beyond their early stages. But without ATE insurance, this is likely to be seen as a significant investment for claimant lawyers and not for the faint-hearted. Defendants should be prepared to hold their nerve and be ready to call the claimant's bluff.