Section 45 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012, due to come into force in April 2013, will extend the use of Damage Based Agreements (“DBAs”) (contingency fees) to civil litigation. A working party of the Civil Justice Council set up to consider the practical and policy issues arising from the introduction of this provision recently published its report.

The report contains a number of recommendations which are particularly important for commercial clients:

  1. Partial DBAs, analogous to the “no win, low fee” CFAs, should be allowed.
  2. There should not be a cap on contingency fees in commercial cases.
  3. In line with the case law on Conditional Fee Agreements (“CFAs”), lawyers acting under a DBA should not be liable for adverse costs, unless they agree to indemnify the client for adverse costs liability. Third party litigation funders who provide commercial finance in a DBA case should, however, be liable for limited adverse costs.
  4. Lawyers acting under a DBA should not be under an obligation to notify the opposing party of the fact that they have entered into a DBA.

The report aims to provide assistance to the government in progressing the introduction of DBAs as a method of funding civil litigation.  Contingency fees are therefore on their way and could provide a valuable mechanism to fund a whole range of commercial and civil litigation.