With damages-based agreements (or contingency fees as they used to be known) coming into being next April, the Civil Justice Council has now set the wheels in motion to begin drawing up the all-important rules that will govern how the new fees are actually going to operate.

I am told that the CJC has just set up an experts’ working group on DBAs, which will hold its first meeting after Easter. It will be chaired by veteran solicitor Michael Napier, who recently chaired the CJC group responsible for the new code of conduct for third-party funders, and going further back in history, was heavily involved in drawing up a model agreement for conditional fee agreements. Napier believes that a similar agreement will be needed for DBAs; and no doubt, he’s right.

As I’ve outlined before, there are plenty of nuts to be cracked before DBAs make their grand entrance onto the civil litigation scene (having previously been confined to employment tribunal work).

Given that solicitors will effectively become funders of litigation when they act under a DBA (which entitles them to be paid out of the client’s damages), many of the issues will be similar to those recently tacked in relation to the third-party funders’ code of conduct. For example, the working group will need to figure out how much control the lawyer should be allowed to have over the litigation, and what happens when, for example, the solicitor wants to settle, and the client wants to press ahead.

Another question will be whether solicitors should be obliged to ensure a client has obtained independent advice on the funding agreement.

The obligations imposed on funders under their new code of conduct may give an indication of what rules might be in store for solicitors on these client protection matters.

There is one issue in particular where the third-party funders will be doing all they can to influence the DBA rules, and that is in relation to capital adequacy requirements. Under their new code, funders are obliged to show that they have the cash needed to fund a case for three years. There is plenty of noise being made in the funding community about the fact that law firms will have a massive advantage over funders if they are not subject to similar requirements when acting under a DBA, and so effectively funding a case.

Many of the questions to be answered are similar to those thrown up by CFAs, in which solicitors are also acting as de facto funders. But with DBAs, the rewards for the lawyer could be much greater, and the level of damages obtained will have a direct effect on the solicitor’s fee.

It may be a full year before DBAs are set to burst onto the scene, but the CJC’s experts group has got a lot of work to do before then.

Rachel Rothwell is editor of Litigation Funding magazine. The current issue features a discussion of the impact of DBAs by a group of leading experts

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