Court Of Appeal Confirms Damages-Based Agreements (DBAs) Are Not For Defendants

• Published date: 27 July 2022
• Subject Matter: Litigation, Mediation & Arbitration, Trials & Appeals & Compensation
• Law Firm: Herbert Smith Freehills
• Author: Ms Anna Pertoldi and Maura McIntosh

The Court of Appeal has confirmed that Damages-Based Agreements (or DBAs) cannot be used by defendants as, under s.58AA of the Courts and Legal Services Act 1990, the agreement must provide for payment to the lawyer if the client "obtains a specified financial benefit" from the litigation: Candey Ltd v Tonstate Group Ltd [2022] EWCA Civ 936.

The appeal raised what the court described as the "apparently novel question" of whether a defendant can lawfully agree with its lawyers that, if it succeeds in defending the claim (or counterclaim) in whole or in part, it will pay a percentage of the money (or the value of the assets) that it has resisted having to pay to the opponent.

The court rejected the submission that a defendant can be said to receive a "financial benefit" in such circumstances because it gets to keep its money or other property. As the court put it, the successful defendant is financially no better off than at the start of the litigation, and may be considerably worse off (if the claim has succeeded in part).

The Court of Appeal agreed with the High Court's decision (outlined here) that the use of DBAs by defendants is precluded by the wording of the Damages-Based Agreements Regulation 2013. However, the decision goes further in finding that s.58AA, the underlying statutory provision which permits DBAs, precludes their use by...