While debate continues as to whether the MOJ will permit partial DBAs (agreements where the lawyer takes a US style contingency fee), a number of practices have already grabbed the bull by the horns and started to test the waters by entering into DBAs. However, while some litigators may raise an eyebrow at the thought of some firm’s willingness to risk 100% of their fees on large commercial disputes, the reality is the firm may not be carrying 100% of the risk after all.
By understanding the options available from the funding market and, often more crucially, the insurance market, entrepreneurial firms are realising they can enter into potentially lucrative retainers with their clients whilst removing a large proportion of the risk. Unlike traditional funding and insurance arrangements, under these transactions the law firm itself is the insured or funded party. Provided the structure is appropriately priced, the economics are in the law firm’s favour. If the case wins, the firm receives the lion’s share of the success fee whereas if the cases loses the firm ensures a minimum acceptable level of work in progress has been paid.
While this may appear to be a novel approach, in reality there has been ample precedent for this form of law firm risk-hedging for many years. Indeed, at TheJudge we put in place the first facility of this type for a leading US firm in the investment treaty arbitration market to manage their contingency fee risk exposure. The process worked exactly as expected, there were examples of successful cases under which the firm received a significant contingent uplift as well as cases which were unsuccessful. However, crucially, in the unsuccessful cases the firms still received an acceptable return.
Most third party funding companies have some form of insurance arrangement which protects their capital. The same principle can apply to law firms. At TheJudge we can make such risk hedging tools directly available to law firms whether for a single case or a portfolio of cases. If you are a firm based in the City and would like to arrange a meeting to learn more, please contact Matthew Amey or James Delaney. Alternatively, if you are based outside London please contact Carolyn Holmes