For some time it has been possible, in theory, for lawyers to risk share with their litigation clients. To back their judgments as lawyers about the merits of their client's claims by putting some or all of their fees at risk. The willingness of law firms to take that leap has been hampered by a lack of clarity around the way the rules work. And we all know what a lack of clarity does to a risk averse lawyer!
In the recent Court of Appeal decision in Zuberi v Lexlaw Ltd , the courts have brought some clarity, lacking in legislation, around what a law firm can recover from their clients when they have entered to "fee arrangements" that are replaced by success fees linked to the amount of compensation awarded in court.
This is great news for litigants with good claims who want to take the legal cost risk off their balance sheets. It offers savvy litigators the chance to back themselves and align their interests with their clients. Better still it means there's a way the profession can offer a really valuable new service to clients.
There's a but. The but is this. Many of today's law firms remain financially vulnerable and dependent on the loans they receive from their own partners when they become partners. They are not "proper businesses" with retained profits and long term investment plans. In such circumstances, giving up an hourly rate and backing a lawyer's judgment that they can win for the client may not be a viable financial choice.
Of course, where there is a will...
The future for "litigation investments" may be advanced by funders being able to own law firms, running them as businesses with mixed portfolios of litigation risk. Thereby making both a return on the money provided and a return on the fees replaced with success upsides.
Innovation in law, the business of law and the economics of law - now there's a thought.
DBAs – or contingency fees as they are also known – were intended to be a tasty addition to the menu of funding options set out by Sir Rupert Jackson in his 2009 costs review.