‘No win no fee’ has been surprisingly successful for small city law firm ELS Legal.
The firm, based in the historic legal quarters of Chancery Lane, recently completed its second commercial no win no fee – officially known as a damages based agreement (DBA) – following a divisive victory in the battle of Harlequin Property v Wilkins Kennedy.
A DBA is still relatively unheard of, having been only introduced into the commercial world in 2013.
“Damages based agreements are largely uncharted waters,” says Richard Spector, the firm’s managing partner and head litigator.
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Richard, often seen as the underdog, is becoming increasingly prolific in his profession. He took over ELS Legal aged just 34 and is now widely considered a pioneer in damages based agreements.
Harlequin Property v Wilkins Kennedy made waves in the legal sector, with ELS having taken on a top 20 accountancy firm and the global force that is Kennedys law firm with comparatively infinitesimal resources.
“We took on the Harlequin lawsuit on a DBA”, says Richard, “it was a massive risk for us. The claim took four years to complete, during that time we weren’t paid a penny, but it paid off in the end.”
The premise of damages based agreement is simple – a solicitor takes on a case and agrees not to charge any fees up until settlement or judgment. If the claim loses, the solicitor gets nothing. If the claimant comes away with a victory, the solicitor will be paid a proportion of the damages. After all, he or she took on all of the risk.
Richard continued: “In the end we won around £10 million for the client. It turned out to be a rather lucrative venture.”
“However, you always have the weight on your shoulders that any day the whole trial could collapse, and we would have wasted four years’ worth of time and money.”
Conclusively, ELS Legal was paid the same, if not a little less than they would have if they had charged hourly rates.
So why take on any case on a DBA if the risk is so high?
Richard says the proposition of a DBA enabled his firm to bid for cases which would traditionally go to a ‘silver circle’ firm, effectively breaking the monopoly.
“We’ve had a lot of enquiries following the win. Most want to know how a DBA works. We get a lot of enquiries from administrators of collapsed companies. The insolvent company might have an open claim but no way to pay to fight it. A DBA can be really effective in these types of situations and claw back some cash for creditors.
“We also got a lot of interest from overseas companies, which led us to taking on our second DBA.”
ELS Legal’s second damages based agreement was undertaken for a Chinese client. The client produced electronic scooters in Shanghai. Over a few years, the client invested a significant amount of money into a UK company that was producing Lithium batteries.
However, it quickly transpired that the British manufacturer could not produce the batteries at the specification or volume requested by the client.
“The Chinese client did not know what to do as they had little experience of the English legal system and did not want to risk throwing more money at it. They had effectively written of the debt,” said Richard.
“Within three months, I had achieved an excellent settlement for the client. It was a great result for us, and a great result for them.”
But Richard’s journey has not been without hardship. The firm’s first damages based agreement was challenged by the trustee of Harlequin Property (which by that point had fallen into administration) and Wilkins Kennedy. After months of anxiety, ELS Legal settled for a sum which they were pleased with, but it proves there is still a long way to go until DBAs can be rolled out into the mass market.
“We’ve made various suggestions to regulators. So far there doesn’t seem like much has been done.
“Until then, clients and law firms using a DBA should ensure theirs is watertight.”