Termination clause requiring payment under DBA not unlawful, rules High Court

A damages-based agreement (DBA) can lawfully require a client who prematurely terminates the agreement to pay the solicitor for the time and disbursements incurred to that point, the High Court has ruled.

His Honour Judge Parfitt, sitting as a High Court judge in the Rolls Building, said Parliament would have been explicit had it intended lawyers not to be able to recover any fees on termination.

Lexlaw Ltd v Zuberi [2020] EWHC 1855 (Ch) was a decision on a preliminary issue of whether the DBA under which the claimant acted for a defendant was unenforceable because it obliged the defendant to pay sums to the claimant other than the payments allowed by the Damages-Based Agreements Regulations 2013.

Regulation 4(1) says a DBA must not require an amount to be paid by the client other than what has been paid by another party.

Lexlaw acted for the defendant on a dispute with her bank. Just over a year after the DBA was entered into, she sought to terminate the retainer, although the firm did not accept that termination as bringing the agreement to an end. The claim then settled and Lexlaw sought payment under the DBA of £125,000. Other issues remain in contention but were not addressed in this decision.

HHJ Parfitt rejected the defendant’s construction of regulation 4(1), which he said required it “to perform an additional purpose which is to prevent an agreement between the client and the representative that gave the representative their time costs if the client terminated the agreement before a right to share in the proceeds had arisen”.

This was for several reasons, including that such costs were recoverable on termination in employment cases, and there was no reason to differentiate them.

Such a construction would also make lawyers reluctant to enter into DBAs, “and that would be contrary to the purpose of making such agreements lawful so as to facilitate access to justice”. This would mean less choice for clients.

The judge went on to disagree that the wording of regulation 4(1), that a DBA “must not require an amount to be paid by the client” other than a payment from another party trumped this.

He said this having considered the context in which the 2013 regulations were made. “The suggested construction by the defendant is inconsistent with the purpose of the legislation and the structure of the CLSA [the Courts and Legal Services Act 1990] and the 2013 regulations. It produces a result which, in context, would be irrational and without apparent justification.

“In a similar way, if the legislature considered it necessary that damages-based agreements should prevent the solicitor recovering time costs in any circumstances other than when the agreement continued to apply at the conclusion of successful litigation, then it would have said so in terms and not as a side consequence of addressing a different subject – how sharing the spoils should work.

“For all those reasons, the expression ‘an amount to be paid by the client’ should be construed to be limited so that its subject matter is premised on there being dispute recoveries available for sharing.”

He said the concept of the ‘cap’ on payment was a distinct concept from that of fees contractually due on termination.

“One is dealt with in regulation 4(1), the other falls outside of that which Parliament wanted to regulate other than for employment matters.” It was the only construction that achieved “the clear purpose of the legislature”.

Writing about the decision, well-known costs counsel Andrew Hogan of Kings Chambers said: “I regard this decision (subject to any possible appeal to the Court of Appeal) as a useful decision, which clarifies and removes from contention one of the most significant issues inhibiting the wider use of damages based agreements.

“I am not sure that it will prompt a sudden surge in the numbers of damages based agreements which lawyers enter into: there remain other problems arising from the 2013 regulations, and more fundamentally although those in turn might be clarified by further court decisions the Ontario model remains a fundamentally flawed one, and no amount of judicial gloss can alter that basic starting point.”

Chris Snell (instructed by Lexlaw Solicitors & Barristers) for the claimant, and Adrian Davies (instructed by Connaughts) for the defendant.

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Costs News
Published date
16 Jul 2020

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