This case concerns Lexlaw’s claim in respect of unpaid solicitor’s fees which Mrs Zuberi disputes on various grounds including, undue influence, misrepresentation, negligence and/or breach of tortious, contractual and/or fiduciary duties but the issue for consideration at a forthcoming preliminary issues hearing concerns “Whether the DBA is unenforceable by virtue of section 58AA(2) of the CLSA 1990, by reason of failing to satisfy the conditions in section 58AA(4) CLSA 1990, as pleaded in paragraph 64 to 71 of the Amended Defence dated 22 June 2016.”
Section 58AA(2) of the CLSA 1990 provides, so far as relevant:
“(1) A damages-based agreement which satisfies the conditions in subsection (4) is not unenforceable by reason only of its being a damages-based agreement.
(2) But … a damages-based agreement which does not satisfy those conditions is unenforceable.
(3) For the purposes of this section—
(a) a damages-based agreement is an agreement between a person providing advocacy services, litigation services or claims management services and the recipient of those services which provides that—
(i) the recipient is to make a payment to the person providing the services if the recipient obtains a specified financial benefit in connection with the matter in relation to which the services are provided, and
(ii) the amount of that payment is to be determined by reference to the amount of the financial benefit obtained.
(4) The agreement—
(b) if regulations so provide, must not provide for a payment above a prescribed amount or for a payment above an amount calculated in a prescribed manner.”
The Damages-Based Agreements Regulations 2013 provide, so far as relevant:
“(2) In these Regulations—
“costs” means the total of the representative’s time reasonably spent, in respect of the claim or proceedings, multiplied by the reasonable hourly rate of remuneration of the representative;
“expenses” means disbursements incurred by the representative, including the expense of obtaining an expert’s report and, in an employment matter only, counsel’s fees;
“payment” means that part of the sum recovered in respect of the claim or damages awarded that the client agrees to pay the representative, and excludes expenses but includes, in respect of any claim or proceedings to which these regulations apply other than an employment matter, any disbursements incurred by the representative in respect of counsel’s fees;
4.— Payment in respect of claims or proceedings other than an employment matter
(1) In respect of any claim or proceedings, other than an employment matter, to which these Regulations apply, a damages-based agreement must not require an amount to be paid by the client other than—
(a) the payment, net of—
(i) any costs (including fixed costs under Part 45 of the Civil Procedure Rules 1998); and
(ii) where relevant, any sum in respect of disbursements incurred by the representative in respect of counsel’s fees,
that have been paid or are payable by another party to the proceedings by agreement or order; and
(b) any expenses incurred by the representative, net of any amount which has been paid or is payable by another party to the proceedings by agreement or order.
(3) … in any other claim or proceedings to which this regulation applies, a damages-based agreement must not provide for a payment above an amount which, including VAT, is equal to 50% of the sums ultimately recovered by the client.”
Clause 6.2 of the Damages Based Agreement between the Claimant and the Defendant provides:
“With the exception of the circumstances set out in clause 6.3 (in which you agree not to terminate this Agreement), you may terminate this Agreement at any time. However, you are then liable to pay the Costs and the Expenses incurred up to the date of termination of this Agreement within one month of delivery of our bill to you.”
The fact that ‘the agreement’ provides for “the payment” and also for “costs and expenses” to be paid under different circumstances suggests the agreement may not be compliant with the DBA Regulations. However, the Claimant seeks to argue that clause 6.2 is not in breach of the regulations and even if it is, it can be severed from the agreement so as not to render the entire agreement unenforceable. Further, and in any event, the Claimant maintains that any such breach would not be a ‘material breach’.
We have been here before – the ‘costs war’ over the CFA Regulations – and it seems this could be the start of another offensive, this time from clients rather than their opponents. What this case tells us is that some much needed clarification of the DBA Regulations is long overdue.