Born to run

The highway’s jammed with broken heroes on a last-chance power drive
Everybody’s out on the run tonight, but there’s no place left to hide.

-Bruce Springsteen

As the summer holidays are fast approaching, I am carefully adding to the stack of books I wish to read whilst I am away. This week I have placed on the pile “Beyond the Red Wall: Why Labour Lost, How the Conservatives Won and What Will Happen Next?” and “Boris Johnson-The Gambler”. I used to think I understood politics, but the events of the last five years have made me question much that I thought I knew.

One thing I am quite sure of is that there is currently a dearth of real talent within Parliament on all sides of the political divide. Following on from this, it can surely only be a matter of time, before my own qualities are recognised? Before I am elevated to the position of Lord Chancellor and Secretary of State for Justice? I suppose, I am really just waiting for that call.

After I have assumed my title, as Lord Hogan of Tummybutton, one of my first acts in office will be to legislate to limit the length of judgments of the appellate courts to 10 pages of A4 in length, and to prohibit dissenting judgments. There will be but one judgment of the court. With a few short strokes of the pen, I will do more to simplify the law and reduce legal costs, than all my predecessors in office, since Francis Bacon. 

It was Dickens who wrote that “the one great principle of the English law is, to make business for itself. There is no other principle distinctly, certainly, and consistently maintained through all its narrow turnings. Viewed by this light it becomes a coherent scheme, and not the monstrous maze the laity are apt to think it. Let them but once clearly perceive that its grand principle is to make business for itself at their expense, and surely they will cease to grumble.”

With those thoughts in mind, I turn to consider some recent developments in damages based agreements, the unwanted and unloved child of the LASPO 2012 reforms. As is well known, when considering making a type of contingency fee agreement with their client, what solicitors want is the facility to charge their clients costs in the normal way plus a slice of the damages they recover for them.

Some solicitors believe that they can already do that and such a belief often lands them in trouble when considering the enforceability of their retainers.

Instead, when considering a retainer for contentious business, solicitors have the choice of a variety of conditional fee agreements, whereby they can charge the client a success fee in addition to their normal costs, but the success fee can only be expressed as a percentage uplift on those costs and is capped at 100%, or they can elect for a damages based agreement.

The scheme of damages based agreements as inserted into the Courts and Legal Services Act 1990, and supplemented by the Damages Based Agreements Regulations 2013, bring to England and Wales, the Ontario model of contingency fee agreement.

A solicitor can contract with his client to be paid a percentage of any damages recovered, but any costs in respect of solicitors fees that are recovered are netted off pound for pound from this  percentage. To make matters worse, the payment must also encompass counsels’ fees, which if recovered, are again deducted pound for pound from the payment.

Coupled with doubt and uncertainty as to the interpretation of the statutory scheme, damages based agreements have been relatively few in my experience. No one, after all wants their retainer to feature in a test case testing the limits of what is or is not an enforceable agreement. Unsurprisingly, there has been little enthusiasm across the majority of the profession for the uptake of damages based agreements.

Thus the case of Zuberi v Lexlaw [2021] EWCA Civ 16 decided earlier this year is of considerable interest when considering how the regulations governing damages based agreements should be construed. There are three substantive judgments of the Court of Appeal to consider.

Lewison LJ began by noting the facts:

2. The particular factual background to this case does not affect the issue we have to decide; so I give only a short summary. Mrs Zuberi borrowed money from a bank. She subsequently brought a claim against the bank alleging that she had been missold certain financial products. She retained Lexlaw to act on her behalf under the terms of a written agreement. Eventually the bank made an offer to settle her claim, which she accepted.

3. Under clause 9.1 of the written agreement Lexlaw were entitled to 12% of any sum recovered plus expenses (such as disbursements). Lexlaw says that the sum due is just under £130,000. Clause 10 provided that if the claim was lost, the client was liable to pay expenses only. But clause 6.2 of the agreement provided:

“With the exception of the circumstances set out in clause 6.3 … you may terminate this Agreement at any time. However, you are 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.”

4. The expression “Costs” was defined as time charges at an hourly rate for time spent working on the claim; and the expression “Expenses” was defined as the cost of instructing third parties plus disbursements.

Interestingly, and controversially he construed the damages based agreement narrowly:

33. There are two possible views of what the DBA consists of. One view is that if a contract of retainer contains any provision which entitles the lawyer to a share of recoveries, then the whole contract of retainer is a DBA. In other words, a DBA is a contract which includes a provision for sharing recoveries. But another view is that if a contract of retainer contains a provision which entitles a lawyer to a share of recoveries; but also contains other provisions which provide for payment on a different basis, or other terms which do not deal with payment at all, only those provisions in the contract of retainer which deal with payment out of recoveries amount to the DBA.

34. In my judgment, there are good reasons for preferring the latter view. First, the object of the legislation was to permit the remuneration of lawyers by means of a share of recoveries. Second, the only part of the common law that needed to be changed to achieve that purpose was the rule against champerty. As I have said, at common law the contract of retainer, shorn of clause 9.1, would have been enforceable. There was no particular reason for Parliament to modify the other statutory and regulatory controls over lawyers’ fees. Third, there is a presumption that Parliament does not intend to change the common law, except expressly or by necessary implication. There is no express provision which displaces the common law (except the rule against champerty). Fourth, the legislation cannot be said to be undermined by the co-existence of the common law. Fifth, the legislative scheme is far from comprehensive.

He went on to explain why termination provisions including a payment for  “the time on the clock” did not impugn the statutory scheme.

However these paragraphs state an approach which was far wider than was necessary to determine the appeal.

Moreover it is an approach that the second substantive judgment, that of Newey LJ disagreed with:

63. As Lewison LJ has explained, he considers that there are good reasons for taking the view that “if a contract of retainer contains a provision which entitles a lawyer to a charge of recoveries; but also contains other provisions which provide for payment on a different basis, or other terms which do not deal with payment at all, only those provisions in the contract of retainer which deal with payment out of recoveries amount to the DBA” and that that view is reflected in the 2013 Regulations. While recognising that this means that the 2013 Regulations “do not deal with a lawyer’s remuneration in the event that the client pursues a case to trial and loses”, he has concluded that “time costs as such are outside the scope of the Regulations, except where they are brought in as an additional requirement of a DBA in exercise of the power under section 58AA (4) (c)”.

64. The implication, as I understand it, is that neither “sequential hybrid DBAs” nor “concurrent hybrid DBAs” (in the language of the Civil Justice Council’s working group) are at present barred. There is nothing to prevent a solicitor agreeing with his client that he will receive up to 50% of the sums ultimately recovered if the claim succeeds and be paid his full time costs if the claim fails. In fact, it would seem to be the case that a retainer could provide for a solicitor to become entitled to both half of recoveries and full time costs in the event of the claim succeeding.

65. My own view, with respect, is that this construction of the legislation is neither consistent with its history nor borne out by its terms.

Two reasons in particular stand out:

68. Thirdly, the successive versions of the legislation were plainly intended to cap the share of recoveries that a representative could take in fees. Sir Rupert Jackson’s Final Report noted that what became the 2010 Regulations would introduce requirements in respect of the “maximum percentage of the damages that can be recovered in fees from the award” and proposed that, if lawyers were permitted to use contingency fees, regulations should “provide a maximum percentage of the damages that can be recovered in fees from the award”. Yet, as I have said, Lewison LJ’s approach would appear to me to leave a representative free to require a “payment” equal to a share of recoveries under the DBA on top of time costs pursuant to a separate agreement, and that would be so even though the DBA and the “separate agreement” were contained in a single document.

69. A fourth, and related, point relates to “concurrent hybrid DBAs”, to which, on the basis of Lewison LJ’s approach, there can be no objection. While “concurrent hybrid DBAs” certainly have supporters, it would be surprising if the legislation had been meant to authorise them without additional safeguards. It might, for instance, have been thought appropriate to insist that time should be charged at a reduced hourly rate or otherwise to impose limits on the extent to which a representative could become entitled to time costs as well as a share of recoveries.

So what did Coulson LJ say given this division of opinion, in the third, substantive judgment of the Court of Appeal?

74. I agree with my Lords that the appeal in this case should be dismissed. Because their reasoning is different, and because nobody can pretend that these Regulations represent the draftsman’s finest hour, it is appropriate if I add a few words to explain my own approach to the issues.

75. Clause 6 of the agreement comprises an unobjectionable series of provisions relating to termination. The provisions themselves are clear and comprehensive. They are neither unlawful nor champertous. Accordingly, the burden is on the appellant to explain how and why these clear provisions, into which she freely entered, should be set aside. It is not, as Mr Davies sought to persuade us, for the respondent to demonstrate the contrary.

76. The appellant seeks to rely on section 58AA of the Act and Regulation 4. In my view, for three separate reasons, neither avail the appellant.

77. First, I agree with my Lord, Lord Justice Lewison, that the term “damages-based agreement” should be given a narrow meaning. It is the agreement between the parties relating to the payment as defined in the Regulations, namely that “part of the sum recovered in respect of the claim or damages awarded that the client agrees to pay the representative”. Other elements of the agreement between the solicitor and the client, such as at which of the solicitors’ offices the work will be done, or the level of expenses incurred (which is expressly excluded from the payment as defined) or, as in this case, the termination provisions, have nothing to do with the payment as defined in the Regulations, and are therefore not part of the DBA itself.

78. Secondly, however, if that were too narrow an interpretation, I remain of the view that neither section 58AA of the Act, nor Regulation 4, affect the operation of an early termination provision such as clause 6. They do not address termination at all. I therefore expressly agree with the approach set out by Lord Justice Newey at paragraph 72 above.

He concluded:

84.Thus, the highest that it can be put by the appellant is that Regulation 4(1) could be read as saying that a damages-based agreement must not require any amount to be paid by the client other than the payment itself, and expenses, whatever circumstances may eventuate. So, if the narrow view of a damages-based agreement is not accepted, then, on that literal reading, Regulation 4(1) would, for example, prevent the legal representative from recovering any of its own costs, whatever the retainer actually said, even if the client terminated the agreement without cause after two years of work by the lawyer. That would not only be a commercial nonsense, but it would be contrary to the statutory purpose of section 58AA, which was designed to encourage the use of DBAs, not make them commercial suicide for the lawyer. It would also be contrary to Regulation 3, contrary to the assumptions made about termination provisions to which I have already referred, and render Regulation 8 redundant. I therefore reject that interpretation of Regulation 4(1).

This case raises as many questions as it answers. It would appear that the majority judgments are those of Lewison and Coulson LJJ on the so called narrow approach to construction of a damages based agreement, so  that the sort of hybrid fee arrangements contemplated in Lewison LJ’s judgment and disdained in Newey LJ’s judgment can be created.

Set against that, it is entirely possible that Lewison LJ’s formulation of the narrow approach is obiter dicta: after all, the express subject matter of the appeal was whether the damages based agreement was unenforceable by reason of the termination provisions, and as Newey LJ explained it was entirely possible to dismiss the appeal on another approach to statutory construction of the regulations.

Moreover the judgment of Coulson LJ, which agreed with parts of both judgments, in a sense attempts to straddle a fairly fundamental division of opinion as to the nature and scope of the damages based agreements created by the statutory regime.

All of which is excellent news for costs lawyers, and bad news for the consumer as the ramifications of the judgments fall to be sifted, considered and then taken forward in circumstances where there is scope for a division of judicial opinion over what should be a relatively unexceptional set of consumer protection provisions which should spell out clearly what types of fee arrangements are lawful and which are not.

Why in the twenty first century, is this approach to law making, possible or tolerated by the country? Three judgments in one case, shades of ratio decidendi, possible obiter dicta, disagreements on the face of the court record?

Have things really not moved on so very much since the publication of Bleak House?

The answer to the latter question, is no and not yet.

One thought on “Born to run

  1. Very good and thoughtful article.

    Perhaps the judges sided a little with the solicitors here, but I think there is room for DBAs and they can accommodate settlement as long as they don’t act as a disincentive to settle and as long as there is protection against frontloading of costs. A lot of Defendants won’t engage properly until a Claimant is represented and will then offer to settlement, so a DBA needs to take this into account and be priced accordingly. Clients must also be protected against punishment in ‘costs’ if they refuse to accept a settlement against the solicitor’s advice.

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