One of the things that I do from time to time is draft damages based agreements (DBAs) for clients, who having been apprised of the risks of using this form of funding agreement decide to go ahead with it anyway.
DBAs of course, can be used not only by solicitors, but by claims management companies as the scope of the Courts and Legal Services Act 1990, expressly allows them to be used by those who provide claims management services.
There is however an alternative option to a DBA for those wishing to work on a contingency basis: a similar form of funding agreement available only to solicitors and only in respect of non-contentious work, the non contentious business agreement, which is subject to the regulation of section 57 of the Solicitors Act 1974.
This form of agreement is of particular interest because it allows a solicitor to charge a client a contingency fee, for conducting non contentious business. It also suffers from none of the potential problems that can arise in respect of a DBA. That is not to say that the use of a section 57 agreement is not without its problems.
If a non contentious business agreement does include within its scope through an error of drafting contentious business, or if in contentious business is done purportedly under it, the agreement may be unenforceable for breach of the Courts and Legal Services Act 1990 or the Conditional Fee Agreements Order 2013.
By way of example, if a firm of solicitors undertaking personal injury claims, found that 95% of their cases settled without the need to issue proceedings they might wonder whether they could usefully retain a client under a section 57 agreement, and then if that client’s case proved to be intractable, enter into another retainer more apt for contentious business further down the line.
Perhaps more immediately, such agreements are easily suited for those contexts where there is an adversarial element to the work but no contentious business, within the elliptical meaning of that concept as defined by the Solicitors Act 1974. In this respect the vogue in recent years for financial mis-selling claims or other consumer claims, which may end up in a scheme of redress or a complaint to an ombudsman are other examples of areas of work where this form of agreement may be used.
Section 57 of the Solicitors Act 1974 provides:
(1) Whether or not any order is in force under section 56, a solicitor and his client may, before or after or in the course of the transaction of any non-contentious business by the solicitor, make an agreement as to his remuneration in respect of that business.
(2) The agreement may provide for the remuneration of the solicitor by a gross sum or by reference to an hourly rate, or by a commission or percentage, or by a salary, or otherwise, and it may be made on the terms that the amount of the remuneration stipulated for shall or shall not include all or any disbursements made by the solicitor in respect of searches, plans, travelling, taxes, fees or other matters.
(3) The agreement shall be in writing and signed by the person to be bound by it or his agent in that behalf.
(4) Subject to subsections (5) and (7), the agreement may be sued and recovered on or set aside in the like manner and on the like grounds as an agreement not relating to the remuneration of a solicitor.
(5) If on any assessment of costs the agreement is relied on by the solicitor and objected to by the client as unfair or unreasonable, the costs officer may enquire into the facts and certify them to the court, and if from that certificate it appears just to the court that the agreement should be set aside, or the amount payable under it reduced, the court may so order and may give such consequential directions as it thinks fit.
(6) Subsection (7) applies where the agreement provides for the remuneration of the solicitor by reference to an hourly rate.
(7) If, on the assessment of any costs, the agreement is relied on by the solicitor and the client objects to the amount of the costs (but is not alleging that the agreement is unfair or unreasonable), the costs officer may enquire into a) the number of hours worked by the solicitor ; and b) whether the number of hours worked by him was excessive.”
The biggest potential drawback to entering into this type of agreement for a solicitor is that the court has a power under section 57(5) to set aside the non contentious business agreement if it is found to be unfair or unreasonable, on any assessment of costs.
Caselaw on these provisions and the working of them is scant on the ground. A case a couple of years ago, that of Bolt Burdon Solicitors v Tariq [2016] EWHC 811 (QB) does however provide a useful illustration of how a challenge by a client to a non-contentious business agreement may be brought and the kinds of arguments and issues, that the court must grapple with when it is brought. As noted by the judge, Mr Justice Spencer:
147. There is very little authority on the approach to be adopted under section 57(5) of the 1974 Act. The provision has a long legislative history. Hence some assistance is to be gained from the decision of the Court of Appeal in In Re Stuart, ex parte Cathcart [1893] 2 QB 201. The case turned on sections 8 and 9 of the Attorneys’ and Solicitors’ Act 1870 which gave the court power to declare an agreement for remuneration void “if the terms of such agreement shall not be deemed by the Court or judge to be fair or reasonable”. The agreement in that case related to the employment of a solicitor to attend the taxation of costs in lunacy proceedings, the agreement being that the solicitor should be paid 5% of the amount taxed off the bill of costs. The bill contained items for daily refreshers for counsel far exceeding the maximum daily amount allowed by the rules, and of the whole bill of £5,000 nearly £2,000 was taxed off, the principal part of which consisted of refreshers. The sum claimed on a percentage basis was nearly £100, whereas the taxing master had certified to the court below that proper remuneration would have been £20.
148. The outcome of the case provides no particular assistance, but in the course of his judgment Lord Esher M.R. gave the following guidance on the proper approach under those statutory provisions:
“ By s.9 the Court may enforce an agreement if it appears that it is in all respects fair and reasonable. With regard to the fairness of such an agreement, it appears to me that this refers to the mode of obtaining the agreement, and that if a solicitor makes an agreement with a client who fully understands and appreciates that agreement that satisfies the requirement as to fairness. But the agreement must also be reasonable, and in determining whether it is so the matters covered by the expression “fair” cannot be re-introduced. As to this part of the requirements of the statute, I am of opinion that the meaning is that when an agreement is challenged the solicitor must not only satisfy the Court that the agreement was absolutely fair with regard to the way in which it was obtained, but must also satisfy the Court that the terms of that agreement are reasonable. If in the opinion of the Court they are not reasonable having regard to the kind of work the solicitor has to do under the agreement, the Court are bound to say that the solicitor, and an officer of the Court, has no right to an unreasonable payment for the work he has done and ought not to have made an agreement for remuneration in such a manner. On this question it is quite clear to me that we cannot arrive at any other conclusion than that arrived at by the Divisional
Court. It is impossible to say that work which according to information given by the taxing master to the Divisional Court would be properly remunerated by a sum of £20 can be reasonably charged at £100. The decision of the Court below must be affirmed, and the appeal dismissed.”
149. I find the analysis in that case helpful to the extent of identifying that the issues of fairness and reasonableness must be considered separately. Fairness relates principally to the manner in which the agreement came to be made. Reasonableness relates principally to the terms of the agreement.
150. One other statutory provision, very recent, was also referred to in the course of argument and should be mentioned for completeness. The Damages-Based Agreements Regulations 2013 permit what are, in effect, contingency fee agreements in relation to certain contentious proceedings. Regulation 4(3) limits payment under such an agreement to an amount which, including VAT, is equal to 50% of the sums ultimately recovered by the client. I stress that these Regulations have no direct application in the present case because here we are concerned with a non-contentious business agreement. Mr Mallalieu drew attention to the provisions in order to demonstrate that the level of 50% provided for in the Agreement in the present case is within the limit of what Parliament has permitted in Damages-Based Agreements. It was also asserted in the pleadings (at paragraph 27(e) of the amended reply) that in enacting these provisions Parliament expressly rejected any recommendation that specific advice of a prescribed nature had to be provided before such an agreement could be enforced.
The case did not proceed to the Court of Appeal, or rather permission to appeal was refused by the Court of Appeal. As one of the issues currently in the long grass which the Ministry of Justice has no interest in disturbing, is reform of the Damages Based Agreements Regulations 2013, this type of agreement has a dual value to the law; both in appropriate cases by offering an alternative funding solution, and also by being a useful illustration of how a contingency funding arrangement might work successfully, when considering reforms to the regulation of DBAs.