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Damages Based Agreements: Permission to appeal to Supreme Court refused in landmark DBAs case

In Shaista Zuberi v Lexlaw Limited [2021] EWCA Civ 16, the Court of Appeal has refused the appellant permission to appeal to the Supreme Court. This is a welcome and important judgment for lawyers and clients equally as it provides some much needed judicial clarity on the effect of termination in respect of DBAs in litigation matters

Following the hand down of the judgment in Shaista Zuberi v Lexlaw Limited [2021] EWCA Civ 16, the Court of Appeal (before Lord Justice Lewison, Lord Justice Newey and Lord Justice Coulson) has today refused the losing party permission to appeal to the Supreme Court.  The judgment (and the reasoning of the Lordships) along with permission to appeal being refused, provides much-needed clarity to the legal profession on one of the key uncertainties preventing the wider use of DBAs and the unanimous judgment paves the way for DBAs to flourish and enhance access to justice as intended.

The inconsistency in the legislation has caused considerable uncertainty and a fear that should a client terminate a retainer, the lawyer will end up not being paid anything for months or years of work. It is hoped that the unanimous Court of Appeal judgment and refusal of permission to appeal will go some way to assuaging the concerns of lawyers and clients alike.

Summary

This is the first material case dealing with the Damages Based Agreements Regulations 2013 to reach the Court of Appeal since the scope of DBAs was extended to civil litigation in April 2013.

The litigation was brought by Lexlaw Ltd (“Lexlaw”) based in Middle Temple, London against a former client, Shaista Zuberi in respect of payment legal fees pursuant to a DBA made in April 2014. The Defendant sought to terminate the DBA with her solicitors after Lexlaw, through its extensive work, had obtained a significant financial benefit of over £1 million for her in respect of litigation against two major banks for the mis-selling of a complex interest rate hedging product. The Defendant argued that the DBA with Lexlaw was unenforceable under section 58AA of the Courts and Legal Services Act 1990 because the DBA included within it an obligation on the Defendant to pay legal costs and expenses to Lexlaw on its hourly rates in the event of termination (and thus argued that Lexlaw was not entitled to any payment whatsoever).

This question is of paramount importance to the legal profession as a whole, because the effectiveness of the arrangements by which litigants and their lawyers are able to fund litigation are an important component of securing access to justice on terms that are fair to litigants and to practitioners. Should a DBA be unenforceable for reasons that it includes an obligation on a client to pay a solicitor’s time costs and expenses on termination it would effectively end the use of DBAs. As a consequence, cunning and commercially savvy clients would be granted a judicial imprimatur to exploit the defects of the DBA Regulations by terminating the retainer with their legal representatives on the eve of successful litigation or settlement. For example, if the opposing party offers to settle a case, there would be nothing to stop the client disinstructing their legal professionals, representing themselves and terminating the DBA just before accepting the settlement offer in order to avoid liability to pay for work that the solicitor had carried out on the client’s behalf. This is clearly not what was envisaged or intended by Parliament.

The Background Facts

In 2008, the Defendant borrowed over £2 million from Natwest/RBS, and as part of the transaction she entered into a 10-year interest hedging product. By Spring 2012, receivers were appointed against the Defendant. In May 2012, the Defendant appointed Lexlaw to act for her in respect of claims against the banks. In April 2014, the parties agreed to a DBA at the Defendant’s own request, as the Defendant could not otherwise afford to pursue her claim against the banks. Lexlaw carried out a substantial amount of work on the claim and challenged the outcome of a redress review on behalf of the Defendant. In April 2015, a meeting was held with the banks and they indicated to the Claimant and Defendants that an improved redress offer would be provided. In July 2015, the banks made an improved final offer which was acceptable to the Defendant which involved a less costly alternative derivative product and meant the Defendant received £389,168.39 in cash redress from the banks plus avoided significant break costs of £640,000, resulting in a financial benefit to the Defendant of well over £1 million.

Lexlaw sought payment under the DBA from the Defendant in the sum of £125,123.14. However, despite Lexlaw having achieved a successful resolution of the claim against the banks, the Defendant refused to pay any sums and argued that the DBA was unenforceable under section 58AA of the Courts and Legal Services Act 1990 as the DBA included within it an obligation on the Defendant to pay Lexlaw’s costs and expenses on termination.

What is a Damages Based Agreement (DBA)?

Damages-based agreements were first introduced as a form of funding for civil cases on 19 January 2013 when section 45 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (“LASPO”) came into force. The effect of s45 LASPO was to introduce an amendment to section 58AA of the Courts and Legal Services Act 1990(damages-based agreements).

The 2013 Regulations were made pursuant to an amended section 58AA of the Courts and Legal Services Act 1990 (“Section 58AA” and “the CLSA”). The relevant section is found in Section 58AA:

58AA Damages-based agreements

(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 (subject to subsection (9)) 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—

(a) must be in writing;

(aa) must not relate to proceedings which by virtue of section 58A(1) and (2) cannot be the subject of an enforceable conditional fee agreement or to proceedings of a description prescribed by the Lord Chancellor;

(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;

(c) must comply with such other requirements as to its terms and conditions as are prescribed; and

(d) must be made only after the person providing services under the agreement has complied with such requirements (if any) as may be prescribed as to the provision of information.

section 58AA of the Courts and Legal Services Act 1990

The High Court Judgment

HHJ Parfitt sitting in the High Court ruled that the existence of such a termination clause did not invalidate the whole contract. HHJ Parfitt found that in effect what the Defendant was trying to do was contrary to what Parliament was trying to achieve in respect of DBAs and therefore contrived to create a satellite litigation cost war in order to seek to avoid her payment liability to the Lexlaw.

Full commentary on the High Court judgment can be found here.

The Court of Appeal Judgment

The appeal raises a short, yet important, point of statutory interpretation concerning s5AA of the Courts and Legal Services Act 1990 (“CLSA”) and the delegated legislation made pursuant to the powers conferred by ss58AA(4) and (5) CLSA, namely the Damages Based Agreements Regulations 2013 SI 2013/609.

Full commentary of the Court of Appeal judgment can be found here.

Download the Court of Appeal Judgment

Contact Details

LEXLAW Solicitors & Barristers is a unique law firm that partners solicitors and barristers and is the only law firm based in the Middle Temple (an Inn of Court). The City of London Law Firm specialises in Financial Services Litigation and is regularly instructed in high-profile high-value litigation disputes. The senior partner, Mr M. Ali Akram, can be contacted via email on [email protected] or by telephone on 020 7183 0529.

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