A Court of Appeal judgment on the termination of Damages Based Agreements (DBA’s) has recently been handed down in the case of Zuberi v Lexlaw Limited seemingly bringing to an end the uncertainty surrounding termination prior to conclusion and the ability for a Solicitor to recover its’ costs.
The facts of the case do not largely lend to the decisions made but in essence Mrs Zuberi borrowed money from a bank and subsequently brought a claim against them alleging mis-selling of certain financial products. She instructed Lexlaw Limited to act on her behalf and an agreement was drawn by way of a DBA.
The terms of the agreement critical to this decision were as follows:
- Clause 9.1 allowed for a recovery of 12% of any sum recovered plus ‘Expenses’ (such as disbursements).
- Clause 10 allowed for the recovery of ‘Expenses’ only if the claim was lost.
- Clause 6.2 allowed for the termination of the Agreement at any time however the client was liable to pay the ‘Costs’ and ‘Expenses’ incurred up to the date of the termination.
- “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.
The basis of this claim was for the instructed Solicitors to seek their ‘Costs’ and ‘Expenses’ under the DBA following Mrs Zuberi’s termination of the agreement shortly before conclusion. It was Mrs Zuberi’s argument that recovery of ‘Costs’ and ‘Expenses’ were precluded on the grounds that Regulation 4 of the Damages Based Agreement Regulations 2013 (formerly section 58AA of the Courts and legal Services Act 1990) prevented any recovery other than damage based sums based on its’ strict interpretation. It was submitted that should Regulation 4 allow for this, it would go so far as to specifically reference this in line with Regulation 8(2) which stipulates the recovery of ‘Costs’ and ‘Expenses’ upon termination.
In the Court’s decision it expressly evidenced this ‘defect’ in drafting with Lord Justice Coulson confirming that ‘nobody can pretend that these Regulations represent the draftsman’s finest hour’. Specific focus was given to the intention behind the statute by Lord Justice Lewison referencing a previous submission in Pollen Estate Trustee Co Ltd v Revenue and Customs Commissioners  EWCA Civ 753,  1 WLR 3785 at :
“The modern approach to statutory construction is to have regard to the purpose of a particular provision and interpret its language, so far as possible, in a way which best gives effect to that purpose.”
Further comment was also provided as to the termination clauses scope within the Regulations. Lord Justice Coulson’s comments confirmed that ‘the fact that the Regulations do not prohibit or limit termination provisions for general civil litigation is not an inadvertent omission. On the contrary, as can be seen from the Explanatory Memorandum, it is the result of a deliberate decision. Parliament shied away from imposing any restrictions on termination provisions generally because it acknowledged that, in such cases, lawyers would be involved and therefore would be subjected to the regulatory provisions of their own professional bodies.’
It was therefore held that regardless of the lack of an express regulation allowing a Solicitor to recover its’ costs upon termination for non-employment matters coupled with the fact that the termination clause was outside of the scope of these Regulations that clause 6 of the contract was not unlawful and therefore binding.
It is the writer’s opinion that this decision seems sensible and will go further in promoting alternative forms of funding for clients without practitioners being unprotected. This will ultimately work in favour of both parties as for many Damage Based Agreements are of significant benefit in the knowledge that payment will be required upon reaching a successful conclusion.