One of the raft of measures proposed by the Jackson reforms was the relaxing on rules on contingent agreements, or rather Damages-Based Agreements (DBAs), in contentious business matters. The intention was to lessen the impact of removing the right to recover additional liabilities on an inter partes basis, and was introduced into legislation via S45 of LASPO 2012 and the Damages-Based Agreements Regulations 2013.
Despite the promotion of this alternative method of funding litigation DBAs have not proved popular, with most funding in contentious business adopting Conditional Fee Agreements. This is in no small part attributable to the complexity of the above legislation and the difficulty of enforcing such agreements. In 2015, the Civil Justice Council issued a report on DBAs, with recommendations on reforming the rules surrounding DBAs, which are yet to be acted upon by the Government.
Accordingly, there remains serious problems for solicitors adopting DBAs. As barrister Andrew Hogan noted on his blog in February of this year “ …Reform is sorely needed, is apparent to me from the increasing trickle of cases which come across my desk, where the shortcomings, failings and drafting infelicities of the current Regulations are manifest. It is salutary also to note both that there are no decided cases on the Damages Based Agreements Regulations 2013 and also that the Law Society has produced no model DBA.”
This brings us to the recent decision of Master Clark in Lexlaw Ltd v Zuberi  EWHC 1350 (Ch), in which the Master took the unusual step of ordering a preliminary trial in respect of the issue of enforceability of a DBA between a firm of solicitors and their former client. In the case the Defendant disputed her liability to pay costs, claimed in the gross sum of £125,123.14, on the following bases:
(1) that the DBA was procured by the actual, alternatively presumed, undue influence of the claimant’s principal, Mohammed Akram;
(2) that the defendant was induced to sign the DBA by misrepresentations made by Mr Akram, so that it was voidable and has been avoided by her;
(3) that the claimant negligently, and/or in breach of its tortious, contractual and/or fiduciary duties to the defendant, failed to advise her of the true nature and consequences of the DBA causing damage, the compensation for which is to be set off against the sum claimed by the claimant;
(4) that the DBA is unenforceable against the defendant by reason of failing to comply with section 58AA(2) and 58AA(4) of the Courts and Legal Services Act 1990 (“CLSA 1990”).
In his Judgement, the Master set out the regulatory framework, noting the above Regulations and also their compatibility with S58AA the CLSA 1990 (As amended by LASPO). Notably, the Master alluded to the difficulty in interpreting the above provisions: “The drafting in both is not user friendly”(para 9).
Despite the Claimant’s best efforts to argue against a preliminary trial, with the added costs and risks that flow from such a decision, and the Master’s own desire to exercise caution in applying the test of whether to make such an order, the Master formed the “clear view” that the issues in this matter warranted a preliminary trial.
It is instructive that, over four years since the introduction of DBAs, the current complexities in the legislation require such judicial scrutiny and expensive satellite litigation. Whilst the above case may, in the long-term, provide some judicial guidance in respect of the current rules, it is unlikely to make DBAs a more attractive model for practitioners, particularly when other surer alternatives are available. That said, there is no “one size fits all” retainer for all litigation. With statutory reform, DBAs may still provide a viable funding alternative in the future, but present practitioners should approach such agreements with caution.