Kerry Underwood

DAMAGES-BASED AGREEMENTS: THE LEXLAW CASE: COURT OF APPEAL GRANTS LEAVE TO APPEAL

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The matters dealt with in this piece are examined in great detail in my three volume, 1,300 page book Personal Injury Small Claims, Portals and Fixed Costs – price £50 and available from Underwoods Solicitors here.

Kerry Underwood offers consultancy services in relation to this and other matters and details are here.

The Court of Appeal has now given permission to appeal against the decision set out below and in granting permission Lord Justice Lloyd stated:

“Although the purposive interpretation arrived at by the judge seems more likely than not to prevail in the end, the appellant’s construction is arguable, and the issue is of sufficient general importance to merit consideration by the full court.”

In

Lexlaw Ltd v Zuberi [2020] EWHC 1855 (Ch)

the Chancery Division of the High Court held that a Damages-Based Agreement which required the client to pay for time and expenses to date if the client terminated the Agreement, was a valid agreement under the Damages-Based Agreements Regulations 2013.

Here, the client sought to terminate the Agreement and the claim settled and the claimant firm of solicitors sought to recover its fees based on that settlement, under the usual principles of Damages-Based Agreements.

The client argued that as the Agreement provided for “an amount to be paid by the client” which was other than the payment calculated by reference to Regulation 4(1) of the 2013 Regulations, it was unenforceable.

The court rejected that argument.

The decision confirms what most of us thought anyway, that is that if the Agreement is terminated by the client before a right to share in any proceeds has arisen, then the solicitor can charge for work done to date on any basis specified in the Agreement, including the hourly rate.

Regulation 4 limits a solicitor’s charge to an agreed percentage of damages, not to exceed the permitted cap, plus expenses recovered from the other side.

The permitted caps are as follows:

Personal Injury  25%
Employment  35%
Other work  50%

The Chancery Division held that it was an obvious consequence of preventing representatives getting their time costs on a client determination that those representatives would be reluctant to enter into Damages-Based Agreements and that would be contrary to the purpose of making such agreements lawful, so as to facilitate access to justice.

That would have the knock-on effect of creating less choice for clients wanting to bring civil litigation claims.

Comment

This is a welcome and sensible decision, but I must admit I had always assumed that this must be the case, as it was the case under the original 2010 Regulations and there was no suggestion that different laws should apply for other civil work outside the employment jurisdiction.

It does not mean that Damages-Based Agreements are worth entering into; there are very very few circumstances where a Damages-Based Agreement is to be preferred to the Underwoods method of a pre-Action Contingency Fee Agreement under Section 57 of the Solicitors Act 1974, followed by a Conditional Fee Agreement.

The key disadvantage of Damages-Based Agreements is that the damages cap not only limits the charge to the client, but due to the indemnity principle limits recoverability from the other side.

For example, in a general civil claim the percentage limit in a Damages-Based Agreement is 50%. That means that a successful client cannot recover more than that sum from the other side.

In sharp contrast, Conditional Fee Agreements can limit the amount to be paid by the client without causing indemnity principle problems.

Furthermore credit must be given to the client for costs recovered, which in any substantial litigation means that the client will pay nothing, due to the combination of the cap, the indemnity principle and having to give credit.

In stark contrast the risk-based success fee in conditional fee agreements is not recoverable, so there can never be anything to offset against it.

Written by kerryunderwood

August 20, 2020 at 2:43 pm

Posted in Uncategorized

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