Tag: DBA

Will 2021 be the year for Damages Based Agreements (DBA)?

Andrew McAulayLeave a comment

The case of Zuberi v Lexlaw Ltd provides much needed clarity in respect of the termination of a DBA by a client.

Background

  • Lexlaw Limited acted for Miss Zuberi in a financial mis-selling claim against her bank.  
  • The claim was funded by way of a Damages Based Agreement, entered into in 2014.
  • Lexlaw Limited helped to obtain a settlement for Miss Zuberi of over £1 million.
  • Miss Zuberi terminated the DBA and argued that no fees were due to Lexlaw Limited because the DBA was unenforceable. This was on the basis that the agreement contained a termination payment clause which was not allowed under the Damages Based Agreements Regulations 2013.

Costs Litigation

  • Lexlaw Limited issued Proceedings for the recovery of their unpaid fees.
  • In July 2020, HHJ Parfitt ruled in favour of Lexlaw Limited i.e. the termination provision in the DBA did not render the agreement unenforceable.
  • Miss Zuberi appealed and, on 15 January 2021, the Court of Appeal handed down its Judgment and confirmed the decision of HHJ Parfitt: The inclusion of a termination clause is permissible and does not render a DBA unenforceable.

2021 and beyond

The decision is sensible and will help to encourage litigators, particularly commercial litigators, to use a DBA as a source of funding. LJ Jackson introduced DBAs in order to improve access to justice, but they have been rarely used due to the concerns around termination. The Court of Appeal decision will certainly make DBAs more attractive to litigators.

What would really make DBAs attractive to litigators, and again, commercial litigators, would be hybrid DBAs i.e. the ability to charge an hourly rate whether the case is won or lost and a percentage charge if the case is won – similar to a discounted Conditional Fee Agreement. Lord Justice Lewison was supportive of this in the Judgment, but Lord Justice Newey was not. Many legal experts and commentators think that the Court of Appeal’s decision has opened the door for Hybrid DBAs, however, there is no clear authority on that point and the writer suspects that this point will make its way to the Court of Appeal.

So, will 2021 be the year for DBAs? The writer thinks that there will be a growth in the use of this funding option due to the Court of Appeal’s decision on termination clauses. The writer also thinks DBAs will increase as law firms will test the waters and engage with clients under hybrid arrangements. So, the writer’s answer to the question is Yes BUT law firms should proceed with caution as the “Door has been partly opened, but the stairs are slippery” which is what Dominic Regan (adviser to the Costs and Litigation Funding team) recently stated to the writer during a discussion about the case.


This blog was written by Andrew McAulay who is a Partner at Clarion and the Head of the Costs and Litigation Funding team. Andrew can be contacted on 07764501252 or at andrew.mcaulay@clarionsolicitors.com  

Landmark DBA Judgment in Lexlaw v Zuberi

Dominic ReganLeave a comment

“because nobody can pretend that these Regulations represent the draftsman’s finest hour, it is appropriate if I add a few words to explain my own approach to the issues.“ 

The Court of Appeal has delivered the long awaited judgment in LEXLAW V ZUBERI. It accepts that the DBA  Regulations are less than perfect in the way they were drafted . Coulson LJ , quoted above, makes the excellent point that the argument put forward by the client equated to “ commercial suicide “ for lawyers and it was rejected outright.

The client engaged LEXLAW to pursue a claim against her bank using a DBA whereby she would pay 12% of damages recovered in the event of success .

The agreement stipulated that if she were to end the arrangement she would be liable to pay costs incurred. She made her recovery but then argued that the agreement was invalid because the Regulations do not permit one to charge anything to the client if one proceeds using a DBA .

Put succinctly, the provision to charge if the client terminated was outside the DBA and did not fall foul of the restriction upon so called ‘ hybrid ‘ arrangements. Good news for Solicitors . 

ZUBERI v LEXLAWDownload

This blog was written by Professor Dominic Regan who is working with the Costs and Litigation Funding team as a consultant.

THIRD PARTY FUNDING – A VIABLE OPTION FOR 21st CENTURY LITIGATION (Part 1)

Joanne Chase1 Comment

This series of blog articles will address the increasing viability of third party funding as an alternative to traditional litigation funding methods. It will look at how the law has developed historically and how the Court now approaches third party funding and the potential liability of third party funders.

The first part of this series will explore how the Court’s attitude to third party funding has changed significantly from the 19th through to the 21st Century.

Champerty and Maintenance

The historic position taken by the Court in respect of third party funding was that it was illegal and tortious. Two offences had developed through the common law: champerty and maintenance.

Champerty referred to when a person who did not have a legal interest in the matter provided financial assistance to litigation in order to receive a share of the profits.

Maintenance was the procurement of direct or indirect financial assistance from another in order to carry on, or defend, proceedings without lawful justification (British Cash & Parcel Conveyors v Lamson Store Service Co [1908]).

Therefore, the default position was that such agreements, which would be considered third party funding arrangements today, would be considered illegal, tortious and unenforceable. However, even at the turn of the 20th Century, the courts were willing to find such arrangements enforceable as a matter of public policy. For instance, in insolvency proceedings, which by their very nature meant that one party would need financial assistance in order to carry on or defend proceedings (Seear v Lawson (1880)), the Court found that a third party funding agreement was enforceable.

Abolition

The default position changed with the enactment of the Criminal Law Act 1967 (CLA 1967). S.13 CLA 1967 abolished the offences and torts of champerty and maintenance. S.14 CLA 1967 changed the approach of the test, which now started from the presumption that such agreements were enforceable, unless there was a valid reason as a matter of public policy.

Comment

Statutory intervention was important to provide additional certainty and security to parties wishing to enter into third party funding arrangements. However, such an approach cannot be taken for granted outside of the jurisdiction of England and Wales.

Recently, the Supreme Court in Ireland, in the matter of Persona Digital Telephony Ltd v The Minister for Public Enterprise (2017), found a third party funding agreement to be unlawful. This is because the offences of Champerty and Maintenance have not been abolished by statute In Ireland. The Court felt that it is consequentially bound to find such agreements unlawful and that any change of approach was within the remit of the Legislator, not the Judiciary.

In the next part of the series…

The next blog will take a look at how the Court has begun to develop the law in respect of third party funding, with a look at the decision in Factortame Ltd v Secretary of State for Transport, Local Government and the Regions No.8 [2002].

This blog was prepared by Kris Kilsby who is an Associate Costs Lawyer at Clarion and part of the Costs Litigation Funding Team.  Kris can be contacted at kris.kilsby@clarionsolicitors.com or on 0113 227 3628.