Lexlaw Ltd v Zuberi

The court should order a preliminary issue only with caution, because separate trials may increase delay and costs. The issue should ordinarily be decisive or potentially decisive, preferably a question of law, capable of determination on agreed or assumed facts, and capable of trial without significant delay, including allowance for an appeal. Case management, cost, delay and the use of court and party resources come first. Where alleged non-compliance with damages-based agreement regulations consists of an identified contractual provision, materiality concerns the contractual consequence of that provision. Advice, opportunity to consider the agreement and absence of pressure do not affect that issue.

The claimant, an incorporated solicitors practice, sought payment of an invoice from its former client under a damages-based agreement. The defendant alleged, among other matters, that the agreement was unenforceable under sections 58AA(2) and 58AA(4) of the Courts and Legal Services Act 1990 because clause 6.2 required payment of costs and expenses on termination.

The defendant applied for the statutory enforceability question to be tried as a preliminary issue. The central questions were whether the issue could be determined without factual investigation and whether deciding it first would materially reduce the scope, time and cost of the proceedings.

1. Preliminary issue ordered. The defendant’s application was granted. The statutory enforceability issue was ordered to be tried as a preliminary issue.
2. The authorities, including Rossetti Marketing Ltd v Diamond Sofa Company Ltd, [2012] EWCA Civ 1021, SCA Packaging Ltd v Boyle, [2009] UKHL 37, and Bond v Dunster, [2011] EWCA Civ 455, required a cautious approach because preliminary trials may cause delay and increased costs. The relevant guidance included whether the issue was decisive or potentially decisive, whether it was a question of law, whether it could be decided on agreed or assumed facts, whether it could be tried without significant delay, and the implications of an appeal.
3. The guidance in McLoughlin v Jones, [2001] EWCA Civ 1743, and Lexi Holdings Plc v Pannone & Partners, [2009] EWHC 3507 (Ch), placed case management, cost, delay and the use of court and party resources first and foremost.
4. The meaning of clause 6.2 was not disputed. The alleged breach consisted of an identified contractual provision, so no factual inquiry into the surrounding circumstances was required to determine whether it contravened regulations 4(1) or 4(3) of the Regulations. The claimant had not identified any relevant factual circumstances in its pleading.
5. The claimant’s reliance on materiality did not alter that conclusion. The reasoning in Hollins v Russell, [2003] EWCA Civ 718, concerned substantial compliance and material departure. The reasoning in Garrett v Halton BC, [2006] EWCA Civ 1017, concerning advice and information, did not require such an inquiry where the alleged breach was the contractual provision itself. Advice given, opportunity to consider the agreement and absence of improper pressure were irrelevant to whether the clause provided for a prohibited payment.
6. Although a successful preliminary issue might leave a quantum meruit issue, the defendant accepted liability for reasonable remuneration and that issue could be dealt with separately. The proposed severance argument had no real prospect of success because severing a provision contrary to the Regulations would undermine the legislative purpose.