Lexlaw Ltd v Zuberi

A damages-based agreement for general civil litigation is not rendered unenforceable merely because it requires the client to pay the representative’s costs and expenses if the client terminates before recovery. Regulation 4(1) of the Damages-Based Agreements Regulations 2013 regulates the sharing of litigation recoveries, including the permitted deductions and additions. It does not regulate every payment obligation contained in the wider retainer. Termination provisions are separately regulated for employment matters, but not for general civil litigation. Regulation 4(3) likewise concerns the cap on the representative’s share of recoveries and does not apply to termination costs. The construction must reflect the statutory purpose and structure.

Lexlaw Ltd, solicitors, claimed payment from its former client under a damages-based agreement concerning claims against banks. The agreement allowed the client to terminate at any time but required payment of costs and expenses incurred up to termination.

A preliminary issue was ordered concerning whether that clause made the agreement unenforceable under section 58AA of the Courts and Legal Services Act 1990, because it allegedly required payment beyond that permitted by regulation 4(1) of the Damages-Based Agreements Regulations 2013. The central issue was whether regulation 4(1) regulated termination payments or only the representative’s share of sums recovered.

1. Preliminary issue determined for the claimant. The agreement was not unenforceable because clause 6.2 required payment of costs and expenses incurred before termination. The relevant paragraphs of the defence were ordered to be struck out.
2. Regulation 4(1) was construed in context. Its subject matter was the representative’s payment from recoveries, calculated by reference to sums recovered and adjusted for costs and expenses paid or payable by another party. The references to payment, costs and expenses all assumed that recoveries were available for sharing.
3. The statutory structure supported that construction. Section 58AA distinguished the damages-based agreement, concerned with sharing the client’s financial benefit, from the wider agreement between client and representative. Regulations 3 and 8 were made under the terms-and-conditions power in section 58AA(4)(c), whereas regulation 4 concerned the payment condition in section 58AA(4)(b).
4. The different treatment of employment and general civil litigation was material. Regulation 8 expressly regulated termination in employment matters, including recovery of costs and expenses after termination. No equivalent termination regulation applied to general civil litigation. Parliament’s stated intention was a lighter regulatory regime for civil litigation undertaken by professionally regulated representatives.
5. Regulation 4(3) could not assist the defendant. Its 50 per cent limit concerned the representative’s share of sums ultimately recovered, whereas clause 6.2 concerned costs recovery following termination.
6. The court also held, in the alternative, that if the defendant’s construction were correct, the breach would have had a materially adverse effect on client protection and would not have been a mere technicality. The court nevertheless rejected that construction as inconsistent with the legislation’s purpose, structure and context.