Zuberi v Lexlaw Ltd

A damages-based agreement may form only part of a wider solicitor-client retainer. By a majority, the court held that provisions concerning payment from recoveries constitute the damages-based agreement, while provisions governing time costs, expenses or termination may fall outside it.

In any event, regulation 4 of the Damages-Based Agreements Regulations 2013 does not regulate fees payable following early termination of a civil-litigation retainer. A clause requiring a client who terminates early to pay accrued time costs and expenses therefore does not contravene regulation 4 or invalidate the retainer.

The appellant retained the respondent solicitors to pursue a claim against a bank. The retainer entitled the solicitors to 12% of any recovery and required the appellant, if she terminated early, to pay accrued time costs and expenses. The claim settled successfully, and the solicitors claimed their agreed share.

HHJ Parfitt held in the High Court, [2020] EWHC 1855 (Ch), that the termination clause did not invalidate the retainer. The appellant challenged that conclusion.

The central issue was whether the termination clause required an amount prohibited by regulation 4(1) of the Damages-Based Agreements Regulations 2013, thereby rendering the damages-based agreement unenforceable.

1. Appeal dismissed unanimously. Clause 6.2, which required payment of accrued time costs and expenses if the client terminated the retainer early, did not contravene the Damages-Based Agreements Regulations 2013 and did not invalidate the retainer.

2. Lewison LJ, with whom Coulson LJ agreed on this point, adopted a narrow meaning of “damages-based agreement”. The statutory definition focuses on the arrangement under which remuneration is calculated by reference to the client’s financial recovery. Within a wider retainer, the provisions dealing with that share of recoveries constitute the damages-based agreement. Provisions concerning time costs, expenses and termination need not form part of it.

   This construction reflected the legislation’s purpose of relaxing the common-law rule against champerty only to the extent necessary to permit remuneration from recoveries. It also avoided treating the regulatory scheme as displacing other common-law and professional controls without express words or necessary implication.

3. All three Lord Justices agreed, by routes sufficient to determine the appeal, that regulation 4 did not prohibit payment of accrued costs and expenses following early termination. Newey LJ considered the whole retainer to be a damages-based agreement but held that regulation 4 did not apply to termination provisions. Regulations 4 and 7 imposed comparable caps on payments from successful recoveries. Regulation 8 separately regulated termination in employment matters. The omission of equivalent restrictions for ordinary civil litigation reflected a deliberate decision to leave lawyers’ termination fees to professional regulation.

4. Coulson LJ agreed with both routes. Regulation 3 distinguishes the representative’s percentage “payment” from costs and expenses, while regulation 4 concerns calculation of the payment from recoveries. A construction preventing recovery of any accrued costs after a client’s early termination would conflict with the scheme, discourage damages-based agreements and produce a commercially irrational result.

5. Lewison LJ observed that, at common law, the termination clause could have been severed while leaving the remainder supported by consideration and unchanged in nature. Severance under the statutory scheme was not, however, an issue properly before the court and was not decided.

1. Court of Appeal (Civil Division): The appeal was dismissed unanimously. The court upheld the conclusion that the early-termination clause did not invalidate the retainer: [2021] EWCA Civ 16.

2. High Court of Justice, Business and Property Courts: HHJ Parfitt, sitting as a judge of the High Court, held that the termination clause did not invalidate the agreement: [2020] EWHC 1855 (Ch).