Tonstate Group Ltd & Ors v Wojakovski & Ors

A damages-based agreement entitles a solicitor to payment only where the client recovers a benefit from another party in or as a consequence of the litigation. Retaining an asset owned before proceedings is not such a recovery merely because the asset was at risk in the litigation. The Damages-Based Agreements Regulations 2013 likewise require payment to be calculated as a proportion of sums recovered in the proceedings. A freezing order covering assets which a respondent can deal with as his own does not ordinarily extend to genuine third-party funds held by solicitors for the limited purpose of paying their fees. Further disclosure may nevertheless be ordered where there is a real risk that legal-expense funding breaches the freezing order or a proprietary injunction.

The judgment determined three applications arising from long-running litigation between the Tonstate group, Mr Wojakovski and related parties. Candey Limited sought a charging order under section 73 of the Solicitors Act 1973 over shares retained by Mr Wojakovski as security for fees under a damages-based agreement. The Tonstate claimants challenged Candey’s entitlement and the enforceability of the agreement.

The claimants also sought disclosure concerning the funding of Mr Wojakovski’s solicitors from Mr Wojakovski, Keidan Harrison LLP and Raydens Limited. Finally, they sought transfers of legal title to properties whose beneficial ownership was said to lie in the Tonstate group.

1. Section 73 application. The damages-based agreement, construed as a whole, entitled Candey to payment only if Mr Wojakovski recovered something from another party in or as a consequence of the proceedings. His retention of shares which he owned before the proceedings was avoidance of a detriment, not a benefit recovered through litigation. As he recovered no money or other qualifying benefit, Candey had no entitlement to payment.
2. The statutory scheme led to the same conclusion. Section 58AA of the Courts and Legal Services Act 1990, read with the Damages-Based Agreements Regulations 2013, required payment under an enforceable DBA to be calculated as a proportion of the sum recovered in respect of the claim. If the retained shares had been “Proceeds”, the agreement would have been unenforceable to that extent.
3. The DBA was not rendered unenforceable by Regulation 3(c) merely because the stated reason for the payment level might be weak, nor by Regulation 4(1) because it provided for tax liabilities to be netted off. The DBA identified a reason for the payment level, and the Regulations did not prohibit the parties from agreeing an additional calculation before applying the prescribed limits.
4. Disclosure application. Applying JSC BTA Bank v Ablyazov (No.10) [2015] UKSC 64, funds held by solicitors were not assets within the extended definition in the freezing order. Mr Wojakovski could direct the work carried out, but could not direct the third-party funds to be used for another purpose or paid to him. The funds were provided solely to discharge solicitors’ fees.
5. Further disclosure was nevertheless just and convenient under the court’s ancillary jurisdiction. The history of incomplete disclosure and prior breaches created a real risk that legal expenses were being funded with assets subject to the freezing order or proprietary injunction. Orders were made against Mr Wojakovski and, where necessary, Keidan Harrison LLP. No order was necessary against Raydens, which had voluntarily provided the requested information.
6. Property transfer application. The evidence established that the properties had been acquired with wrongfully extracted Tonstate funds and that beneficial ownership lay within the Tonstate group. Declarations were made and legal title was ordered to be transferred to Tonstate Group Limited, to hold on trust for whichever group company was ultimately found to have the beneficial interest.

not stated in the judgment.