THE DANGERS OF WORKING UNDER A DBA: WHEN DOES RIGHT TO PAYMENT ARISE? WAS THE DBA ENFORCEABLE: ISSUES CONSIDERED BY THE HIGH COURT

April 30, 2021 · by · in Conditional Fee Agreements, Costs

In  Tonstate Group Ltd & Ors v Wojakovski & Ors [2021] EWHC 1122 (Ch) Mr Justice Zacaroli considered the issue of whether the right to payment under a Damages Based Agreement (DBA).  It was held that right to payment under the DBA did not arise when shares had been “preserved” in an action rather than recovered.  There was some considerable discussion in relation to the validity of the DBA generally.

 

THE CASE

The solicitors for the defendant in an action sought an order for the grant of a legal charge under Section 73 of the Solicitors Act 1973 over shares in the claimant company.  The defendant had held shares in the claimant company prior to proceedings and this ownership was preserved in the action.

HAD ANY RIGHT TO PAYMENT ARISEN UNDER THE DBA?

The first thing the judge had to consider was whether any right to payment under the DBA had arisen by reason of the preservation of the shares. He found that it had not.
1.3 Has any entitlement to payment arisen under the DBA?
    1. The DBA is a one-page agreement, comprising nine short paragraphs. Although not numbered, for convenience I will adopt Mr Williams’ approach of referring to them as paragraphs 1 to 9.
    1. The document annexes Candey’s standard terms and conditions. The terms and conditions are in certain respects inconsistent with the DBA. Where that is so, Mr Williams submitted that the bespoke terms of the DBA take precedence over the standard terms. I agree, and did not understand Mr Fulton QC, who appeared with Mr Goodman for the Claimants, to dissent from that view.
    1. By paragraph 2, Candey is entitled, in the event that Mr Wojakovski recovers any “Proceeds”, to receive the “Payment”. Proceeds are defined as:

“…you recover damages, monies, costs incurred by your previous lawyers, other sums and/or derive any benefits (excluding our hourly rate costs and Counsel’s fees) in or arising out of all of the current Court proceedings…”

“Payment” is defined as “25% of the Proceeds + VAT if applicable”. The Payment was “net of any historic tax liabilities due to HMRC by Tonstate Group Companies, and any tax related to these companies should HMRC pursue you.”
    1. Paragraph 5 of the DBA states, however, that “If we [Candey] are unable to recover any monies you will not be liable to pay us anything.”
    1. Paragraph 4 (as required by Regulation 3(c) of the Regulations) states the reasons for setting the payment at that level. That was because: “it reflects our risk of not being paid anything even if you succeed at trial, the complexity of the matter, the emotional war that exists between the parties, the volume of material and our liability to pay Counsel’s fees.” This needs to be read together with Paragraph 7 of the DBA, which provides that Candey would provide in-house counsel to act for Mr Wojakovski at cost.
    1. On 12 May 2020 the definition of Payment in the DBA was amended to “29% of the Proceeds + VAT if applicable”.
    1. Candey contends that notwithstanding the facts that Mr Wojakovski resoundingly lost most of the litigation, he is subject to a judgment to pay at least £13 million, and he failed to recover anything at all from the Claimants or any other party, the retention of the Shares is a benefit derived in or arising out of the proceedings within the meaning of paragraph 2 of the DBA.
    1. Mr Williams submitted that this could properly be described as such a benefit because Mr and Mrs Matyas sought to deprive Mr Wojakovski of all of the shares held by him in TGL, but by the settlement agreement Mr Wojakovski had successfully resisted that claim as to one-quarter of his shares. Mr Williams also points to the fact that, although in some aspects of the overall proceedings Mr Wojakovski sought relief from other parties, in the Shares Claim he was solely a defendant, and made no claim for anything. Paragraph 9 of the DBA provides that the agreement was equivalent to a multiplicity of retainers intended to cover at least 15 different claims, and was divisible and severable. Mr Williams submitted that, as applied separately to the Shares Claim, the DBA made no commercial sense unless retention of the Shares was construed as a benefit derived in or out of the Shares Claim.
    1. I am unable to accept these arguments. I consider that the phrase “derive any benefits from the litigation” in paragraph 2, when read in the context of the DBA as a whole, in particular paragraphs 5 and 8, is limited to such benefits as Mr Wojakovski recovered from another party in or as a consequence of the litigation.
    1. Mr Wojakovski’s ownership of the Shares pre-dated the proceedings and is not aptly characterised as a benefit derived from the proceedings. At most, what he derived from the proceedings was the avoidance of a detriment to the extent that he retained the Shares. This reading is supported by the fact that the agreement is entitled a “Damages Based Agreement”, since the essential feature of damages is that they are recovered from another party in the proceedings.
    1. The reference in paragraph 5 to the fact that Candey would be entitled to no payment at all if Mr Wojakovski did not recover any monies is important as an indication of the parties’ intentions as to the scope of the DBA.
    1. Mr Williams submitted that it is paragraph 2 (which contains the definition of Proceeds) and not paragraph 5 that is the relevant operative provision. Moreover, paragraph 5 was merely describing one of the consequences of the fact (as set out in paragraph 4) that Candey was at risk of not being paid anything “even if you succeed at trial”. Paragraph 5 should be read, therefore, as applying only to the circumstances that a claim for monies was made by Mr Wojakovski but did not result in any monies actually being recovered. He pointed to the fact that paragraph 5 referred only to recovering “monies” whereas paragraph 2 clearly encompassed recoveries of a broader nature. For these reasons, the breadth of paragraph 2 could not be read down by paragraph 5.
    1. Mr Fulton submitted that paragraph 5 is to be read as a pre-condition to Candey’s entitlement to payment, beyond the condition laid down in paragraph 2: it meant that if any non-cash recoveries were made in the litigation, Candey would still have no entitlement to be paid anything unless and until those non-cash recoveries were converted into cash.
    1. I do not accept Mr Fulton’s reading of paragraph 5. I agree with Mr Williams that Candey’s entitlement to payment is defined by paragraph 2 and that paragraph 5 is intended to be a description of the effect of the DBA – in the manner of a provision “for the avoidance of doubt”, emphasising for Mr Wojakovski’s benefit what must occur before Candey is entitled to any payment at all.
    1. Neither, however, do I accept Mr Williams’ submission that paragraph 5 is therefore irrelevant to the construction of paragraph 2 nor his submission that it is intended to relate only to such part of Mr Wojakovski’s claims that seek to recover money.
    1. It is true that in referring to “monies”, paragraph 5 identifies only one of the types of recovery that constitute Proceeds in paragraph 2. The drafting of the DBA is poor in a number of respects, as Mr Williams pointed out. The important point in paragraph 5 however, is not the description of that which might be recovered, but the point that recovery is an essential pre-requisite to Candey’s entitlement to payment.
    1. The fact that, in seeking to make that point, the document has used an infelicitous shorthand for what might be recovered is understandable in the context of what Mr Wojakovski was in fact claiming.
    1. Across the various proceedings the essence of Mr Wojakovski’s case was that, while he admitted to having made wrongful extractions from the Tonstate group companies, Mr Matyas had done the same, there was an agreement between them for an overall reckoning, and this would result in a substantial payment in Mr Wojakovski’s favour. In substance, his claims were indeed for money.
    1. It is true, as Mr Williams pointed out, that Mr Wojakovski’s claim in the Petition was for an order that he be entitled to buy out Mr Matyas’ shares, and at a price that reflected the unfairly prejudicial conduct complained of. At the time of the entry into the DBA, however, that was unlikely to have been at the forefront of the parties’ minds. Firstly, because the “benefit” to Mr Wojakovski in that event was not the shares themselves, but the right to expend money in order to purchase shares. Even though it may be that the value of the shares acquired would be greater than the price which Mr Wojakovski would have to pay for them, it would be very difficult to place a value on that benefit for the purposes of working out the “Payment” under the DBA. Secondly, because Mr Wojakovski’s financial position made it unlikely that he would be in a position to find the money to acquire Mr Matyas’ shares. I do not suggest that an order that Mr Wojakovski be permitted to acquire shares, if made in the Petition, would not be a benefit derived from the proceedings; I note the above merely as a likely explanation for paragraph 5 having used, as the shorthand for what might be recovered in the proceedings, “monies”.
    1. More importantly, although I agree that paragraph 5 is not an operative provision, the fact that, in emphasising the key effect of the DBA, it refers to the importance of recovering something supports the conclusion that Proceeds, in paragraph 2, is intended to encapsulate recovery made against other parties in the litigation.
    1. This view is reinforced by paragraph 8 of the DBA, which provides that in the event that Mr Wojakovski terminates the agreement, he will be liable (either for the Payment, or for Candey’s hourly rate) “…if you go on to recover any monies or derive any benefit from your opponents” (emphasis added).
    1. As to Mr Williams’ reliance on paragraph 9 of the DBA and the fact that the DBA made no commercial sense in relation to the Shares Claim as a separate and independent set of proceedings, I do not think that this is a strong pointer either way, for two reasons. First, one of the elements in the definition of Proceedings is the recovery of “costs incurred by your previous lawyers”. Mr Wojakovski had instructed lawyers in connection with the Shares Claim prior to Candey’s involvement so that, if he were to succeed in the Shares Claim and receive a costs order in his favour, such costs would be caught by the Proceeds, and thus the Payment, under the DBA. Second, the DBA is drafted as an umbrella agreement. It provides for a single entitlement to “Payment”, calculated by reference to “proceedings” irrespective of which set of proceedings recovery was made in. From Mr Wojakovski’s perspective, the importance of including the Shares Claim within the ambit of the DBA was to ensure that his only obligation to pay any sum in respect of Candey’s fees for work done in that claim, was if Proceeds were recovered in any of the proceedings. That was itself a commercial justification for including the Shares Claim in the DBA.
    1. Finally, it is relevant to note that if it was contemplated that the Shares would be “Proceeds”, the amount to be paid to Candey could not have been worked out under the terms of the DBA without the need to imply further provisions as to how that would be done and, even then, was likely to have taken many years. That is because of the provision requiring potential tax liabilities to be netted off from the Payment, quoted in [17] above.
    1. The drafting of this sentence of the DBA is particularly unclear. On its face, given the positioning of the defined term “Payment” it requires the tax liabilities to be netted off against the amount which is equal to 29% of the Proceeds. Also, given the position of the comma in the sentence, it appears to require the netting off of both (a) historic tax liabilities of the Tonstate Group companies and (b) any tax related to those companies that is due from Mr Wojakovski, if HMRC were to pursue him. Mr Williams contended that in order to make sense of the provision: (1) it applied only to tax liabilities of Mr Wojakovski; (2) it required a netting off of those tax liabilities only if HMRC was, at the time that Payment otherwise fell due to Candey, “pursuing” or, perhaps, had determined to pursue, Mr Wojakovski; and (3) any tax liabilities were netted off against the whole of the Proceeds, with 29% of the remainder constituting the Payment.
    1. I do not need to resolve these points of construction but, even accepting it is to be construed as Mr Williams suggests, the amount of the payment due to Candey could only be established if a value is ascribed to the Shares from which the tax liabilities could be netted off. A specific sum cannot be netted off against a non-cash asset of uncertain value. At the time of the execution of the DBA, to the knowledge of the parties to it, there was enormous uncertainty over the value of the Shares. This uncertainty stemmed in part from the lack of information (much of which was due to be provided by Mr Wojakovski) relating to the extractions from the Tonstate group companies and the internal accounting issues as between companies in the group. In addition, however, there was considerable uncertainty over the tax liabilities of the group. In a letter from Candey dated 14 November 2019, it was stated that the tax liability of the Tonstate group companies was likely to run into “tens of millions of pounds”.
    1. Since the value of the Shares could not be determined until the tax position of the companies had been resolved, potentially for many years, that meant that any amount due to Candey under the DBA similarly could not be identified for the same length of time, if the Proceeds included the Shares. That is so whether or not actual monies were recovered by Mr Wojakovski as well, because the Payment is defined as 29% of (all of) the Proceeds. The absence of any mechanism to address that issue, for example as to when and as at what date any shares retained by Mr Wojakovski would be valued, and how any disputes over valuation would be resolved, suggests it is unlikely the parties envisaged that Proceeds would include any shares retained by Mr Wojakovski.
1.4 Enforceability of the DBA if Proceeds includes the Shares
    1. Mr Fulton also contended that, even if the DBA was to be construed so as to entitle Candey to payment because Mr Wojakovski retained the Shares, then it was unenforceable because it was prohibited by the Regulations.
    1. His starting point is that, as was submitted in the recent case of Zuberi v Lexlaw [2021] EWCA Civ 16, DBAs are permitted by statute as “islands of legality in a sea of illegality”: see [26] of the judgment of Lewison LJ.
    1. Section 58AA of the Courts and Legal Services Act 1990 (“section 58AA”, inserted by section 45 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 – “LASPO”) provides, so far as relevant, as follows:

“(1) A damages-based agreement which satisfies the conditions in subsection (4) is not unenforceable by reason only of its being a damages-based agreement.

(2) But… a damages-based agreement which does not satisfy those conditions is unenforceable.

(3) For the purposes of this section—

(a) a damages-based agreement is an agreement between a person providing advocacy services, litigation services or claims management services and the recipient of those services which provides that—

(i) the recipient is to make a payment to the person providing the services if the recipient obtains a specified financial benefit in connection with the matter in relation to which the services are provided, and

(ii) the amount of that payment is to be determined by reference to the amount of the financial benefit obtained

(4) The agreement—

(a) must be in writing;

(aa) …

(b) if regulations so provide, must not provide for a payment above a prescribed amount or for a payment above an amount calculated in a prescribed manner;

(c) must comply with such other requirements as to its terms and conditions as are prescribed; and

(d) …

(5) Regulations under subsection (4) are to be made by the Lord Chancellor and may make different provision in relation to different descriptions of agreements.

…

(7) In this section—

“payment” includes a transfer of assets and any other transfer of money’s worth (and the reference in subsection (4)(b) to a payment above a prescribed amount, or above an amount calculated in a prescribed manner, is to be construed accordingly); …”

    1. In essence, a DBA is not enforceable unless it complies with the requirements of ss.(4). For present purposes, the relevant parts of ss.(4) are: (b), it must not provide for a payment above a prescribed amount or for a payment above an amount calculated in a prescribed manner; and (c) it must comply with such other requirements as to its terms as are prescribed.
    1. In support of his contention that the DBA fails to comply with section 58AA(4), Mr Fulton relies on the following aspects of the Regulations:
(1) By Regulation 4(1), a DBA must not require an amount to be paid by the client other than “the payment” (net of certain amounts) and expenses incurred by the representative;
(2) “payment” is defined as “that part of the sum recovered in respect of the claim or damages awarded that the client agrees to pay the representative”;
(3) Accordingly, aside from expenses incurred by the representative, the amount that a client can be obliged to pay to the representative is limited to a part (which by Reg 4(3) must not be more than 50%) of the “sum recovered” either in respect of the claim or damages awarded;
(4) It is accordingly a pre-requisite to there being an obligation on a client pursuant to a permitted DBA that a “sum” is “recovered” by the client;
(5) That is supported by Regulation 4(3) which limits the amount of a payment under a DBA to an amount equal to 50% of “…the sums ultimately recovered by the client.”
    1. In aid of this construction of the Regulations, the Claimants rely on:
(1) the Explanatory Memorandum to the Regulations, paragraph 2.1 of which describes a DBA as a private funding arrangement between a representative and his client whereby the representative’s agreed fee is contingent upon the success of the case “and is determined as a percentage of the compensation received by the client” (emphasis added);
(2) The Explanatory Note to the Regulations, which describes a DBA as a type of ‘no win, no fee’ agreement under which a representative can recover “an agreed percentage of a client’s damages if the case is won…”;
(3) The heading of the Regulations, which refers to “Damages-Based Agreement”;
(4) The following statement of the Minister of State, Lord McNally, on 26 February 2013 in reporting to the House of Lords on the draft Regulations (in response to a question whether a DBA could be used by a defendant to proceedings):

“I am informed that neither the Act nor the regulations enable defendants to use DBAs, not least because a DBA is enforceable only where the agreement makes provision for the payment of the fee from damages awarded.”

(5) A letter dated 5 March 2013 from Lord McNally (following up on his promise to consider the point further) and placed in the library of both houses, saying:

“I can confirm that neither the LASPO Act nor the regulations enable defendants to use DBAs, not least because a DBA is only enforceable where the agreement makes provision for the payment of the fee from damages awarded. DBAs are only one form of funding, and lawyers will need to consider carefully — and advise their clients appropriately — as to the available funding for their circumstances.”

    1. Mr Williams accepted that the first four of these are all sources of admissible evidence to the construction of the Regulations, but submitted that limited reliance could be placed on them, for the following reasons:
(1) While the heading of an Act (and, by extension, of secondary legislation) may be considered in construing its provisions, account must be taken of the fact that its function is merely to serve as a brief guide to the material to which it relates, and it may not be entirely accurate (citing Bennion, Bailey and Norbury on Statutory Interpretation, 8th ed. (2020) at 16.7). That was obviously so in relation to the Regulations, which on their face related to financial benefits recovered that went beyond “damages”;
(2) Explanatory Notes are prepared by the government department responsible for the legislation, and while admissible as an aid to construction by casting light on the objective setting or contextual scene of the legislation, they should only be used as an aid to interpreting the meaning of particular words used in the legislation if there is an ambiguity (citing Bennion, at 24.14 and 24.24). The same is true of Explanatory Memoranda.
    1. Mr Williams submitted, however, in post-hearing written submissions, that Lord McNally’s letter is inadmissible, because it represents the views of a government official which were not publicly available prior to the making of the Regulations.
    1. More broadly, Mr Williams submitted that these are all of only limited relevance and that the meaning of the Regulations should be determined primarily from the wording of the Regulations, construed in light of the Act under which they were made. That was particularly so when the language of section 58AA itself (as Mr Fulton was prepared to accept for the purposes of this argument) is neutral as between a claimant and a defendant so does not preclude a DBA being entered into by a defendant. Lord McNally was therefore wrong insofar as he said that LASPO did not enable a DBA to be entered into by a defendant and, if he was wrong about that, he might equally be wrong about the Regulations.
    1. In my judgment, in agreement with Mr Fulton, the Regulations provide that any payment under a DBA from the client to the solicitor is to be calculated as a proportion of the sum that is “recovered” in respect of the claim. Accordingly, it is a necessary prerequisite to the entitlement of a representative to payment under a DBA that the client has made a recovery from the other side to the litigation. That is clear from the parts of the Regulations set out in [45] above.
    1. I do not find it necessary to rely on the other materials cited at [46] above, but those materials are all consistent with that conclusion. The heading of the Regulations, and the terms of the Explanatory Notes and Memorandum, each support the conclusion that the purpose of a DBA is to enable a representative to obtain payment from its client as a proportion of damages or compensation received. The statement of Lord McNally in the House of Lords, recorded in Hansard (which is accepted to be admissible), is in my judgment a clear statement that the Regulations are intended to be limited to agreements made by a claimant and that the fee is to be set as a proportion of such sum as is recovered by the claimant in the proceedings. Even if (which I need not decide), Lord McNally’s statement as to the scope of the Act is wrong, that does not diminish in my view the relevance of his statement to the scope of the Regulations under discussion and shortly to be made.
    1. Since Lord McNally’s letter merely repeated the same point, it is unnecessary to determine whether it, too, is admissible. I nevertheless consider it is also admissible. It is more than the private statement of a government official. Rather, it is a statement made public at the time (it is accepted that it was received by the House of Lords Library on the date it was sent), having been foreshadowed in the actual debate in the House of Lords.
    1. Mr Williams alternatively submitted that insofar as the Regulations purported to prohibit a DBA unless it provided for payment as a proportion of amounts recovered from another party to the proceedings, they were ultra vires.
    1. The problem with this submission is that even if section 58AA contemplates that a DBA may be entered into by a claimant or a defendant, and even though it defines “payment” and a damages-based agreement in terms broad enough to encompass an agreement by either a defendant or a claimant, it delegates to the Regulations the determination of such terms and conditions a DBA must contain in order to be enforceable.
    1. Mr Williams submitted nevertheless that there are only two relevant parts of section 58AA under which regulations can be made: ss.4(b) and ss.4(c). Regulation 3 states in terms that it contains the requirements prescribed for the purposes of ss.(4)(c). That means that Regulation 4 (which limits the amount paid to the representative to the “payment” net of certain matters) cannot be prescribing terms and conditions under ss.(4)(c), so must be performing the function mandated by ss.(4)(b), i.e. providing the “amount calculated in a prescribed manner” above which payment cannot be made under a DBA.
    1. I do not accept that, insofar as Regulation 4 does contain terms and conditions with which a DBA must comply so as to be enforceable, it would be ultra vires merely because it does not state in terms that it is doing so pursuant to the power in section 58AA(4)(c).
    1. Further, even if Regulation 4(1) is to be regarded as being made only under ss.(4)(b), so that it could do no more than provide that a payment must not be “above an amount calculated in a prescribed manner”, then that is in any event what Regulation 4(1), read with Regulation 4(3), does. Thus, Regulation 4(1) and the definition of “payment” specify that the amount paid by the client must be some part of the sum recovered in the proceedings, and Regulation 4(3) provides that, save in personal injury cases, it must be no more than 50% of that sum. That, it seems to me, is a prescribed manner for calculating the maximum amount of payment permitted by a DBA.
    1. This reinforces, rather than detracts from, the overall point that to be enforceable under the Act, a DBA must provide that payment to the representative is a proportion of the amount recovered by the client in the proceedings.
    1. For the above reasons, I conclude that:
(1) As a matter of construction of the DBA, it only entitles Candey to any payment from Mr Wojakovski if Mr Wojakovski recovers something in or as a consequence of the proceedings;
(2) The fact that Mr Wojakovski has retained the Shares does not, therefore, entitle Candey to any payment under the DBA;
(3) There being no other recovery by Mr Wojakovski in or arising out of the proceedings, Candey has no entitlement to payment of anything under the DBA; and
(4) If, contrary to the above, the Shares did constitute “Proceeds” as a matter of construction of the DBA, the DBA would not be enforceable – at least to that extent. (The question whether, if some other recovery had been made, the DBA would be enforceable to the extent of those other recoveries does not arise, and I do not need to consider it.)

WAS THE DBA UNENFORCABLE IN ANY EVENT?

The judge considered, and rejected, an argument that the DBA was unenforceable for other reasons.

1.5 Does the DBA comply with the Regulations?
    1. In view of the conclusions I have reached above, it is unnecessary to consider whether the DBA is unenforceable. Since the point was fully argued, however, I set out my conclusions briefly, as follows.
    1. The Claimants’ first point is based on Regulation 3(c), which requires a DBA to specify “the reason for setting the amount of the payment at the level agreed…”
    1. Mr Fulton submitted that insofar as paragraph 4 of the DBA cited “our liability to pay Counsel’s fees” as a reason for setting the Payment at 25% of the Proceeds, that was plainly not true, because Candey (as stated in paragraph 7 of the DBA) were going to provide in-house counsel. He also submitted that no explanation at all was given for setting the level at 29% (as opposed to 25%) because when the DBA was amended to increase the percentage no further reasons were given at all.
    1. I do not accept these submissions. The reference to the “liability to pay Counsel’s fees” must be read together with the statement that Candey would provide in-house counsel “at our cost”. The natural reading of these two provisions together is that one of the reasons for setting the level of the Payment was that Candey would be bearing (as an in-house cost) the cost of instructing counsel. That was true. As Mr Williams submitted, all that is required by Regulation 3(c) is that the DBA identifies the reason. It is irrelevant whether that is a good or bad reason.
    1. While it is true that no reasons are stated for the increase in the level to 29%, with the amendment to the definition of “the Payment” by the replacement of 25% with 29%, the DBA then does set out the reasons for the payment being set at 29%. Whether or not those are sufficiently good reasons for setting the level at 29% of the Proceeds, when precisely the same reasons were said to justify the level being at 25% of the Proceeds, does not (for the reasons I have already given) lead to the DBA being unenforceable for failure to comply with Regulation 3(c).
    1. Accordingly, I reject the contention that the DBA is unenforceable for lack of compliance with Regulation 3(c).
    1. The Claimants’ second point is based on Regulation 4(1) which, in full, provides that:

“In respect of any claim or proceedings, other than an employment matter, to which these Regulations apply, a damages-based agreement must not require an amount to be paid by the client other than—

(a) the payment, net of—

(i) any costs (including fixed costs under Part 45 of the Civil Procedure Rules 1998); and

(ii) where relevant, any sum in respect of disbursements incurred by the representative in respect of counsel’s fees,

that have been paid or are payable by another party to the proceedings by agreement or order; and

(b) any expenses incurred by the representative, net of any amount which has been paid or is payable by another party to the proceedings by agreement or order.”

    1. Mr Fulton submitted that this provides a comprehensive description of those things that may be netted off against the payment. In other words, if a DBA provides for something else to be netted off against the payment it renders the DBA unenforceable. Accordingly, the DBA in this case is unenforceable because it requires historic and potential tax liabilities to be netted from the Payment.
    1. I do not accept this. As Mr Williams submitted, the definition of “payment” in the Regulations is that part of the amount recovered in respect of the claim or damages awarded that the client agrees to pay to the representative. I see nothing in the Regulations that prohibits the part of the amount recovered in respect of the claim that the client agrees to pay the representation being calculated by reference to a percentage of the sum recovered less another amount, whether that other amount is a fixed sum or calculated by reference to another formula. The fact that Regulation 4(1) then requires further matters to be netted off is not a prohibition on the client and representative reaching such an agreement.
    1. Mr Fulton also submitted that the netting provision in this case would lead to such uncertainty that the client could not know, potentially for many years until the tax liabilities of the Tonstate group companies, and his own tax liabilities, were resolved. For the reasons I have set out above, I agree with the premise, but I do not agree with the conclusion. The fact that the netting off has that result may be relevant to the argument that, as a matter of the general law of contract, the DBA is unenforceable, but it does not render it unenforceable for non-compliance with Regulation 4(1).
  1. For these reasons I conclude that insofar as the DBA provides for 29% of amounts recovered by Mr Wojakovski in the proceedings to be paid to Candey, it is not unenforceable for non-compliance with Regulation 3(c) or Regulation 4(1).
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