In Candey Ltd v Tonstate Group Ltd & Ors [2022] EWCA Civ 936 the Court of Appeal held that a Damages Based Agreement cannot be used between a solicitor and a defendant who did not have a counterclaim.   For a DBA to be valid a party has to obtain a financial benefit from the litigation. The retention of things that the defendant already had cannot be construed as a financial benefit.

To my mind the submissions made on behalf of the Solicitors in this case are a variant of “heads I win, tails you lose”. They mean that a client who loses his case must pay the sum claimed to the claimant, but if he wins, he must still pay up to half the sum claimed to his solicitors. There is, therefore, no good outcome for a client who enters into such an agreement. Win or lose, he faces financial disaster. It is not surprising that legislation aimed at promoting access to justice should not permit such agreements.”



The solicitors, Candey, acted for Mr Edward Wojakovski in a complex dispute relating to the ownership of shares. They acted under a damages-based-agreement.  Mr Wojakoviski subsequently went bankrupt. The solicitors sought a declaration that, by virtue of the DBA, they were entitled to a percentage of the shares that had been retained following the litigation.   This argument was rejected at first instance, the judgment is considered here.


  1. This appeal raises the apparently novel question whether it is lawful for a party against whom a claim is made (i.e. the defendant to a claim or counterclaim) to enter into an agreement that, if he succeeds in defending that claim in whole or in part, he will pay his legal representatives a percentage of the money or the value of the assets that he has resisted having to pay or transfer to his opponent. There is no dispute that such an agreement would be unlawful at common law. Consequently that issue turns on the interpretation of s.58AA of the 1990 Act and the Damages-Based Agreements Regulations 2013, SI 2013 No. 609 (“the 2013 Regulations”).




This was the first issue addressed by the Court of Appeal.  It was held that a DBA could not be entered into by a defendant who was simply defending assets that they already held.

    1. I understand why, as a matter of logic, the construction of the DBA was considered by the Judge before he turned to the question whether, in principle, the 2013 Regulations permit an agreement by which a defendant is to pay his legal representatives out of money or assets which he has resisted paying or transferring to his opponent in the litigation. Unsurprisingly, the issues on appeal were addressed in the same order by counsel at the hearing and in their skeleton arguments.
    1. However, this appeal is not just concerned with the correct interpretation of a contract entered into between Mr Wojakovski and the Solicitors; it raises issues of wider public importance. I would prefer to address those issues first. It would not matter whether the legislation permits a client to enter into a DBA in respect of an incoming claim if, on its true construction, the DBA in this case is not an agreement of that type. But it is equally true that if the legislation does not permit DBAs in respect of incoming claims, it does not matter if the DBA in this case is an agreement of that type. Therefore I will begin by considering the submissions on Grounds 2 and 3 of the Grounds of Appeal.
    1. It was common ground before us that there is nothing in the Jackson Report that supports the concept of a DBA being entered into by a defendant in respect of an incoming claim. The Jackson Report recommended that lawyers should be able to enter into contingency fee agreements with clients for contentious business, subject to certain conditions, including the Regulation of their terms. A “contingency fee agreement” was described in paragraph 3.2 of the introductory chapter as one under which “the client’s lawyer is only paid if his or her client’s claim is successful, and then the lawyer is paid out of the settlement sum or damages awarded, usually as a percentage of that amount.” In Chapter 12, which is devoted to the specific topic of contingency fees, Lord Justice Jackson confirms in paragraph 1.1 that he uses the term “contingency fees” in its narrower sense to denote fees which (a) are payable if the client wins and (b) are calculated as a percentage of the sums recovered.
    1. It was also common ground that, apart from the single entry to which I shall refer, there was nothing of assistance in Hansard, because all the relevant Parliamentary debates proceeded on the assumption that DBAs would be used only by claimants. However Hansard does record that, in answer to a specific question about whether DBAs could be used by defendants, the Minister of State, Lord McNally, made a statement in the House of Lords on 20 February 2013 (during the passage of the 2013 Regulations) to the effect 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“. He made a similar statement in a letter of 5 March 2013 which was placed in the library of both Houses of Parliament.
    1. The Judge regarded the Minister’s statement as being relevant to the scope of the Regulations under discussion, though it is clear that he placed little weight on it. Mr Williams submitted that that statement took matters no further. The legal issue turns on the true construction of section 58AA and of the Regulations, and not what a Minister believed their effect to be.
    1. Although the discussion in the Jackson Report of contingency fee agreements in general, and DBAs in particular, is centred around claimants, and there is an underlying assumption that such agreements would be used only by claimants, in recommending that they should be made lawful, Lord Justice Jackson expressed the view in paragraph 4.2 of Chapter 12 that it was desirable that as many funding methods as possible should be available to “litigants”. Mr Williams placed some reliance upon that observation. He pointed out that, whilst there is nothing in any of the materials that could be used as an aid to the construction of section 58AA or of the 2013 Regulations which specifically contemplates that defendants would avail themselves of this form of funding, there is likewise nothing which expressly indicates that such an arrangement should be prevented. No thought was given as to whether DBAs should be available to defendants; it does not seem to have occurred to anyone (apart from Lord Beecham, who asked the question of Lord McNally) that this was a possibility. Mr Williams submitted that if a DBA with a defendant could be made to work, it should be allowed to, as it would facilitate access to justice.
    1. Mr Fulton submitted that, in focusing on the lack of express disapproval or prohibition of such arrangements, Mr Williams was approaching the issue from the wrong perspective. The legislative changes introduced by LASPO had to be considered against the background of the unenforceability of contingency fee arrangements at common law, and how the legislation evolved from regulating a limited exception enabling individuals to fund employment-related claims against their employers in the specialist tribunals, to adoption of the recommendations in the Jackson Report. The only agreements of this type that it was considered should be made lawful were agreements by claimants. Borrowing a phrase used by Lord Justice Lewison in Zuberi v Lexlaw [2021] EWCA Civ 16 at [26], the legislation created “islands of legality in a sea of illegality”, carefully balancing difficult and sensitive competing policy considerations.
    1. Therefore, if Mr Williams could not point to anything which demonstrated that Parliament had turned its mind specifically to the introduction of enforceable agreements between defendants and their lawyers that, if successful, the defendants would pay the lawyers’ fees from their own funds or other assets even if they recovered nothing from the opposing party which could be used for that purpose, this was fatal to his argument, even before one turned to consider the language of the statute or the 2013 Regulations. It was impossible to expand the exceptions to the common law prohibition beyond the clear legislative intent.
    1. There seems to me to be considerable force in those submissions, since it cannot be inferred that Parliament created an exception to a long-established common law prohibition by accident or oversight. The fact that there is nothing in the Jackson Report, the Parliamentary debates or in the Explanatory Memorandum to suggest that it was ever envisaged at the time of the legislative changes that litigation funding arrangements of this particular nature should be permitted, is a powerful indication that this was not Parliament’s intention. On the contrary, the focus in the Jackson Report is upon permitting a successful client to pay his lawyers a percentage of what he recovers from the opposing party, which is something altogether different.
    1. However, in my judgment the matter is put beyond doubt by the definition of “damages-based agreement” in s.58AA(3) of the primary statute. In order to qualify as a DBA, the agreement must provide for payment by the recipient of the services if he or she “obtains a specified financial benefit” from the litigation.
    1. Mr Williams submitted that the primary legislation is neutral and can be interpreted as permitting defendants to enter into DBAs. The definition in section 58AA (3) refers to “the recipient” of the advocacy services, litigation services or claims management services. It is not limited to the provision of services to claimants. There was no reason why the dismissal of a claim in whole or in part should not be regarded as conferring “a specified financial benefit” on the defendant. If he successfully defends the claim, he gains something of advantage, because he gets to keep his money or other property.
    1. That submission ignores the fact that the successful defendant is financially no better off than he was at the start of the litigation. Indeed he may be considerably worse off, because he may have had to pay something to the claimant, even if the claim did not succeed in full. In Mr Wojakovski’s case, he had to part with most of his shares in TGL.
    1. In my judgment, the language of the statute is clear. I accept that the draftsman chose to refer to the “recipient of the services” rather than to the “claimant” – possibly to cater for the possibility that a DBA might be made in respect of what Mr Fulton described as an “outgoing” claim by a defendant, i.e. a counterclaim. I also accept that the phrase “specified financial benefit” is not confined to damages. Thus the expression “damages-based agreement” cannot be interpreted literally, as only applying to cases in which damages are paid (and not to debts or other forms of financial recovery). However, the word “obtains” envisages the litigant acquiring something that they do not already possess – by necessary implication, from the opposing party. That language is not apposite to describe a situation in which the defendant retains money or other assets of value, or is not required to make a payment or transfer of assets to the opposing party, even if this is the consequence of successfully resisting a claim for debt or damages, or a claim to those assets.
    1. As Lord Justice Arnold observed in the course of the oral argument, a defendant facing a claim for £12 million who only has to pay £5 million under a judgment or settlement agreement, is still £5 million worse off than he was at the start of the litigation. Moreover it cannot be sensibly contended that he has “obtained” £7 million in connection with the litigation from which to pay his lawyers up to 50% – i.e. £3.5 million. It is no answer to my Lord’s point that if, in such a case, the client did not in fact have £7 million, the lawyers would not be paid.
    1. An agreement between a defendant and his solicitors which makes provision for payment to the latter of a percentage of any sum (or of the value of any asset) which is claimed from him, and which in consequence of the outcome of the litigation he does not have to pay or transfer to the opposing party, is not a “damages-based agreement” as defined by section 58AA(3). Because it is not permitted by the statute such an arrangement is unlawful and unenforceable. Therefore, there is no need to consider whether an agreement of that nature satisfies the conditions in subsection (4), including whether it meets the requirements of the 2013 Regulations.
    1. However, and as one might expect, the language of the Regulations is entirely consistent with that interpretation of section 58AA. “Payment” is defined in Regulation 1(2) as “that part of the sum recovered in respect of the claim or damages awarded that the client agrees to pay the representative (my emphasis). Regulation 4 (1) prohibits a DBA from requiring an amount to be paid by the client other than the payment (as so defined) net of costs, disbursements or expenses recoverable from another party to the proceedings. Regulation 4(3) puts the matter beyond doubt by restricting the payment to a percentage of “the sums ultimately recovered by the client”.
    1. As the Judge held at [50], that means 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. As he said, the other materials to which he referred at [46], including the Explanatory Memorandum and the Explanatory Note, and Lord McNally’s statement, are consistent with that conclusion, but do not need to be relied on in order to reach it.
    1. Mr Williams realistically accepted that the natural reading of the language of the Regulations supported the Respondents’ case. His principal argument on interpretation was based on the premise (which I have already rejected) that the 1990 Act permits (non-counterclaiming) defendants, as well as claimants, to enter into DBAs, and that the language of s.58AA is neutral. On that premise, he submitted that the Regulations should not be construed as restricting or prohibiting that which is permitted in principle by the statute. If the requirements of the Regulations conflicted with the statute, non-compliance with those requirements could not result in the DBA being unenforceable, as the primary legislation takes precedence.
    1. Mr Williams submitted that Regulation 4 was not intended to confine or restrict the scope of DBAs, but rather to legislate for the maximum level of DBA payment permitted in accordance with s.58AA(4)(b). Therefore, the Judge placed too much weight on the provision in Regulation 4(1) that 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.
    1. I am unable to accept those submissions. The argument falls at the first hurdle because the statute does not permit this type of agreement, for the reasons I have already stated. The Regulations do not conflict with the statute, but are entirely consistent with the concept that a DBA provides for payment to the representative to be made only from what is recovered by the client from the opposing party, and then only up to a prescribed percentage of the amount so recovered. That is the fundamental premise upon which the Regulations were enacted. In order to be enforceable, a DBA must not only fall within the statutory definition, but also satisfy the conditions in s.58AA(4), including the requirements of the Regulations. A DBA which provided for payment to be made when there is no financial recovery from the opposing party would not do so.
    1. Mr Williams’ ultra vires argument likewise depended upon the premise that the Regulations conflicted with the statute. Mr Williams submitted that the definition of “payment” in the Regulations and the word “recovered” were ultra vires because they went well beyond the requirement in s.58AA(4)(c) that a DBA should comply with “such other requirements as to its terms and conditions as are prescribed.” That only permitted the Regulation of the terms of a DBA as defined in the primary statute, and not the prescription of terms and conditions which had the effect of limiting the types of DBA which could be enforced.
    1. In addition to the points on interpretation of s.58AA referred to in paragraph 52 above, Mr Williams contended that the expression “specified financial benefit” in section 58AA(3) (which is wide enough to embrace the benefit of retaining an asset of value) and the definition of “payment” in s.58AA(7) (which envisages that the representatives can be paid under a DBA by the transfer or assets or any other transfer of money’s worth by the client) are in conflict with what the Regulations in fact permit to be used as the source of payment under the DBA.
    1. This argument appeared to me to be based on a misconception of the function and scope of the Regulations, and their relationship with section 58AA, even if the premise upon which it is based – namely, that the statutory definition of a DBA embraces this type of agreement – were correct. The scheme of the Act was to permit DBAs (as defined) in principle, but then to confer a power on the Lord Chancellor to make Regulations which would include distinguishing between the types of DBA which can and cannot be made. The 2013 Regulations have only permitted agreements which provide for the representatives to be remunerated from sums recovered from the opposing party in respect of a claim (or counterclaim) made by the client, including, but not limited, to damages, which is entirely in line with the recommendations made in the Jackson Report.
  1. I would therefore dismiss the appeal on Grounds 2 and 3.



The Court went on to hold that the wording of this particular agreement did not entitle the solicitors to a percentage of the shares in any event.

    1. The agreement between the Solicitors and Mr Wojakovski is not well drafted; the draftsman appears to have prioritised brevity over clarity and consistency. However, it purports to be a DBA, it is so entitled, and therefore even before turning to its express terms it would naturally be understood as intending to provide for the solicitors to be paid a percentage of any sum that the client recovers in the litigation – because that is all that the legislation, both primary and secondary, permits. It can be assumed that the parties would not have intended to enter into a “DBA” which falls outside the definition in section 58AA of the 1990 Act or which does not comply with the 2013 Regulations, and is therefore unenforceable.
    1. Mr Wojakovski was not just a passive defendant to incoming claims. Besides his claim in the Petition, which among other matters sought to buy out the Matyas’ shareholding in TGL, he had made claims for money – including a substantial counterclaim in the Main Action. There was a risk that he would recover nothing at the end of the day, but there was also a prospect that he might recover a substantial payment on the eventual dissolution of his joint venture with Mr Matyas, when all the accounts were taken, as the Judge pointed out at [32].
    1. Paragraph 2 of the DBA envisages that the Solicitors are entitled to one “Payment” as defined. That entitlement arises only in the event that Mr Wojakovski recovers a payment or “derives a benefit” in or from the litigation – which in context must mean a financial benefit to which the stipulated percentage can be applied. In other words, he must gain something from the litigation that he does not already have. The Solicitors then get the stipulated percentage of whatever he receives.
    1. The use of the word “Proceeds” as shorthand for such payments or benefits is a further indication that the parties intended payment to be made out of a financial recovery from one or more of the opposing parties. I am unable to accept Mr Williams’ submission that “Proceeds” is just a collective term which covers both the recovery of “new” money and the retention of valuable assets or money claimed against the client by way of damages or pursuant to an account. It is a wholly inapt word to describe something which is in no sense part of the fruits of the litigation.
    1. Mr Williams contended that it can be inferred that the reference to “deriving a benefit” must have been included in the DBA to reflect the fact that the Shares Claim could never result in any financial payment to Mr Wojakovski. However, that cannot be right. The retention of some of the shares that were the subject of the Shares Claim is not a benefit that is derived from the litigation (let alone from “your Opponents” as expressly envisaged in paragraph 8) for the reasons given by the Judge at [24]. The shares belonged to Mr Wojakovski at all material times; he avoided an additional detriment by having to transfer 22,500 of them to Mr and Mrs Matyas, but he gained nothing. In fact he was substantially worse off financially, because he had to part with 75% of his shares in TGL. Whilst in a sense he could be said to be in a better position than he might have been at the end of the litigation, because he did not lose all his shares, which might have happened if the claim had fought to trial, that is obviously not the sense in which “benefit” is used in paragraph 2.
    1. The other terms of the settlement agreement take the argument no further. In a sense Mr Wojakovski gained something from those terms, in that his (new) position as a minority shareholder was protected, which it would not have been had he simply been left with the 22,500 shares. The value of his shareholding could not be diluted; but it could not have been diluted when he still owned half the shares in TGL. The promises made by the transferees under the settlement agreement prevented him suffering a detriment in consequence of moving from a position where he could use his votes to block any hostile resolutions by the other shareholders, to one where he could no longer do so. They conferred no measurable financial benefit upon Mr Wojakovski. In any event the Solicitors’ claim is not based upon the value of any such “benefit” – they are seeking a percentage of the value of the shares.
    1. Paragraph 4 of the DBA explains the reasons for setting the Payment at the specified level, in compliance with Regulation 3; they include “our risk of not being paid anything even if you succeed at trial”. That recognizes that success – such as, for example, success in the Shares Claim – may not yield any recovery from the losing party (from which the Solicitors would be paid). Paragraph 2 reflects the recognition of that risk, which must include the risk that any sum awarded in favour of Mr Wojakovski might well be smaller than sums awarded against him, and not just the enforcement risk, as Mr Williams submitted. Moreover, as Lord Justice Males observed in the course of argument, “success at trial” is not the same thing as losing less badly than you might have done.
    1. The “no win, no fee” nature of the bargain was clearly explained in paragraph 5. Mr Wojakovski was told in terms that: “if we are unable to recover any monies you will not be liable to pay us anything”. That must mean that if the Solicitors are unable to recover any monies from an opposing party which that party is liable to pay Mr Wojakovski, they will not seek payment from him. That was the commercial risk that they took. Mr Williams submitted that this was clearly a reference to the enforcement risk, but there is no reason why this paragraph should be interpreted as confined to that risk; the Solicitors would equally be “unable to recover” if their client’s opponents were not liable to pay him anything (including as the result of a set-off). Paragraph 5 reflects the practical reality that it is normally the solicitors, in the first instance, who receive payment of any damages or other judgment debts and who are tasked with enforcement if the money is not paid voluntarily.
    1. Mr Williams submitted that the fact that the Solicitors would not get paid for the work they had done on the Main Action should not stop them from being rewarded for the partially successful defence of the Shares Claim. On the Judge’s interpretation, they would not be rewarded even if they had successfully defended that claim at trial. One would generally expect the Solicitors to be remunerated under a “no win, no fee” agreement for the work they carried out if the client won. However that argument begs the question of what contractual bargain they actually made with their client. They may have offset the downside of receiving no specific payment for work done on the Shares Claim against the upside of what they would stand to gain by way of remuneration for the work done on the litigation as a whole if, at the end of the day, Mr Wojakovski recovered a substantial sum on the dissolution of the joint venture.
    1. Against a background where a DBA is only lawfully available as a means of remuneration when there is a financial recovery from the client’s opponent, it follows that for any claim where the client is merely a defendant, the reality is that the lawyers would have little choice but to look to the opposing party to pay their costs if their client succeeds, and absorb any shortfall themselves. Under this DBA, the only other possible source of payment would be any sums recovered in respect of the costs of their predecessors.
    1. The Judge acknowledged the point made by Mr Williams that paragraph 5 only refers to the recovery of “monies” whereas the definition of “Proceeds” in paragraph 2 is wider (“damages, monies, costs incurred by your previous lawyers, other sums and/or … benefits”). However, as the Judge said at [31] “monies” was just an infelicitous shorthand for what might be recovered. I agree with him that paragraph 5, though not the operative provision, refers to the importance of recovering something and thus supports the conclusion that paragraph 2 is intended to encapsulate a financial recovery.
    1. I also agree with the point made by the Judge at [35] that paragraph 8 of the DBA also supports that construction, because it makes it clear that Mr Wojakovski will remain liable to pay something to the solicitors post-termination by him of the DBA (either the “Payment” as defined or their hourly rate for work done prior to termination) if he goes on to “recover any monies or derive any benefit from your opponents“. The expression “your opponents” is defined in paragraph 2.
    1. I reject Mr Williams’ contention that the retention of the shares was a “benefit derived from your opponents”. “Benefit” means “financial benefit” and title to the shares was not bestowed on Mr Wojakovski by the settlement agreement. The settlement may have put paid to any claim that those shares belonged to Mr and Mrs Matyas, but Mr Wojakovski was entitled to the shares (and to their value in his hands) throughout, as he was the registered shareholder.
    1. Mr Williams sought to rely on paragraph 9 of the DBA, contending that it provided for a separate DBA in respect of each claim (including the Shares Claim) and that the Judge’s interpretation flouted common sense by making that paragraph meaningless in the case of the Shares Claim. The Judge regarded this provision of the DBA as essentially neutral, for the reasons he gives at [36]. I consider that paragraph 9 does not support the Solicitors’ construction. It simply records that the agreement is equivalent to a multiplicity of retainers and covers all claims in the litigation. It protects the Solicitors against the argument that the termination of their retainer in respect of one of the claims brings the DBA to an end. However, it does not say that the DBA provisions apply to each claim separately and divisibly. Therefore the Judge did not err by failing to consider paragraph 2 of the DBA as it applied specifically to the Shares Claim.
    1. Indeed, the “umbrella” nature of paragraph 9 could be seen as an indication that the DBA was concerned with the overall position reached at the end of the day, so that if (for example) Mr Wojakovski had to pay £13 million in one action, but obtained judgment for £4 million on one of his other claims, the Solicitors would be paid nothing, rather than a percentage of the £4 million. That is a plausible construction, and to me it makes more commercial sense, because even if there were no set-off it is highly unlikely that there would be any recovery of the £4 million. However it is unnecessary to decide if it is correct.
    1. The final point relied on by the Judge was the absence of any contractual mechanism for the valuation of the shares, which he regarded as suggesting it was unlikely the parties envisaged that “Proceeds” would include any shares retained by Mr Wojakovski: see the April judgment at [40]. We probed with Mr Williams the basis on which the Solicitors’ invoice for £2 million was calculated. We were told it was a very crude calculation based on the statutory accounts, and that the figure was “not set in stone”. The valuation of shares in private companies (particularly a minority shareholding) is a notoriously tricky exercise and may be deeply contentious. I consider it highly unlikely that the parties to the DBA contemplated that the calculation of the “Payment” would depend upon the engagement of forensic accountants and possibly a new set of proceedings to determine the value of the shares.
    1. The Judge’s construction of the DBA as depending upon a recovery from the opponent(s) to the litigation was plainly correct. Therefore I would dismiss the appeal on Ground 1 also.
  1. For the reasons stated, it is not possible for a defendant to litigation to enter into an enforceable agreement with his legal representatives that he will pay them a percentage of such part of the sums or assets claimed from him as he has resisted paying or transferring to his opponents. Such an agreement is not a “Damages-based Agreement” as defined by s.58AA(3) of the 1990 Act and cannot comply with the requirements of the 2013 Regulations. In any event, for the reasons stated above, that was not what Mr Wojakovski agreed with the Solicitors. Therefore the Judge was right to find that they have no entitlement to be paid a percentage of the value of the shares retained under the settlement agreement. That being so, there is no right to a charge over the shares and the issue of which charge takes priority does not arise. For those reasons I would dismiss both appeals.