COST BITES 209: A CLIENT’S CHALLENGE TO THE DEDUCTION OF THEIR OWN SOLICITOR’S COSTS WAS THIS A CFA OR A DBA: WAS THE SOLICITOR OBLIGED TO OFFER A DBA?

We are continuing with the examination of the judgment of Cost Judge Rowley Perrett v Wolferstans LLP [2025] EWHC 68 (SCCO). Here the judge considered (and rejected) that claimant’s [former client’s] argument that the CFA entered into with the solicitor was a Damages Based Agreement.  The judge also rejected the argument that a solicitor is obliged to offer to work under a DBA rather than a CFA.

“If Mr Carlisle’s argument were right, then such solicitors would be obliged to offer a DBA or to turn away clients who might be able to obtain such an agreement from another firm. If that, rather surprising, situation occurred, in my judgment there would have to be extremely clear wording in the Code of Conduct to this effect. In fact, in Chapter 1 of the Code of Conduct dealing with client care, the statement is made to solicitors that “you are generally free to decide whether or not to accept instructions in any matter, provided you do not discriminate unlawfully.” It seems to me that this clearly entitles solicitors to limit the methods by which they are to be remunerated.”

THE CASE

The defendant firm of solicitors had represented the claimant in a personal injury action, they acted under the terms of a Conditional Fee Agreement.  The case settled for just over £7,000. The defendant firm wrote explaining the terms of the offer, which set out the deductions that would be made.  The claimant’s case was that he expected to receive the damage sum without deduction, except for the ATE premium.  There was a two day hearing on preliminary issues relating to costs (the deduction in question was around £2,000).

WAS THIS A CFA OR A DAMAGES BASED AGREEMENT

The judge determined a preliminary issue as to whether the CFA signed by the claimant was in fact a Damages-Based Agreement. He also considered the argument that the solicitors were obliged to offer a DBA.

1. 1. The defendant says that the parties entered into a CFA. The claimant says that the true nature of the agreement entered into was a Damages-Based Agreement (“DBA”). In fact, the claimant runs a number of arguments regarding the nature of the contract of retainer and some of them, it seems to me, are mutually exclusive. It is therefore necessary to take the arguments, step-by-step.

1. 1. The agreement signed by the parties described itself as a CFA. The claimant says that the way the “success fee” is calculated fits the DBA regime more accurately than the CFA regime. The claimant also says that a DBA would have been better for the claimant than a CFA because, in modest claims for personal injuries, a DBA is invariably the better model. The claimant also criticises the defendant for only offering to act under a CFA which, on the face of it, appears to run counter to the claimant’s argument that it is in fact a DBA.

1. 1. A CFA, to be enforceable, needs to comply with s58 and s58A of the Courts and Legal Services Act 1990 (“CLSA”), as amended. I do not understand the claimant to be saying that, if I conclude that the agreement is a CFA, that it fails to comply with the legislative requirements and as such could not be enforced against him, in principle.

1. 1. In order for the agreement to be a DBA, it would need to comply with section 58AA CLSA, an extract of which is as follows:

“58AA Damages-based agreements

(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 (subject to subsection (9)) a damages-based agreement which does not satisfy those conditions is unenforceable.

…

(9) Where section 57 of the Solicitors Act 1974 (non-contentious business agreements between solicitor and client) applies to a damages-based agreement other than one relating to an employment matter, subsections (1) and (2) of this section do not make it unenforceable.”

1. 1. In the case of Bolt Burdon Solicitors v Tariq and Ors [2016] EW HC 811 (QB) Spencer J confirmed, at paragraph 150 of his judgment, that section 58AA had no direct bearing on the non-contentious business agreement which he was considering. As I have indicated at the outset of this judgment, the discrete fifth point of dispute in this case seeks a particular method of quantification of the solicitors’ costs as a result of the work being non-contentious and therefore being governed by the Solicitors (Non-Contentious Business) Remuneration Order 2009 (“S(NCB)RO”).

1. 1. It would seem, therefore, that the claimant is in some difficulty in arguing about any issue regarding compliance with the DBA Regulations 2013 because they do not apply any more than the primary legislation. In particular, the challenge in the fourth point of dispute that the solicitors share of the monies exceeded the 25% cap for personal injury in the regulations cannot be sustained.

1. 1. Any agreement involving non-contentious work can be described as a non-contentious business agreement. Whether it is an agreement which restricts the client’s right to challenge it under s57 Solicitors Act 1974 (a Non-Contentious Business Agreement (“NCBA”) which I have capitalised to distinguish it) is a different matter. If it is a valid agreement under that section, then the client can only have the costs claimed under it assessed if they can establish that it is not “fair and reasonable.” If the agreement is invalid under that section – or the solicitors do not seek to rely upon that formality – then it is still a business agreement involving non-contentious work. By virtue of s58AA(9) such an agreement is not caught by the legislative requirements of either s58AA or the DBA Regulations 2013. Indeed, it is common in transactional work, which is inevitably non-contentious, for solicitors and their clients to agree fees which are based on contingencies concerning successful or unsuccessful outcomes in the transaction without any attempt to create a DBA or other form of formal contingency arrangement.

1. 1. Moreover, it seemed to me that Mr Carlisle’s submissions supported this line of reasoning. He relied upon the decision of Mann J in Wilson v Spector Partnership [2007] EWHC 133 (Ch) regarding the creation of a business agreement, whether or not the parties to it appreciated what they were doing. (The case of Wilson actually related to a Contentious Business Agreement (“CBA”) rather than its non-contentious counterpart (NCBA), but the reasoning applies equally.)

1. 1. In Wilson, Mann J rejected the first instance judge’s reasoning that since the parties did not describe it as such, the agreement could not be a CBA. What mattered was form, not substance. Mann J reiterated the need for certainty that was inherent in a CBA so that the parties, and in particular, the client knew “what he was letting himself in for”, including being prevented from seeking an assessment under s70 Solicitors Act 1974. Mann J decided in Wilson that there was insufficient certainty because the hourly rates could be varied to an unspecified amount in some circumstances.

1. 1. In this case, Schedule 2 of the agreement allowed for periodic increases, albeit that those increases had to be agreed beforehand with the client. This might have amounted to sufficient certainty, but the first paragraph on the final page of Schedule 2 allowed the defendant to take into account a number of factors which might or might not be sufficiently recompensed by the hourly rate charged. As such, the rates might have been increased if the matter became more complex than expected. Based upon the dicta in Wilson, I cannot see that this wording would entitle the defendant to seek to circumscribe the claimant’s rights to a s70 assessment by maintaining that the parties had entered into a valid NCBA.

1. 1. Nevertheless, for the reasons I have given, it seems to me that the agreement is, at the very least, an invalid NCBA and as such is outside the scope of the DBA provisions. Accordingly, to the extent that there is any problem with the calculation of the success fee in this case, it has to be viewed as deriving from a non-compliance with the CFA provisions rather than that it should be seen as emanating from it being seen as a DBA.

1. 1. For the sake of completeness, I should also address the argument that comments made by the Supreme Court in the case of R(PACCAR) v Competition Appeal Tribunal [2023] UKSC 28 assist the claimant in defining the agreement as a DBA. The claimant’s argument is that a number of statements by their Lordships as to the regime under the Compensation Act 2006 were intended to protect the consumer from activities covered by the regime no matter who was undertaking such activities. According to the second point of dispute, litigation funding agreements where the client paid a fixed percentage of compensation in the event of a win were DBAs “notwithstanding they were not so described and that the parties to the agreements have not understood them to be such.”

1. 1. In my judgment there is a clear distinction between this case and the situation faced by their Lordships in PACCAR. In the latter case, the agreements into which the litigation funders had entered were assumed not to be caught by any of the legislation and were therefore simply contracts at common law. The Supreme Court however concluded that the legislation was sufficiently wide for one of the contingency fee options to encompass those litigation funding agreements.

1. 1. In this case, the agreement comes within the sections of the CLSA which deal with CFAs. As such, there is a regulatory environment in which this agreement undoubtedly sits. The claimant seeks to argue that it is also caught by a separate section of the CLSA, albeit that it does not comply fully with the requirements of that section and its secondary legislation. It seems to me that this situation is plainly distinguishable from PACCAR.

1. 1. The claimant’s final argument involving a DBA is the challenge that the claimant ought to have been offered such an agreement as an alternative to a CFA. In failing to do so, the defendant prevented the claimant from receiving the best possible information under the Solicitors Regulation Authority (“SRA”) Code of Conduct in circumstances where a DBA would invariably be the better option.

1. 1. At the time when the claimant became the defendant’s client, version 20 of the SRA Handbook applied. Version 21 was published on 6 December 2018 and that was replaced by the SRA Standards and Regulations on 25 November 2019 and which is currently in place.

1. 1. Principle 4 espoused in the SRA Handbook is to “act in the best interests of each client” and in relation to the issue of costs, the most obviously relevant outcomes are:

“O(1.6) you only enter into fee agreements with your clients that are legal, and which you consider suitable for the client’s needs and take account of the client’s best interests;

O(1.13) clients receive the best possible information, both at the time of engagement and when appropriate as their matter progresses, about the likely overall cost of their matter;”

1. 1. In order to consider whether the outcomes have been achieved, reference can be had to the “indicative behaviours” which, in respect of fee arrangements, include the following:

“IB(1.14) clearly explaining your fees and if and when they are likely to change;

IB(1.15) warning about any other payments for which the client may be responsible;

IB(1.16) discussing how the client will pay, including whether public funding may be available, whether the client has insurance that might cover the fees, and whether the fees may be paid by someone else such as a trade union;

IB(1.17) where you are acting for a client under a fee arrangement governed by statute, such as a conditional fee agreement, giving the client all relevant information relating to that arrangement;”

1. 1. Mr Carlisle made numerous submissions in relation to the compliance or otherwise with the Code of Conduct by the defendant. For the purposes of the immediate argument, Mr Carlisle submitted that the defendant had breached Outcome 1.6 by failing to take account of the client’s best interests. His argument involved a series of propositions as to the desirability of different forms of agreement and which expanded upon the argument in the second point of dispute that a DBA was more advantageous for clients than a CFA and that the reverse was therefore true for the solicitors.

1. 1. In his oral submissions, Mr Carlisle categorised a CFA without any form of cap as being the worst of all worlds. A CFA with a cap was only marginally better since the extent of that cap was only known at the end the case. A CFA Lite – traditionally a CFA where the solicitor recovered costs from the opponent and sought nothing further from the client – was better than a CFA. Mr Carlisle said that a private funding arrangement was a better option for someone who had a good claim since there would be no success fee to be taken from the damages. The best option of all was a DBA. If unsuccessful, the position was the same as for a CFA in that no fees would be charged against the client and Qualified One way Costs Shifting (“QOCS”) would apply to protect the claimant to some extent against adverse costs orders.

1. 1. The benefit of a DBA was apparent where the claim was successful. For example, the 25% cap on damages was inclusive of VAT unlike a CFA. There were no base fees in addition to the percentage fee payable, therefore where costs were recovered, they would be set against the 25% cap, unlike a CFA, thereby reducing the sum payable by the client. In failing to advise the client that a DBA would be a better option for him, it was Mr Carlisle’s submission that the defendant here had breached Outcome 1.6.

1. 1. In response, Mr Marven relied upon the evidence of Ms Barton on this point. The defendant did not offer a DBA to any client and there was no obligation to advise a client about an alternative that the defendant did not offer. Whilst it can be seen from Indicative Behaviour 1.16 that there is an obligation to discuss some other forms of funding with the client, it seems to me that Mr Marven’s argument is correct as between a CFA and a DBA. There is nothing in any of the outcomes or indicative behaviours that requires a solicitor to advise upon different forms of contingency agreement governed by statute. Indicative behaviour 1.17 simply requires any agreement which is so governed to be explained with all of the relevant information relating to that agreement.

1. 1. There are many firms of solicitors who do not seek to act under a DBA. The difficulty with seeking any form of payment at all where the client is unsuccessful has, it appears, put off many solicitors who can achieve that outcome via a CFA – so that a “no win, no fee” agreement becomes a “no win, lower fee” agreement. Case reports of solicitors who use DBAs finding themselves entirely unremunerated in various situations presumably adds to the concern of those who have not sought to act under a DBA.

1. 1. If Mr Carlisle’s argument were right, then such solicitors would be obliged to offer a DBA or to turn away clients who might be able to obtain such an agreement from another firm. If that, rather surprising, situation occurred, in my judgment there would have to be extremely clear wording in the Code of Conduct to this effect. In fact, in Chapter 1 of the Code of Conduct dealing with client care, the statement is made to solicitors that “you are generally free to decide whether or not to accept instructions in any matter, provided you do not discriminate unlawfully.” It seems to me that this clearly entitles solicitors to limit the methods by which they are to be remunerated.

1. 1. It is, in principle, no different from a client who instructs a solicitor using a CFA, being told part way through the case, that the prospects of success have become sufficiently dim that the solicitor would only be prepared to continue with the case if the funding changed to a privately paying arrangement. That would be a less good form of funding according to Mr Carlisle’s submissions, since payment would be made where the case looked likely to lose, but there has never been any suggestion, as far as I am aware, since CFAs became widespread that to do so was somehow contrary to the SRA Code of Conduct.

1. 1. In my judgment, when the claimant rang to establish whether the defendant could provide representation under a “no-win, no fee” agreement, the defendant was perfectly entitled to confirm that a CFA might be available once certain checks had been made, without having to explain that other no-win, no fee agreements might be available elsewhere.

1. A solicitor is required to “take account” of “the client’s best interests“. Mr Carlisle’s submissions elevated that phrase to something approaching an absolute which does not fit with the Code of Conduct – e.g. Outcome 1.2 requires a solicitor to protect the interests of their client in the matter, “subject to the proper administration of justice” – and is a counsel of perfection. I do not consider that Mr Carlisle’s reliance on the case of McDaniel & Co v Clarke [2014] EWHC 3826 (QB) adds anything to this argument. In McDaniel, the costs were disallowed because the solicitor had failed to provide the advice described in Indicative Behaviour 1.17, and therefore the claimant was unable to take advantage of the free legal advice provided by her union. In this case, the defendant did not breach that Indicative Behaviour and provided the client with the option of one of at least two agreements governed by statute which could be described as a no win, no fee agreement.

The costs judge over your shoulder – deducting costs from the client’s damages:  Webinar 29th January 2025:  booking details available here.

This webinar looks at the regulations and case law relating to the deduction of costs from the client’s damages in a personal injury claim.

• When can a deduction from damages be made?
• Protection for the client
• What must be the client be told?
• What is meant be the client “agreeing” the costs
• What steps need to be taken if court approval is needed?
• How is a “success fee” justified?
• Avoiding difficulties and potential pitfalls
• Where do things go wrong?
• When can a client ask for the bill to be assessed?
• What must you tell the client about the costs budget?
• What are the implications of going outside the costs budget?

The webinar examines the key judgments on this topic and looks at those areas that have proven to be problematic and which have led to litigation and solicitor-own client disputes. It looks in detail at the Legal Ombudsman’s guidance on Good Costs Service and the steps that lawyers have to take to comply.