COST BITES 240: THERE IS NOT A “CATCH 22” POSITION IN RELATION TO THE DRAFTING OF THESE CONDITIONAL FEE AGREEMENTS

We are continuing to work through the results of one case in relation to the recoverability of success fees from a client’s damages.  The claimants, seeking to challenge their former solicitors deduction of costs from their damages, argued that the CFA agreements in question were, in reality, damages-based agreements and unenforceable.  This argument did not find favour with the judge.

“As he pithily put it, if the claimants were right, all DBAs would be unenforceable CFAs as well as all CFAs being unenforceable DBAs which would create “horrific consequences”. He was right to describe them as such.”

KEY PRACTICE POINT

This case serves to emphasise the ingenuity of the arguments that are put forward in this type of case.  None of the claimants’ arguments found favour with the court. It remains an issue on which solicitors must take considerable care.

THE CASE

David Richardson & Ors v Slater & Gordon UK Limited [2025] EWHC 1220 (SCCO) Senior Costs Judge Rowley.

THE FACTS

224 claimants brought proceedings against the defendant seeking the recovery of fees deducted from damages. Ten claimants had been selected as test cases. Only nine of those claimants in fact participated in the preliminary issues. Of those only four attended trial to give evidence.

THE FIRST PRELIMINARY ISSUE: THE ENFORCEABILITY OF THE CFAS

This issue was described briefly at the outset of the judgment.

“i) Are the retainers entered into unenforceable Damages Based Agreements (“DBA”)?”

And in more detail later:-

“Is a CFA which provides for an effective contractual cap on recovery by reference to the damages a claimant might receive (as here) a Damages Based Agreement within the meaning of section 58AA(3) Courts and Legal Services Act 1990 (“the 1990 Act”) and, as such, is unenforceable?”

THE ARGUMENTS

The claimants argued that the fact that there was a cap of 25% of damages meant that these were, in reality, Damages Based Agreements and not recoverable.

THE JUDGE’S DECISION IN FAVOUR OF THE DEFENDANTS

“Decision

81. The law of unintended DBAs was given force by the Supreme Court in its decision in PACCAR [2023] UKSC 28. There, agreements which were described as litigation funding agreements, were found also to be DBAs given their compliance with section 58AA and in particular by reference to “claims management services”.

82. No reliance is placed upon PACCAR by the claimants, at least expressly, and we are clearly in a different situation where agreements comply with one part of the 1990 Act (section 58 and section 58A) but do not comply with another (section 58AA). In my judgment, there is simply no room to argue that an agreement which complies with the regulations it was intended to meet can be rendered unenforceable in any way by non-compliance with separate regulations intended to meet a different form of agreement.

83. The claimants’ argument is based entirely on the proposition that these agreements are designed to take 25% of the claimant’s damages, come what may. There is no direct evidence to support this proposition. The documentation refers to the deduction being “up to 25%” as, for example, Mr Rabinovitch very fairly accepted under cross examination. The claimants need an adverse inference to be drawn from the use of an agreement where base costs are calculated on time spent multiplied by an hourly rate. But, that is the standard method of all solicitors charging fees. Even where a fixed fee is agreed, the underlying documentation invariably sets out default charges by reference to time spent which is overridden where a fixed fee has been agreed. In my judgment, there would need to be some express statement or documentation regarding an intention to incur costs which justify the 25% deduction on each case for this argument to get off the ground. In their absence, it does not seem to me that this point gains any traction.

84. I have therefore not troubled to set out Mr Marven’s arguments specifically. They accord with the comments I have just made. As he pithily put it, if the claimants were right, all DBAs would be unenforceable CFAs as well as all CFAs being unenforceable DBAs which would create “horrific consequences”. He was right to describe them as such. On a purely numerical basis of cases affected, the outcome contended for by the claimants would dwarf the practical issues which arose in the aftermath of the PACCAR decision. The line Mr Mallalieu sought to draw to limit this effect was, to my mind, of the Maginot variety.”