The dearth of authority on the construction of the notorious ‘Damages Based Agreement’ regulations was because hardly anyone was entering into them. An intrepid law firm did join the fray. Lexlaw agreed to act on behalf of a client, Mrs Zuberi, who was the victim of an expensive, convoluted interest arrangement with 2 banks. In 2008, the Defendant borrowed over £2 million from Natwest/RBS, and as part of the transaction she entered into a 10-year interest hedging product. She later considered that the deal to have been unconscionable and instructed Lexlaw.
The maximum percentage cut allowed by the Regulations is 50%. Lexlaw agreed to act for just 10% plus vat so their total take would be 12%. Having ultimately secured a significant recovery, when Lexlaw sought payment of their fees approaching £130,000, their client sought to evade all responsibility, arguing that the DBA was unenforceable under section 58AA of the Courts and Legal Services Act 1990.
Lexlaw had stipulated that if their agreement was terminated by the client she would then have to pay them conventionally for work done on her behalf. Coulson LJ, with a gift for understatement, observed that “nobody can pretend that these Regulations represent the draftsman’s finest hour”. The Court was unanimous in finding that the termination clause was outside of the Regulations. It stipulated an obligation to pay if the DBA was terminated. It did not encroach upon what was deductible if the arrangement was honoured. It could never have been intended to render the Regulations “commercial suicide for the lawyer”. Consequently, Mrs Zuberi was liable to honour the arrangement that she had herself suggested to Lexlaw.
This decision opens the door for litigation firms to fund litigation themselves and, if successful, take a percentage as their reward. Litigation has suddenly become more interesting!
It is absolutely imperative to ensure that any DBA you enter into is drafted or vetted by specialist costs lawyers.
Professor Dominic Regan
Special Advisor to Affiniti Finance
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