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DBA enforceability to come under court scrutiny

Posted on June 15, 2017

The High Court is to consider the enforceability of a damages-based agreement (DBA) in one of the first cases of its type since the regime was introduced in 2013.

Master Clark ordered that it should be considered as a preliminary issue in a claim in debt brought by a law firm against its former client for £125,123 it says is due under the DBA.

In Lexlaw Ltd v Zuberi [2017] EWHC 1350 (Ch), the defendant is challenging her liability to pay the money on four grounds: unenforceability; that the DBA was procured by the actual or presumed undue influence of the law firm’s principal; that she was induced to sign the DBA by misrepresentations; and that the firm negligently and/or in breach of its duties failed to advise her of the true nature and consequences of the DBA.

She applied to have the enforceability issue dealt with as a preliminary issue, with clause 6.2 of the DBA at issue.

This provided: “With the exception of the circumstances set out in clause 6.3 (in which you agree not to terminate this Agreement), you may terminate this Agreement at any time. However, you are then liable to pay the Costs and the Expenses incurred up to the date of termination of this Agreement within one month of delivery of our bill to you."

‘Costs’ and ‘Expenses’ were defined as, respectively, charges for time spent working on the claim calculated in accordance with hourly rates, and disbursements.

Master Marsh noted: “There is no issue between the parties as to the meaning and effect of clause 6.2; and that in certain circumstances it would require the payment of a sum greater than the agreed percentage provided for in the DBA. In addition, neither side alleges that the clause was engaged in the events that happened in this case.”

The defendant asserted that clause 6.2, in providing for payment by the defendant of “the Costs and Expenses” requires her to make a payment other than “the payment” as defined in regulation 1(2) of the 2013 DBA Regulations, in contravention of regulation 4(1) and/or 4(3).

Regulation 1(2) says: “‘Payment’ means that part of the sum recovered in respect of the claim or damages awarded that the client agrees to pay the representative, and excludes expenses but includes, in respect of any claim or proceedings to which these regulations apply other than an employment matter, any disbursements incurred by the representative in respect of counsel's fees.”

Regulation 4(1) says that a DBA must not require an amount to be paid by the client other than “the payment”, net of costs, disbursements and any expenses, subject to a cap in regulation 4(3) of 50% of the sums recovered.

Lexlaw denied the breach, submitting that the terms relied upon by the defendant did not contravene the regulations. Alternatively, it said the sums relied upon by the defendant only became payable upon termination of the DBA and so could not be caught by the regulations.

In the further alternative, Lexlaw argued that insofar as any clauses were not enforceable, they should be severed from the DBA without rendering the entire DBA enforceable.

Master Marsh rejected the objections of the claimant to accept the defendant's submission that a preliminary trial of the issue was capable of saving “substantial time, effort and costs”.

“This is a consideration which comes ‘first and foremost’ in reaching my decision,” he added, citing the guidance of Mr Justice Briggs (as he then was) on whether to order preliminary issues in Lexi Holdings PLC v Pannone and Partners [2009] EWHC 3507 (Ch).

 

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