Costs News

15 June 2017
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DBA enforceability to come under court scrutiny

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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Comments

Sue Nash   25/09/2017 at 20:56

It appears that RNB is set for a HC appeal - watch this space! Meanwhile, RIP Solicitors Journal which - sadly - has just ceased publication after 180 years

News Flash   28/09/2017 at 12:18

Another pointless case, why resist a payment on account when your paying the opponents costs in the end anyway? these types of disputes should be a thing of the past!

MB   05/10/2017 at 13:18

Why has the focus returned to the SCCO "going completely digital". Was the electronic bill not extended to all Courts!

Dragon   12/10/2017 at 13:40

Well said Jim. Too often we see clinical negligence claims settle for say £2k only to be followed by a bill for say £50k. Thankfully there are some excellent costs lawyers out there who battle those costs down, but the situation remains outrageous.

Simon Mccarthy   13/10/2017 at 13:56

Dragon - your comment overlooks the fact that it is almost invariably your clients - the Defendants - who cause those scandalous costs by intransigently, and inexplicably, refusing to come to the negotiating table until too late, when the costs have already been racked up; it is their failure to take a realistic view to claims at the outset which necessitates the costs. This faux horror is therefore hard to stomach, especially when one considers the equivalent costs being incurred by government bodies (funded by us tax payers of course) often to the tune of 4-5 times the sums you mention, and the many Defendant costs draftsmen shelling peas for their piece of the pie. Sadly, it is the same old story of 'pay peanuts get monkeys' and, unless and until government wake up and start paying competent people to deal with claims pragmatically, the UK public purse will continue to haemorrhage billions of pounds that we can ill afford. Still, as long as it keeps Defendant costs draftsmen/lawyers in business?....

Northern Costs Monkey   13/10/2017 at 14:31

Just shows how ridiculous the whole budgeting process is. The reason firms generally don’t make applications to revise their budgets is because the bar set for varying them is absurdly high. No one even knows what a “significant development” is. A load of nonsense in my opinion. The situation we have now is that firms just don’t bother revising the budgets because in all likelihood it won’t be accepted. Meaning firms can be stuck with an “approved” budget that is a couple of years out of date, was drafted before the directions were even agreed, and is no longer fit for purpose. What should happen is that budgets should be drafted after the first CMC, and there should be a rule put in place that parties are able to freely revise a previously agreed or approved budget every six months, regardless of significant developments, with the updated budget to be considered at a costs management conference listed for a later date. That after all was the whole point of budgeting, was it not? Pragmatic costs management?

Simon   16/10/2017 at 16:47

I find this whole issue completely unnecessarily. Independent Midwives had commercial insurance suitable for their needs, however to try and save money they chose to try and become self-funding and cancelled their insurance without fully understanding the risks and exposures. I cannot see why it is in the public interest to bring a JR (and why the costs should be capped) when commercial solutions were available, however the issue is that as a group they didn't want to pay the costs of commercial insurance.

Dragon 2   18/10/2017 at 08:07

Great points Simon. Fully agree. Courts are fully aware of how these matters are conducted by those representing defendant. Surely though the money for damages and costs comes out of the medical suppliers' insurers' account, not tax pot nor nursing fund. Maybe that's why there is such a drive to extend the fixed costs regime to clin neg claims. Just a thought......

Mel B   19/10/2017 at 12:05

'Like' Simon McCarthy's comment

Cath Hart   21/10/2017 at 09:32

In reply to Simon's comment (which I thought at first meant this situation could be resolved) my understanding is that professional indemnity insurance for independent midwives has been withdrawn, but even if available the premium would be in the region of 20-30k annually (reference https://www.aims.org.uk/Submissions/nmc.htm) so I would disagree that it was cancelled to "save money" - these premiums exceed many of the midwives salaries so it was simply unworkable without government assistance. When professional indemnity insurance became mandatory under the EU directive in 2014 the independent midwives did appeal to the government for funding but this was rejected due to the low number of women involved so was not thought to represent value for money for the taxpayer. (reference: https://www.gov.uk/government/news/independent-midwives-insurance-options-outlined).

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