Zuberi v Lexlaw Ltd [2021] EWCA Civ 16
Although this is case does not involve a litigation funder, it is an important case in relation to litigation funding via Damages Based Agreements (DBAs). For a considerable period of time, solicitors were concerned about DBAs because they appeared very much to be all or nothing. If the claim was successful, the solicitor claimed its share of the proceeds. But if the case failed, there was a risk that they would get nothing. Almost as if they were a commercial litigation funder. But what was to happen if the claim never got to trial. Was the solicitor entitled in those changed circumstances to charge a time based fee? The concern about whether it could or could not was one of the reasons for the take up of DBAs being slow.
Although the solicitors in this case agreed that they would be entitled to 12% of the proceeds, plus expenses, they also provided in the agreement that if the agreement was terminated at any time, the client would have to pay the ordinary fees and expenses. The Court of Appeal held that it was possible to sever the latter clause from the contract, if it was found to be contrary to law, so that the whole retainer agreement was not invalidated. However, the problem went wider than that because it could be seen to have breached the relevant regulations, thus rendering the DBA unenforceable.
It was possible to analyse the matter in two ways – if a retainer included any provision that entitled the solicitor to a share of recoveries, then the inclusion of that single provision rendered the entire retainer a DBA. It was equally possible to consider that there were two methods of charging – one on a success basis and another on a time basis. In that sense, only the former would amount to the DBA. The Court of Appeal considered that the latter view was more in keeping with the common law. On that basis, it was possible for the solicitor to draft provisions that would allow them a time based fee in certain circumstances, provided it did not conflict with the DBA provision. The Court of Appeal did not consider that termination provisions in relation to payment of costs could conflict with the regulations.
The legality of the hybrid DBA has still not been completely established, however, because it is difficult not to see this case as being primarily decided on its own facts and owing to the termination by the client. The question as to whether the solicitor would be able to rely on its DBA and see a separate time based payment for other aspects of its retainer has still not been resolved. The issue becomes particularly relevant for a litigation funder who is funding a solicitor that has a DBA with its client. If there are question marks over the solicitor’s ability to recover costs from the client, then that could impact on the overall relationship between funder, solicitor and client. It is important that a litigation funder drafts its funding agreement to ensure that there are no ambiguities as regards the client’s payment of costs upon success.