DBAs: The Financial Benefit achieved must relate directly to the proceedings at hand
Costs Judge Brown recently considered the requirements of damages-based agreements and whether such an agreement could be enforceable where no direct financial benefit was achieved. He concluded that the regulations do not permit DBAs in these circumstances.
Background
Reeves v Frain & Ors [2025] EWCA 185 (SCCO) concerned contested probate proceedings and the validity of a will dated 7 January 2014 made by Kevin Frain (the Deceased), who was the father of the Claimant and the Second Defendant, and the grandfather of the Fourth Defendant. Green J found that the Claimant had not proved that the Deceased knew of or approved the 2014 will and that the will dated 18 April 2012 remained valid. The Defendants were therefore successful in defending the claim. The Claimant was ordered to pay 70% of the Second and Fourth Defendants’ costs, subject to detailed assessment if not agreed.
The Defendants served Bills of Costs which stated that both their claims were funded in part by DBAs with LLP Solicitors. Within the Replies, it was further noted that, following the ‘success’ of the final hearing, the DBA had concluded and that the matter continued by way of a private retainer. This subsequent retainer covered work relating to the consequentials hearing and was also intended to relate to all work done in relation to the estate moving forwards. During a costs hearing in January 2024, it became clear to Costs Judge Brown that genuine issues arose regarding the enforceability of the DBAs and the Defendants were invited to disclose their retainers or otherwise prove the terms of these agreements. The Claimant subsequently challenged the recoverability of the costs as a result of the retainer issues.
Parties’ Positions
The Claimant submitted that the DBA was unenforceable on the basis that the agreement could only provide payment to the solicitors out of sums recovered and that here the remedy sought was a declaration. The Defendants referred to the matter of Candey Ltd v Tonstate Group Ltd [2022] EWCA Civ 96 and submitted that “connection with the matter” as contained within the DBA provisions was not limited to the claim itself and the term “financial recovery” was sufficient to cover the financial benefit achieved. It was further submitted that, even if the DBA was found to have breached the regulations, the breach was not significant and the remainder of the DBA could remain enforceable.
Court’s Comments and Findings
Costs Judge Brown considered the relevant statutory framework relating to DBAs, which included Courts and Legal Services Act 1990 (s.58), the Damage-Based Agreement Regulations 2013 and Rule 44.18 of the Civil Procedure Rules. He noted that a “payment” under the regulations is defined as “part of the sum recovered in respect of the claim or damages awarded”. He also considered the relevant guidance surrounding statutory interpretation and concluded that the position asserted by the Defendants attempted to seek payment from sums “to be recovered”, which was not in line with the wording or the purpose of the regulations. Costs Judge Brown dismissed the Defendants’ submission that the regulations should be interpreted and applied to permit the general aim of facilitating access to the Courts. Had the regulations been drafted to provide for circumstances where the value was unclear or contingent, a provision for the mechanism for ascertaining the value of such sums would have been included. He also distinguished Candey on the basis that it concerned a materially different situation.
The Court further referred to Hollins v Russell [2003] 1 WLR 2847 in respect of whether the departure was a significant departure from the regulations that would render the agreement to be invalid and considered the provisions of severance under Zuberi v Lexlaw Ltd and The General Council of the Bar of England and Wales [2021] EWCA Civ 16[4]. The Court found that the departure was significant and the DBA was unenforceable as a result.
Subsequent Private Retainer
The Claimant also submitted that the attempt to enter into private retainers, if found to be valid, after the final hearing, if found to be valid, was a wrongful repudiation of the DBAs on the basis that the claim had not concluded until after the consequentials hearing. The Court agreed that the consequentials hearing was indeed part of the claim but LLP’s actions did not amount to a repudiation, and were instead a misunderstanding as to the terms and effect of the DBA. Therefore, the termination of the DBA in this manner would not have rendered the DBAs unenforceable.
The Court further concluded that there was insufficient evidence to confirm acceptance of a variation of the terms, or acceptance of a new private retainer. LLP were acting in error when asserting that their obligations under the DBAs had come to an end and could not enter into a new retainer in any event. Therefore the costs claimed under the alleged private retainers were also not recoverable.
Commentary
This case reaffirms the principle that DBAs can only be entered into where a financial benefit is sought and that any such financial benefit must be as a direct result of the claim at hand. It is also clear that DBAs can act as a useful tool in the funding of litigation and access to justice, however care must be taken when drafting these agreements to ensure compliance with the regulations and ensure enforceability.
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