COSTS BITES 214: LAWYERS DO YOU WANT TO WORK FOR NOTHING? THE DEFENDANTS’ DAMAGE BASED AGREEMENTS WERE NOT VALID AND COSTS WERE NOT RECOVERABLE UNDER A COSTS ORDER: WHY SOLICITORS NEED TO THINK ABOUT THEIR RETAINERS CAREFULLY

If ever there was a case that highlighted the need for solicitors to consider the terms of the retainer with care, and know the law relating to Damages Based Agreements in detail, it is the judgment of Costs Judge Brown in Reeves v Frain & Ors [2025] EWHC 185 (SCCO).  The defendants had the benefit of an order for costs against the claimant.  However the judge found that the DBA that the defendants relied upon were not compliant.  The judge further found that there was no alternative form of retainer.  Here we look at the judgment in relation to the validity of the DBA.  The judge found that, in this case, where the defendants were successful in challenging a will,  there were no “sums recovered”, consequently the DBAs were not enforceable and costs could not be recovered (later posts will look at other aspects of this case).

“Mr Marven is clearly right to say that if it had been the intention of Parliament to permit a DBA to be entered into in circumstances where the benefits to be recovered were not ascertained, not only would the 2013 Regulation have made this clear they would also have provided for a mechanism for ascertaining the value of that which is to be recovered. The potential for difficulties and the need for consumer/client protection in such circumstances, and in any such process, seems to me to be clear.”

THE CASE

The defendants had been successful in probate proceedings, establishing that a later will was in force to that propounded by the claimant.   The court ordered that the claimant pay  70% of the Second and Fourth Defendants costs on an indemnity basis subject to a detailed assessment.

THE WAY IN WHICH THE DEFENDANTS THEIR CASE

The defendants funded their case, in part, by Damages Based Agreements.  One key issue in this case was whether a DBA could be used in these proceedings when there was no sum recovered.  The judge held that they could not.

1. 1. The Second Defendant entered into a DBA with the LLP which bears the date of 16 February 2021. It was apparently signed on 18 February 2021 when the Second Defendant also signed the LLP’s retainer letter, the DBA ‘checklist’ and LLP’s Terms and Conditions.

1. 1. The Fourth Defendant and/or his guardian^[1] entered into a DBA with the LLP on or about 16 December 2020 and LLP’s retainer letter was signed on 9 December 2020. A DBA ‘checklist’ was signed and is dated 16 December 2020; and LLP’s (undated) Terms and Conditions appear to be signed.

1. 1. The Terms and Conditions appear generic in nature in that they contemplate different forms of funding arrangements. Under the heading Charges and Expenses there is provision for charging by reference to the time spent by solicitors at an hourly rate. However, alongside this heading, the Terms and Conditions provide in brackets and in bold “unless you have agreed alternative arrangements with us under Conditional Fee Agreement or a Damages Based agreement – the terms of which take precedence over these terms“.

1. 1. Although apparently entered on different dates and providing for different percentages payable of any money or any non-monetary award or settlement received (see below), the two DBAs are otherwise – the parties agree for current purposes – materially the same. Each contained the following provisions:

a. ‘This is … a Damages-Based Agreement within the meaning of section 58AA of the Courts and Legal Services Act 1990 and the Damages-Based Agreements Regulations 2013’.

b. Clause 1 defines ‘expenses’ to include ‘the cost of instructing … barristers’.

c. Clause 3.1: ‘This agreement covers … Any claim brought or arising out of Claim Number PT-2019-000803 …’

d. Clause 8.2: ‘You agree to be responsible for payment of the barrister’s fees (as explained in Paragraph 9 below). We may ask you to provide payment in advance to cover the barrister’s fees before any hearing at which they are instructed to represent you.’

e. Clause 9.1: ‘You are responsible for paying expenses that are incurred on your behalf regardless of whether you win or lose.’

f. Clauses 9.2 and 9.2.5: ‘Expenses typically include … Fees paid to a barrister. These may be for advice given in a conference, or for representing you at a hearing. If your case settles shortly before a hearing, and your barrister has already undertaken the preparation for that hearing, then you may still have to pay for part of their fee.’

g. Clause 10.1: ‘If you win you agree to pay us [10% for the Second Defendant, or 24% for the Fourth Defendant] of any money and any non-monetary award or settlement received’.

h. Clause 11.1, under the heading ‘What do you pay if the claim or proceedings are lost?’: ‘You will always have to pay disbursements which have been incurred, because you are always liable to pay disbursements.

1. 1. The retainer letters each state in bold: ‘Under DBAs we will always expect you to meet disbursements. It is for that reason that we need money on account of Counsel’s fees before we take over his instruction.’

1. The checklists state at paragraph 2: ‘… I am responsible to meet the costs of all expenses. This might include items for example, such as … counsel’s fees …’.

THE “ALLEGED” PRIVATE RETAINERS

In addition the defendants argued that there were private retainers.  (The judge did not accept that these retainers were effective. This will be looked at in a later post).

1. 1. After Green J’s judgment had been handed down on 31 January 2022, but before the consequential hearing on 4 March 2022, LLP sent letters dated 16 February 2022 to the Fourth and Second Defendants which stated:

‘As you know, once the judgement was handed down, or work so far as the no win no fee (DBA) arrangement was concerned was complete. The “win” therefore means that our fees for this aspect have become due under the DBAs.

As discussed prior to the Judgment and immediately after hand down, any new work done since the hand down of the Judgment, ie the “win”, is chargeable at our hourly rates of £500 per hour … for all work done in relation to the estate from point onwards going forward. As explained this could take some time to conclude in its entirety.

Going forward the amount of work required and therefore the fee payable with be significant it would seem, in the light of what we have seen thus far, such a HMRC issues and the undervaluation of properties….

As you are aware the issue of costs will be argued on 4 March as well who will be appointed as the PR of the estate. We are preparing the proposals that we have, along with the new PR’s that we are proposing….

1. 1. The representations in these letters are alleged by the Claimant to amount to repudiation of the DBAs by the LLP. The Defendants contend that they gave rise to fresh retainers which are said to support the claims at Part 16 of the Second Defendant’s Bills and Part 3 of the Fourth Defendant’s Bill including in particular the work done for the hearing dealing with consequential matters (costs etc) on 4 March 2022.

THE DBA’S WERE NOT COMPLIANT

The claimant argued that the defendant could not recover costs because DBAS could not cover this situation.  The defendants obtained an order that a certain will was valid. There was no “payment out of sums required”.  The DBA rules only enable the making of an agreement which provides for “payment out of sums recovered.”   There were no “sums recovered” in this case.  The claimant’s arguments were accepted by the judge.

1. 1. In my judgment the Claimant is correct to assert that these DBAs do not comply with the DBA rules.

1. 1. I agree that in Candey the Court was concerned with a materially different situation. The client in that case had resisted a claim for the transfer of shares but he had not obtained anything in the litigation; the Defendant did not have a counterclaim and the client in that case merely preserved what he had already. Here, the Defendants have obtained a declaration in their favour pronouncing the 2014 will to be invalid. But I do not accept that the approach set out in the judgment of Andrews LJ in Candey as to the meaning and effect of the DBA rules could be said to be wrong, even if it could be said that it was not necessary for the decision and therefore to be regarded as obiter. In particular I see no reason not to follow the reasoning set out in that decision, that the essential feature of a DBA is that it provides for payment to the representative to be made only from what is recovered by the client in the matter in which the solicitors were instructed (whether or not it must also be obtained from the opposing party). The position is clear that in this case the Defendants were not seeking recovery in the claim from the Claimant any sum out of which the Payment could be made.

1. 1. Mr. Quiney KC (whose submissions were made on behalf of both Defendants) argued that I should read the judgment of Andrews LJ in Candey as supporting the Defendants’ case. He referred in particular to the following passage (at [55]):

In my judgment, the language of the statute is clear. I accept that the draftsman chose to refer to the recipient of the services rather than to the claimant possibly to cater for the possibility that a DBA might be made in respect of what Mr Fulton described as an outgoing claim by a defendant, i e a counterclaim. I also accept that the phrase specified financial benefit is not confined to damages. Thus the expression damages-based agreement cannot be interpreted literally, as only applying to cases in which damages are paid (and not to debts or other forms of financial recovery). However, the word obtains envisages the litigant acquiring something that they do not already possess by necessary implication, from the opposing party. That language is not apposite to describe a situation in which the defendant retains money or other assets of value, or is not required to make a payment or transfer of assets to the opposing party, even if this is the consequence of successfully resisting a claim for debt or damages, or a claim to those assets. (my underlining)

1. 1. Mr. Quiney argued that the term “financial recovery” was sufficient to cover the benefit that was sought by the Defendants in this case. Since the word ‘damages’ cannot be understood literally as only applying to cases in which damages are to be paid, it should be interpreted as applying more generally when a party is expected to achieve a financial benefit (such as here). It seems to me to be clear that Andrew LJ’s words cannot be read in this way. Quite apart from the use of the word “recovery”, which it strikes me as plainly not apt to cover the circumstances where a mere declaration is made, when seen in context it is clear that the term “financial recovery” is to have the characteristic of debt and damages, being a sum of money. This seems clear not just from those passages in the judgment including at [51] the reference to the Jackson report proposing the payment of a percentage of “what he recovers from the other side“.

1. 1. Further, I do not accept what appears to underpin Mr. Quiney’s argument that the terms of the Act should simply be read across to the 2013 Regulations by use of a presumption that secondary legislation must be interpreted in the light of primary legislation. Such an approach would ignore the provisions under section 1 of the Act that permit Parliament further to specify the terms on which DBAs may be entered into by secondary legislation; the Act provides expressly for the Regulations to prescribe the terms and conditions of an enforceable DBA. They plainly contemplate that provisions may narrow the circumstances in which a DBA may be entered.

1. 1. The words in the Act provide that there must be a “specified financial benefit” (my underlining) and it struck me that Mr. Quiney’s argument rather focuses on a need only for a financial benefit without perhaps giving any or any adequate weight to the word “specified” and its meaning in this context. Further, a specified financial benefit must obtained in connection with “the matter in relation to which the services are provided” (my underlining) and the amount of that payment is to be determined by reference to the amount of the financial benefit “obtained” (my underlining). I agree that other words might have been used such as ‘claim’ or ‘litigation’. I recognise that the fact that the Act provides that the transfer of shares might come within the definition and might provide some support for Mr. Quiney’s argument as to the meaning of the phrase ‘specified financial benefit’ in the Act. But, it seems to me even concentrating only on the terms of the Act, the specified financial benefit must derive from the matter on which the solicitors are instructed, rather than any benefit that might be derived by any further litigation or action and the amount of that Payment is to be determined by reference to the amount of the financial benefit obtained.

1. 1. In any event, the 2013 Regulations put the matter beyond doubt. The declaration is expected to bring some financial benefit; the Defendants were expected to be better off because of it. That, in my judgment, is not enough. To my mind the 2013 Regulations are clear: there must be a sum “recovered in respect of the claim or damages ” (my underlining). The Defendants’ arguments, in effect, seek to read in the words “sum to be recovered” in place of the terms “sum recovered”. In my view this does too much violence to the literal meaning of the words.

1. 1. Regulation 4 restricts the amount of the Payment to 50% of “the sums ultimately recovered …”. I agree that the word “ultimately” in the latter provision might give some weight to the suggestion that the financial benefit could be contingent liability, but that is only if the words are looked at in isolation, not in context. In context the literal meaning of Regulation 2013 is, it seems to me, the agreement must provide for the payment out of sum recovered so that there must be ascertainment of the actual financial benefit in money terms. It seems to me to be plain that what was to be obtained in this case by the declaration is not ascertained and therefore what at least part of what Andrew LJ referred to as the fundamental premise is not present^[6].

1. 1. It thus seems to me to be clear that on a literal reading of the DBA rules that Parliament did not provide for and did not intend DBAs to be available where the financial benefit was merely contingent and hence the sum due could not be ascertained at the conclusion of the matter on which the solicitor was instructed.

1. 1. Moreover, there seems to be good reason why the 2013 Regulations should limit the terms on which a DBA may be entered in this way. This is, quite apart from nothing else that might be said, for reasons of practicability. Until the value of what has been recovered is ascertained the amount of the payment due to the solicitors cannot be ascertained. Indeed, the amount of the cap under Regulation 4(3) and the inter partes cap imposed by CPR 44.17 cannot be ascertained and it is unclear how they could be ascertained for the purposes of the inter partes costs assessment or for an assessment between the solicitor and client.

1. 1. Different scenarios were floated in written and oral argument to illustrate or support the parties’ cases on this point. Mr. Marven raised the example of a claim for an injunction (and emphasised the difficulty in valuing any financial benefit from it) – albeit I think Mr. Quiney did not press this as one which could be pursued by a DBA. The example perhaps most illustrative of the Defendants’ case was that of a claim for the return of a Rembrandt painting. However, in such a claim the financial benefit may not be specified or ascertainable and there would need to be a determination of the value of the Rembrandt painting in a costs assessment. This would, at the very least, be a somewhat unusual feature of costs assessment. The problem of ascertaining the benefit for the purposes of the caps may not be obvious in the case that I am now dealing with (given what I am told is the value of the estate) or in a case involving a Rembrandt but it seems if the Defendants’ approach were right, that in other cases clear and obvious difficulties would arise.

1. 1. I accept, of course, that the corollary of the Claimant’s position, if right, is that DBA would be precluded in the case of the claim for the return of a painting. That is because in that case, if it were successful, there would be no determination or ascertain the value of the painting. But I do not find that a surprising outcome, since whilst it may be said that regulations “were not their finest hour” (see Coulson LJ, Zuberi at [74]) they are nevertheless sufficiently clear in their meaning on this point.

1. 1. Moreover, in my judgment, Mr Marven is clearly right to say that if it had been the intention of Parliament to permit a DBA to be entered into in circumstances where the benefits to be recovered were not ascertained, not only would the 2013 Regulation have made this clear they would also have provided for a mechanism for ascertaining the value of that which is to be recovered. The potential for difficulties and the need for consumer/client protection in such circumstances, and in any such process, seems to me to be clear.

1. 1. There might, it occurred to me, be further problems which would flow from the Defendants’ approach, one of which is perhaps illustrated by the facts of this case.  Were it sufficient for a mere contingent financial benefit to count for these purposes it might mean that solicitors could enter more than one DBA in respect of what might be otherwise appear to be one claim (typically perhaps in personal injury cases one DBA dealing with liability only and then another dealing with quantum). Further litigation appears to be contemplated in this case to ascertain the amount due to the Defendants in this case and further funding arrangements required. There might, I suppose, be some difficulties reconciling multiple sequential DBAs, each of which permits a solicitor to take a share of the proceeds, with the limitations in Regulation 4 (3).  Although Mr. Quiney asserted that there was nothing wrong with sequential DBAs the issue was not clearly raised or considered in the hearing. Since I consider the outcome clear on the other matters that were raised, it  was not necessary for me to invite further submissions on this point or to make any decision on it.  But without making any decision on it this consideration might be an additional reason supporting what I regard as the literal meaning of the 2013 Regulations.

1. When the practical and other considerations which I have referred to above ([67] -[69]) were raised with Mr. Quiney he, realistically, recognised the difficulties but says, in effect, that they should not weigh against the imperative of such agreements giving effect to the Statutory Objective. I am not persuaded by this: where the literal meaning of the 2013 Regulations is clear and where practical and, perhaps other considerations weigh against rather than for the meaning he contended for, it seems to me there is no room for the imperative that he relies upon. The alleged imperative must give way to the limitations that Parliament intended to apply to such funding arrangements.