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Damages Based Agreement (DBA) Enforceable Despite Early Termination Clause


Trinity Personal Injury, Business and Property barrister, Chris Hegarty examines the judgement in a recent case involving the enforceability of Damages Based Agreements (DBAs).

His Honour Judge Parfitt, sitting in the Chancery Division of the High Court handed down judgment on 10 July 2020 in this rare case of a solicitor suing for fees - Lexlaw v Zuberi [2020] EWHC 1855 (Ch).

Even more unusually, the claimant solicitors had acted under a DBA, and that DBA contained a clause providing for fees to be paid in the event of termination prior to win or loss, or an "escape clause" for the client to terminate by paying fees to date.

Ordinarily a DBA is what most would recognise as a contingency fee in which the lawyers get paid a pure percentage of the winnings. Historically such arrangements are unlawful in England & Wales when they relate to litigation, but after being accepted in the Employment Tribunal for some time it was decided to extend them to litigation generally.

In 2013 the DBA Regulations came into force and these apparently require that a DBA cannot make the client liable to pay anything but the Payment (that is the agreed percentage of damages) and expenses, net of costs which are recouped from the other side (regulation 4).  

However, in Employment Tribunal cases, the DBA Regulations allow for fees to be charged to the client if the client terminates early.

There has been a lot of commentary, and some wariness by lawyers, that this means that an escape clause would render a DBA unenforceable in non-Employment cases.

In this case Lexlaw had entered into a DBA with Ms Zuberi which contained such an escape clause.

The solicitors undertook litigation and negotiation and on 7 July 2015 secured an improved offer in relation to Ms Zuberi’s bank claim; Ms Zuberi had, however, on 18 May 2015 purportedly terminated the DBA.

So, on the cautious view, Lexlaw, having undertaken work could not recover any fees.

On 31 July 2015 Lexlaw issued an invoice under the DBA for their contingency fee.

Ms Zuberi now contends the agreement is unenforceable because of that escape clause.

The decision rests upon the foundation that the restriction is limited to the contingency payment alone, and that Payment is the subject of regulation (it has a cap and that cap is inclusive of VAT and counsel’s fees in particular). The court found that it would have required clear words to oust the ability of the parties to a contract (which is all a DBA is) to agree such terms as the ordinarily law permits save where the DBA regulations intervene.

HHJ Parfitt set out seven interlocked reasons why an early termination costs clause does not offend against the requirement that no other payment may be made by the client to the lawyer (at p.59) and together they draw out the inconsistency in the DBA Regulations and why a conclusion that escape clauses do not create payments which are excluded under regulation 4.

Whilst this is a first instance decision, and potentially open to appeal, it offers some hope that the courts may take the view that DBAs should be upheld and the Law Society and specialist Bar Associations may take the view that it is time to promulgate a standard form DBA.

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