Damages Based Agreements Are Not Enforceable Against a Non-Counterclaiming Defendant: Candey Ltd v Tonstate Group Ltd & Ors [2022] Ewca Civ 936 - Grace Corby, Temple Garden Chambers
18/08/22. The appeal raised the novel question of whether it is lawful for a party against whom a claim is made (i.e. the defendant to a claim or counterclaim) to enter into an agreement that, if he succeeds in defending that claim in whole or in part, he will pay his legal representatives a percentage of the money or the value of the assets that he has resisted having to pay or transfer to his opponent.
The Court of Appeal determined such Damages Based Agreements (“DBA”)) could not be used between a solicitor and a defendant without a counterclaim.
The Facts
The Claimant solicitors acted for a client under a DBA, regarding a complex share ownership dispute. The claim settled with the client retaining 25% of his shares, such that the Claim had been successfully defended in part. Upon the client’s bankruptcy, the solicitor claimed that, under the DBA, they were entitled to a certain percentage of the contested shares that had been retained. Other creditors contended that this was not the case.
The Court of Appeal addressed whether it was lawful for a DBA to allow a solicitor to retain a percentage of contested assets in a successfully resisted claim.
Legal Framework
DBAs are unlawful at common law. However, they were legalised on a statutory basis in response to recommendations in Lord Justice Jackson’s report on civil litigation costs (“the Jackson Report”). This legalisation was done via an amendment to section 58AA of the Courts and Legal Services Act 1990 (“the 1990 Act”)...
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