KA-2025-000017 - [2025] EWHC 2311 (KB)

The appellants’ submission is that the word “ultimately” in regulation 4(3) indicates that conditional rights or payments are permissible. Therefore, it is possible for the payment to the representative not to be a sum recovered within the proceedings, but a vested or conditional right to a future sum once the asset or money's worth has been realised or liquidated after the proceedings in which the representative has been instructed have ended. It is the word “ultimately” that is said to be vital. The submission is that the word reveals the possibility of a contingency of recovery (or perhaps on the appellants’ case, receipt). It seems to me that two contexts are required before the submission can be evaluated. First, the entirety of the provision:

“(3)

Subject to paragraph (4), in any other claim or proceedings to which this regulation applies, a damages-based agreement must not provide for a payment above an amount which, including VAT, is equal to 50% of the sums ultimately recovered by the client.”

This makes clear that regulation 4(3) is directed at claims and proceedings other than those elsewhere specified in the regulation 4. Here the second context is important. Regulation 4(3) needs to be read in the context of its immediately preceding provision. Regulation 4(2) provides:

“(2)

In a claim for personal injuries—

(a)

the only sums recovered by the client from which the payment shall be met are—

(i)

general damages for pain, suffering and loss of amenity [“PSLA”]; and

(ii)

damages for pecuniary loss other than future pecuniary loss,

net of any sums recoverable by the Compensation Recovery Unit of the Department for Work and Pensions [“CRU”] ; and

(b)

subject to paragraph (4), a damages-based agreement must not provide for a payment above an amount which, including VAT, is equal to 25% of the combined sums in paragraph (2)(a)(i) and (ii) which are ultimately recovered by the client.”

One sees how the provision is structured. Once CRU is deducted, the recovered sums from which the representative may be paid by the client are limited to general damages for PSLA and damages for pecuniary loss (other than future such loss). The meaning of “ultimately” in the term “ultimately recovered by the client” is clear. It relates back to the regulation 1(2) definition of payment. Valid payment to the representative can be through one of two routes, one of which is “damages awarded”. Putting regulation 1(2) together with regulation 4(2) – a contextual interpretation – the meaning of ultimately is clear. It may well be that the damages awarded do not equate to those claimed earlier in proceedings. By the end of the proceedings – “ultimately” – the sums recovered in the personal injury claim are determined. The DBA cannot provide for payment to the representative over 25 per cent of the combined awarded general damages and pecuniary loss amounts. There is no contingency in the sense of a future financial benefit beyond the end of proceedings. It is the damages awarded by the end of proceedings that is the relevant factor.

Turning then to regulation 4(3), the term ultimately is used again, now for cases that do not involve damages for personal injury. It would be curious indeed if in this immediately following provision the intention is to authorise validity of an entirely different kind of financial benefit, not one recovered during the course of the proceedings in which the representative has acted, but in some further proceedings or at some future undetermined point. I cannot find that the word ultimately should be used in two strikingly different senses in two immediately adjacent provisions within the same regulation.

Furthermore, it seems to me unlikely that if contingent rights, that is the receipt at some future point of a “sum”, could be sufficient to meet the definition approved by both Houses of Parliament in the Regulations, that this would not be made clear. This is because a future sum from a contingent right does not obviously fit the clear words of the payment definition in regulation 1(2). This further elucidation would be expected if the contingent rights construction were valid as it makes little sense otherwise that a “sum recovered” should include a sum later to be received. I note what Lewison LJ said in Zuberi at para 34:

“First, the object of the legislation was to permit the remuneration of lawyers by means of a share of recoveries.”

Recoveries, to my mind, does not include future receipts beyond the end of proceedings that may or may not require further proceedings. It does not include a declaration about which of two wills is effective. I note how specific the Regulations are in specifying the percentages above which the payment cannot go. This must be in an attempt to provide clarity and protection for the client. I cannot think that the spectre of future payments that remain to be quantified at some future unspecified date beyond the end of the proceedings offers clarity or protection.

The appellants submit that if there are competing wide or narrow interpretations of the statute and regulations, then “the Judge should have adopted the wider”. I am not persuaded that the contest here is between a wide and narrow construction. It is more accurately understood as a dispute about whether contingent rights where there is no sum recovered during proceedings (let alone from the opposing party) meets the definition under regulation 1(2). To me, the appellants’ construction does not entail interpreting the regulation widely, but rewriting it. That is impermissible. The interpretation that the Judge reached does not render financial benefit under section 58AA “shorn of meaning”, nor does it mean that only “claims for liquidated damages” can be the subject of DBAs. Regulation 1(2) explicitly offers the alternative to damages awarded of sums recovered.

At para 37.1 of their skeleton argument, the appellants set out a series of contingent rights that are “valuable in nature”. These include stock options and bonus payments and as the appellants put it, “Rights under SPAs which are contingent on various outcomes or performance of the business sold.” The last example illustrates the problem. Given that this is not a damages awarded situation, one asks what the sum recovered by the client is that constitutes the payment to the representative. There appears to be nothing by the end of proceedings if the outcome depends on “various outcomes” or the future performance of the business sold. This seems to present the same problem as the validity of the will declaration situation. It does not meet the clear definition spelled out in the delegated legislation.

It is submitted that the Judge determined that “only ascertainable monetary claims can be the subject of a DBA” and this is an erroneous interpretation since all claims are contingent at the point of contracting. It seems to me that read as a whole the Judge decided that what is necessary is for there to be some recovery by the client by the end of proceedings. Indeed, at para 37.3 the appellants note that a general damages claim “does not crystallise until the date of Judgment or settlement”. That is the key point. There is the crystallisation of a sum recovered by the end of proceedings and that is capable of forming the payment by the client to the representative.

I deal next with a submission made by the appellants that the Regulations should be interpreted to avoid “absurdity” as there is a presumption against absurdity. Reliance was place on Bennion at para 13.1:

“(1)

The court seeks to avoid a construction that produces an absurd result, since this is unlikely to have been intended by the legislature. Here, the courts give a very wide meaning to the concept of "absurdity", using it to include virtually any result which is impossible, unworkable or impracticable, inconvenient, anomalous or illogical, futile or pointless, artificial, or productive of a disproportionate counter-mischief.

The strength of the presumption against absurdity depends on the degree to which a particular construction produces an unreasonable result.

The presumption may of course be displaced, as the ultimate objective is to ascertain the legislative intention.”

In similar vein, Lord Millett said in R (Edison First Power Ltd) v Central Valuation Officer [2003] UKHL 20 at para 116, “[the] more unreasonable a result, the less likely it is that Parliament intended it …”. Two points are pertinent. First, the presumption may be displaced. Second, the legislative intention includes widening access to justice while at the same time ensuring proper protection of recipients (clients) of legal services and particularly members of the public. It is submitted by the appellants that the Judge’s interpretation of the Regulations produced such an “absurd” result because it resulted an unreasonably harsh outcome for the appellants. Their solicitors could receive no payments under the DBAs. The answer to that is that it has been repeated that the qualifying conditions for statutory exceptions to champerty such as CFAs may result in an outcome that is “uncompromising”, as the Court of Appeal said at para 27 of Garrett v Halton BC [2006] EWCA Civ 1017 (“Garrett”). It repays setting down a fuller extract from judgment of Dyson LJ (as he then was), explaining as it does the justification for outcomes that may appear harsh (paras 27-28, 30):

“27 … The starting point must be the language of section 58(1) and (3) of the 1990 Act. It is clear and uncompromising: if one or more of the applicable conditions is not satisfied, then the CFA is unenforceable. Parliament could have adopted a different model. It could, for example, have provided that where an applicable condition is not satisfied, the CFA will only be enforceable with the permission of the court or upon such terms as the court thinks fit. There is nothing inherently improbable in a statutory scheme which provides that, if the applicable conditions are not satisfied, the CFA shall be unenforceable with the consequence that the solicitor will not be entitled to payment for his services. Such a scheme can yield harsh results in certain circumstances, especially if the client has not suffered any actual loss as a result of the breach. It can also produce results which, at first sight, may seem odd: see the point made by Mr Bacon mentioned at para 26 above. But the scheme is designed to protect clients and to encourage solicitors to comply with detailed statutory requirements which are clearly intended to achieve that purpose. The fact that it may produce harsh or surprising results in individual cases is not necessarily a good reason for construing the statutory provisions in such a way as will avoid such results.

28 Our attention was drawn to other statutory regimes which introduce a bar on the enforcement of rights which can operate harshly in certain circumstances. Thus, in Wilson v First County Trust Ltd (No 2) [2004] 1 AC 816, the House of Lords was concerned with a claim based on a loan agreement between a pawnbroker and a borrower. The pawnbroker sought repayment of the loan. Relying on section 127(3) of the Consumer Credit Act 1974, the borrower claimed that the loan was unenforceable because the agreement did not contain all the prescribed terms. This was a harsh result for the pawnbroker, since the borrower could not point to any prejudice suffered by her as a result of the failure to include all the prescribed terms in the agreement. Lord Nicholls of Birkenhead said, at paras 72-74:

“72.

Undoubtedly, as illustrated by the facts of the present case, section 127(3) may be drastic, even harsh, in its adverse consequences for a lender. He loses all his rights under the agreement, including his rights to any security which has been lodged. Conversely, the borrower acquires what can only be described as a windfall. He keeps the money and recovers his security. These consequences apply just as much where the lender was acting in good faith throughout and the error was due to a mistaken reading of the complex statutory requirements as in cases of deliberate non-compliance. These consequences also apply where, as in the present case, the borrower suffered no prejudice as a result of the non- compliance as they do where the borrower was misled. Parliament was painting here with a broad brush.

While the DBA Rules are designed to facilitate the said “new or better ways” to promote access to justice, it is not at any expense. It is clear from Dyson LJ’s judgment that compliance with “statutory conditions” for CFAs is essential to their enforceability, despite or in the face of harsh consequences in individual cases. Wider public interest considerations for the effective protection of the public exist. I cannot see that these imperatives, so thoroughly outlined by the Court of Appeal in Garrett, have any lesser application to the DBA regime. Therefore, I cannot accept the claims of purported “absurdity”. Compliance with the statutory conditions may be “tough”, but as the Court of Appeal clearly stated, it is not “irrational”. The fact is that only DBAs that comply with the rules are enforceable. The case of Jones v Caradon Catnic [2005] EWCA Civ 1821 is instructive. It is referenced in Garrett at paras 40-42:

“40 We should refer to the decision of this court in Jones v Caradon Catnic Ltd [2005] EWCA Civ 1821. The claimants’ solicitors claimed a success fee of 120% which exceeded the maximum prescribed by the Conditional Fee Agreements Order 2000 (SI 2000/823). The court held that there was a clear breach of the 1990 Act and the 2000 Order. Was it a material breach as explained by Hollins v Russell? Construing the CFA as a whole, the court held that there was no question that the client would ever have to pay a success fee of more than 100%. Accordingly, “this was not a case in which our attention should be devoted to consumer protection or client protection”. Rather, it was a case in which the issue was “whether the breach was material or not, to the administration of justice”: para 29.

41 Brooke LJ said, at para 32, that the breach was material in that sense: it was “on any showing, a more serious breach compared with the trivial breaches set out in the two cases to which I have referred” (these were the first two cases in Hollins v Russell). Laws LJ agreed. He said that he could not characterise the breach in the instant case as a “marginal” failure to respect the statute. To disregard the specified 100% limit was inimical to the administration of justice “even if in the result it could be shown that no one would be the loser”: para 35. If the court were to treat this violation as marginal, it would be acting “flat against the grain of the legislature’s policy objectives attained by section 58(1)”: para 36.

42 It is true that this decision is not based on the client protection limb of the question stated in para 107 of Hollins v Russell [2003] 1 WLR 2487. It shows that, in deciding whether there has been an adverse effect upon the proper administration of justice, the court does not consider whether actual prejudice has been caused to the claimant or indeed anyone else.”

Furthermore, while I accept the general principle advanced by the appellants that any ambiguity should be resolved to produce a fair result, I do not find any ambiguity in the DBA Rules. There are different definitions of payment. However, it is in the Regulations that we find what practical applications of the limited exception to champerty created by section 58AA are permissible.

I should add that I have not found the citation of Allen v Thorn Electrical [1968] 1 QB 487 to be of any great relevance. The well-known proposition, reaching all the way back to Entick v Carrington (1765) 19 ST TR 30, is that one cannot remove legal rights without the clear words of a statute. I do not see how any rights of the appellants are removed by the Act or the Regulations or indeed by the Judge’s decision on the unenforceability of the DBAs. The appellants acknowledge that “the statute does not deprive them of any rights”.

The appellants further submit that if there are two rival and incompatible interpretations and one produces, as the appellants put it, “unreason or hardship”, this points to the other fairer interpretation. There is no lack of reason in the Judge’s decision, nor in the Act or Regulations. I can see that if the DBAs are unenforceable, that would operate harshly against the appellants’ solicitors, who plainly have undertaken a large amount of work. However, there was a clear choice. The solicitors could have taken on instructions under CFAs. They chose not to. It seems to me that the DBA Rules are clear and the consequences of non-compliance very well known.