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

Turning to Candey, the appellants seek to invoke the Court of Appeal’s analysis in support of their case. It is submitted that the defendants were “materially richer” following the court’s declaration, even though that enrichment is contingent. Their financial benefit is different to the impermissible share of the defendant’s retention in Candey, and falls within the term financial benefit under the Act. The appellants cite para 55 of the judgment of Andrews LJ, as confirmation of their wide interpretation of financial benefit. Andrews LJ stated:

“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).”

It seems to be that this extract runs contrary to the appellants’ case. What Andrews LJ is clarifying is that, as no one disputes, DBAs can apply to cases beyond those where damages are awarded. Regulation 1(2) makes that clear. But what is significant in the extract is that Andrews LJ speaks of other forms of “financial recovery”. The appellants submit that this passage in Candey supports their case as “other forms” is broad enough to include the “financial benefit” they received following the order of Green J determining the validity of the earlier will. One must not read a court judgment scripturally; it is not a statute. However, for my part, the key word is “recovery”. This is taken from regulation 1(2). The common feature of damages awarded and debts and other forms of financial recovery is that something has come to the client that is quantified, can therefore be ascertained, and readily passed on to the representative. The difficulty for the appellants is to identify what can tangibly be passed on to the solicitors by the client at the end of the index proceedings. If one adds, as I judge must be done, the further definitional requirement that what is to be passed on as payment to the client’s legal representatives must be what is recovered from the other party, the fatal flaws in the appellants’ position are laid bare. In any event, it is clear from reading Andrews LJ’s judgment as a whole that the term financial recovery gains colour from the other terms she mentions, such as damages or debt that is received from “the other party”. She says so in terms in the same paragraph and it bears repeating:

“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.”

The notion of something being transferred (“obtained”) from the opposing party is vital, it seems to me, following Candey. A more extensive survey of the Court of Appeal’s judgment confirms this position and cuts across the appellants’ case. Andrews LJ traced the origins of DBAs, noting at para 45:

“45 It was common ground before us that there is nothing in the Jackson Report that supports the concept of a DBA being entered into by a defendant in respect of an incoming claim. The Jackson Report recommended that lawyers should be able to enter into contingency fee agreements with clients for contentious business, subject to certain conditions, including the regulation of their terms. A “contingency fee agreement” was described in para 3.2 of the introductory chapter as one under which “the client’s lawyer is only paid if his or her client’s claim is successful, and then the lawyer is paid out of the settlement sum or damages awarded, usually as a percentage of that amount” In chapter 12, which is devoted to the specific topic of contingency fees, Jackson LJ confirms in para 1.1 that he uses the term “contingency fees” in its narrower sense to denote fees which (a) are payable if the client wins and (b) are calculated as a percentage of the sums recovered.”

Therefore, from the outset in the Jackson Report, there is reference to representatives (“lawyers”) being paid out of sums recovered by the client in the proceedings. There is no mention of contingent rights as opposed to contingency fees (that is, contingent on successful outcome). Andrews LJ continued at para 46:

“However Hansard does record that, in answer to a specific question about whether DBAs could be used by defendants, the Minister of State, Lord McNally, made a statement in the House of Lords on 26 February 2013 (during the passage of the 2013 Regulations) to the effect that neither the Act nor the Regulations enable defendants to use DBAs, “not least because a DBA is enforceable only where the agreement makes provision for the payment of the fee from damages awarded” (Hansard (HL Debates), 26 February 2013, col 134). He made a similar statement in a letter of 5 March 2013 which was placed in the library of both Houses of Parliament.”

Both Houses of Parliament approved the Regulations that were placed before them in the form that came into force on 1 April 2013. Once more, it is noticeable that there is no mention of contingent rights. Andrews LJ continued at para 51:

“51 There seems to me to be considerable force in those submissions, since it cannot be inferred that Parliament created an exception to a long- established common law prohibition by accident or oversight. The fact that there is nothing in the Jackson Report, the Parliamentary debates or in the Explanatory Memorandum to suggest that it was ever envisaged at the time of the legislative changes that litigation funding arrangements of this particular nature should be permitted, is a powerful indication that this was not Parliament's intention. On the contrary, the focus in the Jackson Report is upon permitting a successful client to pay his lawyers a percentage of what he recovers from the opposing party, which is something altogether different.”

Once more, we see the importance of recovery “from the opposing party”, something absent in this case. It is useful here to set out relevant extracts from both the Explanatory Note and the Explanatory Memorandum. Such documents are legitimate aids to interpretation, but do not have the force of law (see Bennion at para 24.24 on “external aids to interpretation”, which I need not repeat here; see also Lord Steyn in R (Westminster City Council) v National Asylum Support Service [2002] UKHL 38). The Explanatory Note to the Regulations recognises that “This note is not part of the Order”. It proceeds to state:

“These Regulations prescribe the requirements with which a damages-based agreement (“DBA”) must comply in order to be enforceable under section 58AA of the Courts and Legal Services Act1990 (c.41) (“the Act”).”

The word “must” should be noted. The way in which payment is defined is comprehensive (“means”) rather than being inclusive, as in the statutory definition. The permitted bases for payment with which the DBA must comply are set out in the regulation 1(2) definition and the limits in regulation 4. The Explanatory Note continues:

“DBAs are a type of ‘no win, no fee’ agreement under which a representative (defined in these Regulations as a person providing the advocacy services, litigation services or claims management services to which the DBA relates) can recover an agreed percentage of a client’s damages if the case is won (“the payment”), but will receive nothing if the case is lost.”

As to the Explanatory Memorandum, it was reviewed in Candey at paras 19-20:

“19 The Explanatory Memorandum to the 2013 Regulations, which was laid before Parliament with the Regulations, and can be used as an aid to their interpretation in case of ambiguity, describes a DBA as: """"a private funding arrangement between a representative and the client whereby the representative's agreed fee (""payment') is contingent upon the success of the case, and is determined as a percentage of the compensation received by the client.'' It explains that the Regulations prescribe the requirements with which an agreement between the client and representative must comply in order to be an enforceable DBA.

20 Para 2.3 of the Explanatory Memorandum summarises those requirements as follows:

“(i)

in all cases, the matters which the terms and conditions of an agreement must specify, including the reason for setting the payment at the agreed level (regulation 3);

(ii)

in civil litigation, stating the maximum payment (as a percentage of damages recovered and including VAT) that the representative may take from the claimant's damages (namely, in personal injury cases, 25% of the damages specified in these Regulations, and in all other civil litigation, 50% of the damages ultimately recovered by the claimant), as well as what the payment is intended to cover (regulation 4).”

One might add that there is nothing in the Jackson Report, the Parliamentary debate or either the Explanatory Note or Explanatory Memorandum indicating that contingent rights with a payment to the representative at some unspecified time in the future was envisaged. I note and respectfully adopt Andrews LJ’s emphasis of the payment of “a percentage of what [s/]he recovers from the opposing party”. To the question what has been recovered from the respondent here, the answer is nothing. Prior to Green J’s pronouncement, the respondent did not “have” the assets or rights under the 2014 will she claimed was effective. The destination of the assets in the estate remained undetermined pending the decision of the Chancery Division. The assets remain undistributed.

While para 55 of Candey is relied on by the appellants, it is worthy of revisiting it in light of the more detailed exposition of the judgment now undertaken, along with the full paragraph:

“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.”

This seems to me to be important. Using the Court of Appeal’s analysis, the question is what had been “obtained” by the appellants from the “opposing party”, that is, the respondent, from whom nothing has been obtained. Following the pronouncement about the validity of the 2012 will, the respondent, to borrow Andrew LJ’s words, is “not required to make a payment or transfer of assets to the opposing party” (here parties: the appellants). This point is underlined at para 59, where the Court of Appeal said:

“As the Judge held at para 50, that means it is a necessary prerequisite to the entitlement of a representative to payment under a DBA that the client has made a recovery from the other side to the litigation.”

In similar vein the court continued at para 62:

“62 I am unable to accept those submissions. The argument falls at the first hurdle because the statute does not permit this type of agreement, for the reasons I have already stated. The Regulations do not conflict with the statute, but are entirely consistent with the concept that a DBA provides for payment to the representative to be made only from what is recovered by the client from the opposing party, and then only up to a prescribed percentage of the amount so recovered.” (emphasis provided)

Then in the second half of para 62 comes what, to my mind, is a key passage:

“That is the fundamental premise upon which the Regulations were enacted. In order to be enforceable, a DBA must not only fall within the statutory definition, but also satisfy the conditions in section 58AA(4), including the requirements of the Regulations. A DBA which provided for payment to be made when there is no financial recovery from the opposing party would not do so.”

The Court of Appeal states in terms that it is not enough to fall within the definition of the Act. To be enforceable, given the surrounding sea of illegality, the DBA must also satisfy “the requirements of the Regulations”. Once more, the Court of Appeal emphasises recovery from the opposing party. This is crucial since the amount of payment to the legal representatives is directly referable to the amount of financial benefit “obtained”, which I take to be actually recovered and not as a future contingent event (whether through future proceedings or otherwise). This is what the phrase in the Regulations about sum “recovered in respect of the claim or damages” means on a natural and plain reading. It does not bear the weight of a future contingency construction.

I turn to the final extracts from the judgment in Candey. It is necessary to set out the submissions of that appellant-defendant before turning the Court of Appeal’s conclusion. One instantly sees how similar the arguments rejected in Candey are to those advanced to this court. For that reason, they merit reproducing here:

“63 Mr Williams’ ultra vires argument likewise depended upon the premise that the Regulations conflicted with the statute. Mr Williams submitted that the definition of “payment” in the Regulations and the word “recovered” were ultra vires because they went well beyond the requirement in section 58AA(4)(c) that a DBA should comply with “such other requirements as to its terms and conditions as are prescribed”. That only permitted the Regulation of the terms of a DBA as defined in the primary statute, and not the prescription of terms and conditions which had the effect of limiting the types of DBA which could be enforced.

64 In addition to the points on interpretation of section 58AA referred to in para 52 above, Mr Williams contended that the expression “specified financial benefit” in section 58AA(3) (which is wide enough to embrace the benefit of retaining an asset of value) and the definition of “payment” in section 58AA(7) (which envisages that the representatives can be paid under a DBA by the transfer or assets or any other transfer of money’s worth by the client) are in conflict with what the Regulations in fact permit to be used as the source of payment under the DBA.”

The Court of Appeal then provides its response to the submissions at paras 64-65:

“64 In addition to the points on interpretation of section 58AA referred to in para 52 above, Mr Williams contended that the expression “specified financial benefit” in section 58AA(3) (which is wide enough to embrace the benefit of retaining an asset of value) and the definition of “payment” in section 58AA(7) (which envisages that the representatives can be paid under a DBA by the transfer or assets or any other transfer of money’s worth by the client) are in conflict with what the Regulations in fact permit to be used as the source of payment under the DBA.

65 This argument appeared to me to be based on a misconception of the function and scope of the Regulations, and their relationship with section 58AA, even if the premise upon which it is based-namely, that the statutory definition of a DBA embraces this type of agreement-were correct. The scheme of the Act was to permit DBAs (as defined) in principle, but then to confer a power on the Lord Chancellor to make Regulations which would include distinguishing between the types of DBA which can and cannot be made. The 2013 Regulations have only permitted agreements which provide for the representatives to be remunerated from sums recovered from the opposing party in respect of a claim (or counterclaim) made by the client, including, but not limited, to damages, which is entirely in line with the recommendations made in the Jackson Report.”

Therefore, the Court of Appeal has said that the scheme of the Act is to permit DBAs “in principle”. To return to the common law context in which DBAs sit, the operation of the Act deems in principle as not unenforceable certain agreements between clients and representatives that pay for litigation and other legal services through what was called during the hearing before me “a share of the fruits of the proceedings”. But once one moves past the principle to the practical application of the principle, one must ensure further compliance with the Regulations. This seems to be what the Court of Appeal has ruled in Candey. The authorisation for the creation of the Regulations is set out in the preamble to the Regulations:

“The Lord Chancellor in exercise of the powers conferred by sections 58AA(4) and (5) and 120(3) of the Courts and Legal Services Act 1990(1), having consulted in accordance with section 58AA(6) of that Act, makes the following Regulations, a draft of which has been in accordance with section 120(4)(2) of that Act laid before and approved by resolution of each House of Parliament.”

The Act is clear that any such approved and consequently enacted regulations may specify the terms of permitted DBAs (section 1 of the Act). It is these regulations, drafted by the Lord Chancellor and approved by each House of Parliament in accordance with the Act, that as the Court of Appeal states distinguishes between “the types of DBA that can and cannot be made”. On this analysis from the Court of Appeal, the Regulations delimit the permitted “types” of DBA. This answers the question why the definition of payment under the Regulations is narrower than the definition under the Act. It is deliberately so. To the extent that it evinces a deliberate “contrary intention” for the purposes of section 11 of the Interpretation Act 1978, it is to define which types of DBAs are permitted by defining what can validly form the payment to the representative. I can accept the appellants’ submission that the Act and the Regulations should exist “in harmony”. The answer to the claimed disharmony between them is that they are directed at different things. The empowering act creates a new exception to common law champerty. The Regulations specify what types of DBAs within the broad exception are in fact permitted.

What is permitted under the Regulations is plain, to my mind: either damages awarded or sums recovered in the sense articulated by Andrews LJ in Candey and as envisaged in the Jackson Report. At no point is there any pronouncement or indication that a contingent right can properly amount to the valid basis of payment from the client to the representative or provider of legal services. I find this is unsurprising: it is difficult to understand a contingent right as a recovery, but this is particularly so when nothing has in fact been recovered from the opposing party, as Andrews LJ mentions, but instead there has been the declaration of the validity of one will over another. The Regulations, therefore, delimit and define which types of financial benefit are permitted in DBAs.