The damages-based agreement disaster – no sum recovered, no fee paid

The High Court ruled that a law firm was unable to claim a share of awarded costs because the damages were never actually awarded. 

Facts:

The core facts relate to a costs appeal arising from contested probate proceedings and the subsequent enforceability of damages-based agreements (DBAs) used to fund the litigation. The dispute centred on the estate of Kevin Patrick Frain (aka Kevin Patrick Reeves), which was valued at approximately E100 million. 

Louise Michelle Reeves, the deceased's daughter, sought to uphold a 2014 will that left her 80% of the residuary estate and substantially reduced bequests to the appellants. Simon Frain, the deceased's son, and Mark Ryan McKinnon, the deceased's grandson, challenged the 2014 will on grounds of the deceased's lack of capacity and undue influence. They sought to uphold an earlier 2012 will, which provided for a more equitable split of the estate. A crucial issue was whether the deceased's cognitive and literacy abilities allowed him to comprehend the 2014 will, raising questions about undue influence and true testamentary intention. 

The trial Judge, Green J, upheld the validity of the 2012 will and rejected Ms. Reeves' claim. This meant the appellants, as the successful parties, were the receiving parties for costs. Green J ordered Ms. Reeves to pay 70% of the appellants' costs on an indemnity basis, which were claimed to be around £1.3 million.

The subsequent dispute, which is the subject of this costs appeal, arose because the appellants' solicitors had been engaged under two separate DBAs, dated late 2020 and early 2021, which purported to pay the solicitors a specified percentage – 10% for Simon Frain and 24% for Mark McKinnon – of any monies, non-monetary award, or settlement received if they won. The Costs Judge had previously held these DBAs to be unenforceable because the Court's declaration in favour of the 2012 will—a non-monetary benefit—did not qualify as a "sum recovered" under the strict terms of the relevant statutory regulations, leading the appellants to appeal this decision.

Decision: 

The High Court dismissed the appeal because the two DBAs used by the appellants' solicitors were found to be unlawful and unenforceable on two separate, independent grounds. The Court's reasoning was driven by a strict interpretation of the Damages-Based Agreements (DBA) Regulations 2013, prioritising client protection and adherence to the statutory exception to the common law prohibition on champerty.

The primary reason for dismissal was the failure of the DBAs to satisfy the condition that payment must be a percentage of a "sum recovered" by the client. The Court was bound by the Court of Appeal's ruling in Candey Ltd. v Tonstate Group Ltd., which established that an enforceable DBA requires a specified financial benefit to be "recovered from the opposing party". The probate proceedings merely resulted in a court declaration upholding the validity of the 2012 will over the 2014 will. This declaration of validity did not involve the respondent (the opposing party) paying or transferring any assets to the appellants, as the assets remained within the deceased's undistributed estate.

The DBAs were also found to be unenforceable because they violated the explicit requirements for what must be included within the contingency payment.

Implications:

The Court emphasised the principle that DBAs are a "narrow and deliberately specific" exception to champerty. Compliance with the statutory conditions and regulatory requirements must be strict and uncompromising. Any result, no matter how "harsh" for the solicitors who did the work, is justifiable if it upholds the overarching statutory objective of effective protection of the public from excessive legal costs and any conflicts of interest arising.

The key implication of this case is that it severely restricts the types of litigation that can be funded by DBAs in England and Wales, particularly complex, high-value, non-pecuniary disputes such as probate claims. The case reinforces the strict, "uncompromising" nature of DBA compliance, with major implications for lawyers and clients. DBAs are invalid for claims that do not result in a direct, quantifiable transfer of money or assets from the opposing party to the client during the litigation. The ruling effectively excludes most contested probate claims, where the primary recovery is often a court declaration and no money is transferred.