Key takeaways
DBAs must meet strict legal standards
Agreements that don’t follow regulations risk being unenforceable.
No financial recovery means no DBA payment
Claims seeking declarations not financial awards fall outside DBA scope.
Poor drafting can lead to major cost losses
Non-compliant DBAs cost defendants over £1.5 million in unrecovered fees.
In February 2025, Reeves -v- Frain and McKinnon [2025] EWHC 185 (SCCO), Costs Judge Brown ruled in the High Court that two damages-based agreements (DBAs) in this case did not meet the statutory requirements pursuant to the Damages-Based Agreements Regulations 2013 and were therefore unenforceable.
DBAs are agreements between a representative and a client, whereby the representative’s agreed fee is contingent on the success of the case and is determined as a percentage of the compensation received by the client.
Background
The case concerned a high value probate dispute relating to an estate worth around £100 million, brought by the deceased’s daughter, who had sought a declaration on the validity of her late father’s 2014 will. The Second and Fourth Defendants to the claim, the deceased’s son and grandson respectively, argued that the will was invalid and had been executed without the consent of the Deceased. They instructed The London Litigation Partnership Ltd (trading as LLP Solicitors) and their defence was partly funded by DBAs. In January 2022, Judge Green ruled that the will was invalid, granting probate for a prior 2012 will. The Claimant was ordered to pay 70% of the defendants’ costs, to be assessed on the indemnity basis. The defendants’ legal fees were divided into three parts, an initial private retainer, the costs incurred under the DBA, and a subsequent ‘new’ private retainer that was entered into after the 2022 judgment.
In 2024, the issue of costs was considered by Costs Judge Brown who queried whether the claim for costs was enforceable, in response to which LLP Solicitors disclosed the DBAs and retainer documents on behalf of their clients. The claimant subsequently challenged these documents on various grounds including:
Lack of ‘sums recovered’ – The DBA regulations provide that payment is contingent upon sums recovered. Here, no sums had been recovered or sought, as the claim had simply been for a ‘declaration’ over the validity of a will.
Inclusion of counsel’s fees - In civil litigation, payment under a DBA must include counsel’s fees. The DBAs here breached the rules because they charged counsel’s fees as expenses; leading the claimant’s costs counsel to suggest that the firm had inappropriately used an employment DBA for litigation.
‘Fresh Retainers’ - Once judgment had been handed down in the probate dispute, LLP Solicitors had written to the defendants informing them that its work in relation to the DBA was complete, and any further work was chargeable at a rate of £500 per hour. They sought to argue that this meant there were ‘fresh retainers’, an argument countered by the claimant who said that the DBA had been wrongly dismissed.
Judgment
Costs Judge Brown ruled that the DBAs were unenforceable on the basis that the claim itself did not give rise to a financial benefit as it sought a declaration on the validity of a will, as reflected in the definition of DBAs detailed in s58AA(3) of the Courts and Legal Services Act 1990 whereby a “specified financial benefit” must derive directly from the matter in relation to which the services are provided. This is further clarified in The Damages Based Agreement Regulations 2013 which state that recovery must stem from the claim or damages awarded.
It was also agreed that the DBAs breached the requirement for inclusion of counsel’s fees.
On the third issue, whilst Costs Judge Brown acknowledged the defendants had ‘won’ in February 2022, he was clear that,
"winning the case and completing the obligations under the retainer agreement are not the same thing. In general, a conditional fee agreement does not end immediately upon a 'win'; otherwise there would always need to be a post judgment conventional retainer after a conditional fee agreement or damages-based agreement."
The judge found that LLP Solicitor’s claim for costs based on a private retainer relating to work that was “plainly covered by the DBA” must therefore fail.
Implications
Despite being successful in arguing that the will was invalid, due to the non-compliance of the DBAs with the relevant legislation and their inappropriate application, the defendants in this case were unable to recover a significant sum, in excess of £1.5 million, in costs.
The case highlights the importance of compliance with the 2013 DBA Regulations, particularly in high-value litigation such as this case. DBAs must clearly specify payment terms in relation to sums recovered, counsel’s fees and inter parties costs recovery.
