Introduction

Candey Ltd v Tonstate Group Ltd & Ors is a pivotal case decided by the England and Wales Court of Appeal (Civil Division) on July 6, 2022. This case addresses the novel and significant question of whether defendants in civil litigation can lawfully enter into Damages-Based Agreements (DBAs) whereby they agree to pay their legal representatives a percentage of the value of assets or sums they successfully resist transferring to opponents. The parties involved include Candey Ltd (the Solicitors) representing Mr. Edward Wojakovski (the Appellant), and Tonstate Group Ltd along with other respondents. The crux of the dispute revolves around the enforceability of a DBA under Section 58AA of the Courts and Legal Services Act 1990 as amended by the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO).

Summary of the Judgment

The Court of Appeal dismissed the appeals brought by Candey Ltd on four grounds, affirming the lower court's decisions. The primary issue was whether a DBA allowing defendants to remunerate their solicitors from assets or sums retained by them after successfully defending a claim is lawful and enforceable under current regulations.

The court held that such agreements do not qualify as DBAs as defined by Section 58AA(3) of the Courts and Legal Services Act 1990. Therefore, they are unenforceable. The Solicitors' DBA, which stipulated payment based on the retention of shares by Mr. Wojakovski, did not fulfill the statutory requirements, as no financial recovery from opposing parties occurred that could serve as the basis for payment. Consequently, the Solicitors had no entitlement to payment under the DBA, leading to the dismissal of their appeal.

Analysis

Precedents Cited

The judgment extensively referenced previous cases and regulatory frameworks governing DBAs. Notably:

• Zuberi v Lexlaw [2021] EWCA Civ 16: Highlighted the limitations and scope of DBAs, reinforcing that payment structures must align with statutory definitions.
• The Jackson Report (2009): Influential in shaping attitudes towards 'no win, no fee' agreements, emphasizing that such agreements should facilitate access to justice without overburdening litigants or incentivizing frivolous claims.

These precedents underscored the necessity for DBAs to strictly adhere to statutory definitions and regulatory conditions, ensuring that remuneration to legal representatives is contingent upon recoveries directly from opposing parties.

Legal Reasoning

The court's legal reasoning centered on the precise interpretation of Section 58AA(3) and the Damages-Based Agreements Regulations 2013. Key points include:

• Statutory Definition: A DBA must involve payment based on a specified financial benefit obtained through the litigation, typically from recoveries against opponents.
• Scope Limitation: The regulations explicitly restrict DBAs to scenarios where payment is derived from sums recovered, not from the retention or avoidance of payments to opponents.
• Legislative Intent: The absence of legislative or regulatory support for defendants entering into DBAs to remunerate solicitors from retained assets indicates a clear policy decision to restrict such arrangements.

The court emphasized that expanding DBAs to include defendants paying based on retained assets would contravene both the letter and spirit of the legislation, which aims to regulate remuneration structures to prevent exploitation and ensure fairness in legal proceedings.

Impact

This judgment sets a significant precedent by clearly delineating the boundaries of enforceable DBAs in civil litigation. The key impacts include:

• Defendants' Limitation: Defendants cannot enforce DBAs that seek remuneration based on financial benefits derived from retaining assets or avoiding payments to claimants.
• Solicitors' Remuneration: Legal representatives must rely on recoveries from opposing parties rather than from their clients' retained assets, maintaining the integrity and fairness of legal fee structures.
• Regulatory Clarity: The judgment reinforces the necessity for DBAs to comply strictly with statutory and regulatory requirements, preventing ambiguous or potentially exploitative fee arrangements.

Future cases involving DBAs will reference this judgment to determine the enforceability of similar agreements, ensuring that only those arrangements that align with legal definitions and regulatory conditions are upheld.

Complex Concepts Simplified

Conclusion

The decision in Candey Ltd v Tonstate Group Ltd & Ors underscores the judiciary's commitment to maintaining the integrity of Damages-Based Agreements within the confines of statutory and regulatory frameworks. By affirming that DBAs cannot be enforced by defendants based on the retention of assets or avoidance of payments to claimants, the court ensures that legal fee arrangements remain equitable and tied directly to the success in litigation against opponents.

This judgment not only clarifies the scope of enforceable DBAs but also reinforces the broader legal principles aimed at promoting fairness and preventing exploitative fee structures in civil litigation. Legal practitioners must meticulously adhere to these standards when structuring DBAs, ensuring compliance with both the Courts and Legal Services Act 1990 and the accompanying regulations. As a result, this case serves as a critical reference point for future litigation involving DBAs, shaping the landscape of legal remuneration and access to justice in the United Kingdom.