Lexlaw Ltd v Zuberi

Factual and Procedural Background

The claim arises from a dispute between an incorporated solicitors practice (the Plaintiff) and its former client (the Defendant). The Plaintiff acted for the Defendant in her claim against two banking institutions concerning mis-selling of interest rate hedging products. The dispute centers on a damages-based agreement ("DBA") entered into on 15 April 2014. The Plaintiff claims damages for breach of contract and seeks payment of an unpaid invoice dated 1 July 2015 for £125,123.14 plus interest, effectively limiting the claim to a debt recovery action.

The Defendant disputes liability on several grounds, including allegations that the DBA was procured by undue influence or misrepresentation, that the Plaintiff breached various duties causing damage to be set off against the claim, and that the DBA is unenforceable for failing to comply with statutory conditions under the Courts and Legal Services Act 1990 ("CLSA 1990"). The Defendant accepts liability for fees on a quantum meruit basis for the period prior to formal disinstruction in May 2015.

The Defendant applied for an order to try a preliminary issue concerning the enforceability of the DBA under section 58AA(2) and (4) of the CLSA 1990, specifically whether the DBA failed to satisfy statutory conditions as pleaded in the Amended Defence.

Legal Issues Presented

1. Whether the damages-based agreement ("DBA") is unenforceable by virtue of section 58AA(2) of the Courts and Legal Services Act 1990 for failing to satisfy the conditions set out in section 58AA(4).

Arguments of the Parties

Defendant's Arguments

• The issue is suitable for preliminary determination as it is likely to be determinative of the claim at least in one direction.
• There are no competing interpretations of clause 6.2 of the DBA, so the issue involves a pure question of statutory construction without the need for factual inquiry.
• Determining the issue preliminarily would save time and costs by avoiding a lengthy factual trial on other defences.
• The preliminary trial would take about one day, compared to four to five days for the full trial.

Claimant's Arguments

• Determination of the issue in the Defendant’s favour would not dispose of the claim entirely because issues of entitlement to payment and severability of clause 6.2 would remain.
• The Defendant accepts liability for reasonable remuneration for services rendered, which could be quantified separately, reducing the claim’s scope.
• Severance of clause 6.2 would undermine the legislation’s purpose; no precedent supports severance of such provisions.
• The issue cannot be determined on agreed facts because a factual inquiry is necessary to assess whether any breach of the statutory conditions was material.
• Reliance on Hollins v Russell to argue that materiality of breach requires factual investigation, thus making a preliminary trial inappropriate.
• Suggested factual inquiries include the advice given to the Defendant, opportunity to consider the DBA, and whether the DBA was entered freely and without improper pressure.
• Concerns about the risk of appeals and potential amendments to pleadings to avoid consequences of the preliminary issue decision.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Rossetti Marketing Ltd & Anor v Diamond Sofa Company Ltd [2012] EWCA Civ 1021	Warnings against delays and costs from preliminary issues; cautious approach advised.	Guided the court’s cautious approach in deciding whether to order a preliminary issue trial.
SCA Packaging Ltd v Boyle [2009] UKHL 37	Risks of preliminary issues causing delay and increased costs.	Supported the court's caution in ordering a preliminary issue.
Bond v Dunster [2011] EWCA Civ 455	Similar cautionary principles on preliminary issues.	Informed the court’s approach to case management and cost considerations.
Steele v Steele [2001] CP Rep 106	Factors to consider when deciding on preliminary issues, including decisiveness and trial efficiency.	Provided a framework to assess suitability of the preliminary issue.
McLoughlin v Jones [2001] EWCA Civ 1743	Principles for identifying preliminary issues: legal questions, agreed facts, and potential decisiveness.	Applied to confirm the issue was a question of law suitable for preliminary trial.
Lexi Holdings Plc v Pannone & Partners [2009] EWHC 3507 (Ch)	Case management considerations prioritizing cost, delay, and resource use.	Supported the court’s emphasis on saving time and costs.
Hollins v Russell [2003] EWCA Civ 718	Materiality of breach in conditional fee agreements; substantial compliance required.	Used by claimant to argue factual inquiry needed; court analyzed materiality concept in context.
Tichband v Hurdman (referenced in Hollins)	Substantial compliance with statutory requirements despite minor omissions.	Illustrated application of materiality and sufficiency principles.
Garrett v Halton BC [2006] EWCA Civ 1017	Substantial compliance and materiality do not depend on actual detriment to client.	Clarified that enforceability focuses on compliance at agreement date, not actual loss.

Court's Reasoning and Analysis

The court carefully considered the statutory framework governing damages-based agreements under section 58AA of the CLSA 1990 and the Damages-Based Agreements Regulations 2013. It identified the preliminary issue as a pure question of statutory construction concerning whether clause 6.2 of the DBA contravened the Regulations by requiring payments other than those permitted.

The court accepted the Defendant’s submission that no factual inquiry was necessary to determine the issue, as there was no dispute about the meaning of clause 6.2. The alleged breach related solely to a contractual provision, and the materiality of the breach concerned whether the clause provided for prohibited payments under the Regulations.

The claimant’s argument that factual matters such as advice given or pressure exerted were relevant to materiality was rejected, as materiality here was a legal question about statutory compliance rather than factual circumstances. The court distinguished this from cases involving conditional fee agreements where factual inquiry into advice and information might be relevant.

The court also considered established case law on preliminary issues, including guidance emphasizing caution to avoid delay and expense. It found that the preliminary issue was potentially decisive and would substantially reduce the scope and cost of the proceedings, even if it did not dispose of the entire claim.

The court dismissed concerns about possible appeals and amendments to pleadings, noting that even with such developments, a preliminary determination would save substantial time and costs.

Overall, the court concluded that ordering a trial of the preliminary issue was appropriate in the interests of justice, efficiency, and case management.

Holding and Implications

The court’s final decision was to ORDER A TRIAL OF THE PRELIMINARY ISSUE concerning the enforceability of the DBA under section 58AA(2) and (4) of the CLSA 1990.

This decision means that the question of whether the DBA is unenforceable for statutory non-compliance will be determined before the full trial of the claim, potentially narrowing or resolving the dispute early. The court did not set any new precedent but applied existing legal principles and case management guidance to promote efficient resolution of the dispute. The outcome may reduce the time, effort, and costs involved in the litigation for both parties.