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HHJ Parfitt, sitting in the Chancery Division of the High Court handed down judgment on 10 July 2020 in this rare case of a solicitor suing for fees – Lexlaw v Zuberi [2020] EWHC 1855 (Ch).

Even more unusually, the claimant solicitors had acted under a Damages Based Agreement (a DBA) and that DBA contained a clause providing for fees to be paid in the event of termination prior to win or loss, or an escape clause for the client to terminate by paying fees to date.

Ordinarily a DBA is what most would recognise as a contingency fee in which the lawyers get paid a pure percentage of the winnings. Historically such arrangements are unlawful in England & Wales when they relate to litigation, but after being accepted in the Employment Tribunal for some time it was decided to extend them to litigation generally.

In 2013 the DBA Regulations came into force and these apparently require that a DBA cannot make the client liable to pay anything but the Payment (that is the agreed percentage of damages) and expenses, net of costs which are recouped from the other side (regulation 4).  

However, in Employment Tribunal cases, the DBA Regulations allow for fees to be charged to the client if the client terminates early.

There has been a lot of commentary, and some wariness by lawyers, that this means that an escape clause would render a DBA unenforceable in non-Employment cases.

In this case Lexlaw had entered into a DBA with Ms Zuberi which contained such an escape clause.

The solicitors undertook litigation and negotiation and on 7 July 2015 secured an improved offer in relation to Ms Zuberi’s bank claim; Ms Zuberi had, however, on 18 May 2015 purportedly terminated the DBA.

So, on the cautious view, Lexlaw, having undertaken work could not recover any fees.

On 31 July 2015 Lexlaw issued an invoice under the DBA for their contingency fee.

Ms Zuberi now contends the agreement is unenforceable because of that escape clause.

The decision rests upon the foundation that the restriction is limited to the contingency payment alone, and that Payment is the subject of regulation (it has a cap and that cap is inclusive of VAT and counsel’s fees in particular). The court found that it would have required clear words to oust the ability of the parties to a contract (which is all a DBA is) to agree such terms as the ordinarily law permits save where the DBA regulations intervene.

HHJ Parfitt set out seven interlocked reasons why an early termination costs clause does not offend against the requirement that no other payment may be made by the client to the lawyer (at p.59) and together they draw out the inconsistency in the DBA Regulations and why a conclusion that escape clauses do not create payments which are excluded under regulation 4.

Whilst this is a first instance decision, and potentially open to appeal, it offers some hope that the courts may take the view that DBAs should be upheld and the Law Society and specialist Bar Associations may take the view that it is time to promulgate a standard form DBA.

To instruct me, call or email me direct – 07817832027 or chris@chrishegarty.com or my direct access clerk, Fiona, at Trinity Chambers (https://www.trinitychambers.co.uk/ / 01642 247 569 / 0191 232 1927 / fiona@trinitychambers.co.uk) to discuss your needs.

In Vadamalayan v Stewart & Ors [2020] UKUT 183 (LC), a landlord appealed about the level of the rent repayment order made against him. He challenged the First Tier Tribunal (FTT)’s calculation of the sum due. The approach under the Housing and Planning Act 2016 is now very different to the approach under the Housing Act 2004.

The Upper Tribunal Lands Chamber considered the starting point for a rent repayment order being made in favour of a tenant, as the law in England was changed markedly by the Housing and Planning Act 2016 so that the cases of Parker and Fallon are no longer of relevance as they considered the old law (which still applies in Wales).

This is important because sections 44 and 45 of the Housing and Planning Act 2016 are very different to section 74 of the Housing Act 2004 which involves reasonableness. On that basis, the Upper Tribunal had said in Parker that it would not be appropriate for a rent repayment order to exceed the landlord’s profit.

In this case, the Upper Tribunal considered that this was no longer the approach Parliament intended.

The starting point had to be the maximum, that being the rent for the relevant period.

The landlord claimed that his expenditures on the property during the relevant time should be deducted but the Upper Tribunal held that these are expenses which repair or enhance his own asset and are done to comply with a landlord’s duties. That compliance is not something which can be offset against a rent repayment order.

Similarly, a fine imposed by the Housing and Planning Act 2016 was a proper penalty which Parliament determined could be imposed as well as a rent repayment order and absent some direction from Parliament to offset a fine, this did not affect the assessing of a rent repayment order.

The judge was, in this case, also critical of the attempt by the landlord to deduct mortgage payments. These were held to be a matter for the landlord and not something which the tenant should be funding by way of deduction from a rent repayment order.

It is worth noting that where a landlord charges rent for utilities then, since these are expenses which are passed directly on to the tenant for resources the tenant directly consumed, these costs could be properly deducted.

Therefore, the Upper Tribunal reinforced that the only matters to consider when assessing are only the statutory factors:

1. Conduct of the parties,
2. Financial position of the landlord, and
3. Whether the landlord has been convicted of a relevant offence.

In this case the appellant landlord was quite disappointed as the judge had determined that the schedule of deductions he sought to have applied to the starting figure would no longer be taken into account.

The judge considered the landlord’s financial position, but no further evidence had been provided and so had insufficient information to be persuaded to deduct anything from the starting point.

However, the landlord will have breathed a sigh of relief as there was no cross-appeal to increase the sum ordered the judge ordered the rent repayment order in the same sum as the FTT had done.

This is a major change and seems likely to result in larger rent repayment orders and reduced opportunities for landlords to offset costs against rent repayment orders.

The earlier stay to 25 June 2020 brought in when lockdown began has been extended to 23 August 2020.

The new Rule 55.29 has been brought in and stays all possession proceedings which are already stayed; so those which have been automatically stayed are caught; and also new possession proceedings issued on or before 22 August 2020.

The case of Arkin v Marshall [2020] EWCA Civ 620 considered the purpose of the stay and was quite firm in that the stay was lawful and lawfully implemented.

Most importantly the Court of Appeal held that a court could lift the stay but:

a judge retains the power to lift the stay which it imposes. But the proper exercise of that power is informed by the nature of the stay and the purposes for which it was evidently imposed. PD 51Z imposes a general stay on proceedings of the kind to which it applies, initially subject to no qualification at all, and subsequently qualified only in the limited and specific respects provided for in paragraph 2A. The purpose was that during the 90-day period the burden on judges and staff in the County Court of having to deal with possession proceedings, which are an immense part of its workload, would be lifted, and also that the risk to public health of proceeding with evictions would be avoided. […] Thus, while we would not go so far as to say that there could be no circumstances in which it would be proper for a judge to order that the stay imposed by PD 51Z should be lifted in a particular case, we have great difficulty in envisaging such a case.

(at p.42)

Therefore it seems that this stay, made by amendment to the rules is on a slightly different basis (the pilot process in Part 51 having not been used) but the same considerations are likely to apply.

On 28 March 2020 the Secretary for Business, Alok Sharma, announced a suspension of the “wrongful trading” provisions to allow businesses to keep going during this crisis.

Legislation is yet to be set out but it will be retrospective to 1 March 2020 and means that directors, who are often concerned about the liabilities they can accrue under these provisions, can keep businesses going without worry about being pursued later.

Ordinarily wrongful trading arises when a director:

“at some time before the commencement of the winding up of the company, […] knew or ought to have concluded that there was no reasonable prospect that the company would avoid going into insolvent liquidation or entering insolvent administration.”

If made out (and subject to certain defences) then such a director may be required to pay into the liquidation. This therefore circumvents the limited liability of a company and provides a potential additional source of funds in liquidation.

Such a contribution may not be insignificant as the Court’s view in Re Produce Marketing Consortium (1989) 5 B.C.C. 569 was:

“the appropriate amount that a director is declared to be liable to contribute is the amount by which the company’s assets can be discerned to have been depleted by the director’s conduct which caused the discretion under sec. 214(1) to arise”

However, then goes on to point out that the words chosen are very broad and would not set out limits on that discretion. Questions of the extent of such contribution have been quite strenuously argued and are open to challenge.

It must be noted that section 214 of the Insolvency Act follows section 213 – and that concerns fraudulent trading – which occurs where:

“any business of the company has been carried on with intent to defraud creditors of the company or creditors of any other person, or for any fraudulent purpose”.

The importance of section 213 and 214 together is that “wrongful trading” does not need any fraudulent intent, merely the actions themselves.

This suspension is a welcome relief to allow directors who innocently trade whilst insolvent during this unprecedented crisis.

Parliament has published Commons Briefing Paper 8877 which discusses the implementation of this and other, welcome, insolvency reform which is being driven through to support UK businesses.

The Family Court has issued recent guidance on the use of electronic bundles at https://www.judiciary.uk/announcements/financial-remedies-courts-e-bundles-protocol/

This is intended for financial remedies hearings but is useful guidance for anyone planning on working paperlessly or part paperlessly.

Most usefully, it considers the perfectly reasonable situation where counsel and the judge may work paperlessly but there is still an (identical!) paper copy for witness use.

It would be a great leap forward to promote this in the civil courts more generally especially for those who prefer to work electronically – especially for GDPR reasons – remembering that an encrypted device loss is a breach but one which is unlikely to require reporting.

The FCA is, unsurprisingly, pursuing significant proceedings against Avacade, a related company and its directors in relation to unregulated business.

This is an important case as it relates to the responsibility of those unregulated introducers who claim to be “introducers” but the FCA is pursuing as “promoters”.

The importance is that there is a narrow, bland exemption from the requirement to be regulated by the FCA when introducing a customer to a financial product. That is often typified as covering situations such as dental insurance leaflets in a dentist’s office.

Avacade however is alleged to have gone further and promoted to individuals that they transfer their pensions into SIPPs and then invest in the promoted investments (the FCA’s case summarised at p.85)

This is quite important as following SimplySure v Personal Touch Financial Services the threshold to cross into “arranging” (a different regulated activity) is very low and it will be important to see where the line is drawn for “promoting”.

The recent decision of Mr Adam Johnson QC (sitting as a Judge of the Chancery Decision) in FCA v Avacade [2020] EWHC 26 (Ch) concerned the application to adjourn the trial on ill health ground of one of the directors. Having dismissed this we can expect a trial within a window from 13 January 2020.

Wills are immensely powerful documents and, at the stroke of a pen, dispose of all of a person’s worldly possessions. So a bit of care is useful when preparing them.

The judge in Rea v Rea [2019] EWHC 2434 (Ch) was highly complimentary of the solicitor (Mrs Sukul) in this case:

Mrs Sukul gave her evidence with clarity and professionalism, as is to be expected of a solicitor with years of experience. It was supported by detailed contemporaneous notes. Mrs Sukul of course has no personal interest in the outcome of this claim. It seems to me that Mrs Sukul approached her instructions from Mrs Rea throughout with consummate care and skill and in a thoroughly professional manner. She gave highly sensible advice in recommending that her client obtained a mental capacity assessment. She recognised that the 2015 Will represented such a significant departure from the 1986 Will that careful precautions needed to be taken to ensure that Mrs Rea understood the implications and knew what she was doing. She addressed the concerns that presented themselves to her by going to considerable lengths to satisfy herself that Mrs Rea was acting with full knowledge of the changes to her will and their consequences. She likewise ensured to her satisfaction that Mrs Rea was acting of her own volition and without any pressure being exerted on her by others. If this level of care and competence was applied in every case there would doubtless be fewer disputes about wills coming before the courts.

Breaking that down, the solicitor:

• had detailed contemporaneous notes
• took instructions carefully
• advised on mental capacity and the risk of a challenge – so to obtain evidence to reduce this prospect
• noted the issues arising when writing a radically new will which wrote children out
• ensured that she was satisfied that her client was not being influenced by another

The praise from the judge is wholly deserved.

Against that independent evidential backgroud it is clear that the aggrieved childrens’ case was on the back foot.

That was borne out when their evidence was found, for two of them, to be unreliable; and for the third whilst honest it did not support the case they sought to bring.

The challenge therefore failed and the will writing out three children in favour of the one who cared for their mother was upheld.

One of the protections in place for certain transactions is a requirement for “signed writing”. This case concerned a contract for sale of land.

This recent case considers an area where the law really hasn’t caught up yet – email signature blocks. In short, is an automated signature added by your email software enough to amount to a signature for legal purposes?

Neocleous says yes!

The judge helpfully considers prior cases on how far an individual has to go to “sign” an email. It was previously viewed that a person manually adding their name, or having their typist do so, was sufficient to “sign” – being intended to authenticate the document.

There are, unsurprisingly, also statutory issues to consider including the Electronic Communications Act 2000 (which gives effect to the E-Signatures Directive) and the Law Commission’s report on this issue. That report concludes that adding a typed signature is sufficient, as is clicking an “I accept” button on a website.

The judge took the view that “signature” had evolved and included the concept of an automatically added signature in Outlook. Especially as from the recipient’s perspective it is not possible to ascertain whether such a signature is manually added or automatic,

This was held intentional as it was known to the sender that this was done, as emphasised by the fact that his email ended with the signoff “Many thanks” and followed by the automatic signature.

This may be a surprise to some but commercially it seems to be an increasing occurrence and signed contracts are created regularly in this fashion.

The full case is at Neocleous v Rees [2019] EWHC 2462 (Ch)

This is the first of two key decisions expected this year on the responsibility of “principals” for their “appointed representatives” under the Financial Services and Markets Act 2000.

This is a slightly odd arrangement which originates a long time ago and allows a business – the Principal – to appoint individuals or companies – Appointed Representatives – to sell financial products that require regulation. This was historically often done by, for example, insurance companies so that their tied brokers did not need to be separately regulated, of course a customer could go to a whole of market adviser who had to be regulated.

Now, it may seem odd that an Appointed Representative does not need to be regulated, but they only obtain this exemption from being directly regulated because their Principal accepts responsibility for anything done by them under their agreement.

This is important because in Anderson v Sense, Sense are the Principal and the 95 claimants were duped by Sense’s Appointed Representative – Midas – into a Ponzi scheme.

So far, so good, as Midas were Appointed Representatives, the Claimants say Sense are responsible (this is important as fraud tends to lead to insurance being avoided and Sense have the means to actually pay compensation).

Now the court initially rejected the claim on the various grounds it was brought and the Court of Appeal only considered section 39(3) – the statutory basis – and vicarious liability for tort.

The Court of Appeal rejected the notion that once the Principal has accepted responsibility for a generic kind of work, defined by reference to those permissions the Principal has, then even if the Appointed Representative strays from the approved list, then as long as the work is within the permissions granted to the Appointed Representative then the Principal is liable. This was on various basis but ultimately the interpretation of the provisions and the agreement between the Appointed Representative and Principal limited what the Appointed Representative could do to the terms of that agreement and therefore the Principal’s liability was limited to those limits it imposed. So the Appointed Representative undertaking other business was not covered.

The concept if vicarious liability was also considered. However, the Court of Appeal agreed with the trial judge that Midas was carrying on its own business not that of Sense.

One helpful note is that Sense sought to overturn the (now moot) finding that the Ponzi scheme was not a collective investment scheme. This was clearly dismissed and upholds the trend that a CIS will be found when its low threshold is met – even when what is sold is not what is being done as in the case of this fraudulent Ponzi scheme.

Whilst this was unsuccessful, there is mention in it that a question was left open with the Court of Appeal decided Frederick v Positive Solutions – and this similar case of a rogue Appointed Representative which has gone to the Supreme Court and a judgment is awaited!

I am delighted to announce that I have joined Trinity Chambers in Newcastle.

I’m joining the Business and Property Group and continuing with my work in relation to professional negligence, commercial disputes and property, along with my interest in financial services cases.

My new profile can be found at https://www.trinitychambers.co.uk/people/barristers/chris-hegarty/

I am still available across England for advice, advocacy and paperwork.