Candey Ltd v Tonstate Group Ltd
| Jurisdiction | England & Wales |
| Judge | Lady Justice Andrews,Lord Justice Arnold,Lord Justice Males |
| Judgment Date | 06 July 2022 |
| Neutral Citation | [2022] EWCA Civ 936 |
| Docket Number | Case Nos: CA-2021-000732 and CA-2021-000733 |
| Court | Court of Appeal (Civil Division) |
[2022] EWCA Civ 936
Lord Justice Males
Lord Justice Arnold
and
Lady Justice Andrews
Case Nos: CA-2021-000732 and CA-2021-000733
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (CHANCERY DIVISION)
MR JUSTICE ZACAROLI
[2021] EWHC 1122 (Ch) and [2021] EWHC 1826 (Ch)
IN THE MATTER OF EDWARD WOJAKOVSKI
AND IN THE MATTER OF THE INSOLVENCY ACT 1986
Royal Courts of Justice
Strand, London, WC2A 2LL
Benjamin Williams QC and Stephen Ryan (instructed by Candey Ltd) for the Appellant
Andrew Fulton QC and Sam Goodman (instructed by Rechtschaffen Law) for the Respondents
Hearing date: 10 May 2022
Approved Judgment
This judgment was handed down by the Judge remotely by circulation to the parties' representatives by email and release to The National Archives. The date and time for hand-down is deemed to be 10am on 6 th July 2022.
INTRODUCTION
In response to the recommendations in Lord Justice Jackson's 2009 report on civil litigation costs, Section 45 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (“ LASPO”) made amendments to section 58AA of the Courts and Legal Services Act 1990 (“the 1990 Act”). These amendments, among other matters, legalised damages-based agreements (“DBAs”) as a means of remuneration of a party's legal representatives in civil litigation. In consequence, it is now permissible for a claimant (which expression, for the purposes of this judgment, includes a counterclaiming defendant) to enter into an agreement with his solicitors to pay them a percentage of whatever he recovers from his opponent if he wins. However, in order to be enforceable, the DBA must strictly comply with the requirements of the relevant Regulations made by the Lord Chancellor pursuant to his powers under s.58AA(5) of the 1990 Act.
This appeal raises the apparently novel question whether it is lawful for a party against whom a claim is made (i.e. the defendant to a claim or counterclaim) to enter into an agreement that, if he succeeds in defending that claim in whole or in part, he will pay his legal representatives a percentage of the money or the value of the assets that he has resisted having to pay or transfer to his opponent. There is no dispute that such an agreement would be unlawful at common law. Consequently that issue turns on the interpretation of s.58AA of the 1990 Act and the Damages-Based Agreements Regulations 2013, SI 2013 No. 609 (“the 2013 Regulations”).
The context in which the issue arises can be summarised as follows. The Appellant, Candey Ltd. (“the Solicitors”) acted for Mr Edward Wojakovski in a complex legal dispute, pursuant to a DBA dated 20 September 2019. There were three separate and related actions, more particularly described later in this judgment. One was a claim brought against Mr Wojakovski for the rescission of transfers to him by the other shareholders, a Mr and Mrs Matyas, of shares in a property investment company named Tonstate Group Limited (“TGL”). I shall refer to this as “the Shares Claim”. At the time the dispute arose, Mr Wojakovski owned 50% of the shares in TGL, and Mr and Mrs Matyas, his parents-in-law, the remaining 50%.
In consequence of a settlement of the Shares Claim, which was embodied in a Consent Order dated 21 May 2020, Mr Wojakovski transferred 75% of the shares he held in TGL to Mr and Mrs Matyas and to his estranged wife Nadine. He retained 25% of his previous 50% shareholding (22,500 shares). Thus he was partially successful in resisting the claim against him in that action, which was for the return of all the shares. Mr and Mrs Matyas and Nadine also agreed not to dispute his title to the retained shares, nor to use their voting rights under TGL's articles of association to issue any further shares so as to dilute that minority (12 1/2%) shareholding.
Mr Wojakovski was subsequently declared bankrupt. The Solicitors claimed that by virtue of the DBA they were entitled to be paid a percentage of the value of the 22,500 shares that he had retained in TGL. They sought a charge over the shares under section 73 of the Solicitors Act 1974, and claimed that their charge took priority over a final charging order which had been made by consent in favour of the Respondents on 21 July 2020.
In a judgment handed down on 30 April 2021 (“the April judgment”) [2021] [2021] EWHC 1122 (Ch) Mr Justice Zacaroli (“the Judge”) held that the DBA only entitled the Solicitors to payment from Mr Wojakovski if he recovered something from an opposing party in or as a consequence of the proceedings. It did not entitle them to payment if Mr Wojakovski retained some or all of the shares that were claimed from him. Moreover, even if (contrary to that conclusion) the DBA did entitle the Solicitors to payment of a percentage of the value of the retained shares, it was not an agreement permitted by the 2013 Regulations, and therefore would be unenforceable to that extent.
In a subsequent judgment delivered on 2 July 2021 (“the July judgment”) [2021] EWHC 1826 (Ch), the Judge held (on the hypothesis that his conclusions in the April judgment were wrong) that although the Solicitors had an equitable interest in the shares from the making of the consent order on 21 May 2020 which settled the Shares Claim, it was defeated by the final charging order in favour of the Respondents, which was acquired for value without notice of their lien.
The Solicitors appealed against both judgments with the permission of Lord Justice Singh. They raised four grounds of appeal, namely:
(1) The Judge was wrong to find that no entitlement to payment arose under the DBA;
(2) The Judge was wrong to find that, even if the DBA was to be construed so as to entitle the Solicitors to payment it was unenforceable because a necessary prerequisite under the Regulations is recovery from the other side;
(3) Alternatively to (2), the Judge was wrong to find that the Regulations were not ultra vires in prohibiting a DBA unless it provided for payment as a proportion of amounts recovered from another party to the legal proceedings;
(4) The Judge was wrong to find that the final charging order took precedence over the Solicitors' lien.
By way of Respondents' Notice, in answer to Grounds 1–3 the Respondents raised a legal argument that they had not raised before the Judge, namely, that if the DBA were construed in the manner contended for by the Solicitors, it would be contrary to the primary legislation as well as contrary to the 2013 Regulations. They contend that the definition of “damages-based agreements” in section 58AA(3) of the 1990 Act cannot extend to the defence of what counsel for the Respondents, Mr Fulton QC, termed an “incoming” claim (i.e. a claim made against the client).
The fourth ground of appeal raised complex legal arguments which would not arise for determination unless the Solicitors succeeded in demonstrating that the Judge was wrong on both the construction and enforceability issues, and that they were entitled to payment under the DBA and thus to a charge over the shares. Accordingly, at the hearing of the appeal, we invited counsel to address us on the first three grounds, in order that after consideration of all the legal arguments concerning the interpretation and validity of the DBA, we could take stock of the situation and decide whether it was necessary for the Court to hear argument on the fourth ground.
In the event, after hearing the arguments on the DBA issues, we formed the clear view that the appeal should be dismissed on each of the first three grounds. In those circumstances, there was no longer any basis for an appeal against the July judgment, as the premise on which that aspect of the case had proceeded did not arise. We therefore informed counsel that the appeals would be dismissed, for reasons to be provided in reserved judgments.
These are my reasons for joining with my Lords in that conclusion.
THE RELEVANT LEGISLATION
Although they could not be used in court proceedings, prior to 2009 “no win, no fee” agreements by a claimant to pay his representatives a percentage of the damages recovered if he was successful were commonly used by solicitors and claims managers in cases before the employment tribunal. Section 58AA of the 1990 Act, in its original form, was inserted by section 154(2) of the Coroners and Justice Act 2009, in order to make provision for the regulation of such agreements, which at that time were only permitted if they related to “an employment matter.” An “employment matter” was defined as “a matter that is, or could become, the subject of proceedings before an employment tribunal.” The Damages-Based Agreements Regulations 2010 (SI 2010 No. 1206) set out the original requirements for an enforceable DBA relating to an employment matter.
Section 45 of LASPO extended DBAs to all forms of civil litigation by amending s.58AA. The 2013 Regulations replaced the 2010 Regulations with effect from 1 April 2013. They include specific provisions relating to DBAs used in employment-related matters.
Section 58AA of the 1990 Act, in its current form, is entitled “Damages-based agreements” (the previous version was entitled “Damages-based agreements relating to employment matters”). The language of that section is very little different from the previous version, the changes mainly reflecting the removal of the requirement for the DBA to “relate to an employment matter.” It provides, so far as material, as follows:
(1) A damages-based agreement which… satisfies the conditions in subsection (4) is not unenforceable by reason only of it...
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