The parties began a relationship in 2009 and lived together in Warwick House from 2010 until their romantic relationship broke down in October 2017. The parties recommenced their relationship in late 2017, which then endured until August 2019. The claimant ran a number of businesses from Warwick House. For a number of years the claimant provided assistance to the defendant in relation to issues arising from her divorce and associated property disputes in England and France (including in relation to the validity or enforceability of mortgages in favour of Barclays over Warwick House and a Paris property).
The claimant became authorised by the FCA to perform claims management services in 2015. In May 2018 he into a damages-based agreement (DBA) with the defendant, for the provision of consultancy work with a view to obtaining compensation (including in the form of a cash settlement or full or partial release from the burden of the Barclays mortgages) in relation to Warwick House and the Paris property. The agreement provided for a payment of 50% of any compensation achieved, with any costs or expenses borne entirely by Mr Stoop (the claimant). Clause 5 addressed the risks and provided:
We would point out that there are risks involved in making a claim against a bank. They include cost, time involved of pursuing a claim against the bank, the risk that the dispute will end in court the possibility of losing money.
The claimant subsequently engaged a consultant to assist with the project, and sought to instruct solicitors, Charles Russell Speechlys (CRS) on the basis that the defendant would enter into conditional fee agreement (contrary to the terms of the DBA which, inter alia, required that he should be responsible for the costs and expenses of any advisors instructed). CRS engaged in some limited correspondence with Barclays’ solicitors, whilst the defendant pursued other avenues in order to bring pressure to bear on the bank (including via the Parliamentary Group on Fair Business Banking and her MP). In time the defendant lost faith in the claimant’s handling of her claim. The defendant terminated her personal relationship with the claimant on 8 August 2019, she appointed Withers to act for her in negotiations with Barclays on 24 October 2019, and gave notice to terminate the DBA on 19 November 2019. Following discussions with Barclays and their UK and French lawyers in relation to the London and Paris properties, an agreement was reached on 3 June 2020. The bank agreed to accept £6m (a reduction of about £1.2M) in respect of liabilities secured by the Warwick House mortgage, and the property was then sold, also on 3 June 2020.
The decisive issue
Did the agreement fail to specify the reason for setting the payment at the agreed level, in breach regulation 3(c) of the DBA Regulations 2013?The question, the judge confirmed, was whether the agreement set out the true reason for agreed level of payment. The claimant’s position was that the reasons for setting payment at 50% of compensation were reflected in clause 5. The judge however, disagreed, finding that the payment was set at 50% because the claimant wished to be remunerated for the work he had done in the previous 10 years as well as for the work that he may do in the future under the DBA. In any event, the evidence could not support the claimant’s position. In fact the claimant’s evidence suggested, variously, that the fee was set as it was (the highest level permissible under the regulations) in order to provide him with sufficient incentive to work diligently; that it was simply what had been offered by the defendant (although this was disputed by the defendant); that it reflected his worth; that it was to reflect his input in the years prior to the commencement of the agreement; and that it was his (former) lawyer’s idea. There was simply no witness evidence or contemporaneous documentary evidence to the effect that the reason for setting the payment at 50% reflected the risks set out in clause 5.Thus, the breach was established - the agreement failed to specify any reason for setting the fee at 50%, whilst clause 5 – even if it had been stated to be the reason – did not in fact set out the true reason. Nor, the judge found, was the breach trivial or non-material. The breach materially undermined the statutory purpose of providing protection to the client by enabling her to perceive in writing why the success fee had been set at the level stated. In coming to her decision the judge noted that there had been real difficulty in establishing the true reason for setting the payment amount at the level agreed, and that the defendant had not been provided with information that might normally be expected (such as an estimate of the claimant’s likely contribution of time and expenditure, or an estimate of the prospects of success). Ultimately, the defendant ‘was deprived of the ability to take advice on an agreement which set out in writing the reason for setting the payment at the level specified.’ (Para 56). The DBA therefore failed to comply with Regulation 3(c), the failure was material, and the agreement unenforceable pursuant to CLSA 1990, S.58AA [which provides that a DBA that fails to comply with prescribed requirements will be unenforceable].Other issues –
Whilst the claim failed on the basis of Issue 1, the judge went on to consider a number of additional attacks on the claim. Briefly:
- The defendant succeeded in her argument that the agreement related to ‘family proceedings’ within the meaning of CLSA 1990 S.58A(2) (the judge having found that the true reason for the 50% success fees was inter alia to compensate the claimant for work he had done on proceedings under Part III of the Matrimonial and Family Proceedings Act 1984). As a result, the DBA was unenforceable, being an agreement in breach of the provisions of CLSA 1990 S.58AA(4)(aa) [the provision provides that a DBA must not relate to proceedings that cannot be subject an enforceable conditional fee agreement – these include family proceedings: CLSA 1990 S.58A(1)(b)]
- Had it been necessary to decide an issue of construction, as to what extent the claimant’s input had to have brought about the settlement with Barclays (the agreement providing for compensation ‘realised pursuant to the Assignment’), the judge would have found it unnecessary that Mr Stoop should be the ‘effective cause’ (D’s argument) of the compensation. But nor would the judge have accepted the claimant’s argument that he needed only to have played some non-negligible role. Rather, the agreement required a substantial causal connection between the compensation and the Assignment. On that basis the claimant’s case would also have failed, the judge finding that Mr Stoop’s various efforts were largely directed towards initiatives that failed to develop or were otherwise ineffective.
- The DBA provided, inter alia, that ‘no costs will be deducted from Compensation unless such costs have been expressly agreed by you in writing. Simply put, in the event of success we will share the Compensation on a 50:50 basis, but any costs or expenses will be wholly for my account (unless otherwise agreed in writing by you).’ Had the agreement been enforceable the judge would have found that the costs of solicitors and counsel (£125,000) incurred by the defendant after termination of the DBA, would have been deductible from the claimant’s share of the compensation: ‘Since the Agreement contemplates that a Success Fee is payable after termination, it must also contemplate that others may have to do and be paid for work which Mr Stoop would otherwise have had to pay for, and I see no reason why such costs should not be deducted from Mr Stoop’s share of the Compensation as they would have been if Mr Stoop had completed the Assignment, and in accordance with the clear words of the Agreement.’ (para 99).
Link to judgment: Stoop (t/a Warwick Risk Management) v Johnson [2024] EWHC 286 (Ch) (23 February 2024) (bailii.org)
