Lisa Lacob resists summary enforcement of contentious CFAs in relation to investment treaty arbitration

Lisa Lacob (leading Andrew Gurr of Serle Court and instructed by Jonathan Tickner, Holly Buick and Hannah Knight of Peters & Peters) has successfully resisted summary judgment in relation to the enforcement of two conditional fee agreements entered into in connection with arbitration proceedings. The application raised issues in relation to the enforceability of CFAs under the Courts and Legal Services Act 1990 (Act) which had not been the subject of previous authority. The judgment also considers the application of the equitable doctrine of approbation and reprobation in this context.

Lisa acts for the estate of the late Mr Mohamed Bahgat. The Claimant law firms performed work for Mr Bahgat between 2010 and 2016 in connection with arbitral proceedings against the Arab Republic of Egypt under partial CFAs, by which 40% of their invoiced fees were to be deferred with a 100% uplift by way of a success fee. Mr Bahgat was awarded damages in the arbitral proceedings in the region of c.US$115 million. The tribunal also ordered Egypt to pay Mr Bahgat’s costs, including the success fees under the CFAs. After Mr Bahgat took enforcements steps, there was a settlement between the government and Mr Bahgat in the sum of c.US$99.5 million.

The main plank of the defence advanced on behalf of the estate to enforcement of the CFAs is that the CFAs do not comply with the “in writing” requirement under s.58 of the Act in that “Successful Conclusion” is defined by reference to the definition contained in particular ATE Policies which were never issued. The Claimants argue that the “in writing” requirement for the enforceability of CFAs does not preclude incorporation by reference of terms from other documents, that the CFAs should be construed as referring to the definition of success contained in a draft policy which had been sent to Mr Bahgat before the CFAs were signed (the Gable Policy) and that the second CFA should be rectified to refer to the Gable Policy.  The Claimants also argue in the alternative that Mr Bahgat is liable under the two CFAs under the doctrine of approbation and reprobation on the basis that, having relied on the CFAs as the basis for his claim for costs in the arbitration proceedings, he cannot now deny their validity, and further, that Mr Bahgat entered into a Deed of Settlement acknowledging his liability under the CFAs.

On the “one document” issue and the question of construction, the Judge decided that the case turns upon whether the definition in the Gable Policy as to “successful conclusion” was incorporated into each CFA by reference. That is a matter of construction and the Judge held that it is realistically arguable that the Gable definition was not so incorporated. As to the interplay between the Act and the exercises of construction and rectification, the Judge observed that:

“In this case, the solicitor was obliged to draft a compliant agreement. The business sense to consider in such a situation is not the transaction upon which they were both engaged, i.e., to pursue an arbitration as a solicitor and client, but the requirements of the regulation for the protection of the client.

It is highly arguable that Mr Bahgat’s conduct …  does not evidence that it was his intention to be bound by the Gable policy wording. All it demonstrates is that as a lay person he thought there was a valid CFA in place, having signed the documents proved to him by his solicitors for that purpose. Thus, the rectification claim cannot succeed at the summary judgment stage because the defence to that particular claim is also realistically arguable”.

In relation to approbation and reprobation, the estate argued that it is realistically arguable that Mr Bahgat did not know there was a reason to challenge the CFAs when he entered into the Deed or when he pursued his claim for costs before the arbitral tribunal. The estate relied on Lissenden v Bosch [1940] AC 412 as authority for the proposition that it is essential to the application of this doctrine that a person who is said to have elected had knowledge that there was something to elect between. The Judge agreed that the claim based upon approbation/reprobation is one which ought not to be determined summarily as there are issues of inequitable conduct which have to be considered, as well as a factual finding as to knowledge. The Judge also held that the further issue which makes the approbation and reprobation argument one which is defensible to the standard required for summary judgment is the question as to whether a party can elect to treat as valid an agreement which the law says is invalid. The Judge noted that in Diag Human SE and Another v Volterra Fietta [2022] EWHC 2054 (QB) it was held, in the context of a non-complaint CFA, that if the retainer is invalid, that is the end of the matter and there is no basis for a quantum meruit for the solicitor for the work that they have done or for severing the offending parts of the CFA to render it compliant.

Ultimately the judgment emphasises that, in line with Hollins v Russell [2003] 1 WLR 2487 and Garrett v Halton BC (sub. nom. Myatt v National Coal Board) [2007] 1 WLR 554, it is incumbent upon solicitors wishing to benefit from the enforceability of CFAs to ensure that there is compliance with the statutory requirements. While the finding that a CFA is unenforceable may have harsh consequences and present a windfall to the person who benefits from its unenforceability, that is not a reason for upholding a non-compliant CFA.

The estate also argued that both CFAs do not comply with s.58 of the Act as the contractual interest provided in both is part of the success fee, and takes the claim to more than 100 per cent of the base costs. This issue will be determined at trial.

Lisa also acts for the estate in related proceedings by the liquidators of a BVI litigation funder, Buttonwood Legal Capital, to enforce an alleged c.£16 million success fee relating to the Egyptian proceedings.

The link to the judgment is here.

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