Barristers induced into DBA by deceit lose damages challenge

Cranston: Barristers could have advanced loss of earnings claim

Two barristers induced by their client’s deceitful instructions to enter into a damages-based agreement (DBA) have lost their challenge to an arbitrator’s decision not to award them £7m in compensatory damages.

The arbitrator did, however, award exemplary damages to Stuart Cakebread and Juliette Levy, who both practise from Cerulean Law, a Bar Standards Board-regulated firm of barristers and solicitors.

The pair acted for Plantation Holdings (FZ) LLC in suing Dubai Islamic Bank for $2bn for alleged breach of a restructuring agreement. Under the DBA, they were to be paid between 5% and 45% of the damages recovered.

In 2017, Mr Justice Picken found for Plantation but awarded only nominal damages. In his findings, the judge concluded that he could not accept the evidence of the defendant concerning what was called the Chescor deal.

The appeal was compromised. The claimants considered that Plantation had terminated the DBA and, under its provisions, they were entitled to be paid for the work they had done based on the hourly rates, £6.9m in total.

The defendant, Arthur Fitzwilliam, Plantation’s owner, denied liability and the matter was referred to a sole arbitrator as per the DBA.

The arbitrator found that the DBA was unenforceable because of breaches of the DBA Regulations 2013.

The claimants also argued that they were induced by the defendant’s deceitful instructions regarding the Chescor deal to provide legal services without an unconditional guarantee of payment and/or to enter into the DBA.

They said that, had they known the defendant was lying regarding the Chescor deal, they would not have done so.

As well as seeking £7.1m (including interest) in fees, the barristers sought exemplary damages on the basis that the defendant through his deceit calculated to make a profit which might exceed any compensation payable to the claimants.

The defendant said he would not have agreed to pay the claimants regardless of the outcome of the action and did not have the means to fund any litigation on an ordinary privately paying basis.

The arbitrator found that the defendant had lied to the claimants and that influenced them in entering the DBA, and that the defendant would not have pursued the case on a privately paying basis.

The claim was in tort and the arbitrator said the correct approach to loss was to assess what the claimants were deprived of by entering into the agreement – this was “the opportunity to utilise their skills on other paid tasks”.

However, the claimants had not pleaded their case consistent with a loss of earnings award, and not provided any evidence to support one. The concluded that he could not award compensatory damages.

However, he went on to find that the defendant’s conduct was deliberate and cynical and awarded exemplary damages.

Challenging the decision under section 68 of the Arbitration Act 1996, the claimants said the arbitrator decided the case on the basis that the loss was not recoverable because of the restitutionary principle, to which no reference had been made in the arbitration.

Sir Ross Cranston, sitting as a High Court judge, rejected this, finding that the arbitrator’s reference to restitution was “not an essential building block” to the conclusion that the claimants were not entitled to compensatory damages.

The claimants also challenged the finding that their loss was in effect consequential loss which had not been proved by them, as they had not made such a claim and again there had been no argument on the issue.

Sir Ross said: “The bottom line was that the claimants could have advanced a case based on what they would have earned, but they eschewed that course throughout, even when [counsel for the defendant] told them – admittedly on the last day of the hearing – that he would have found it difficult to resist such a case.”

Dismissing the appeal, the judge noted that the barristers also have a section 69 application before the court, in which they are challenging the arbitrator’s legal approach.

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