Law firm “under no duty” to disclose counsel’s advice to funder

Egypt: Enforcement action over claim taken in London

The High Court has struck out claims brought against a City law firm that a litigation funder said did not pass on the “pessimistic views” expressed by counsel about a case it was backing.

John Hall sued litigation specialists Saunders Law as assignee of funder 1st Class Legal, which is now in liquidation.

He argued that the failure to communicate “pessimistic views” on the prospects of success was a breach of the tripartite agreement between the funder, Saunders and its client, Malicorp Limited.

The High Court heard in Hall v Saunders Law [2020] EWHC 404 (Comm) that Malicorp entered into a contract with the government of Egypt to design and build a new airport at Ras Sudr on the Sinai in November 2000, and operate it for 41 years.

Egypt “purported to cancel” the contract the following summer, triggering arbitration proceedings in Cairo by Malicorp, which resulted in an award in favour of the company of over $14m.

Malicorp attempted to enforce the award in England, with the High Court giving permission in 2012 under the Arbitration Act 1996.

The previous year, 1st Class Legal had agreed with Malicorp and Balsara, the law firm where solicitor Subir Karamkar was based at the time, to fund the proposed enforcement action.

When Mr Karamkar moved to Saunders in 2012, the case went with him and there was a further tripartite funding agreement. However, Egypt successfully applied to set aside the enforcement order.

Mr Hall accused Saunders of not passing on the views of Charles Hollander QC and Gerard Rothschild from Brick Court Chambers that the prospects for the action were not good.

The after-the-event insurer refused him an indemnity, saying that “as you know, Malicorp specifically instructed [Saunders] not to keep [the funder] informed of developments, as it informed [Saunders] that Malicorp would keep [the funder] advised”.

Mr Hall claimed the failure to communicate was also a breach of a common law duty of care and/or fiduciary duty owed by the solicitors to the funder.

He said the failure was the result of a “conscious decision” taken by Mr Karmakar, giving Mr Hall a claim against the lawyer in the tort of deceit.

The law firm countered that it was under no duty to the funder to pass on counsel’s views, and that any such duty to 1st Class Legal was owed by the client.

In the absence of any contractual duty to the funder, Saunders said it could not be under an equivalent tortious or fiduciary duty.

As for the action in deceit against Mr Karmakar, the solicitors said that too had to fail, as it was based only on a “pure omission to speak”.

Richard Salter QC, sitting as a deputy High Court judge, said the case centred on interpretation of the Saunders funding agreement and he found in favour of the law firm.

A key clause required Mailcorp “through instructions to [Saunders] and/or on its own account” to keep 1st Class promptly informed of any significant developments.

This did not create a “continuing instruction” from Mailcorp to Saunders, the judge found, or a free-standing contractual obligation.

While it “might perhaps have been a better bargain for the funder” if it had imposed the same obligations on Saunders as it did on Mailcorp, that was not what was agreed.

On breach of a fiduciary duty, Mr Salter said: “In the present case, it is inherently unlikely that sensible commercial parties would have set up (or that a responsible solicitor would have agreed to) an arrangement in which conflicting fiduciary duties of the kind argued for by [the funder] were likely to arise.

“Reflecting that, the terms of the Saunders funding agreement seem to me to have been drafted on the assumption that it is Malicorp alone that is the client of Saunders and to whom Saunders will therefore owe fiduciary duties.”

The judge went on to reject the claim in deceit against Mr Karamkar as he was not under a duty to disclose.

Mr Salter upheld the law firm’s strike-out application.

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