Vadim Lediaev v Dimitry Vallen (2009)
An agreement to use best endeavours to recover certain funds by litigation or otherwise was not on the face of it an illegal contract since it did not require an unqualified person to act in contravention of the Solicitors Act 1974 s.22.
The appellant (L) appealed against a decision ((2008) EWHC 1271 (Ch)) that the respondent (V) was not personally liable under a so-called litigation agreement between the parties. L had an interest in an Irish company, Landor EU, which invested in certain shares which were sold at a loss. The proceeds of sale were transferred to a bank account in Singapore using a forged power of attorney. L retained the respondent (V) under successive "litigation agreements" to assist him to recover those funds in return for a percentage of the amount recovered. At V's instigation Landor EU's rights of action were assigned to an English company, Landor UK, which commenced proceedings against the company, Saffery, which had been responsible for managing the investment. V signed the claim form as a director of Landor UK and personally took the steps to issue the claim form. The proceedings were settled by payment of a sum of £138,000 which was held on trust for Landor UK. L then brought proceedings against V claiming an account of the sums recovered and payment of those sums less the fee due to V. The judge held that under the relevant agreement between the parties V was not obliged personally to account to L for the sums that had been recovered. L appealed. On appeal issues arose as to whether V by his actions in the litigation had contravened the Solicitors Act 1974 s.22 and, if he had committed an offence under that section, what consequence, if any, that would have for the litigation agreement and L's claim and appeal. L sought to amend to plead the illegality of the litigation agreement. L submitted that it must have been the parties’ intention under the litigation agreement that V, as the person carrying out the recovery process, should account to L for any recovered funds, because he was the only person beneficially interested in them. V submitted that, given that the cause of action for damages was vested in Landor UK at the time that the last litigation agreement was made, and that the action had been brought by Landor UK, it would require very clear words to require V to account to any entity other than Landor UK.
(1) Permission to amend should be refused on case management grounds. The question of possible illegality was known to L well before the proceedings were started. If the issue of the possible illegality of the agreement were to be fully investigated it would involve considering facts. There had been ample opportunity to raise the issue on the pleadings and for facts to have been investigated and then examined by the judge at the trial. The appeal court could not decide those factual issues. It would be prejudicial and unjust to V to permit L to raise the new illegality issues half way through an appeal. (2) The appeal court did not have before it all possible relevant facts on the illegality issue. Therefore, although it was bound to consider whether the agreement was illegal, it could only do so by asking whether the terms of the agreement on the face of the contract required the commission of an illegal act. The question therefore was whether those terms showed on their face that V, as an unqualified person, had personally contracted to do one or more of three things: firstly, to do any act in the purported exercise of a right of audience or a right to conduct litigation in relation to proceedings concerning the assets referred to in the agreement; secondly, to act as a solicitor in issuing any legal process or to commence or prosecute any proceedings in the name of another person in any court in England and Wales; thirdly, to draw or prepare any other instrument relating to any legal proceeding in England and Wales, for any fee, gain or reward. The clear answer to each of those questions was "no". There was nothing in the wording that required V personally to do any of those things. Accordingly, the last litigation agreement was not, on its face, an illegal contract. (3) Contrary to the judge's view, V was under a contractual obligation to account to L for the sums recovered as a result of the settlement of the proceedings between Landor UK and Saffery. Considering the background material and the business common sense of the agreement it was necessary to add by implication the words "in the hands of [L]" to V's contractual obligation to use his best efforts to continue the recovery process until judgment or settlement was obtained. The commercial sense of the agreement, in the unusual circumstances that existed, was that V was liable to account to L, whether or not, strictly speaking, he would be the beneficial owner of the sums recovered at the time of the agreement.
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05 Mar 2009
Court of Appeal
Sir Andrew Morritt (Chancellor), Smith LJ, Aikens LJ