Court considers scope of solicitors’ authority to bind clients under third party services agreements

A1 & others -v- P [2025] EWHC 3372 (Comm)

This dispute usefully illustrates the importance of solicitors being clear as to who their client is, particularly where they are acting for more than one related entity. There is no room for ambiguity, particularly in the letters of engagement.

Solicitors should also ensure they have express authority to enter into third party service provider agreements on behalf of their clients and that liability for payment of the third parties’ costs is clearly set out both in the third-party agreements and in the retainer letters.

The background facts

The parties

The parties were;

• A1 (Claimant 1) was a company incorporated in Country 1 and had a direct and indirect interest in A2, totalling just over 50%;

• A2 (Claimant 2) was a company also incorporated in Country 1;

• A3 (Claimant 3) was a company incorporated in Country 2;

• P (the Defendant) provided intelligence gathering services and analysis to support legal proceedings, engaged by C to provide services in connection with this dispute;

• C was a US law firm (representing the Claimants) that engaged P;

• D was a Port Authority owned by a Ministry of Country 2 that operated a container terminal at a port in Country 2 and intended to commission the construction of a new container terminal.

Context

A2 successfully tendered to build a new terminal and operate it under a 40-year concession agreement (Project).

A2 caused A3 to be incorporated as a special purpose vehicle for the Project.

A3 was managed by A2, which had a 25% share in A3 by the time of P's involvement.

A3 and D accordingly entered into a concession agreement in May 2006 (Concession Agreement).

However, the Project was not a success and D accused A3 of failing to meet its obligations under the Concession Agreement, terminating the agreement in August 2015.

The dispute

The claimants believed that the failure of the Project was due to deliberate obstruction by D. A3 launched the A3 Arbitration against D, seeking damages for D's alleged breaches and unlawful termination of the Concession Agreement.

A3 was represented in the A3 Arbitration by C. C’s engagement letter, sent in January 2016, was addressed to A1 as the owner and majority shareholder of A3 and manager of the Project. A1 was required to guarantee the payment of C’s fees.

In April 2018, C sought to engage P to investigate whether D had deliberately sabotaged the Project and, if so, whether this was on the instructions of the Ministry of Country 2.

This investigation was referred to as Project C and C sent an engagement letter to A2 providing for A2 to engage C for the purpose of Project C.

The final agreement for P’s services was signed by a partner at C and dated May 2018. It was referred to as the P Agreement. The P Agreement contained provisions dealing with the payment of P’s fees.

Clause 22 provided that, if the “Client” used intelligence obtained by P in any current and/or future civil proceedings, inter alia against any of the “Targets”, then P would be paid a percentage of any recovery in those proceedings in addition to its fee.

Investigation

P's investigation established that D had not wanted the Project to succeed, because it was a threat to the old container terminal at the port and that D's then chairman had been instrumental in obstructing the Project.

Thereafter, there were discussions between P and C as to how best to deploy P's findings, which included the possibility of submitting evidence in the A3 Arbitration and/or launching a bilateral investment treaty (BIT) arbitration.

On 25 November 2018, A2 sent a notice of dispute to the government of Country 2 under a BIT between Country 2 and Country 1, in which P's findings were set out (BIT Notice of Dispute).

A3 subsequently submitted the BIT Notice of Dispute into the record in the A3 Arbitration.

Ultimately

• A2 entered into a settlement with Country 2 and D under which it received damages (A2 Settlement);

• D entered into a settlement agreement with A3 and subcontractors who had obtained arbitration awards against A3, under which A3 settled with the D for a payment to A3 and a payment to the subcontractors (A3 Settlement);

• P sought to claim sums due from A1, A2 and A3;

• A2 accepted it was liable to make a payment to P under clause 22 of the P Agreement in respect of the A2 Settlement, and so paid P the amount due; and

• A1 and A3 denied liability to P in respect of the A3 Settlement.

LCIA arbitration

P commenced LCIA arbitration pursuant to the LCIA arbitration agreement in its Terms and Conditions as incorporated into the P Agreement.

P argued that:

1. It was engaged by C, acting or apparently acting on behalf of A1, A2 and A3 to provide their services and P reasonably believed that A1, A2 and A3 were clients under the Agreement;

2. P had obtained intelligence which supported A2, A1 and A3's case and claims and which had been deployed in the BIT Notice of Dispute and in the A3 Arbitration; and

3. P was therefore entitled under clause 22 of the Agreement to recover a success fee on the basis that:

   • the "Targets" referred to in clause 22 were the Country 2 Minister and D;

   • a settlement had been achieved; and

   • P was due a success fee by reference to the total sum provided for in the A1 and A3 settlements.

A1, A2 and A3 contended that:-

1. The A3 Arbitration and the P Agreement were two separate and discrete matters;

2. A3's claim against D in the A3 Arbitration was not relevant to the P Agreement on the basis that:

   • it commenced in 2015, long before P was engaged;

   • A3's claim against D was settled on 15 February 2022; and

   • intelligence sourced by P was not used in the A3 Settlement, meaning clause 22 was not engaged.

3. The only client of C for the purpose of the P Agreement was A2 on the basis that;

   • the P Agreement was entered into in order to assist A2 with its potential BIT claim against Country 2;

   • A2 was not a party to the A3 Settlement; and

   • the A3 Settlement was not within the scope of the P Agreement.

4. C entered into the Agreement on behalf of its client and subsidiaries on the basis that A3 and A1 were not clients of C nor subsidiaries of A2, and thus not parties to the Agreement. Accordingly, the Tribunal had no jurisdiction over them, and they had no liability under the Agreement.

LCIA Award:

In the Award, the Tribunal found that;

• as a matter of construction of the P Agreement, A1, A2 and A3 were all parties to it;

• C had the authority of both A1 and A3 to bind them to the Agreement (apparent authority in respect of A1 and implied actual and apparent authority in respect of A3);

• the submission of the BIT Notice of Dispute in the A3 Arbitration constituted use of intelligence for the purposes of clause 22;

• the requirements of clause 22 were met in relation to the A3 Settlement; and

• P was entitled to a success fee by reference to all sums payable under the A3 Settlement, including those paid to the subcontractors.

A1, A2 and A3 were held to be jointly and severally liable to pay P the outstanding claimed sum, plus interest and costs.

Challenge

A1, A2 and A3 brought a challenge under s.67 Arbitration Act 1996 (Act), alleging lack of jurisdiction on the Tribunal’s part. They alleged they were not parties to the contract by which P was engaged, because;

1. C lacked authority to bind them to it; and

2. in the case of A1 and A3, as a matter of construction of the relevant agreement and/or C's intentions.

The Commercial Court decision

As to C’s authority to bind the claimants, the Court distinguished between:

• a solicitor's remit to enter into a contract, as principal, with a third-party service provider, and in due course to pass the cost on to the client as a disbursement; and

• the solicitor's authority to bind the client itself to a contract with a third party.

The latter was held to be the issue here.

Whilst solicitors commonly engaged third-party service providers when acting for clients, it did not follow that they had usual authority to place their clients into direct contractual relations with such service-providers.

Crucially, the authorities did not recognise solicitors as having usual authority anywhere near as extensive as would be necessary for that and so the Court concluded that C had not been shown to have had implied actual or ostensible authority to bind A1 or A3 to the P Agreement.

The Court also dismissed the argument that A3 had ratified the P Agreement. Whilst there was conduct which at least arguably indicated A3's approval of P having been instructed (including by using their work and attending meetings with P representatives), it did not follow that A3 ratified C having bound A3 itself, as opposed to C, to the P Agreement. That would require A3 to have known that C had purported to bind A3 itself to the Agreement and an unequivocal act by A3 consistent only with A3 having adopted that course of action.

In the Court’s view, the facts did not establish that.

Finally, the Court considered whether, as had been contended by P, A2 had lost the right to object to the Tribunal’s jurisdiction because it had sought to raise a new argument very late in the day.

This argument was that A2’s board of directors had not, as required by the company’s Articles of Association, mandated the appointment of C and therefore C could not have authority to bind A2 or A1. A2 argued that it could not with reasonable diligence have discovered this potential ground of objection sooner.

The Court disagreed. A2 could and should have taken local law advice on the issue but had simply chosen not to do so because it considered this would be disproportionate.

In any event, the Court was inclined to the view that the objection would have lacked merit.

Although the Court found A2’s challenge was precluded by s.73 of the Act, A1 and A3’s challenges to the Award succeeded.

Comment

The decision makes it clear that a solicitor’s usual authority on behalf of a client does not without more extend to binding a client to a third-party service agreement.

The Court will not easily find that the client has ratified such an agreement without convincing evidence to this effect.

Finally, parties seeking to raise an objection to a tribunal’s jurisdiction should do so without undue delay to avoid losing the right to object.