Matthews: Law firm’s construction of retainer made business sense
A small central London law firm has been awarded the £300,000 plus interest owed under a retainer which the client had claimed was not payable as the transaction it advised on did not go ahead.
His Honour Judge Paul Matthews, sitting as a High Court judge, held it was unlikely [1] that a small practice like BlackLion Law would be prepared “to tie up a huge proportion of its available human resources on a project to be paid only if it was successful”.
But even if managing partner Negar Yazdani was in effect prepared to “bet the firm”, he said that, at the time the retainer was signed, it would have made “no commercial sense” for her to agree to a contingent fee arrangement.
Ms Yazdani founded BlackLion in 2010 to specialise in litigation claims against financial institutions, but its practice developed beyond that.
In late 2016, the firm began working under a general retainer for Amira Nature Foods, which at the time was listed on the New York Stock Exchange.
In early 2017, it began managing the issue of high-yield bonds in Amira, known as Project Avatar. BlackLion was to find and instruct lawyers (US firm Shearman & Sterling was instructed), review and comment on documents, oversee work streams and act as a conduit between the company and the other parties and advisers.
It was agreed that there would be a separate retainer for this work, although it was not formalised until 3 May 2017.
By that point, Ms Yazdani had worked “very long days” on the matter; from January to July 2017, she recorded 708 hours at an hourly rate of £600, £424,680 in total. Only about 65 of those hours were billed between May and July.
The retainer was for a fixed fee of £300,000, to be payable in cash or shares at Amira’s discretion, “subject to the completion of the matter by 31 May 2017”.
The bond issue did not happen and the question for the court was the construction of the qualification in the retainer.
HHJ Matthews said the language was “not clear and unambiguous”, meaning he had to construe the agreement in the factual matrix.
He noted that there was no expectation that the lawyers handling the bond issue would be paid solely on a contingency basis.
Further, by the time the retainer was signed, BlackLion had already recorded over £385,000 worth of time and it was “clear to all concerned” that the issue would be difficult to complete successfully.
The judge said: “In my judgment, it is not likely that a small law firm such as the claimant, with all its cash-flow needs, would be prepared to tie up a huge proportion of its available human resources on a project to be paid only if it was successful.
“But let me suppose that I am wrong about that, and that Ms Yazdani (who as I say came across as a cautious person) was in effect prepared to ‘bet the firm’.
“In my judgment it would make no commercial sense whatever for the claimant in early May 2017 to agree to a contingent fee arrangement under which it would be paid a fee of far less than its recorded time so far, in the event of success of the bond issue by 31 May 2017 (which by then was not looking good), but nothing at all if it failed, or indeed if it completed successfully after 31 May 2017.”
However, an arrangement under which BlackLion would receive a fixed fee of £300,000 if the matter completed by 31 May 2017, and could charge in addition for work done after that date, did make business sense, he went on.
“The claimant is still giving the defendants a good deal, but is putting a cap on that ‘good deal’, and not leaving itself open to not being paid at all if the bond issue did not complete.”
HHJ Matthews did not accept Amira’s argument that it was important to complete the transaction by 31 May or that £300,000 would represent “generous potential remuneration” for a “very limited role”, given that it did not even cover the cost of the time by then recorded.
He added: “The conditionality introduced by the words ‘subject to’ relates to the capping of the fee, and not to whether or not there will be a fee at all.”
The Avatar retainer did not provide for contractual interest on unpaid invoices, but the general retainer did – at a rate of 1.5% per month after 30 days – and HHJ Matthews held that this applied to the Avatar retainer too.
The general retainer said BlackLion’s terms of business “apply to all the services which we provide to you as our client”.
The judge said that, even if he was wrong on the construction of the retainer, he would have rectified it for mistake.
“There are very many written communications between the parties both before and after 31 May 2017. None of them refers to the claimant’s fee as being contingent.
“The communications after 31 May from or on behalf of the defendants are particularly significant, because by then it was clear that the issue had not taken place, and yet there was nothing from the defendants’ side to indicate that no fee was payable. On the contrary, work continued to try to bring the issue out.”
HHJ Matthews also held Amira’s chairman and majority shareholder, Karan Chanana, was liable to BlackLion in tort for procuring a breach of the retainer. He knew by the time the retainer was signed that the fee was payable whatever happened.
The judge found “several instances” of Mr Chanana telling his advisers to reject invoices, including from lawyers, “not because there is anything wrong with them, but simply because he does not want to pay”.
This included invoices under BlackLion’s general retainer, a Mauritian law firm in relation to a previous aborted bond issue, and Sherman & Sterling.
The judge noted that Sherman took proceedings as well to recover its fees, which settled before reaching trial.
BlackLion has also had to take action for payment under the general retainer and was awarded summary judgment, with a costs judge assessing the sum due as £65,000 plus interest of £83,000, together with an award of £37,000 for the costs of the assessment, £185,000 in all. The court was told that nothing has been paid so far.