English law firm loses appeal against refusal of £3 million claim for bad faith claim settlement

English law firm loses appeal against refusal of £3 million claim for bad faith claim settlement

An appeal by a firm of English solicitors seeking to bring proceedings for £3 million against two former clients for the manner in which they settled a claim has been refused by the Court of Appeal.

Candey Ltd brought the action against Basem Bosheh and Amjad Salfiti on the basis of fraudulent misrepresentation and breach of an implied obligation of good faith. The claim relied heavily on privileged and confidential material, which the appellant argued should have been considered by the High Court judge who heard the case.

The appeal was heard by Lord Justice Coulson, Lord Justice Arnold, and Lord Justice Phillips. George Bompas QC and Matthew Rogers appeared for the appellant and Hannah Ilett for the respondents.

“Drop hands” settlement

The appellant had acted for Mr Bosheh and Mr Salfiti in civil proceedings brought against them by another party, Sheikh Mohamed, alleging fraud and conspiracy. After the original proceedings were dropped by Mr Mohamed and new ones raised, a new Conditional Fee Agreement was entered with Mr Bosheh, under which Candey would be paid double its standard hourly rate in the event of success and Mr Bosheh was obliged to seek to recover costs from his opponent. Candey later withdrew from acting for Mr Salfiti due to a conflict of interest.

Candey alleged that the Mr Bosheh had settled Mr Mohamed’s claim on a “drop hands” basis with the assistance of Mr Salfiti and thus he was acting in breach of his duty of good faith and in repudiatory breach of the retainer. It had been agreed that in the event of a settlement in this manner, under which neither party would recover money or costs from the other, Candey would not recover anything from the Boshehs as a contribution to the costs they had incurred acting pursuant to the CFA.

During High Court proceedings the appellants applied for permission to amend its claim to rely on privileged and confidential documents, including bank statements it had requested pursuant to the duty of disclosure, but which arrived after the termination of its retainer with Mr Bosheh. In her judgment, the High Court judge ruled, amongst other things, that Candey could not rely on any of this material.

It was submitted that the judge was wrong in law to find that the appellant was not entitled to rely on the prima facie privileged material and had wrongly concluded that it had no real prospect of successfully establishing that the retainer contained an implied term that the first respondent would act in good faith in his dealings with the appellant. The retainer had been a relational contract with a closeness between the interests of the solicitor and the client and as such was akin to a joint venture agreement.

Contrary to the CFA

In his opinion, with which the other two judges agreed, Lord Justice Coulson said of the good faith issue: “Candey have not put forward any cogent basis for the implication of such a term. There is no authority that supports the proposition that, when retaining a solicitor to act for him or for her, the client owed that solicitor a duty of good faith. The absence of authority is perhaps unsurprising: it is a startling concept. Many would say that, if a duty of good faith was applicable at all, it would arise the other way round, and be owed by the solicitor to the client.”

He explained further: “The CFA was itself contrary to the implied duty. As Candey well knew, the allegations made by Sheikh Mohamed against the Boshehs involved fraud and dishonesty. The CFA assumed that it was quite possible that Sheikh Mohamed would win his claim because the CFA provided that, if that happened, Candey would recover nothing. Thus, the possible truth of the fraud allegations was inherent in the CFA itself. It would therefore be contrary to the CFA to suggest that the Boshehs somehow owed a duty of good faith to Candey.”

Addressing whether the judge was right to exclude the privileged material from consideration, Coulson LJ said: “The judge went carefully though the pleaded deception/misrepresentations and she concluded that they arose in the ordinary course of Candey’s professional engagement. That careful analysis shows which side of the line these alleged deceptions/misrepresentations fell. It has not been seriously challenged on this appeal. Nor in my view could it be: it is an unexceptionable analysis. It demonstrated that, even taking Candey’s case at its highest, the alleged false statements related back to the original fraud alleged by Sheikh Mohamed.”

In a concurring judgment, Lord Justice Arnold added: “The fact that the information is known to the solicitor does not mean that it does not have the necessary quality of confidence if it is not in the public domain. If the information is not in the public domain, then the solicitor owes the client a duty to keep the information confidential. Secondly, the fact that the solicitor does not need to obtain disclosure of the documents does not mean that privilege has no role to play. On the contrary, the client can rely upon privilege to prevent the solicitor using the information in the documents without the client’s consent.”

The appeal was therefore dismissed.

Share icon
Share this article: