This case concerned a defendant who pleaded breach of fiduciary duty and defences of duress, unconscionability and undue influence in respect of an agreement under which he had assumed personal liability for a substantial amount of unpaid legal fees.
The court applied the leading Supreme Court ruling in Pakistan International Airline Corp v Times Travel (UK) Ltd [2021] UKSC 40. The court concluded that the claimants were not in a fiduciary relationship with the defendant, nor had they breached any fiduciary duty in negotiating with the defendant in this manner. A defence of duress was not made out because any pressure which was exerted by the claimants was not illegitimate. An unconscionable transaction defence failed because the transaction could be readily explained by ordinary motives. There was no undue influence because the defendant was not in a position of serious disadvantage as against the claimants. Judgment was given for the claimants.
Al-Subaihi and another v Al-Sanea [2021] EWHC 2609 (Comm)
What are the practical implications of this case?
The judgment leans heavily on the recent Supreme Court judgment in Pakistan International Airline Corp v Times Travel (UK) Ltd [2021] UKSC 40. That ruling is regarded as setting a very high threshold for lawful act duress. While the claimants in the present case did apply pressure, it was far below the threshold set by the Supreme Court.
It is evident from the judgment that this was a fact-heavy claim with substantial disclosure of instant messages, voice memos, draft documents, and translations. It is evident that the court placed significant weight on the fact that the defendant's contemporaneous correspondence did not lend credibility to his allegations of illegitimate pressure. Litigators who are advising a client on a defence of duress, undue influence or unconscionability in a commercial context, should make clear that such a defence is likely to require a very detailed analysis of the facts and contemporaneous correspondence and substantial disclosure.
The case is also an instructive reminder for solicitors who may be negotiating a fee arrangement with current or former clients. Where a solicitor's fee agreement contains unusual or complex terms, the solicitor will need to be satisfied that the terms are understood by the client and, potentially, recommending that the client seeks independent advice (the judgment refers to The Law Society's Solicitors' Duties and Liabilities, 2nd ed, 2010 in this regard). With a former client, where the retainer is at an end, the fiduciary duties usually also come to end (Prince Jefri Bolkiah v KPMG [1999] 2 AC 222), but they can continue if the relationship of confidence between solicitor and former client continues, see Demerara Bauxite Co Ltd v Hubbard [1923] AC 673 and Allison v Clayhills [1904-7] All ER Rep 500.
What was the background?
Factual background
The claimants, two Saudi lawyers, pursued the defendant (Mr Al-Sanea) for payment of US$16m legal fees incurred by the defendant's father and businesses. The defendant's father founded the Saad Group, a Saudi conglomerate, which was facing very substantial creditors' claims in the KSA. Such claims were being handled by a Saudi enforcement court known as JDEK. The claimants had been retained by the Saad Group and the defendant's father to represent them in these matters.
The claimants' fees on these matters went unpaid for many years. The claimants applied pressure on the defendant to arrange for their fees to be paid including warning that they would need to cease acting. Eventually, the defendant signed promissory notes on behalf of the Saad Group. The promissory notes were not honoured. This culminated in the parties agreeing a formal settlement of the debts under a 'Final Clearance Agreement' (FCA) which included a significant discount but involved the defendant assuming personal liability.
Issues before the court
The primary issues to be determined at trial were:
- whether the claimants were in a fiduciary relationship with the defendant at the time that the FCA was entered into (and if so, if they were in breach of said duties)
- whether the defendant had a defence of duress, undue influence or unconscionability—in other words, whether the claimants had applied illegitimate pressure on the defendant to force him to enter the FCA
The court also considered a construction point on the FCA and an application for a late amendment, which are beyond the scope of this note.
What did the court decide?
The court gave judgment for the claimants.
Fiduciary relationship
The decisive point was that the court found that the lawyer-client relationship had come to an end before FCA was negotiated and signed. While, in certain circumstances, a lawyer's fiduciary relationship may continue after the termination of the retainer (Demerara Bauxite Co Ltd v Hubbard [1923] AC 673), the facts did not support such a finding. At the time of signing the FCA, the defendant had access to his own lawyers, there was no relationship of trust and confidence, he was highly educated and understood what he was signing.
Duress
After the trial had concluded, the Supreme Court handed down judgment in Pakistan International Airline Corp, which is now the leading case on the doctrine of economic duress.
The high watermark of the evidence against the claimants was a WhatsApp message stating that they would apply 'pressure, pressure, pressure' to get their legal fees paid. This pressure, it was alleged, included a threat to disclose privileged information. The court did not accept that such a threat had been made and did not find evidence of any other illegitimate threats.
Undue influence
The claimants exerted legitimate pressure, including warning the defendant that they would be forced to cease working if they were not paid. While there was a lawyer-client relationship at the time of the promissory notes, the transaction could therefore be readily explained by ordinary motives. As regards the FCA, there was no fiduciary relationship and the transaction could be readily explained as it included a significant discount on the fees.
Unconscionable transactions
In Pakistan International Airline Corp, the Supreme Court explained an unconscionable bargain as being relevant where 'B is at a serious disadvantage relative to A…so that…unfair advantage could be taken'. The court was far from convinced that the defendant could be regarded as being in a position of disadvantage against the claimants.
Case details
- Court: Queen's Bench Division, Commercial Court.
- Judge: Sir Ross Cranston (sitting as a High Court judge).
- Date of judgment: 29 September 2021.
This article was first published by LexisNexis.
