B e f o r e :
THE CHANCELLOR OF THE HIGH COURT
THE RIGHT HONOURABLE LADY JUSTICE SMITH
and
THE RIGHT HONOURABLE LORD JUSTICE AIKENS
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Between:
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Vadim Lediaev
(also known as Vadim Ledyaev)
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Appellant
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- and -
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Dimitry Vallen
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Respondent
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Mr Andrew Ayres (instructed by Barlow Lyde Gilbert LLP London) for the Appellant
Mr Nigel Burroughs (instructed by C J Jones, Solicitors, ) for the Respondent (on 25 November 2008)
The Respondent in person (on 13 January 2009).
Hearing dates : 25 November 2008; 13 January 2009
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HTML VERSION OF JUDGMENT
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Lord Justice Aikens :
Introduction.
- This is an appeal, with the leave of the judge, from parts of an Order of Mr Christopher Nugee QC, sitting as a Deputy Judge of the High Court, Chancery Division. The Appellant and the Respondent are respectively a Russian and a Ukrainian, to whom I shall refer to as Mr Lediaev and Mr Vallen. The trial before the judge concerned two unrelated series of transactions. One, with which the appeal is not concerned, related to a joint venture to acquire, renovate and sell property in London. The other, which is the subject of the appeal, concerns a so – called "Litigation Agreement" between the parties dated 12 January 2006 ("the 2006 Agreement"). That was the third and last in a series of similar agreements that Mr Lediaev had made. The first such agreement was made with a company in 2001. Two subsequent agreements were made between Mr Lediaev and Mr Vallen; one in 2004 and then the 2006 Agreement. All the agreements were aimed at recovering money that Mr Lediaev had invested, through an Irish registered company, Landor European Services Ltd ("Landor EU") in 1995. The investment proved a failure. Under the 2004 and 2006 Agreements, Mr Vallen, who is neither a qualified barrister or solicitor, would receive a fee for his services.
- When the appeal was first heard on 25 November 2008, the principal issue was whether, as a matter of construction or implication in the contract terms of the 2006 Agreement, Mr Vallen is obliged to account to Mr Lediaev for sums recovered as a result of the settlement of litigation in the High Court. That litigation had been instigated by Mr Vallen and pursued by him pursuant to the terms of the 2004 Agreement and the 2006 Agreement. The judge held that Mr Vallen was not obliged, by the terms of the 2006 Agreement, to account to Mr Lediaev for the sums that had been recovered by Mr Vallen pursuant to the 2004 and 2006 Agreements. Mr Lediaev appeals that decision.
- At the hearing on 25 November 2008 both parties were represented by counsel; Mr Andrew Ayres for Mr Lediaev and Mr Nigel Burroughs for Mr Vallen. (Both had appeared at the trial). As a result of a number of questions and observations by my Lord The Chancellor during submissions, another possible issue arose. This concerned the role that Mr Vallen had taken in the High Court litigation which had been instigated to try and recover sums lost as a result of investments by Landor EU. Mr Vallen signed the "statement of truth" in the Claim Form (endorsed with Particulars of Claim) that was issued, at Mr Vallen's instigation, in the High Court litigation on 28 June 2005. Mr Vallen then issued the Claim Form. He also signed the "statement of truth" at the end of a response to a Request for Further Information of that Claim form, which response was served sometime later.
- Those actions by Mr Vallen prompt two questions concerning section 22 of the Solicitors Act 1974 ("the SA 1974"). The first is: was Mr Vallen, acting as an "unqualified person", who was, by his actions in the litigation drawing or preparing an "instrument relating to…any legal proceeding" in expectation of a "fee, gain or reward", within the terms of section 22(1)(b) of the SA 1974? If so, he would be guilty of a criminal offence by virtue of the provisions of section 22. The second question that arises is: if Mr Vallen had committed such an offence by his actions in the litigation, what consequence, if any, does it have for the 2006 Agreement and Mr Lediaev's claim and appeal? These issues had not arisen before the judge, because they were neither pleaded nor argued before him.
- Once these issues had been raised before us, it was decided that all arguments arising out of the SA 1974 should be adjourned so that the parties could reflect on the questions and serve further written submissions if they wished to do so. Both sides did so. Further, on 28 November 2008, Mr Vallen's solicitors came off the record. On 1 December 2008, Mr Burroughs wrote to The Chancellor to inform him that Mr Vallen now wished to act in person and that he would do so in any further hearing.
- A further hearing on the SA 1974 issues took place on 13 January 2009. Mr Ayres then applied for leave to re-amend the Particulars of Claim. Having heard submissions on this, the court decided to refuse the application, for reasons to be given when judgment was handed down. The remaining argument on the SA 1974 issues was then completed and judgment reserved.
- There are, we understand, further issues between the parties that may arise, depending on the outcome of this appeal.
The Facts
- The principal facts are not in dispute for the purposes of this appeal. I therefore take them from the judgment of the Deputy Judge. Mr Lediaev is a Russian who lives in Irkutsk, Siberia. He does not speak English. Mr Vallen was born in Kiev and came to London in 1989. He became a British citizen in 2000 and he now lives in London. He has a good command of English, as was evident when he made submissions on his own behalf at the hearing on 13 January 2009.
- Mr Lediaev had an interest in the Irish company, Landor EU. The judge does not record when Landor EU was incorporated.[1] However, he states,[2] that on 11 April 1994 there were 100 shares in the company that were registered in the name of one Isle of Man company called Cedargrove and 900 shares registered in the name of another Isle of Man company called Rivercroft. The judge records that at a meeting of directors of Landor EU on 21 August 2001, the directors resolved to approve the cancellation of the existing share certificates and to approve the transfer of all the issued shares into Mr Lediaev's name. The judge also states[3] that there was no evidence that those resolutions were acted upon. Therefore, he said: "…so far as the evidence before me is concerned the shareholders [of Landor EU] remain Cedargrove and Rivercroft".
- The judge records[4] that, at the trial, Mr Burroughs accepted that as a result of the Board Resolutions of August 2001, Mr Lediaev was to be regarded from that date as the beneficial owner of the shareholding in Landor EU. I understand that remains the case. I will have to return to the status of Landor EU later in the story.
- In 1995, Landor EU invested some £315,000 by purchasing shares in two related companies called Mill Group UK Property Growth Fund Limited and Mill Group UK Property Distribution Fund Limited. Those shares were sold in 1999, but at a loss. The proceeds of sale amounted to only £187,818.75.[5] That sum was paid into an account at ABN AMRO Bank in Singapore. The account was ostensibly in the name of Landor EU, but in fact the account was under the control of another, unidentified, company, which was incorporated outside the UK. This transfer to the ABN AMRO account was the result of a fraud by someone called Tchernov.[6] In the subsequent proceedings brought by Landor UK against Saffery Champness Management International Limited ("Saffery"), it was alleged that Mr Tchernov had fraudulently purported to act on behalf of Landor EU and he had instructed Saffery to sell the investments and remit the proceeds of sale, ie. the £187,818.75, to the ABN AMRO account in Singapore which he specified.
- The judge records that "Mr Lediaev wished to recover his money (sic) and attention turned to a company called Saffery Champness Management International Limited ("Saffery"), who had been responsible for managing the Mill investment…." He continued: "…in essence, it was thought that there might be a claim against Saffery for paying Landor EU's money away on the basis of a forged power of attorney produced by Mr Tchernov". [7]
- In late 2000 or early 2001, Mr Lediaev contacted Mr Vallen. At that time Mr Vallen worked for DELM Capital Partners Limited ("DELM"), which was a company based in London. An agreement was made between Mr Lediaev and DELM on 19 February 2001, which was signed on 27 February 2001. This recited, first, that Mr Lediaev sought advice and implementation of practical solutions to recover the funds which "were invested into the Mill Group UK Property Fund and are now due". Secondly, that Mr Lediaev, as "the Client" appointed DELM, as "Advisor", to be his advisor in connection with funds recovery.
- There is no need to set out the exact wording of the 2001 Agreement. Briefly, under clause II DELM was obliged to advise Mr Lediaev on any agreement to be concluded regarding funds recovery and was to support and to assist with leading negotiations between Mr Lediaev and any other party concerning the funds recovery, including Saffery and ABN AMRO Bank. Clause III dealt with the fees and expenses that Mr Lediaev would pay DELM for its services under the agreement.
- At some time before August 2001, Landor EU was struck off the company register in Ireland. Mr Vallen took steps (at his expense) to have it restored on 27 August 2001. At the same time he became a director of that company.
- Mr Vallen ceased to work for DELM later in 2001.
- On 17 December 2001 Martineau Johnson, solicitors, who must have been instructed by Mr Vallen sometime earlier, wrote to him with advice on the question of the potential liability of Saffery. The advice enclosed a draft letter to Saffery which set out Landor EU's position.
- It appears that sometime in 2002 Mr Ben Hubble of counsel was instructed (presumably by Martineau Johnson) to give Landor EU written advice on various possible claims by Landor EU against Saffery. Mr Hubble gave his written advice on 29 May 2002.[8] Mr Hubble also prepared draft Particulars of Claim, which claimed damages against Saffery for the lost funds. Mr Hubble emphasised in his advice that various matters would need to be considered by Landor EU before proceedings were started.
- On 23 September 2004, Mr Vallen, acting as director of Landor EU, wrote to Martineau Johnson and stated that "we have decided to act on our own behalf in relation to the claim against Saffery Champness".[9] He asked Martineau Johnson to cease work and to send the papers to an address in London.
- On 24 April 2004 Mr Lediaev and Mr Vallen entered into the 2004 Agreement. This was recorded in both the Russian language only; whereas the 2001 and 1006 Agreements were recorded in English only. I have worked from an agreed English translation of the 2004 Agreement. The 2004 Agreement does not state what is to happen to the 2001 Agreement, although the 2001 agreement had a provision dealing with termination upon written notice[10] and I assume that was activated.
- I have set out the relevant terms of the 2004 Agreement in Annex 1 to this judgment. The 2004 Agreement provided, in summary, as follows: (A) Mr Lediaev is described as "the client" and Mr Vallen as the "Executor". (B) The preamble states that the "…client requires implementation of practical solutions with respect to recovery of funds which were invested in Mill Group UK Property Fund and which are reimbursable". It is to be noted that it does not say to whom the funds are "reimbursable". (C) By clause (I) 3 of the agreement[11] the Executor is obliged to organise and conduct relevant negotiations on behalf of the client with Saffery, ABN AMRO and other legal and physical entities to "…ensure recovery of the funds in conformity with international legislation and the local law of the countries where action related to such repayment of funds shall take place". (D) Under clause (I) 4, if such negotiations are unsuccessful, the Executor "shall commence legal proceedings on behalf of Landor [EU]". (E) Mr Vallen, as the Executor, "…for the period of the validity of this Agreement….shall have the right to: 1. Represent Landor EU in negotiations and to conduct relevant legal proceedings in any jurisdiction at his discretion to recover the funds". Mr Vallen, as Executor also has the right: "At his discretion [to] give consent on behalf of Landor [EU] to the conclusion of a contract in respect of judicial or extra judicial settlement of a dispute relating to the recovery of funds".
- Under another clause 2 of the 2004 Agreement,[12] Mr Lediaev, as the Client, agrees that throughout the period of the agreement he will provide the financial means to keep Landor EU on the register of companies. He also agrees (under clause 5): "If the recovered sums are received in whole or in part, [to] provide payer of the recovered funds and/or the bank providing services to Landor EU with instructions regarding transfer of the recovered funds which are due to Executor to the account indicated by Executor". Mr Lediaev, as the client, also agrees, under a heading II, marked "Expenses and Remuneration", to pay to Mr Vallen, as the Executor, a percentage of the aggregate of the amount of the recovered funds and reasonable overheads. The details of that provision are set out in the Annex to this judgment.
- On 4 November 2004, Mr Vallen wrote, under a Landor EU letterhead, to Denton Wilde Sapte, ("DWS"), who acted for Saffery at the time. He answered various questions that DWS had raised. The letter re-asserted Landor EU's claim that Saffery was responsible for the loss of £187,818.75 plus interest which had been "misappropriated by Mr Tchernov".
- After the 2004 Agreement had been concluded, Mr Vallen decided that it would be preferable to bring any claim in the High Court in the name of an English company rather than that of Landor EU. Therefore Landor Services UK Limited ("Landor UK") was incorporated in England on 6 October 2004. Mr Vallen became the sole director of the new company. One share was issued in favour of Landor EU. The judge found, on the evidence of Mr Vallen, that this one share was subsequently transferred to a company called Trudson Services Limited, which is under the control of Mr Vallen. Mr Vallen stated in evidence to the judge that Trudson holds that share as nominee for Landor EU and the judge accepted that.[13]
- By an assignment of 1 March 2005, "…all rights and benefits in respect of amounts receivable or accruing to" Landor EU as Assignor, including "all claims for damages in respect of any breach by Saffery of its duties" were assigned to Landor UK. In the preamble to the assignment, (a) it notes that Landor EU made an investment in the two Mill funds and (b) it asserts that Saffery was in breach of its duties as a fund manager for Mill, which had resulted in loss and damage to Landor EU.
- It is accepted by both sides that this document is a valid legal assignment under English law, which assigned any causes of action that Landor EU had against Saffery to Landor UK. Mr Ayres told us that there had been evidence before the judge that the reason for incorporating Landor UK and the assignment was that if proceedings were brought against Saffery in the High Court, then there would be less chance of an application for security for costs succeeding against an English company than an Irish company.
- Landor EU was struck off the Irish registry again on 3 April 2005 and was dissolved on 8 April 2005.[14] It remains dissolved.
- On 28 June 2005 proceedings in the Queen's Bench Division were started by Landor UK against Saffery. The Claim Form was endorsed with Particulars of Claim. At the hearing on 13 January 2009, we were told by Mr Vallen that the Particulars of Claim were in the same form as had been settled by Mr Hubble. The pleading alleged breach of a duty of care and breach of trust by Saffery, in its capacity as fund manager, in permitting sums which were the property of Landor EU to be paid to the ABN AMRO account in Singapore without proper authority.
- Mr Vallen signed the Claim Form, indicating that he was a Director of the claimant, Landor UK. At the end of the Particulars of Claim, under the heading "Statement of Truth", the standard wording is set out, ie. "The Claimant believes that the facts stated in the Particulars of Claim are true". Underneath that there is a place for a signature, which is blank. Beneath that it states "Position in Landor Services (UK) Limited, Director, D. Vallen". At the hearing on 13 January 2009, Mr Vallen confirmed that he personally took the steps to issue the Claim Form.
- The proceedings took their course. Mr Charles Douthwaite of counsel acted for Landor UK. He settled a Reply to Saffery's Defence and undertook various other steps on Landor UK's behalf.
- On 17 February 2006 Saffery, through its lawyers, Chadbourne & Parke, made an offer to settle the proceedings for £56,345.63. Correspondence ensued between Chadbourne and Mr Vallen, acting in his capacity as director of Landor UK.
- Mr Lediaev and Mr Vallen then entered into the 2006 Agreement. Although it is dated 12 January 2006, it was signed on 23 February 2006. It is in the English language only. I have set out the terms in full in Annex 1 to this judgment. I will summarise its terms here. The recital first refers to the 2004 Agreement "…concerning the recovery of assets invested by Landor [EU] into Mill Group Fund as well as losses and damages". The recital also refers to the fact that Mr Lediaev was not in a position to provide the required funding as agreed under the 2004 Agreement and wished Mr Vallen to provide it.
- Clause 1 states that Mr Vallen will fund the further process of recovery of assets, losses and damages. Clause 2 provides that Mr Vallen will "…use his best efforts to continue recovery process through litigation and otherwise until the judgment or settlement is obtained". Clause 3 stipulates that the funding of further expenses incurred by Mr Vallen will be provided only from the sums recovered, up to a maximum of £20,000. Clause 4 confirms that Mr Vallen will receive a success fee upon recovery "…at the previously agreed level, ie. 35% of the aggregate amount of the recovered funds, losses and damages", but 40% if those exceed $300,000. By clause 5, Mr Lediaev will provide all assistance in the recovery process, including a witness statement and "…participation in the court hearings where required". Lastly, clause 6 stipulates that "This agreement supersedes all previous agreements between the parties".
- Saffery then increased its offers to settle the litigation, eventually offering £138,000. Mr Vallen recommended to Mr Lediaev that this offer be accepted.
- A settlement agreement was concluded between Landor UK and Saffery on 24 April 2006. The agreement provides, at clause 1, that the sum of £138,000 will be paid by Saffery into an account at Credit Suisse in Geneva, Switzerland, in the name of Belco Group Limited.[15] The agreement was signed by Mr Vallen on behalf of Landor UK on 24 April 2006. The money was paid into Belco Group's Swiss bank account on 12 May 2006 and it remains there. At the trial, it was accepted by Mr Burroughs on behalf of Mr Vallen that the successor to Belco, Westwing Resources Limited, holds the money on trust for Landor UK. [16] That remains the position.
- The current state of the Landor companies is that Landor UK was struck off the UK companies register on 17 October 2006 and it is dissolved. Landor EU remains dissolved.
- The judge summed up the present position as to the beneficial ownership of the £138,000 sitting in the Swiss bank account in the name of Westwing Resources Limited as follows:[17]
"It is accepted by Mr Vallen [that this sum] is held on trust for Landor UK. Landor UK is currently dissolved. Therefore the beneficial interest has at the moment passed to the Crown as bona vacantia. If Landor UK were restored to the register it could no doubt seek to recover the money. The shareholder in Landor UK is Trudson. Trudson holds its share as nominee for Landor EU. ..…I have not been given any information as to what Irish company law provides, but I assume that it is roughly equivalent at any rate to UK law and provides for the possibility of restoration to the register. The shareholders of Landor EU, so far as I have seen, are still Cedargrove and Rivercroft, but they hold their shares for the benefit of Mr Lediaev personally".
The present claim by Mr Lediaev, including the proposed re- amendments to the Particulars of Claim.
- The claims made against Mr Vallen by Mr Lediaev in the Particulars of Claim, as amended but before the latest proposed amendments, are for three types of relief. These are: (i) for "an account of the sums which were recovered in relation to those funds invested in Mill Group UK Property Fund"; (ii) "payment of approximately £89,700 representing the Saffery Champness monies less 35%"; and (iii) "an order for payment of all such sums as the court thinks fit".
- At the renewed hearing, Mr Ayres emphasised that the proposed re-amendments to the Particulars of Claim, (for which he unsuccessfully sought leave), were not Mr Lediaev's primary case. The primary case remained that set out in the pleading that had been before the judge. The proposed amendments are at paragraphs 17A.1 – 5 and 17B of the new draft. In summary, it is first asserted that if either the 2004 or the 2006 Agreement be found illegal or unenforceable in whole, then Mr Vallen had been Mr Lediaev's agent, not by virtue of either contract (which is assumed to be void for these purposes), but by virtue of the relationship between the two men. In that position, Mr Vallen owed Mr Lediaev duties as agent or fiduciary, under which he must account to Mr Lediaev for money recovered on his behalf. Mr Vallen has failed to do so.
- In the alternative, it is pleaded that Mr Vallen owed Mr Lediaev a duty to speak out to warn him that the 2004 or 2006 Agreements risked being illegal in whole or in part and Mr Lediaev relied on an implied, but false, representation that they were legal. Lastly, it is pleaded (on the basis that the 2006 Agreement was illegal), that Mr Vallen must return sums recovered from Saffery, either as money had and received to the use of Mr Lediaev, or under the doctrine of unjust enrichment.
- It is also said that insofar as Mr Vallen has claimed his success fee under the 2006 Agreement and if that is an illegal contract, then he is obliged to return the fee to Mr Lediaev, together with interest.
- In his written submissions served before the renewed hearing and again in clear and concise oral submissions on 13 January 2009, Mr Vallen objected to all these proposed amendments. He did so on two bases. First, he submits that all the facts were known to Mr Lediaev from 2006, at the latest, so that the issues of illegality could have been pleaded in the original Particulars of Claim and long before the trial. Secondly, if any issues about the knowledge of Mr Lediaev as to Mr Vallen's lack of legal qualifications and the part Mr Vallen was to play in litigation against Safferys were relevant to issues of illegality and its consequences, then the new points could not be properly determined without evidence. Therefore it was far too late to raise the matter at the closing stages of an appeal.
The decision of the judge.
- The judge stated, correctly, that the only claim before him by Mr Lediaev for the monies recovered (less the success fee) was a claim under the 2004 and 2006 Agreements. He also emphasised that "the only claims I am concerned with are for sums claimed as debts due under the written agreements. There is before me no claim for damages for breach of those agreements on either side".[18]
- The judge characterised the question to be decided as whether Mr Vallen had "personally agreed under the litigation agreements to pay the recovered monies to Mr Lediaev personally".[19] He held that if there was such an obligation, it must be in the 2006 Agreement. The judge held that there was no express or implicit obligation under the 2006 Agreement that Mr Vallen must account to Mr Lediaev personally for any sums that were recovered in litigation between Landor UK and Saffery. He decided, effectively, that the obligation, owed by Mr Vallen to Mr Lediaev, was to assist in recovering sums for the benefit of Landor EU.
- The judge summarised the position in paragraph 55 of the judgment. That states:
"Mr Lediaev wanted assistance with the recovery of the funds by Landor EU. Mr Lediaev's position has been and remains (and he told Mr Vallen at the time) that he was the sole beneficial owner of Landor EU. Mr Vallen agreed to help him, but the help he provided was by negotiating or litigating Landor EU's claim to fruition (subsequently Landor UK's claim). In circumstances where Mr Lediaev represented to Mr Vallen that he was the ultimate beneficial owner of Landor EU there was nothing odd at all about an agreement between Mr Vallen and Mr Lediaev under which Mr Vallen agreed to help Mr Lediaev by recovering Landor EU's money for Landor EU, and Mr Lediaev agreed to pay Mr Vallen a success fee should he succeed in doing so".
- He therefore dismissed Mr Lediaev's claim.
The relevant section of the Solicitors Act 1974 and the Court and Legal Services Act 1990.
- In order to analyse the illegality issues, it is necessary to look at the various sections of the SA 1974 and the Court and Legal Services Act 1990 (the "CLSA"). The relevant sections of the SA 1974 are sections 20 and 22(1), (2)(a), (b) and (c), and section 22(3). The relevant section of the CSLA 1990 is section 70. The relevant sub sections are (1), (2), (4) and (6). These provisions are set out in Annex 2 to this judgment.
The issues that arise on the appeal and the arguments of the parties.
- Three issues arise on the appeal. Logically, the first issue is whether Mr Ayres can have leave to plead the illegality points that he wishes to advance as his alternative case. I must set out my reasons for refusing him permission. The refusal to permit Mr Ayres to plead the illegality issues does not, however, mean that the court must disregard that point entirely. It is well established that if a contract is, on its face, illegal, the court will not enforce it, whether illegality is pleaded or not.[20] So the second question is whether the 2006 Agreement is illegal on its face and, if so, what are the consequences of such a finding? The third issue, which was the only one raised at the outset of the appeal, is whether, as a matter of construction of the 2006 Agreement or, as a matter of implication into the contract terms, Mr Vallen is obliged to account to Mr Lediaev for the sums recovered by him as a result of the settlement agreement with Saffery, less the 35% success fee to which Mr Vallen is entitled under that Agreement.[21]
- On the illegality issue, Mr Ayres submitted that, for the purposes of section 22 of the Solicitors Act 1974, both the Claim Form endorsed with the Particulars of Claim and the Further Information constituted "an instrument… relating to any legal proceeding". He submitted that Mr Vallen had "prepared" the Claim Form by signing it and having his name under the Statement of Truth at the end of the Particulars of Claim and also by taking it to be issued by the Action Department of the Supreme Court of England and Wales. Mr Vallen had drafted the Further Information and had signed the Statement of Truth. Therefore, because he did these things for reward, (his success fee), he had committed an offence under section 22 of the Solicitors Act 1974.
- However, Mr Ayres submitted that this fact did not render the whole of the 2004 and 2006 Agreements void for illegality. The offending parts of both Agreements could be "blue – pencilled". The offending parts of the 2004 Agreement were the words "…and conduct…" in the second clause 1 and all the references to remuneration under part II of the contract. Without those parts, the contract was still capable of being performed in a legal manner. As for the 2006 Agreement, Mr Ayres accepted that the whole of clause 4 would have to be excised, but otherwise the 2006 Agreement did not offend.
- Mr Vallen submitted that neither of the Agreements was illegal. He said that the words "conduct litigation" in the 2004 Agreement had a different sense in the Russian language. They meant, effectively, that the company (Landor EU) could start litigation and he, as its director, could carry it on. However, he submitted that if there was any illegality, then it affected the whole of both agreements, so that Mr Lediaev could make no claim under them and the fee paid to Mr Vallen could not be recovered.
- On the issue of the obligation of Mr Vallen under the 2006 Agreement, Mr Ayres submitted that the conclusion of the judge was wrong, either as a matter of construction of the express terms of the 2006 Agreement or because there is an implied term in that contract. He pointed out that, by the time that the 2006 Agreement was concluded, Landor EU had no right to any damages recovered from Saffery, because that right had been legally assigned to Landor UK on 1 March 2005. Moreover, Landor EU had been dissolved for 8 months before the 2006 Agreement was made, and there was no suggestion by either Mr Lediaev or Mr Vallen (who was a director[22]) that it should be restored. Further, Mr Lediaev had no interest in Landor UK, which was controlled by Mr Vallen. Therefore, given that it was always accepted by Mr Vallen that Mr Lediaev was the beneficial owner of the shares in Landor EU, it must have been the parties' intention under the 2006 Agreement that Mr Vallen, as the person carrying out the "recovery process", should account to Mr Lediaev with any recovered funds, because he was the only person beneficially interested in them.
- In support of this submission, Mr Ayres drew our attention to paragraph 42.2 of the Amended Defence of Mr Vallen,[23] which was the pleading current at the start of the trial, although in the course of it Mr Burroughs was effectively given leave to withdraw the plea. However, it remains on the pleadings. The paragraph states:
"If and to the extent the Claimant can and does prove his beneficial ownership of the shares in Landor EU and upon compliance with his obligations pursuant to the 2001, the oral, 2004 and 2006 Agreements, the Defendant accepts that the Claimant is entitled to an account of the sums recovered and the liabilities incurred".
- Mr Burroughs submitted that the judge reached the correct conclusion for the correct reasons. He submitted that, given that the cause of action for damages against Saffery was vested in Landor UK at the time that the 2006 Agreement was made, and that the action had been brought by Landor UK against Saffery, it would require very clear words to require Mr Vallen to account to any entity other than Landor UK. There are no such express words and it is neither reasonable nor necessary to imply any to that effect.
The reasons for refusing permission to re-amend the Particulars of Claim to raise illegality issues.
- Any court, even the Court of Appeal, has the power under CPR Pt 17.1(3) to grant permission to a party to amend its statement of case, at any time. However, permission to amend to raise an important new defence, such as the illegality of a contract, after a trial and judgment and half way through an appeal hearing, is only likely to be given in exceptional circumstances. The court will have to consider all the circumstances, which will include the merits of the proposed new case, whether it could have been raised before, whether the new case might require further facts to be found, the possible prejudice to the other side and, overall, the overriding objective of dealing with the case justly.
- Neither section 22 of the SA 1974 nor section 70 of the CLSA 1990 expressly prohibit the conclusion of a contract for the provision of services relating to litigation with a person who is not qualified to conduct litigation. The two sections only prohibit an unqualified person from doing various things in relation to litigation and impose a penalty on him if he does them. Whether a contract concerning the recovery of money, which envisages an unqualified person performing prohibited acts, will be illegal and void will depend on issues of public policy. Those must be decided in the light of the mischief which the particular statute is designed to prevent, the statutory language, its scope and purpose, whether the other party knew of the prohibition, the consequences for the "innocent" party and any other relevant considerations.[24]
- It must follow from this that issues of fact will be relevant to a court's consideration of the effects of any statutory prohibitions. A party that wishes to allege illegality of a contract bears the legal burden of proving it. Therefore, insofar as the illegality of a particular contract may depend on facts outside the contract, those facts must be pleaded and proved by the party wishing to establish them. If illegality of a contract has not been pleaded by a party, once a court is alerted to an illegality issue, it will be bound to consider whether the contract in question is illegal on its face. If it is satisfied that is, the court will not enforce the contract, by reason of illegality. Otherwise, if the facts which are said to prove illegality have not been pleaded, the court will only consider extraneous facts on the issue of the contract's illegality if it is satisfied that it has all the relevant facts before it. [25]
- For the purposes of the application to amend, I will assume, without deciding the point, that it is arguable that the effect of sections 20 – 22 of the SA 1974 or section 70 of the CLSA is, impliedly, to make illegal a contract with an unqualified person for the provision by him (for reward): (a) to issue any legal process; or (b) to prosecute an action in the name of any other person; or (c) to draw any "instrument…relating to any legal proceeding". However, as Mr Vallen pointed out in his written submissions served before the renewed hearing, the solicitors acting for Mr Lediaev,[26] were alive in September 2006 to the point that Mr Vallen was not a qualified solicitor and that neither he nor DELM had been granted rights to conduct litigation in the English courts. In a letter from BLG to Mr Vallen dated 6 September 2006, it was asserted that, for this reason alone, the Litigation Agreements were illegal and unenforceable against Mr Lediaev, so that Mr Vallen could not claim his success fee. The point was not taken in the Particulars of Claim of Mr Lediaev. On the other hand an issue of champerty was raised by Mr Ayres before the judge at trial. Before him, both counsel were agreed that the Agreements were not champertous. The judge decided the point and held they were not.[27]
- Mr Vallen also points out that if illegality were to be raised now for the first time, it would mean that the basis on which the case had been fought up until now would be fundamentally changed and a great deal of time and money on other points would have been wasted. He notes in his written submissions that there appeared to be a dispute about what it was envisaged that Mr Vallen would do under the 2004 and 2006 Agreements. He submitted that this was relevant to the issue of possible illegality of them. He argued that to resolve these issues there would have to be a factual investigation.
- In this case the question of possible illegality was well known to Mr Lediaev's advisors well before the proceedings were started.[28] I am satisfied that if the issue of the possible illegality of the 2006 Agreement were to be fully investigated it would involve considering facts. There was 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. Those facts would include the state of knowledge of both Mr Lediaev and Mr Vallen at the time of both the 2004 and 2006 Agreements; the scope of duties of Mr Vallen and what Mr Lediaev knew about Mr Vallen's lack of qualifications.
- This court cannot decide those factual issues. In my view it would be prejudicial and unjust to Mr Vallen to permit Mr Lediaev to raise the new illegality issues now, half way through an appeal. Therefore, on simple case management grounds, I would not permit the proposed amendments.
What points, if any, must the court take on the illegality issue?
- I approach this question on the assumption (without deciding the point) that the effect of the prohibitions in the SA 1974 and the CLSA are such as to make a contract with an unauthorised person (a) to conduct litigation or (b) to draw or prepare any "instrument… relating to legal proceeding" would be illegal. I also assume, again without deciding the point, that the word "instrument" in section 22 of the SA 1974 includes pleadings such as a Claim Form endorsed with Particulars of Claim and Further Information. However, even if these assumptions are made, this court plainly does not have before it all possible relevant facts on the possible issues of (a) whether the purpose of the 2006 Agreement was to facilitate the commission of a legal wrong, or (b) whether the 2006 Agreement was performed in an illegal manner. Therefore, although the court is bound to consider the question of whether the 2006 Agreement is illegal, it can only do so by asking: do the terms of the 2006 Agreement on the face of the contract require the commission of an illegal act?
- The only provisions of the 2006 Agreement that might make it illegal are those in clauses 2, 4 and 5. The first stipulates that Mr Vallen will "…use his best efforts to continue recovery process through litigation and otherwise until the judgment or settlement is obtained". The second provides that Mr Vallen will be entitled to a "Success Fee…upon recovery [of assets invested by Landor EU into Mill Group Fund etc]" which will be a percentage of the sum recovered. The third requires Mr Lediaev to provide assistance in the recovery process "…in respect of his Witness Statement and participation in the court hearings when required".
- The question that has to be posed is: do those provisions of the 2006 Agreement, taken in the context of the whole contract, show on their face that Mr Vallen, as an unqualified person, has personally contracted to do one or more of three things. First, 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 2006 Agreement.[29] 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.[30] Thirdly, to draw or prepare any "…other instrument relating to…any legal proceeding" in England and Wales, for any fee, gain or reward.[31]
- In my view the clear answer to each of those questions is: "No". There is nothing in the wording I have quoted that requires Mr Vallen personally to do any of the things I have identified above. Accordingly, I would say, even making the assumptions set out above, that the 2006 Agreement is not, on its face, an illegal contract.
Is Mr Vallen obliged to account to Mr Lediaev personally for the sums recovered as a result of the litigation against Saffery pursuant to the 2006 Agreement.
- This is the original question raised on this appeal. There was no dispute about the principles of construction of contracts. I attempted to summarise the key principles[32] in Absolom v TCRU Ltd and that summary was approved by this court on appeal in the same case.[33] I stated:
"The key principles can be summarised as follows: (i) the aim of the exercise is to ascertain the meaning of the relevant contractual language in the context of the document and against the background to the document. The object of the enquiry is not necessarily to probe the "real" intention of the parties, but to ascertain what the language they used in the document would signify to a properly informed observer; (ii) the interpretive exercise must not be done in a vacuum, but in the milieu of the admissible background material. That comprises anything that a reasonable man would have regarded as relevant in order to comprehend how the document should be understood, provided that the material was reasonably available to both parties at the time (ie up to the time of the creation of the document); (iii) however, evidence of negotiations and subjective intent are not admissible for the purposes of this exercise; (iv) a commercial document must be interpreted so as to make business common sense in its context. But if a "detailed semantic and syntactical analysis of a word in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense".[34]
- Prior agreements between the same parties can be an aid to contractual interpretation. However, a cautious and sceptical approach to finding assistance from the earlier contract needs to be taken.[35] In this case particular caution is needed because the 2006 Agreement stipulates in clause 6 that it "supersedes all previous agreements between the parties".
- I also note one further relevant principle of construction concerning the introduction of words into a contract which the parties have not used. In City Alliance Limited v Oxford Forecasting Services Limited,[36] Chadwick LJ said:
"It is not for a party who relies upon the words actually used to establish that those words effect a sensible commercial purpose. It should be assumed, as a starting point, that the parties understood the purpose which was affected by the words they used; and that they used those words because, to them, that was a sensible commercial purpose. Before the Court can introduce words which the parties have not used, it is necessary to be satisfied (i) that the words actually used produce a result which is so commercially nonsensical that the parties could not have intended it; and (ii) that they did intend some other commercial purpose which can be identified with confidence. If, and only if, those two conditions are satisfied, is it open to the court to introduce words which the parties have not used in order to construe the agreement. It is then permissible to do so because, if those conditions are satisfied, the additional words give to the agreement or clause the meaning which the parties must have intended".
- The 2006 Agreement must therefore be construed against the relevant background. In my view the key background facts, which were known to both parties at the time, are: (i) Mr Vallen recognised at all times that Mr Lediaev was the beneficial owner of the shares in Landor EU held by Cedargrove and Rivercroft. (ii) The original investment in the Mill companies had been by Landor EU, which was plainly a vehicle used by Mr Lediaev for the investment of his funds. (iii) At a time when the 2004 Agreement was current, all causes of action that Landor EU had against Saffery were assigned to Landor UK, in order to facilitate the prosecution of any action against Saffery in the High Court. (iv) Before the 2006 Agreement was concluded, Landor EU had been dissolved. (v) Landor UK's sole member was Landor EU, of which Mr Vallen was a director. (vi) In January 2005 the share capital of Landor UK was transferred from Landor EU to Trudson, which was controlled by Mr Vallen. That exercise was done in anticipation of Landor EU being dissolved. There is no evidence that either Mr Lediaev or Mr Vallen contemplated that it would be necessary to restore Landor EU to the Irish register of companies. (vii) The High Court proceedings brought by Landor UK against Saffery were for damages for breach of contract and duty as fund manager in relation to proceeds of the sale of shares that had belonged to Landor EU, of which Mr Lediaev was the beneficial owner. (viii) Saffery had made one offer to settle those proceedings before the 2006 Agreement had been concluded. (ix) The 2006 agreement replaced the 2004 Agreement.
Obligations under the express terms of the 2006 Agreement
- Given these relevant surrounding facts, I have to ask: what would the contractual language of the 2006 Agreement signify to a properly informed observer? The first thing to note is that the agreement is between two individuals, one of whom spoke no English at all. Neither Landor company is a party to it. Secondly, the Agreement is not stated in very formal language and it is in an abbreviated form. Thirdly, it is noteworthy that the exercise of "recovery of assets invested by Landor EU into Mill Group Fund" is not expressed to be for the benefit of either Landor company.
- Fourthly, I remind myself that the judge found[37] that Mr Lediaev is personally liable to pay a success fee to Mr Vallen and the success fee is proportional to the sum recovered. The judge rejected an argument of Mr Ayres that there would be a fatal "mismatch" if Mr Lediaev was personally liable to pay the success fee, but Mr Vallen had no obligation to account to Mr Lediaev for the funds recovered.[38]
- The judge's conclusion that Mr Lediaev was personally liable for the success fee was not challenged on appeal. But I must disagree with the judge on his conclusion that there was no fatal "mismatch" between Mr Lediaev having a personal liability to pay the success fee, but Mr Vallen having no liability to account to Mr Lediaev for the sums recovered. In my respectful view his reasoning does not take sufficient account of the fact that, by the time the 2006 Agreement was concluded, Landor EU had been dissolved. Why should the parties contemplate that Mr Lediaev would be personally liable to pay the success fee, but Mr Vallen would not have to account to Mr Lediaev for the money being recovered, because it was for the benefit of a company which both men knew was dissolved and there is no evidence that (at the time of the 2006 Agreement) either contemplated would be restored?
- I think that makes no commercial sense whatever. It makes much more commercial sense for the parties to have contemplated that if funds were received by Landor UK as a result of the litigation then in hand, then Mr Vallen, who controlled Landor UK, would ensure that the recovered funds were remitted to the person who was the beneficial owner of the shares in the dissolved Landor EU, viz. Mr Lediaev, on condition he kept his contractual obligations under the 2006 Agreement. Mr Lediaev was, after all, the beneficial owner of the shares in Landor EU and Landor EU had been the sole member of Landor UK until the share capital was transferred to Trudson. In the circumstances, I find it unsurprising that Mr Vallen appears to have accepted, until a very late stage, that he had the obligation set out in the amended Defence at para 42.2.
- Fifthly, I note that the judge held[39] that Mr Vallen is entitled, under paragraph 3 of the 2006 Agreement, to recover his expenses from the proceeds of the funds recovered. That arrangement is not inconsistent with Mr Vallen ensuring that the settlement funds, minus his expenses, are accounted for to Mr Lediaev himself.
- Given all these facts, I look again at the object of the 2006 Agreement, expressed in the recital, which is "the recovery" of assets invested by Landor EU. "Recovery" must mean more than just obtaining a notional judgment in favour of Landor UK. With that in mind, I have concluded that the wording of clause 2 of the 2006 Agreement as it stands makes little sense literally and no commercial sense. In my view the obvious commercial sense, which the parties must have intended is, first, that Mr Vallen is contractually liable to Mr Lediaev to "use his best efforts to continue recovery process…until the judgment or settlement is obtained". Secondly, "judgment or settlement obtained…" means money from the judgment or settlement is obtained in the hands of Mr Lediaev, the other party to the contract. That, to my mind, gives proper effect to Mr Vallen's obligation to use his best endeavours to continue the "…recovery process…until judgment or settlement is obtained". That obligation is, of course, subject to the other terms of the 2006 Agreement.
76. Therefore, I would imply the words "…in the hands of Mr Lediaev" in clause 2. On my analysis of the admissible background material and what I regard as the business common sense of the contract, it is not only reasonable to imply those words, but it is necessary to give business efficacy to the 2006 Agreement. The words supply what, in my view, was the obvious but inadequately expressed intention of the parties to the contract, Mr Vallen and Mr Lediaev.
- Mr Burroughs submitted that such a conclusion would ride roughshod over the legal and beneficial ownership of the money recovered. In other circumstances that may be so. If Landor UK had not been struck off the register, the legal ownership of the money recovered would have been in Landor UK. But the problems caused by the two Landor companies being struck off the registers and dissolved and the transfer of Landor EU's share in Landor UK to Trudson, lead me to a different view of the construction of clause 2. The commercial sense of the 2006 Agreement, in the unusual circumstances that existed, is such that Mr Vallen is liable to account to Mr Lediaev, whether or not, strictly speaking, he would be the beneficial owner of the sums recovered at the time of the 2006 Agreement.
- In paragraph 54 of the judgment the judge rejected a suggestion that there should be any implication in the 2004 Agreement of an obligation on Mr Vallen to pay monies to Mr Lediaev. Implicitly, he holds that the same reasoning applies to the 2006 Agreement. But, save insofar as the 2004 Agreement can be considered as an aid to construction of the later contract, I am not directly concerned with how the earlier agreement deals with the present question. The 2004 Agreement was concluded against a different factual background to the later one and, as is obvious, the terms are not the same.
- Therefore, for the reasons that I have given, I must respectfully disagree with the judge's conclusion. Mr Vallen is under a contractual obligation to account to Mr Lediaev for the sums recovered as a result of the settlement of the proceedings between Landor UK and Saffery.
Remedy
- This conclusion possibly raises questions about the remedy which Mr Lediaev is entitled to obtain. Mr Lediaev must be entitled to a declaration on the true construction of the 2006 Agreement and the nature of Mr Vallen's obligation to account to him for the sums recovered, less the success fee and expenses.[40] At the original hearing Mr Burroughs did not raise any specific arguments against the remedies sought on the pleadings by Mr Lediaev. However, subject to further submissions from Mr Ayres, for the present I would be inclined only to grant to Mr Lediaev a declaration that, on the correct interpretation of the contract, Mr Vallen is contractually obliged to account to Mr Lediaev personally for all the money recovered as a result of the settlement of the litigation between Landor UK and Saffery, less the success fee and expenses, which total £49,063.75.
Conclusions
- In summary, I conclude that : (1) Mr Lediaev is not entitled to re – amend the Particulars of Claim to raise the illegality issues relating to the 2006 Agreement; (2) the 2006 Agreement is not illegal on its face; (3) Mr Vallen is contractually obliged to account to Mr Lediaev personally for all the money recovered as a result of the settlement of the litigation between Landor UK and Saffery, less the success fee and expenses, which total £49,063.75.
Lady Justice Smith:
- I gratefully adopt Aikens LJ's exposition of the facts and I agree that the appeal should be allowed for the reasons he has given. I also agree with his conclusions that the appellant's application to re-amend his claim must be refused and that there is no illegality on the face of the 2006 Agreement. As to the illegality of the conduct of litigation by an unqualified person (see paragraph 64 above), I agree with the Chancellor that such questions are likely to arise with increasing frequency. Legal aid is often not available and litigants in person are turning to 'McKenzie Friends' for assistance. If a McKenzie Friend charges for his services, (which are, by definition, unqualified and unregulated) questions of the legality of his actions are likely to arise.
- Turning to the main issue in this appeal, in my view, the deputy judge erred in construing the meaning and effect of the 2006 Agreement. He was of the view that Mr Vallen's obligation under that agreement was to use his best endeavours to recover money from Saffery on behalf of Landor UK and that, once that had been done, it was up to Mr Lediaev to take whatever steps were necessary to arrange for the distribution (to himself) of the recovered money. I can see that, given the state of affairs at the time of the 2004 agreement, it might have been the intention of the parties that Mr Vallen's obligation would cease with recovery by Landor EU.
- However, between April 2004, when the 2004 Agreement was signed and 23 February 2006, when the 2006 Agreement was signed, several significant events or changes had taken place. First, on 6 October 2004, Landor UK was incorporated as a wholly-owned subsidiary of Landor EU. There was one share only, held by Landor EU. The sole director was Mr Vallen. That company was created by him so that proceedings against Saffery could be brought in the name of a UK-based company. In January 2005, Landor EU transferred its share in Landor UK to Trudson Services Ltd, which was controlled by Mr Vallen. Mr Vallen accepted that Trudson held that share for the benefit of Landor EU. On 1 March 2005, Landor EU transferred its only asset, namely its right of action against Saffery to Landor UK. In April 2005, Landor EU was struck off the register of companies in the Republic of Ireland and dissolved; its assets became bona vacantia in the Republic of Ireland. In June 2005, Landor UK (under the control of Mr Vallen) began proceedings against Saffery. At a date unknown but before 23 February 2006, Mr Lediaev, (who under the 2004 Agreement had been obliged to fund the recovery process) had decided or realised that he could no longer do so and the parties must have decided that a new agreement was necessary to reflect Mr Vallen's willingness to fund the recovery process, subject to his right to recover his expenses out of the sum recovered, as well as his share of the proceeds. Finally, on 13 February 2006, Saffery made an offer of settlement. From that date it was apparent that, one way or another, there was going to be some recovery.
- Against that background, on 23 February 2006, Mr Vallen and Mr Lediaev agreed that Mr Vallen 'would use his best efforts to continue the recovery process through litigation and otherwise until the judgment or settlement is obtained'. It is possible that, at the time of signing, both parties envisaged that any sum recovered by judgment or settlement would be paid to Landor UK, the claimant, and that it would be a simple matter to arrange for Mr Lediaev to receive that part of it to which he was entitled. However, even that is doubtful because, Landor EU had already been dissolved and no attempt had been made to restore it to the register; nor is there any evidence that either man contemplated that that would be done. So it is not clear exactly what the parties contemplated at that date as to the mechanism for the distribution of the proceeds of settlement or judgment.
- Soon after the 2006 Agreement had been signed, Saffery made an acceptable offer and settlement was reached. Mr Vallen then arranged that payment should be made not to Landor UK but to the Swiss bank account of a company called Belco Trading Ltd. Mr Vallen controlled Belco and Mr Lediaev had no interest in it and no means of controlling it. I assume that there were sound and honest reasons for Mr Vallen to arrange for payment to Belco. But, if, on 23 February 2006, an officious bystander had asked Mr Vallen and Mr Lediaev what would happen if it turned out that Landor UK had ceased to exist and that the settlement payment was to be paid into an account solely controlled by Mr Vallen, they would, I am satisfied, have said that, of course, Mr Vallen's contractual duty would extend until the net proceeds of settlement or an equivalent sum reached Mr Lediaev's hands. The parties could not have contemplated that the money would languish in a Swiss bank account where Mr Lediaev could not reach it. In my view, there must be implied into the 2006 Agreement a term which required Mr Vallen to continue his 'best efforts' until Mr Lediaev was put in funds. Such a term is necessary to give the agreement business efficacy.
- It follows that Mr Vallen's contractual duty is either to pay the sum due from the Swiss account to Mr Lediaev or to pay the same sum to Mr Lediaev from another source.
- For those reasons, I agree that the appeal must be allowed.
The Chancellor
- I am grateful to Aikens LJ for his comprehensive review of the facts and issues on this appeal. I agree with his reasons for refusing Mr Lediaev permission to amend his particulars of claim set out in paragraphs 55 to 61 and with his conclusions on the issue of illegality set out in paragraphs 62 to 66. I would only add that the legality of legal advice and assistance being given to parties to proceedings by unqualified persons for reward is one which is likely to arise increasingly frequently. The unavailability of legal aid and the use by litigants in person of 'McKenzie Friends' is now well established. What may not be sufficiently appreciated is the extent to which the McKenzie Friend now seeks to charge for his legal advice and assistance which is, by definition, unqualified and unregulated.
- The principal issue on this appeal is whether the judge was right to have concluded that Mr Vallen is not personally liable to Mr Lediaev under the 2006 Agreement for the sum of £138,000 paid by Saffery Champness Management International Limited ("Saffery") in settlement of the claim brought against them by Landor Services UK Ltd ("LUK"). Like Aikens LJ I find it necessary to reiterate some relevant facts as the necessary background to the construction of the 2006 Agreement.
- In chronological order they are as follows:
(a) Landor European Services Ltd ("LEU") was incorporated in Eire in early 1994. At all material times Mr Lediaev was beneficially entitled to all the issued shares in LEU.
(b) In March 1994 LEU invested £315,000 in shares in two property funds administered by Saffery.
(c) In June 1999 those shares were sold and the net proceeds of sale amounting to £187,818 were remitted by Saffery with, as they thought, but wrongly, sufficient authority to a bank account in Singapore.
(d) The attempts of LEU and Mr Lediaev to recover that money from Saffery led Mr Lediaev, on 19th February 2001, to conclude with DELM, then the employer of Mr Vallen, the 2001 Agreement, the avowed purpose of which was "to recover the funds which were invested into [the property funds] and are now due".
(e) LEU, which had been struck off the Register in Eire, was restored thereto on 27th August 2001.
(f) Mr Vallen left DELM in late 2001 but continued personally to work for Mr Lediaev and LEU in respect of the recovery of the proceeds of sale of the property fund shares.
(g) The 2004 Agreement was concluded between Mr Lediaev and Mr Vallen on 22nd April 2004. This recorded that Mr Lediaev required "implementation of practical solutions with respect to recovery of funds" invested in the property funds. If such funds were received it required Mr Vallen to safeguard the interests of Mr Lediaev.
(h) On 6th October 2004 LUK was incorporated by Mr Vallen as the wholly owned subsidiary of LEU for the purpose of pursuing the claim against Saffery.
(i) In January 2005 the issued share capital in LUK was transferred by LEU to Trudson Services Ltd ("Trudson"), a company controlled by Mr Vallen. The judge accepted the evidence of Mr Vallen that Trudson held the shares in LUK for LEU.
(j) On 1st March 2005 LEU assigned its cause of action against Saffery to LUK.
(k) On April 2005 LEU was struck off the register of companies in Eire and dissolved. If the law of Eire is the same as that of England, which, in the absence of any evidence to the contrary, is to be presumed, the beneficial interest in the shares in LUK would have passed to the Republic of Ireland as bona vacantia.
(l) On 28th June 2005 LUK commenced proceedings against Saffery in respect of the payment of the proceeds of sale of the property fund shares to the account in Singapore.
(m) The first of several offers to settle the claim brought against it by LUK was made by Saffery on 17th February 2006.
- That was the state of affairs when the 2006 Agreement was concluded between Mr Lediaev and Mr Vallen on 23rd February 2006. In summary the relevant cause of action was vested in LUK, LUK was controlled by Mr Vallen through Trudson free from any check on his activities by members of LUK unless and until LEU was restored to the register of companies in Eire. It seems reasonably clear that the reason for this unusual sequence of events was to avoid having to give security for costs of the claim against Saffery. LUK was incorporated in England. Mr Vallen, though born in Kiev, had become a British citizen and was resident in England. By contrast LEU was incorporated in Eire and Mr Lediaev was resident in and a citizen of Russia.
- It is clear from the terms of the 2006 Agreement (recital 2) that Mr Lediaev could no longer finance the litigation against Saffery for "the recovery of assets invested by LEU". The 2006 Agreement (recital 3 and clause 1) provided for Mr Vallen to do so on terms that he was to "be reimbursed from the proceeds of the recovery". The focus of the 2006 Agreement, expressed in various different terms, was "recovery" from Saffery. Accordingly the obligation of Mr Vallen imposed by clause 2 would not come to an end with the entry of judgment but would, if necessary, extend to enforcing that judgment by such methods of execution as in the circumstances were best calculated to recover the money wrongly paid away or compensation for its loss. Likewise, as it seems to me, the process of "settlement" envisaged by clause 2 necessarily included receipt of the consideration provided by Saffery in order to conclude it. Accordingly, in my view, the obligation imposed on Mr Vallen by clause 2 of the 2006 Agreement was to use his best endeavours to obtain against or with Saffery not only a judgment or settlement, as the case may be, but also the consideration payable by Saffery thereunder.
- Before expressing a conclusion on the outcome of this appeal it is necessary to continue the chronological narrative from the point which I had reached in paragraph 91(m). After a further increased offer from Saffery on 24th February 2006 settlement was reached with Saffery on 5th April 2006 on terms that Saffery would pay £138,000 to a Swiss bank account in the name of Belco Trading Ltd. The payment was duly made on 12th May 2006. The judge concluded that Belco, which in due course changed its name to Westwing Resources Ltd, was and is under the control of Mr Vallen. Further the sum of £138,000 was still in the Swiss bank account of Belco at the time of the hearing before the judge.
- Thus, as of 12th May 2006, Mr Vallen had succeeded in obtaining the settlement for which clause 2 provided and, no doubt, was entitled to reimburse himself for the expenses due to him under the 2006 Agreement. But who was entitled to the balance? Mr Vallen was not; nor was Trudson, Belco or Westwing. Prima facie LUK was; but, given that the manifest purpose of introducing LUK in the first place had been achieved, and given that the control of LUK had passed to the Republic of Eire, the parties to the 2006 Agreement cannot, when making that agreement, have envisaged or intended that LUK should be entitled to the balance. It seems to me that the obligations of Mr Vallen must have continued until he had fully accounted for the balance of the net proceeds of sale to the person the parties envisaged was entitled to them.
- At the time the 2006 Agreement was concluded LEU had been struck off the register of companies in Eire for the second time. There was no evidence that any one contemplated the need to obtain its restoration. It had just dropped out of the picture. As it seems to me, the inevitable consequence is that, as of the conclusion of the 2006 Agreement on 23rd February 2006, the common understanding of both Mr Lediaev and Mr Vallen must have been to the effect that Mr Lediaev would be entitled to the balance of the net proceeds of sale after Mr Vallen had been reimbursed his expenses in accordance with that agreement. On that basis the recovery process referred to in clause 2 is the process of recovery by Mr Lediaev, the person to obtain the consideration for the settlement was Mr Lediaev and the obligation of Mr Vallen was to use his best efforts to achieve that result.
- But for the fact that LUK was struck of the register of companies in England on 17th October 2006 that would have been simple. Mr Vallen could have directed Belco and LUK to pay the money to Mr Lediaev or as he might direct. As it is, both the legal and beneficial interest in it is now vested in the Crown as bona vacantia. It is still open to Mr Vallen to apply for the restoration to the register of the name of LUK. No good reason has been given for his failure to do so.
- For these reasons I agree with the conclusion of Aikens LJ expressed in paragraph 75 of his judgment. As he records in paragraph 77 counsel for Mr Vallen submitted that any such conclusion is inconsistent with the legal and beneficial ownership of the money recovered from Saffery. For my part I would agree with that observation. But it is precisely because, for a number of extraneous reasons, Mr Lediaev was not, at the time the 2006 Agreement was concluded, either the legal or beneficial owner or in control of any money likely to be recovered from Saffery that clause 2 of the 2006 Agreement has to be given the scope to which I have referred. In the unusual circumstances of this case the established principles of construction to which Aikens LJ has referred entitle the court, in my view, to construe clause 2 of the 2006 Agreement in the manner I have indicated.
- I also agree with the view of Aikens LJ expressed in paragraph 80 of his judgment as to the remedy we should afford to Mr Lediaev and with the summary of his conclusions set out in paragraph 81.
A N N E X 1
2004 AGREEMENT
"AGREEMENT ON PROVISION OF SERVICES FOR RECOVERY OF FUN DS
…………
WHEREAS:
Client requires implementation of practical solutions with respect to recovery of funds which were invested in Mill Group UK Property Fund and which are reimbursable
IT HAS HEREBY BEEN AGREED AS FOLLOWS:
I. THE RIGHTS AND OBLIGATIONS OF THE PARTIES
Throughout the period of validity of the present Agreement, Executor shall:
1. Perform his obligations under this Agreement with all diligence, skill and care and in conformity with the highest professional standards, making reasonable efforts to safeguard the interests of the Client.
2. Provide to Client services with respect to conclusion of any agreement which may become necessary in connection with repayment of funds.
3. Organize and conduct relevant negotiations between Client and any other interested party, including Saffery Champness Management International Limited, ABN AMRO bank and other legal and physical entities in order to ensure recovery of the funds in conformity with international legislation and the local law of the countries where action related to such repayment of funds shall take place.
4. In the event that such negotiations are unsuccessful, Executor shall commence legal proceedings on behalf of Landor European Services Ltd.
Throughout the period of validity of this Agreement, Executor shall have the right to:
1. Represent Landor European Services Ltd. in all negotiations, institute and conduct relevant legal proceedings in any jurisdiction at his discretion to recover the funds.
2. At his discretion give consent on behalf of Landor European Services Ltd. to the conclusion of a contract in respect of judicial or extra-judicial settlement of a dispute relating to the recovery of funds.
Throughout the period of validity of the present Agreement, Client shall be obliged to:
1. Put at the disposal of Executor all powers of attorney, orders and witness statements, including testimony in court, which may be necessary from time to time.
2. Provide financial means required to keep Landor European Services in the register of companies, including but not limited to payment to accountants, annual tax levies, the register of companies, nominal directors and secretaries.
3. Ensure payment of all court fees and charges.
4. Ensure provision of required pledges if so ruled by court.
5. If the recovered funds are received in whole or in part, provide payer of the recovered funds and/or the bank providing services to Landor European Services Ltd. with instructions regarding transfer of the recovered funds which are due to Executor to the account indicated by Executor.
II. EXPENSES AND REMUNERATION
Client shall be obliged to pay to Executor the following sums:
Retaining fee - 0
Fee in the event of positive resolution
of the case - 35% of the aggregate amount of the recovered funds plus 40% of any positive amount by which the aggregate amount of the recovered funds exceeds 300,000 (three hundred thousand) US Dollars.
Overheads of any kind - Client shall be obliged to reimburse Executor for any reasonable overheads, not limited to legal fees, hotel, business trip expenses, etc., incurred in connection with the duties imposed upon Executor, on condition that documents confirming such expenses are provided.
………
VIII. CANCELLATION OF THE AGREEMENT
This Agreement may be cancelled by a written notice sent by Client or Executor. If the Agreement is cancelled by Executor, the date of the written notice of cancellation shall constitute the "Actual Cancellation Date". If the Agreement is cancelled by Client, the Actual Cancellation Date shall fall 90 days from the time of receipt of the written cancellation notice by Executor.
……..
In the event that judicial proceedings commence, Client shall have the right to cancel this Agreement on condition that Executor is compensated for the time spent at a rate of £150 an hour, however the total time spent may not exceed 45 working days.
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XII. REPRESENTATIONS
1. At the conclusion of this Agreement, Client has been informed by Executor that, at the time of conclusion of this Agreement, Executor does not have professional qualifications to conduct legal proceedings. For this reason, for the term of performance of this Agreement, Executor shall assume the functions of company director and accordingly shall represent Landor European Services Ltd. at judicial proceedings, if any arise, in the capacity of director of Landor European Services Ltd.
2. Executor's obligation to duly perform the work in connection with this Agreement does not signify guarantees by Executor of repayment of the funds.
XIII. GOVERNING LAW OF THE AGREEMENT
This Agreement is made and performed in accordance with the laws of England.
XIV. THE PERIOD OF VALIDITY OF THE AGREEMENT
This Agreement shall enter into force from the date indicated below and, without prejudice to the rights and obligations of the Parties set forth above, shall endure until its Financial Completion or cancellation pursuant to Clause VII hereof.
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2006 AGREEMENT
"AGREEMENT
AGREEMENT made as of 12 January 2008 between Dimitry Vallen and Vadim Lediaev.
WHEREAS, Dimitry Vallen and Vadim Lediev entered into the Agreement dated 22 April 2004 concerning the recovery of assets invested by Landor European Services Ltd into Mill Group Fund as well as losses and damages and which require Vadim Lediaev to provide funding specified by this Agreement; and
WHEREAS, Vadim Lediaev is not in a position to provide the required funding and wishes now to repudiate the Agreement of 22 April 2004; and
WHEREAS, Vadim Lediaev wishes Dimitry Vallen to provide further funding described above on the basis that such further expenses will be reimbursed form [sic] the proceeds of this recovery subject to conditions described below;
NOW, THEREFORE, Dimitry Vallen and Vadim Lediaev agree that:
1. Further process of recovery of assets, losses and damages described above will be fully financed by Dimitry Vallen until the outcome of the recovery process is achieved.
2. Dimitry Vallen will use his best efforts to continue recovery process through litigation and otherwise until the judgement or settlement is obtained.
3. Any further expenses in relation to thie [sic] recovery process will be recovered only from the proceeds of the recovered amount up to the maximum of £20,000 and the funding will be provided by Dimitry Vallen at his own expense and risk, even if the required funding exceeds the sum of £20,000.
4. With respect to the Success Fee due to Dimitry Vallen upon recovery is achieved it remains at the previously agreed level, i.e. 35% of the aggregate amount of the recovered funds, losses and damages and 40% of the aggregate amount of the recovered funds, losses and damages if it exceeds $300,000.
5. Vadim Lediaev will provide all the assistance for the recovery process in respect of his Witness Statement and participation in the court hearings when required.
6. This agreement supersedes all previous agreements between the parties.
IN WITNESS WHEREOF, the signatories hereto, have set their hands intending to be legally bound thereby.
By: __________ By: ___________
Dimitry Vallen Vadim Lediaev
Date: 23.02.06 Date: 23.II.06".
ANNEX 2
Solicitors Act 1974
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Unqualified persons acting as solicitors
20. Unqualified person not to act as Solicitor
(1) No unqualified person shall—
(a) act as a solicitor, or as such issue any writ or process,
or commence, prosecute or defend any action, suit
or other proceeding, in his own name or in the name
of any other person, in any court of civil or criminal
jurisdiction; or
(b) act as a solicitor in any cause or matter, civil or criminal,
to be heard or determined before any justice or justices
or any commissioners of Her Majesty's revenue.
(2) Any person who contravenes the provisions of subsection (1)—
(a) shall be guilty of an offence and liable on conviction on
indictment to imprisonment for not more than two
years or to a fine or to both; and
(b) shall be guilty of contempt of the court in which the action, suit, cause, matter or proceeding in relation to which he so acts is brought or taken and may be punished accordingly; and
(c) …….
22. Unqualified person not to prepare certain instruments
(1) Subject to [subsection (2) an (2A)], any unqualified person who directly or indirectly—
(a) draws or prepares any instrument of transfer or charge for the purposes of the [Land Registration Act 2002], or makes any application or lodges any document for registration under that Act at the registry, or
(b) draws or prepares any other instrument relating to real or personal estate, or any legal proceeding,
shall, unless he proves that the act was not done for or in expectation of any fee, gain or reward, be guilty of an offence and liable on summary conviction to a fine not exceeding [level 3 on the standard scale]
(2) Subsection (1) does not apply to—
(a) a barrister or duly certificated notary public;
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(b) any public officer drawing or preparing instruments or applications in 'the course of his duty;
(c) any person employed merely to engross any instrument, application or proceeding;
and paragraph (b) of that subsection does not apply to a duly certificated solicitor in Scotland.
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(3) For the purposes of subsection (1)(b), "instrument" does not include—
(a) a will or other testamentary instrument;
(b) an agreement not under seal;
(c) a letter or' power of attorney; or
(d) a transfer of stock containing no trust or limitation thereof.
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Courts and Legal Services Act 1990
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"Offences
70. Offences
(1) If any person does any act in the purported exercise of a right of audience, pr right to conduct litigation, in relation to any proceedings or contemplated proceedings when he is not entitled to exercise that right he shall be guilty of an offence.
(2) If any person does any act in the purported exercise of any right granted to authorised practitioners by virtue of this Act when he is not an authorised practitioner he shall be guilty of an offence.
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(4) A person guilty of an offence under subsection (1) or (2) shall be liable –
(a) on summary conviction, to imprisonment for a term not exceeding six months or to a fine not exceeding the statutory maximum or to both; or
(b) on conviction on indictment, to imprisonment for a term not exceeding two years or to a fine or to both.
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(6) A person guilty of an offence under this section, by virtue of subsection (1), shall also be guilty of contempt of the court concerned and may be punished accordingly.
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