PROVING THINGS 205: COUNSEL NOT ENTITLED TO £6,922,532 IN FEES BUT WERE ENTITLED TO EXEMPLARY DAMAGES
In Cakebread & Anor v Fitzwilliam  EWHC 472 (Comm) Sir Ross Cranston (sitting as a High Court judge) considered an argument from the claimant barristers that an arbitrator had erred in refusing to award them their fees. The essential finding was that there was no evidence before an arbitrator to prove loss of income as an alternative claim.
The claimants are barristers. They entered into a damages based agreement with the defendant in relation to an action for $2 billion. Counsel’s fees were to be paid between 5% and 45% of the damages recovered. The matter went to trial where the client was successful but recovered only nominal damages. An appeal was compromised. The claimant barristers took the view that the client had terminated the DBA and sought payment of their fees on an hourly rate basis, some £6,922,532.51.
The defendant did not challenge the amount of work done. The matter was referred to arbitration.
THE ARBITRATOR’S DECISION
The arbitrator found that the DBA was unenforceable because of breaches of the Damages-Based Agreements Regulations 2013. The claimants were not, therefore, entitled to fees under the DBA, nor were they entitled to sums due to a breach of a duty of good faith.
THE THIRD ARGUMENT
The claimants’ third argument was based on an argument that they had been induced by the defendant’s deceitful instructions.
Paragraph 15 then stated:
“15. The respondent’s deceit has caused the claimants loss and damage.
Particulars of loss and damage
(i) In reliance upon the deceitful instructions the claimants undertook work to the value of £7,118,954.50 including interest to date in respect of the Plantation Action;
(ii) If they had known the respondent had lied in his instructions they would not have undertaken the work without correction of the respondent’s 2011 witness statement and would have charged at the rate agreed in the Second DBA. They would not have agreed to do the work without an unconditional guarantee of payment in view of the highly prejudicial effect of the respondent’s deceit on the prospects of success and/or the recovery of substantial damages by Plantation.”
THE ARBITRATOR’S FINDINGS
The arbitrator found that the defendant had lied to the claimants and that influenced them in entering the DBA. However they had not proven that they had suffered any losses.
THE ABRITRATOR’S DECISION
“80. I agree with Mr Carpenter that [the] Claimants’ loss is not simply the sum of the fee notes delivered to [the defendant]. Even if that is limited to the period after the execution of the Second DBA that would still represent the measure of damages for the loss of the bargain.
81. Has any such loss been proved? It seems to me clear that, had the lies not been uttered, the claimants would not have taken on the case. I considered in the course of argument and thereafter whether, as submitted by Mr Cakebread, the damages would fall to be calculated by reference to the value of the services dishonestly obtained pursuant to the fee notes. This seems to me to be tantamount to seeking a form of restitutionary award in the context of a claim in deceit which is an approach which has been denied by the courts: see Halifax Building Society v Thomas  Ch 217.
82. On careful reflection I consider that the correct approach to loss in this case would be to assess what the claimants were deprived of by entering into this agreement by reason of the deceit…I think the true position is that, had [the defendant] provided a truthful account at the time of the Second DBA, the claimants would have ceased acting…
83. In my judgment what the claimants were deprived of was the opportunity to utilise their skills on other paid tasks in the period between entering the Second DBA and the end of their retainer. This of course has to be predicated upon the existence of alternative instructions and the fees these would have generated…
85. In approaching this issue I must emphasise that the claimants have tendered no evidence of their normal charging rates and typical annual incomes let alone whether they were able to undertake any other work during the period of their retainer.
86. I have considered very carefully whether I can make any loss of earnings award to the claimants in these circumstances. It seems to me that they have not pleaded a case consistent with the appropriate measure of damage. They have not tendered evidence which would support a calculation on such a basis.”
THE JUDGE’S OBSERVATIONS
The Arbitrator then considered whether he could nevertheless make a broad brush “jury assessment” and concluded that he could not because that was not an approach canvassed in the pleadings or evidence, and that in any event he did not have the basis to form any view as to whether any other work was actually undertaken by the claimants during the relevant period and what scale of income they might have expected to achieve during the period they were engaged in the action as a result of entering the DBA (paras 86-87).
Therefore, the Arbitrator concluded, he could not award compensatory damages by reference to loss of earnings (para. 88).
However, he went on to find that the defendant’s conduct was deliberate and cynical and to award exemplary damages (paras. 89-92).
THE CLAIMANTS’ UNSUCCESSFUL APPEAL
The claimants made an application to challenge the award under section 68 of the Arbitration Act 1996. That application was unsuccessful.
It is not my task to assess whether the Arbitrator was correct in rejecting the claimants’ submissions on the law of tort relating to a loss resulting from deceit. As mentioned earlier in the judgment the claimants have a section 69 application before the court, where they are challenging the Arbitrator’s legal approach. What is relevant, however, is how the Arbitrator analysed the matter and reached his conclusion Award that the claimants were not entitled to compensatory damages. After considering the pleadings and submissions set out earlier in the judgment, my conclusion is that the Arbitrator accepted the defendant’s submissions, and rejected the claimants’, about how loss was to be assessed following their reliance on deceit which he had found established; that the reference to restitution in the last sentence of paragraph 81 was not an essential building block to that outcome and did not need to be referred back to the parties; that paragraphs 82-88 of the Award were part of his essential building blocks and did not flow from his remarks in the last sentence of paragraph 81; and that the claimants had a fair opportunity to address all those essential building blocks which formed part of the Award.