Validity Of Contingent Fee Agreement By An Indian Advocate In Arbitration

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In a recently decided Indian case, the Bombay High Court held that a contingent fee agreement entered into by an Advocate to represent his client before an arbitrator in his capacity of a ‘Counsel’ would not render such agreement void as champertous. [Jayaswal Ashoka Infrastructures Pvt. Ltd. v. Pansare Lawad Sallagar 2019 Bombay High Court (Nag Bench), First Appeal No. 106 of 2015] This case raises a lot of questions which will be discussed in this post.

In order to understand the intricacies of the legal position in India regarding contingency fee arrangement by advocates, it is pertinent to understand its legal landscape and how it is shaped in its present form. The Bar Council of India established under the Advocates Act, 1961 (‘Act’), regulates advocates in India. The term ‘Advocate’ means a person who is enrolled as an advocate with any of the State Bar Councils of India. The Act further provides that every advocate whose name is enrolled with State Bar Councils is entitled to practice in all Courts, Tribunals, Authorities before whom such advocate is entitled to practice. The term ‘practice’ includes both litigation as well as non-litigation work, which is better known as chamber practice or opinion work. Further, the Act applies not only to the persons practising before the Courts but it also intends to apply on persons who are practising in non-litigious matters outside the Court.

With regard to contingent fee, the Bar Council of India Rules (‘Rules’) bars an ‘Advocate’ from stipulating a fee contingent on the results of the litigation or from agreeing to share the proceeds thereof. The Rules further prohibits practices akin to champerty or maintenance and bars an advocate from buying or trafficking in or stipulating or agreeing to receive any share or interest in an actionable claim.

The aforesaid rule derives its genesis from earlier judicial precedents on champerty and maintenance from the Privy Council which inter-alia held that an agreement which is extortionate, or unconscionable or inequitable in nature will be against the public policy of India and therefore, void under Indian Law. A champertous contract in which returns are contingent on the success of the case is not per se illegal in India, except in cases where an advocate might be a party. Albeit, there is no prohibition on third party (non-lawyer) getting paid based on the outcome of the judgement in India, an advocate cannot charge fee on a percentage basis or claim a share in the subject-matter of the litigation. Further, an advocate cannot fix fees conditional on success of a case or a share in the subject matter of the litigation. As a natural corollary, charging fee on contingent basis by an advocate will be seen as an unconscionable and speculative bargain bringing it into the ambit of champertous agreement.

Therefore, in order to hold such fee agreement as champertous, following essentials are required to be met:

  1. The person representing the party should be an Advocate under the Act;
  2. The Advocate must have agreed to charge fee on contingent basis;
  3. This agreement must be to represent a client before any Court, Tribunal or Authority.

This leads to following interesting questions:

  1. Whether the term ‘person’ includes law firms as well?
  2. Whether Arbitral Tribunal can be termed as Court/Tribunal/Authority as defined under the Act?
  3. If the answer to A is in negative, then whether representing clients before the Arbitral Tribunal by law firms amounts to ‘practice’?
  4. If answer to B is in negative, then whether a pleader or a law firm or an Advocate in some other capacity enter into a contingent fee agreement to represent its client before the Arbitral Tribunal?

In respect of A, reference can be made to Section 24 of the Act, which lays down the qualifications for a ‘person’ who may be admitted as advocates with the State Bar Councils. The qualifications include the citizenship of India, unless a person is a national of a country where citizens of India are permitted to practice. Such ‘person’ is required to attain the age of 21 years and is further required to have the prescribed qualification from India or out of India if such degree is recognized by the Bar Council of India. A law firm, being a natural person, cannot have qualifications such as age, degrees etc. Thus, it appears that a law firm may not be termed as a ‘person’ for the purposes of enrolling under the Act as an Advocate.

To answer B, reference can be made to the definition of ‘Court’ under Section 2(e) of the Arbitration & Conciliation Act, 1996 (‘A&C Act’). The term ‘Court’ has been defined to mean the Principal Civil Court of original jurisdiction in a district and includes the High Court. It expressly excludes Civil Court of a grade inferior to such Principal Civil Court, or any Court of Small Causes. Therefore, an Arbitral Tribunal constituted under the A&C Act is excluded from the definition of the word ‘the Court’.

Further, as per the settled position of law in India, before a body can be said to be a ‘Tribunal’ or ‘Authority’, it must be invested with some judicial power of the State to decide a lis which arises before it. This means that all Tribunals/Authorities must be legally authorised to take evidence by statute or subordinate legislation or otherwise, the judicial power of the State vesting in such Tribunal/Authority. Although an Arbitral Tribunal under Section 27 of the A&C Act can be legally authorized to take evidence, such authorisation may not be seen as vesting of State’s judicial power to it. Thus, the Arbitral Tribunal could not be said to be a ‘Tribunal’ or ‘Authority’ for the purposes of this discussion.

Turning onto C, in Harish Uppal (Ex-Capt.) v. Union of India, (2003) 2 SCC 45, the Supreme Court of India inter-alia held that the expression ‘practise’ is an expression of extremely wide import, and would include all preparatory steps leading to the filing of an application before a Tribunal. But even if a law firm provides all these service to a client in an arbitration proceedings still it may not be ‘practising’ since an ‘Arbitral Tribunal’ is not a ‘Court’ as discussed above. In Jayaswal Ashoka Infrastructures Pvt. Ltd. v. Pansare Lawad Sallagar, a law firm entered into a percentage based fee agreement with its client in return of providing consultancy services in arbitration proceedings. The Bombay High Court upheld the contention of the law firm that the representation before an arbitrator could not be considered to be a representation before the ‘Court’.

Answer to D germinates from the law settled in the aforesaid judgement. In this case, the law firm contended that since the partner of the law firm who represented the clients before the Arbitral Tribunal was not a enrolled as ‘Advocate’ under the Act, there was no bar on him to receive any remuneration based on the outcome of the arbitration proceedings. Further, it was also contended that as per Section 2(15) of Code of Civil Procedure of India (‘CPC’), a ‘pleader’ is any person entitled to appear and plead for another in Court and includes an advocate, a vakil and an attorney of a High Court. In addition, Order III Rules 1 and 2 of CPC presumes appearance of an Advocate only before the Court. A ‘pleader’ as defined in the Black’s Law Dictionary was referred and taken as a person who pleads in Court on behalf of the another. Since representation before an arbitrator is not equivalent to representation before the Court together with the fact that the partner of the law firm is not an ‘Advocate’, nothing will preclude him to enter into a percentage based fee arrangement. These contentions were upheld by the Bombay High Court.

Thus, in light of this judgement, it appears that there is no bar on a pleader or an Advocate acting in his capacity of a pleader/counsel to enter into such percentage based fee agreements. In a similar vein, a partner of a law firm who is not an Advocate under the Act may enter into such fee agreement in India as held in this case.

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