Authority At Its Limit: English Commercial Court Upholds Jurisdictional Challenge

This case contains an interesting analysis of the authority of solicitors to bind their clients when engaging third-party service providers

In A1, A2 and A3 v P [2025] EWHC 3372, the English Commercial Court (Mr Justice Henshaw) partially upheld a section 67 jurisdictional challenge to an LCIA award on the basis that two out of three claimant parties (who were defendants in the arbitration) were not party to the arbitration agreement. The underlying contract containing the arbitration agreement was an engagement letter (the Agreement) between a US law firm (C) and an intelligence gathering firm (P). The jurisdictional challenge was upheld on the basis that the first and third claimants (A1 and A3) were not party to the Agreement, because C lacked the authority to bind them to it. However, the judge determined that the arbitral award stood in relation to the second claimant, A2, who lost the right to bring a jurisdictional challenge pursuant to section 73 of the Arbitration Act (the Act).

Background

P was engaged by C to provide intelligence gathering and analysis services to support ongoing legal proceedings between A1, A2 and A3 (who were all related companies) against a port authority in an unnamed country. In the Agreement, a success fee was payable in circumstances where P obtained evidence which supported A1, A2 and A3's claims. In the event of non-payment of a success fee under the Agreement, P commenced LCIA arbitration proceedings against A1, A2 and A3. The Agreement stated that P was retained by "C (hereafter 'the Firm') on behalf of the Firm's client and its subsidiaries (the "Client") to provide services "to the Firm")."

P argued in the arbitration that it reasonably believed that A1, A2 and A3 were clients under the Agreement. In response, A1, A2 and A3 argued that the only client of C for the purposes of the Agreement with P was A2, as A1 and A3 were not clients of C nor subsidiaries of A2 and thus not parties to the Agreement (and A2 did not challenge the jurisdiction of the tribunal). The tribunal found that, as a matter of construction of the Agreement, A1, A2 and A3 were all parties to it. Further, it found that C had the authority of both A1 (apparent authority) and A3 (implied actual and apparent authority) to bind them to the Agreement.

Commercial Court proceedings

In the Commercial Court, A1, A2 and A3 sought an order to set aside and/or declare the arbitration award to be of no effect, their primary case being that the tribunal did not have jurisdiction over A1 and A3 because they were not parties to the Agreement with P.

P argued that C had implied actual authority, or alternatively ostensible authority, to bind A3 and ostensible authority to bind A1. This was on the basis that C as a law firm had "usual authority" to do all the things ordinarily incidental to acting as their lawyers, which was consistent with the conclusion reached by the tribunal.

However, the judge held that this approach conflated two questions, the first of which was whether it was within the solicitor's remit to enter into the contract with a third-party service provider as principal and pass that cost to the client as a disbursement, and the second was the solicitor's authority to bind the client itself to a contract with a third party. It was the latter that was relevant here. The judge noted that he was not shown any case law or evidence to support the view that a solicitor has usual authority to place their client into direct contractual relations with third-party service providers, let alone to a contract under which the client agrees to pay a success fee based on its recovery in legal proceedings. Although P invited the judge to take notice of the fact that it is relatively common in heavy commercial litigation for third-party expenses to be made the subject of direct contractual relationship with the client, such that it must be within a solicitor's usual authority to bind the client to such contracts, the judge concluded that there was no evidence that solicitors had authority to enter into such contracts on behalf of their clients (as opposed to the client executing the contract with the service-provider directly).

P also argued that A3 had ratified the arbitration agreement by making use of P's intelligence findings, relying on a number of matters which it said were evidence of A3 possessing sufficient knowledge for ratification. However, these submissions were rejected, amongst other things on the basis that it was not clear that the Agreement purported to bind anyone other than C.

The court then moved on to consider an alternative argument, which was now only relevant to A2 given the judge's findings thus far. A2 argued that there could be no jurisdiction because C lacked authority to bind it, as C was not given a special mandate by A2's board of directors, which was a local law authorisation requirement. Although A2 argued that it did not know and could not with reasonable diligence have discovered this ground for the objection at the time of the arbitration, the court rejected this argument, relying in particular on the fact that A2 had chosen not to take local law advice. A2 had accordingly lost the right to object to jurisdiction under s73 of the Act.

Comment

Successful section 67 challenges are rare, and it is rarer still to see a case which analyses a law firm's ability to bind a client to an agreement with a third-party service provider. This case is a good reminder for clients, lawyers and service-providers to carefully consider the terms on which third parties are engaged to provide services in support of legal proceedings, particularly if the engagement letter is to be signed by solicitors as agent for their client. In this case, the lack of clarity in the engagement letter gave rise to complex legal proceedings and uncertainty as to who was bound by the underlying obligations, resulting in the partial set aside of an arbitral award.

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