Clifford Chance receives £50,000 SDT fine for 'unlawful' conditional fee agreement in Excalibur case

Clifford Chance (CC) has been fined £50,000 by the Solicitors Disciplinary Tribunal (SDT) for its role in the controversial Excalibur case.

CC admitted that it “conducted litigation in the High Court under a conditional fee agreement… which was unlawful and unenforceable”.

The firm also admitted that it had “produced to a potential litigation funder a document which contained advice from the firm to a client, without disclosing that the first draft of the document had been drafted by one of the owners of the client”.

The third charge to which CC admitted was that it had “made payments from sums held on behalf of litigation funders other than in accordance with the funding agreements pursuant to which such sums were held”.

Litigation partner Alex Panayides has also been fined £50,000 for his role in the case, after admitting to the same three charges as his firm. Despite the ruling, he will remain at CC as an equity partner, the firm confirmed.

In a statement, CC said: “We take our obligations to our clients and the profession extremely seriously and are committed to upholding the highest standards at all times. We accept the SDT’s findings that some aspects of our conduct in this matter did not meet these high standards.

“The issues referred to the SDT were not prompted by any complaint but had all been identified and self-reported to the SRA by the firm following our own prompt and thorough internal review.

“We are pleased to note that the honesty and integrity of all parties is nowhere in question and that none of the original judicial criticism, which prompted the SRA investigation, is reflected in the SRA’s findings. No adverse findings were made as to potential or actual conflicts of interest, and the handling of the litigation itself was not the subject of any criticism of any kind.

“While it was found that our systems and controls were appropriate, as a firm we are committed to further developing and promoting market-shaping practices in relation to ethics and professional standards.”

The prosecution decision in both cases was reached yesterday (30 November).

The long-running Excalibur case centred around a $1.6bn claim brought by Excalibur Ventures, an aspiring oil exploration firm, against two US oil companies, backed by a group of litigation funders.

Excalibur, which claimed that the defendants cheated it out of an exploration deal in Iraq, was represented by Panayides, who was working on a partial contingency fee.

Last year, the Court of Appeal upheld a 2013 High Court ruling which found that the litigation funders were liable for the defence costs of the two defendants. CC was criticised by the Court of Appeal for its role advising Excalibur, after it emerged that there were family ties between Panayides and one of the funders.

The Court of Appeal’s ruling also revealed that CC was working for a contingency fee in which it could have recovered 140% of its usual fees, plus a discretionary success fee. This was the first time the magic circle firm had entered into a contingency arrangement, the court said.

In the 2016 ruling, Lord Justice Tomlinson stated: “CC themselves had from the outset an acute conflict of interest, the extent of which worsened as their own investment in the case increased over time. It should have been obvious to any astute businessman.”

The SRA launched a formal investigation into CC over its role in the case in July, with the magic circle firm turning to Clyde & Co for advice.

CC’s penalty is still nowhere close to Locke Lord’s £500,000 fine – the largest ever made by the SDT against a single firm in England and Wales. The firm received the record fine after admitting that it failed to prevent a former London partner from using a client account for “dubious” financial arrangements.

In July, White & Case was hit with a £250,000 fine by the regulator. The firm had admitted to conflict and confidentiality failures relating to a 2014 High Court case that saw White & Case blocked from acting for Ukrainian client Victor Pinchuk.

In April, three Clyde & Co partners were each fined £10,000 by the SDT for breaching money laundering rules.