Lediaev (aka Vadim Ledyaev) v Vallen

A late amendment raising contractual illegality may be refused where the point was available before trial, requires further factual investigation, and would cause prejudice inconsistent with the overriding objective.

A court must not enforce a contract that is illegal on its face. However, an agreement is not facially illegal merely because it contemplates recovery through litigation; its terms must require the unqualified person personally to perform a prohibited act.

In construing and implying terms in a commercial agreement, the court must apply the admissible background and business common sense. Words may be implied only where the express wording produces a commercially nonsensical result and the intended alternative can be identified with confidence. The implication must be necessary to give the agreement business efficacy.

The parties entered a 2006 agreement under which the respondent would fund and pursue recovery of losses arising from an investment made through Landor European Services Ltd. He was to receive a success fee and recover certain expenses from any proceeds.

Proceedings against the fund manager were brought by Landor Services UK Ltd, a company controlled by the respondent. They settled for £138,000, which was paid to a Swiss account of another company controlled by him. The appellant sought an account of the net sum.

A Deputy Judge in the Chancery Division dismissed the contractual claim, holding that the respondent was not obliged to account personally to the appellant. During the appeal, the appellant also sought to amend his claim to allege illegality arising from the respondent's unqualified involvement in litigation.

Appeal allowed. Aikens LJ gave the leading judgment. Lady Justice Smith and the Chancellor agreed.

1. The court refused permission to re-amend the particulars of claim. An allegation of illegality could and should have been raised before trial. Its proper determination would require factual findings about the parties' knowledge, the intended scope of the respondent's duties, and his qualifications. Allowing it midway through the appeal would be prejudicial and unjust.

2. The court nevertheless considered whether the 2006 agreement was illegal on its face. Assuming, without deciding, that the statutory prohibitions could render an agreement illegal where it required an unqualified person to conduct litigation or prepare an instrument relating to proceedings for reward, clauses 2, 4 and 5 did not impose such acts personally on the respondent. The agreement was therefore not facially illegal under the Solicitors Act 1974 or the Courts and Legal Services Act 1990.

3. On its proper construction, clause 2 required more than obtaining a judgment or settlement nominally for a company. At the date of the agreement, the original company had been dissolved, the claim had been assigned to a company controlled by the respondent, and the appellant personally owed the success fee. It made no commercial sense for the respondent to recover the money while having no duty to account for it to the appellant.

4. The court therefore implied into clause 2 the words “in the hands of Mr Lediaev”. The implication was necessary to give the agreement business efficacy. The respondent was contractually obliged to account personally for the settlement proceeds, less the agreed success fee and expenses, totalling £49,063.75. Declaratory relief on that basis was appropriate, subject to any further submissions on remedy.

• Court of Appeal (Civil Division): Allowed the appeal. It held that the 2006 agreement contained an implied term requiring the respondent to account personally for the net recovered proceeds.
• High Court, Chancery Division: Mr Christopher Nugee QC, sitting as a Deputy Judge, dismissed the appellant's contractual claim, holding that the agreement imposed no obligation on the respondent to account personally for the recovery.