PGMBM Law Ltd v Marcelo Batista Santana Krenak & Ors

A committee’s general authority to manage group litigation does not, on the proper construction of these agreements, include authority to terminate each client’s retainer where the agreements give clients individual termination rights and make specific provision for transferring solicitors. The Consumer Rights Act 2015 requires an ambiguous consumer term to be construed in the meaning most favourable to the consumer. Ratification of an unauthorised act requires, among other things, that the principal could validly have done it, has full knowledge of the material circumstances, and does not thereby unfairly prejudice others. The litigation friends had no general authority to terminate the represented clients’ agreements and could not ratify the committee’s resolutions on their behalf.

PGMBM Law Ltd (PG) acted for more than 400,000 claimants in the Mariana litigation concerning the Fundão Dam collapse. The clients had entered into a collective conditional fee agreement and a litigation management agreement, under which a committee represented them in managing the litigation. The committee terminated those agreements and appointed Bailey Glasser International (BGI) to replace PG. PG’s Part 7 claim sought declarations that the committee lacked authority to terminate the agreements or appoint BGI, and alternatively claimed fees from clients if termination was without cause. The committee chairperson’s Part 8 claim sought declarations that the committee had authority. The issues included the committee’s contractual powers, ratification by individual clients and litigation friends, and the validity of the notice of change filed for BGI.

The court resolved the tried issues in PG’s favour, subject to ratification by individual clients. The committee had no authority under the agreements to terminate the clients’ agreements on their behalf. It therefore had no authority to appoint BGI while PG’s retainer remained in place.

1. Construction of the agreements. Reading the collective conditional fee agreement and litigation management agreement as a whole, the committee’s broad powers to manage the litigation concerned its conduct through PG. The agreements conferred specific powers to vary or transfer the retainer in defined circumstances, but did not confer the distinct and fundamental power to exercise each client’s individual right to terminate. The court applied the objective and iterative approach in Wood v Capita [2017] UKSC 24 and considered the agreements’ purpose in light of Re Compound Photonics Group v Vollin [2022] EWCA Civ 1371. The consumer interpretation rule in section 69(1) of the Consumer Rights Act 2015 also weighed against the committee’s construction, given the significant costs risk to individual clients.

2. Ratification. The court treated as common ground that an unauthorised act done on behalf of a principal may be ratified if the principal could validly have done it at the time. Ratification must not unfairly prejudice others and requires full knowledge of the material circumstances, unless the principal takes the risk. Whether that knowledge exists is fact-sensitive. Applying the prejudice principle stated in The Borvigilant [2003] EWCA Civ 935, the court rejected PG’s argument that ratification was incapable because of unfair prejudice. It distinguished Dibbins v Dibbins [1896] Chancery 348, where the option to be exercised had expired.

3. Litigation friends and individual clients. The specific termination powers in clause 35.5 of the agreement did not give litigation friends general authority to terminate agreements for the clients they represented. Rule 21.2 of the Civil Procedure Rules 1998 did not supply that contractual authority. The litigation friends therefore could not terminate or ratify the committee’s resolutions on those clients’ behalf. Committee members who were also clients had signed declarations with full knowledge and had ratified for themselves. The court could not yet determine whether the other individual signatories had full knowledge, including of the potential liability for PG’s basic charges and disbursements. Their ratification remained for later decision.

4. Consequences. The notice of change was invalid except for the individual committee members who had ratified. The court did not decide whether a termination by an individual client would be for cause or any resulting fees claim. It also left unresolved whether the third party dealing with a purported agent must believe that the agent was acting for a principal in a case involving a unilateral termination; it proceeded on the assumption that no such requirement applied.