What is my right as 2nd Party-Regarding Success fee payment to 1st Party.
1 Answer
Dear Client,
Determining whether you will be required to pay the 8% success fee will depend upon what a court finds are the relevant provisions of the agreement that give rise to your entitlement to the 8% success fee. You have provided me with the relevant clause in the agreement regarding how you receive the 8% success fee and it states, "8% success fee payable on the date of a settlement offer" this clause does not state that you will only be entitled to the 8% success fee if the settlement offer occurs through the direct actions of the firm.
When interpreting contract clauses, courts in India generally interpret the clauses literally, according to their plain terms. Thus, if the triggering mechanism (receipt of a settlement offer) is satisfied, you may have very good arguments that the mechanism was fulfilled through the bank contacting you directly and making you an offer, even though the firm had no apparent involvement.
You do, however, have a compelling counter-argument based upon an aspect of causation which is recognized under the Indian Contract Act of 1872. The whole reason for engaging with the firm and paying them a success fee was therefore to obtain settlement, via the services and effort of the firm. If the firm had no involvement whatsoever in the decision made by the bank (to contact you directly), then a very strong argument can be made concerning the fulfilment of the condition under which the success fee would have been payable, as being truly unfulfilled, in the spirit of the Agreement. Under Section 73 of the Indian Contract Act, payment of compensation is only made for losses caused directly and proximately by the act(s) or event(s) giving rise to the claim for damages. Therefore, the firm will be unable to establish that there was any link (either causative or contributory) from their work to the settlement offer made by the bank, and as such any claim for '8%' from the bank's settlement will be challenged as unjust enrichment.
Additionally, under Indian law there is no express bar under the Indian Contract Act for the enforcement of contracts having clauses based on contingency, but advocates practising in India are expressly barred from charging fees contingent on the outcome of legal proceedings under the Advocates Act, 1961 and Bar Council of India Rules. Whether this legal firm is constituted as a law firm with enrolled advocates or merely a debt settlement consultancy affects the enforceability of the success fee clause. If they are registered advocates, the contingency fee clause itself may be professionally impermissible.
On the best course of action, do not ignore their notices and do not pay immediately. Ask the firm to respond in writing, in detail, as to what specific actions they took that could have led to the Bank's offer of settlement, including, but not limited to, producing documents or records that reflect how they participated in the resolution of this matter. If they are unable to provide evidence of causation then you will have a compelling argument to establish that you are not obligated to pay any success fee. Simultaneously, consult another lawyer to review the full agreement before taking any final decision.
On the risks of refusing to pay, the firm can file a civil suit against you for recovery of the 8% success fee. You will then need to defend the suit by establishing that their services did not cause the settlement. This is a winnable defence if the facts support your version, but it involves time and legal costs. If the amount is significant, you can go ahead and fight it. If the sum is not that hefty, a negotiated settlement with the firm may be the most practical solution.
I hope this helps, and if you have any further issues, do not hesitate to contact us.