Factual and Procedural Background
The claimants (collectively "Levicom") allege that the defendants, Linklaters, their former solicitors, were negligent in early 2001 in advising them about a dispute with two Swedish companies, referred to collectively as the Swedish companies. Levicom contends that, relying on Linklaters' advice, they did not settle the dispute early but instead commenced arbitration proceedings, incurring considerable costs and ultimately settling in June 2004 on terms they considered unsatisfactory (the "2004 settlement"). The defendants deny negligence and causation of any loss.
Levicom is a group of telecommunications companies operating mainly in the Baltic States, owned by a Dutch holding company and ultimately controlled by several shareholders. The dispute arose over the acquisition of a Latvian company, Baltkom GSM, by one of the Swedish companies, which Levicom contended breached a shareholders' agreement (the "CSA") between the parties, particularly clause 13.1, which contained a non-compete covenant across the Baltic States.
Linklaters advised Levicom on the dispute, issuing key letters of advice in January and March 2001. Levicom alleges negligence in the advice given in these letters, particularly that Linklaters were overly optimistic about Levicom's prospects and remedies, failing to properly identify difficulties or advise early consultation with senior counsel. Arbitration proceedings were commenced in August 2002, and after extensive negotiations and litigation, Levicom settled in June 2004.
Legal Issues Presented
- Whether Linklaters' advice in the January and March 2001 letters was negligent in assessing Levicom's prospects of establishing breach of clause 13.1 of the CSA, the remedies available, and the settlement proposals.
- Whether Levicom relied on the allegedly negligent advice in their negotiations and decision to proceed to arbitration.
- Whether, but for the negligence, Levicom would have settled earlier on more favorable terms, avoiding arbitration costs and loss.
- Whether Linklaters' negligence caused Levicom to suffer loss, including loss of a better settlement opportunity and costs of arbitration.
- Issues concerning the proper construction of clause 13.1 of the CSA and the application of the "minimum performance" principle to damages assessment.
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Duchess of Argyle v Beuselinck [1972] 2 Lloyd's Rep 172 |
Standard of care in professional negligence: Hindsight is no touchstone of negligence; duty is to act with reasonable skill and care at the time. |
Applied to assess whether Linklaters met the standard of care in advising Levicom. |
| Matrix Securities Ltd v Theodore Goddard [1998] PNLR 290 |
Standard of care required of solicitors advising on international commercial disputes and arbitration. |
Confirmed that Linklaters, as a leading firm, owed a high standard of skill and care. |
| Lavarack v Woods of Colchester Ltd [1967] 1 QB 278 |
Minimum performance principle in contract damages: Defendant liable only for failure to do what contract required, damages assessed on least beneficial performance. |
Considered but rejected by the court as applicable to Levicom's claim against the Swedish companies. |
| Abrahams v Reiach (Herbert) Ltd [1922] 1 KB 477 |
Defendant not liable for not doing what he was not bound to do. |
Cited in support of the minimum performance principle discussion. |
| C W Dixie & Sons Ltd v Parsons (1964) 192 EG 197 |
Construction of documents often subject to differing judicial opinions. |
Supported the conclusion that Linklaters were not negligent in their construction of clause 13.1. |
| Queen Elizabeth School Blackburn Ltd v Banks Wilson [2002] PNLR 14 |
Solicitor may be in breach for failing to warn client of possible adverse legal outcomes. |
Considered but court found no necessity to warn Levicom given their sophistication and the advice given. |
| Adams v Rhymney Valley District Council [2000] Lloyd's Rep PN 777 |
Focus on advice given, not how it was reached; solicitor liable if advice falls below standard. |
Applied to assess Linklaters' advice irrespective of reasoning process. |
| South Australia Asset Management Corp v York Montague Ltd [1997] AC 191 |
Damages for negligent valuation assessed on the most likely figure a reasonable valuer would have given. |
Discussed in relation to causation and the proper test for assessing what advice would have been given. |
| Bolitho v Hackney and City Health Authority [1998] AC 232 |
Causation test in professional negligence: defendant liable if proper advice would have been different and caused different client conduct. |
Preferred test for causation in legal negligence cases. |
| Beary v Pall Mall Investments [2005] EWCA Civ 415 |
Distinguishes between information and advice; the relevant question is what advice should have been given. |
Applied to assess the nature of Linklaters' advice and its effect on Levicom. |
| Co-operative Insurance v Argyll Stores Ltd [1998] AC 1 |
Discretionary remedies should not facilitate extortionate demands or unfair hardship. |
Considered in relation to the appropriateness of declaratory relief sought by Levicom. |
Court's Reasoning and Analysis
The court undertook a detailed examination of the facts, the relevant contractual provisions, and the advice given by Linklaters to Levicom, focusing on the January and March 2001 letters. The key issues analyzed were whether Linklaters' advice was negligent and whether any negligence caused loss to Levicom.
The court found that Linklaters owed Levicom a duty of care to advise with reasonable skill and care, recognizing Levicom as experienced and intelligent commercial clients but without expertise in English law or arbitration.
On the construction of clause 13.1, the court found the "Pan-Baltic" interpretation (restricting competition across all Baltic States) to be more compelling and considered Linklaters' advice on this point to be within a range of acceptable professional opinions, not negligent.
Linklaters advised that the Swedish companies were in breach of clause 13.1 by acquiring Baltkom and that damages would be the usual remedy, measured by reference to the position if AS Levicom Cellular had acquired Baltkom. The court accepted that Linklaters were justified in this view and that the "minimum performance" principle did not apply to reduce damages accordingly.
However, the court found that the January letter was negligent in that it failed properly to convey the uncertainties and difficulties in quantifying damages and was reasonably understood by Levicom to mean that damages would be substantial and measured on the basis of a 10% interest in the value of Baltkom acquired through AS Levicom Cellular. Linklaters had no sufficient basis to give such optimistic advice.
Similarly, the March letter was negligent because it introduced the possibility of seeking a declaratory order requiring Tele2 to dispose of Baltkom shares without adequately warning Levicom of the significant risks that such discretionary relief would not be granted and that damages would be difficult to quantify. The March letter failed to qualify or temper the optimistic advice in the January letter.
The court accepted that Linklaters were not negligent in forming their opinions about breach or remedies but were negligent in failing to communicate the limitations and risks clearly.
On causation and reliance, the court found that Levicom did rely on the advice in the January and March letters and understood them as endorsing a strong case and substantial damages measured as if Baltkom had been acquired by AS Levicom Cellular. Levicom would not have proceeded to arbitration but would have sought to settle if given proper, more cautious advice.
However, the court rejected the claim that, but for the negligence, Levicom would have accepted the first offer or settled on similar terms. The evidence did not support that Levicom would have accepted the first offer even if properly advised, given its deficiencies and Levicom's commercial interests. Levicom were prepared to negotiate and compromise, but were unlikely to accept the first offer's terms.
The court also concluded that proper advice would not have materially changed Levicom's negotiation stance or the likelihood of settlement, given Levicom's strong views and commercial motivations.
On loss, the court considered the value of the 2004 settlement against what might have been achieved earlier. Expert evidence valued Levicom's interests in the Baltic businesses, and the court accepted valuations supporting Linklaters' position. The court rejected Levicom's valuation assumptions as overly optimistic.
The court found that, had settlement been reached earlier on reasonable terms, Levicom would have exercised their put option around June 2001, rather than October 2003 as Levicom claimed.
Ultimately, the court held that although Linklaters were negligent in certain respects, the negligence did not cause Levicom any loss. Levicom failed to prove on the balance of probabilities that proper advice would have led to a better settlement or different negotiation conduct resulting in less loss.
Holding and Implications
The court held that Linklaters were in breach of contract for negligent advice given in the January and March 2001 letters but that this breach did not cause Levicom any loss. Accordingly, Linklaters' liability is limited to nominal damages.
The direct effect is that Levicom's claim for damages based on alleged negligent advice is dismissed except for nominal damages. No new legal precedent was established, and the decision underscores the importance of clear communication of risks and uncertainties in professional legal advice and the necessity for claimants to prove causation and loss on the balance of probabilities in professional negligence claims.