Factual and Procedural Background
This appeal arises from orders made by Judge Smith on 15 May 2009 following judgment on the Appellants' claim against the Defendants, a leading firm of City solicitors known as Company A, for professional negligence. The judge found that Company A had negligently advised the Appellants but that the Appellants suffered no consequential damage, awarding nominal damages of £5 and ordering the Appellants to pay the Defendants' costs. Permission to appeal was initially refused but later granted on some grounds by Sir Richard Buxton.
The Appellants, collectively referred to as "Levicom", are a group of companies involved in telecommunications businesses across the Baltic States. They entered into complex shareholder agreements with Swedish telecommunications companies ("the Swedish companies") concerning acquisitions and operations in the Baltic States, including a disputed acquisition of a Latvian company, Baltkom GSM ("Baltkom"). The dispute centered on whether the Swedish companies breached restrictive covenants in the shareholders' agreement, particularly clause 13.1, by acquiring Baltkom and whether Levicom was entitled to remedies including damages or specific performance.
Levicom instructed Company A to advise on these disputes. Company A provided a series of letters and advice between 2000 and 2004, including the January and March letters, which addressed breaches of the shareholders' agreement and possible remedies. Arbitration proceedings ensued, culminating in a settlement agreement in 2004. Levicom subsequently brought a claim of professional negligence against Company A, alleging that the advice given was negligent and caused them to suffer loss by pursuing arbitration rather than settling earlier.
Legal Issues Presented
- Whether Company A's advice regarding the interpretation of clause 13.1 of the shareholders' agreement was negligent.
- Whether Company A negligently advised on the likely remedies and measure of damages available to Levicom for breaches of clause 13.1.
- Whether Levicom reasonably relied on Company A's advice in their negotiations and decision to proceed to arbitration.
- Whether, but for the negligent advice, Levicom would have settled the dispute earlier on more favorable terms.
- The appropriate measure of damages and the timing of the exercise of a put option relevant to Levicom's claims.
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 |
| Abrahams v Herbert Reiach Limited [1922] 1 KB 477 |
Principle that a defendant is not liable for damages for not doing what he is not bound to do. |
Cited by the Swedish companies to support their "minimum performance" argument that no damages arose if they had no obligation to acquire Baltkom through Levicom. |
| Lavarack v Woods of Colchester [1967] 1 QB 278 |
Reinforcement of the principle in Abrahams v Herbert Reiach regarding contractual obligations and damages. |
Referenced in relation to the minimum performance principle argument raised by the Swedish companies. |
| C W Dixie & Sons Ltd v Parsons (1964) 192 EG 197 |
Recognition that construction of documents is a matter of opinion and may vary among judges. |
Used by the judge to support that Company A's advice on the construction of clause 13.1 was within the range of reasonable opinions. |
Court's Reasoning and Analysis
The court carefully analyzed the advice given by Company A to Levicom regarding the interpretation of clause 13.1 of the shareholders' agreement and the remedies available for breaches. The judge found that the advice that clause 13.1 should be given a Pan-Baltic construction (treating the Baltic States as one for the purposes of the covenant) was within the range of reasonable legal opinion and not negligent.
The court held that Company A was justified in advising that it would be straightforward to prove a breach of clause 13.1, as the issue was primarily one of contractual construction.
However, the court found that Company A's advice on the likely damages was negligent. The January letter was considered to have been reasonably understood by Levicom as advising that damages would be substantial and assessed on the basis that Baltkom was acquired through Levicom's company, but Company A had no proper basis for this advice.
The March letter's advice that a declaratory order compelling the Swedish companies to dispose of Baltkom would be an appropriate remedy was also held to be negligent. The court reasoned that damages are the usual remedy for breach of contract and that there was no legal basis for such declaratory relief in the circumstances. Company A failed to adequately advise Levicom about the substantial difficulties in quantifying damages and the risks involved.
On causation, the judge accepted that Levicom relied on Company A's advice but rejected that proper advice would have led Levicom to settle earlier. The judge found no evidence that Levicom would have accepted the first offer or settled on its terms. The court emphasized Levicom's strong belief in the merits of their case and their unwillingness to accept offers that did not meet their expectations.
On appeal, this reasoning was challenged. The appellate judge found that the judge had not fully considered contemporaneous evidence indicating Levicom's concerns and desire for clear advice. The appellate judge was critical of the bullish nature of Company A's advice and their failure to address key legal uncertainties and difficulties in damages quantification. The appellate judge considered that the advice was negligent both in respect of the construction of clause 13.1 and the remedies available.
Further, the appellate judge disagreed with the trial judge's causation finding, concluding that had Levicom been properly advised, they would have settled the dispute in or about 2001 on terms similar but marginally better than those offered at that time, and would have avoided arbitration costs.
The appellate court also considered the timing of the exercise of the put option, concluding that it should be treated as having been exercised when it actually was, in October 2003, rather than the earlier date found by the trial judge.
Finally, the appellate court held that no part of the settlement sum could be properly attributed as compensation for the Baltkom claims, rejecting the trial judge's finding to the contrary.
Holding and Implications
The court's holding is that the appeal should be allowed in part. Specifically:
- Company A's advice was negligent in respect of the construction of clause 13.1 and the remedies, particularly the advice on damages and the suggestion of declaratory relief.
- Levicom relied on this negligent advice and suffered loss as a result, including settling the dispute on less favorable terms than would have been achieved with proper advice and incurring arbitration costs.
- The trial judge's finding on causation was flawed, and Levicom would have settled earlier if properly advised.
- The timing of the exercise of the put option for assessing damages should be the actual date of exercise in October 2003.
- No part of the settlement sum properly represents compensation for the Baltkom claims.
The case is remitted for further proceedings to quantify damages in accordance with these findings. No new precedent is established beyond the application of established principles of professional negligence, contractual construction, and causation in the context of legal advice.