Contacts – Damages – Legal profession

(1) Levicom International Holdings BV (2) Levicom Investments Curacao NV v Linklaters (a firm): CA (Civ Div) (Lords Justice Jacob, Lloyd, Stanley Burnton): 11 May 2010

The appellant companies (L) appealed against a decision ([2009] EWHC 812 (Comm), [2009] Lloyd’s Rep PN 156) that they were entitled to nominal damages only for the negligence of the respondent solicitors.

L had interests in telecomms businesses in the Baltic states. Swedish companies (S) had agreed to acquire 90% of the shares in L’s Estonian company (C) which owned a cellular telephone business in Estonia. A shareholders’ agreement provided in clause 9 for L’s 10% interest in C to be maintained at S’s expense and contained a covenant in clause 13 not to carry on in any of the Baltic states any cellular network business which was the same as, or competitive with, any business carried on by C as at the completion date. The following year S acquired a Latvian company (B) which was a mobile telephone network operator in Latvia. L considered that by acquiring B, S were in breach of the shareholders’ agreement. L considered that, in view of the non-compete and non-dilution provisions, B ought to have been acquired through C at no cost to L and that L were therefore entitled to 10% of the purchase price or to 10% of the value of B. L instructed the respondent solicitors to advise. The solicitors advised that clause 13 was to be given a ‘pan-Baltic’ construction whereby a business in one Baltic state would be considered to be the same as the same kind of business carried on in a different Baltic state so that B’s Latvian business would be considered to be the same as C’s business in Estonia. S denied any breach of the agreement since at the completion date C had no cellular network business in Latvia. S also contended that L had suffered no loss as a result of S acquiring B. After further negotiations with S and advice from the solicitors, L began arbitration proceedings against S which they later settled. L then brought proceedings against the solicitors alleging that: their advice had been negligent; that L had relied on it in the negotiations and in deciding to begin the arbitration; that they had settled the dispute on worse terms than they could have done and had incurred the costs of bringing proceedings. The judge held that the solicitors were probably right on their construction of clause 13, but had wrongly advised that damages would be substantial. However, he held that L would not have acted differently if they had received non-negligent advice. Therefore L were entitled to nominal damages only. L submitted that: (1) the pan-Baltic construction of clause 13 was wrong and that the solicitors’ advice in that respect was wrong; (2) the judge had erred in his consideration of what would have happened if non-negligent advice had been given.

Held: (1) It was not clear that clause 13 should be given a pan-Baltic construction. The pan-Baltic construction gave no effect to the qualifying words ‘as at the completion date’. Under the pan-Baltic interpretation the restraint in relation to ‘the same’ business was wider than that relating to ‘competing’, and the latter restraint appeared to be otiose. A national interpretation of clause 13 made commercial sense, since it restrained L as much as S, which had paid a substantial sum for their shareholding in C. It was not necessary to resolve the issue as to the correct interpretation of clause 13. But the solicitors were negligent in advising that the breach of clause 13 was ‘clear’. It was particularly necessary to give a balanced view in the context of potential arbitration proceedings, since if the arbitration tribunal were to arrive at a different interpretation, it could not, save in rare circumstances, be the subject of appeal, even if objectively that interpretation might be incorrect. The solicitors’ negligence was more striking in respect of remedies. Clause 13 was a negative stipulation. The solicitors failed to address the difficulties of a damages claim. The question of L’s loss was not addressed. There was no attempt to quantify damages.

(2) The judge’s finding that L would in any event have proceeded as they did was flawed. When L sought the solicitors’ advice, they believed that they had a strong case. Their views were reinforced by the advice they received. It was not surprising that they were then wholly convinced of the strength of their position. Nor was it surprising that they did not question the optimistic advice they were given. However, there was no point in their seeking and paying for advice if it was not to influence their conduct of the dispute. There was evidence which indicated that L sensibly considered the solicitors’ advice to be crucial. The evidence that a client did not act on advice in a case such as the instant case would have to be stronger than that which persuaded the judge. The judge should have approached the case on the basis that the evidential burden had shifted to the solicitors to prove that their advice was not causative. Such an approach would surely have led him to a different result. L’s appeal was allowed on the issue of causation. L established that, had they been properly advised, they would have settled their claim against S earlier and on better terms, and would have saved the costs of the arbitration proceedings.

Appeal allowed.

Justin Fenwick QC, Ben Patten QC (instructed by Stewarts Law) for the appellants; Stephen Moriarty QC, Derrick Dale QC (instructed by Clyde & Co) for the respondents.