Background

The first claimant, Levicom International Holdings BV, was a wholly owned subsidiary company of the second claimant and was involved in the telecommunications business. The defendant was a firm of London solicitors. The case related to advice that the defendant had provided to the claimants, in a dispute that the claimants had had with two Swedish companies, Tele2 Sverige AB and Tele2 AB.

In January 1999, the claimants entered into a Framework Agreement and Share Purchase Agreement (“the Agreements”) with the two Swedish companies. The Agreements were designed to raise finance to help develop the claimants’ business. The Agreements created a restriction, whereby the Swedish companies were prevented from competing in any cellular network business in the Baltic States.

A while after the Agreements had been signed, the Swedish companies purchased the issued share capital in a Latvian company. The claimants sought advice from the defendant, relating to a breach of the Agreements, by the Swedish companies. The defendant wrote two letters to the claimants, in January 2001 and March 2001, advising them in respect of a breach of the Agreements, the remedies available and possible settlement.

The claimants contended that, acting on the defendant’s advice, they brought arbitration proceedings, rather than settling the dispute. The claimants incurred considerable costs and contended that they settled the dispute, in June 2004, on unsatisfactory terms. The claimants argued that the defendant did not advise them properly of the difficulties that they faced. The claimants sued the defendant for around €50 million.

The Claim Against the Defendant

The claimants contended that (i) the defendant had provided them with negligent advice; (ii) the claimants had then relied on that advice, when negotiating with the Swedish companies; (iii) the claim would have been settled had the claimants received correct advice, but instead proceeded to arbitration; and (iv) loss was suffered as a result, as the dispute was settled on less favourable terms, and the claimants incurred the costs of the arbitration.

The Decision

It was held that the defendant’s January and March letters were negligent, as the claimants reasonably understood it to mean that they were entitled to substantial damages. The basis of this advice was unfounded. It was not established that the defendant had failed to exercise proper skill, care or competence in the conclusions that they had reached. But, the defendant had not conveyed their advice clearly enough to the claimants. The defendant was entitled to state that there could be a breach of the Agreements, and that the claimant could establish damages, as well as being able to reject the first offer of a settlement. The defendant’s assessment of the situation, however, had been too optimistic and did not relay the difficulties that the claimants would have to overcome, to prove its case.

Despite the negligent letters, however, there was no finding that the negligence had caused the claimants a loss. It was not possible to infer, from the evidence, that the claimants would have acted any differently, had the defendant’s advice been any different. The defendant was found to be in breach of contract, but was liable for only nominal damages of £5.

The correct test of causation, in establishing whether a lawyer is negligent, when advising his client in legal or other matters, is not clearly established. Had it been necessary to decide it, Smith J would have adopted the test in Bolitho v. City and Hackney Health Authority [1997] 4 All ER 771. The test in Bolitho accepts that there is a range of views that are properly held, as well as a range of courses of action that can be taken. The test is, therefore, what the range is, rather than the exact view or course of action, which should have been taken.

Conclusion

The defendant was found negligent because it did not properly convey its advice to the claimants and because it was overly optimistic in its assessment of the claimants’ position. However, there was no evidence that proved the claimants would have acted any differently if the advice had been different. As a result, the defendant was liable for nominal damages only.

Comment

The issue of causation should be carefully considered by those bringing or defending a claim for negligent advice. To succeed in bringing a claim for negligence, all the elements of negligence must be made out. In particular, a claimant must be able to prove that the negligent advice caused them to suffer a loss. If they cannot, the claim will fail.

For further information please contact Helen Thurkettle or the Partner with whom you usually deal