Normans Bay Ltd. v Coudert Brothers (a firm)

A solicitor instructed to advise on and document an investment transaction must investigate legal issues capable of invalidating the transaction, unless the client is clearly informed that the work is outside the retainer. Any uncertainty about the scope or variation of instructions should ordinarily be resolved by the solicitor’s records and communications. The standard is that of a reasonably competent solicitor holding out relevant expertise. Where proper advice would probably have led the client to proceed, but the eventual outcome depended on decisions by third parties or foreign courts, damages may be assessed for a real, rather than fanciful, loss of a chance.

Illingworth Morris Ltd, later renamed Normans Bay Ltd, engaged Coudert Brothers to advise on its proposed acquisition of 49 per cent of a Russian clothing company through an investment tender. Coudert was also instructed to prepare and advise on the share purchase and investment agreements.

The investment tender documents referred to a five-year investment period, whereas the investment programme approved by the Russian authorities referred to three years. The transaction was later declared invalid by a Russian arbitration court. The claimant alleged that Coudert negligently failed to review the privatisation documents, advise on the discrepancy, and address other legal issues, including anti-monopoly approval. The issues included breach, what advice should have been given, what the claimant would have done, and whether the transaction would probably have survived or avoided challenge.

1. Duty and scope of retainer. Coudert’s instructions included reviewing the privatisation plan, supplements and investment programme and advising on their legal effect. A solicitor preparing and advising on the share purchase and investment agreements could not properly do so without checking documents which might invalidate the tender and subsequent agreements. No effective agreement limiting the retainer was proved. In cases of uncertainty, the prime responsibility for clarifying and recording the scope of instructions rests with the solicitor.
2. Breach. The relevant documents could have been reviewed at the company’s premises or obtained through available sources. Coudert failed to carry out the required due diligence and failed adequately to deal with the question of anti-monopoly approval. The claimant was not clearly told, before signing, that the documents had not been reviewed.
3. Advice and counterfactual conduct. The proper standard was that of a competent solicitor holding out expertise in Russian privatisation matters. The court had to determine what advice such a solicitor should have given on the information then reasonably available, allowing for a range of reasonable advice and adopting the position most favourable to Coudert. The advice should have been that the claimant was at least reasonably safe if the agreements stipulated a three-year investment period, although certainty could not properly be promised. The claimant would probably have proceeded on that basis.
4. Causation and damages. The court rejected the submission that Russian law made the defect incurable or that the transaction was otherwise bound to fail. There was a real chance that the corrected agreements would have avoided invalidity or challenge. The principles discussed in Allied Maples v Simmons and Simmons and Hotson v East Berkshire H.A., together with Gregg v Scott, did not prevent assessment on a loss-of-chance basis where the chance was real rather than fanciful.
5. The claimant succeeded on liability and causation. Damages were to be assessed on the basis of loss of a chance; quantification was not undertaken in the judgment.