Levicom International Holdings BV & Anor v Linklaters (a firm)

Where solicitors advise that a client has a strong case for commencing proceedings instead of settling, and the client acts accordingly, the normal inference is that the advice caused that decision. The inference is rebuttable, but the evidential burden shifts to the solicitors to show that the client would have proceeded regardless.

Advice on a contractual claim must address both breach and the remedies realistically available. A negative covenant against competing activity does not entitle the claimant to damages calculated as though the defendant had been positively obliged to make an acquisition for the claimant’s benefit. Nor does difficulty in accurately quantifying financial loss establish that damages are inadequate.

Levicom claimed damages for professional negligence arising from Linklaters’ advice concerning a shareholders’ agreement. Linklaters advised that Swedish telecommunications companies had clearly breached a restrictive covenant, that Levicom had strong prospects in arbitration and that substantial damages or an order compelling disposal of an acquired business might be available.

Andrew Smith J held that aspects of the advice were negligent but found that the negligence caused no loss. He concluded that Levicom would not have adopted a materially different negotiating position if properly advised. He awarded nominal damages of £5 and ordered Levicom to pay Linklaters’ costs.

The central question on appeal was whether competent advice would have caused Levicom to negotiate and settle its underlying dispute in 2001 rather than proceed to arbitration.

1. Appeal allowed. Linklaters’ advice fell significantly below the standard of a reasonably competent solicitor. Although advising that the restrictive covenant had a Pan-Baltic meaning was not itself necessarily negligent, the covenant’s construction was sufficiently arguable that Linklaters could not properly describe the breach as clear without balanced analysis. The limited scope for appealing an arbitral tribunal’s construction made such balance particularly important.

2. The advice on remedies was negligent. The covenant was a negative stipulation prohibiting competing business activity. The loss flowing from its breach was the financial loss caused by that competition, potentially including impairment of Levicom’s opportunity to qualify for a contractual loan note. It was not the benefit Levicom would have received had the defendants been positively obliged to acquire the Latvian business through the joint venture. Linklaters neither investigated nor quantified the loss on the proper basis.

3. There was no rule that damages become inadequate merely because loss cannot be assessed confidently. Financial loss could be estimated. There was no reasonable basis for advising that arbitrators could compel disposal of the acquired business, particularly where that remedy might cause hardship and give Levicom improper negotiating leverage.

4. The trial judge’s finding on causation could not stand. Contemporaneous communications showed that Levicom regarded Linklaters’ collective advice as crucial and was unwilling to commence arbitration unless it had a strong case. Proper advice would have led Levicom to negotiate on the basis of the Swedish companies’ initial offer and reach a marginally improved settlement in about 2001. It would also have avoided the costs of the arbitration.

5. Per Jacob LJ, with whose reasoning Lloyd LJ expressly agreed, when solicitors advise that a client has a strong case for litigation rather than settlement and the client litigates, the normal inference is that the advice was causative. That inference is rebuttable, but the evidential burden shifts to the solicitors to prove that the client would have proceeded regardless. Linklaters did not discharge that burden.

6. Damages were to be assessed on the basis that Levicom would have exercised its put option in October 2003, when it actually did so. There was no adequate basis for selecting June 2001 as the hypothetical exercise date. Nor was there evidence that any part of the eventual settlement represented compensation for the Latvian acquisition. The claim was remitted for quantification of damages if the amount could not be agreed.

1. Court of Appeal (Civil Division): The appeal was allowed. The findings on causation, the hypothetical exercise date of the put option and the attribution of part of the eventual settlement to the Latvian acquisition were reversed. The matter was remitted for quantification of damages.

2. High Court, Commercial Court: Andrew Smith J held that Linklaters had negligently advised Levicom but that the negligence caused no loss. He awarded nominal damages of £5 and ordered Levicom to pay Linklaters’ costs. No citation for that judgment is stated.