Symrise AG & Anor v Baker & McKenzie (a firm) & Anor

A claimant cannot recover losses which it unreasonably incurred or failed to avoid after a defendant’s breach. Where a breach is one of two concurrent and equally effective causes of loss, it is sufficient that the breach was an effective cause. In assessing mitigation, the court asks whether the claimant’s response fell within the reasonable range of responses, considering the strength of the claim, legal advice, litigation uncertainty and expense, and the benefits of pursuing or resolving the matter. The defendant bears the burden of showing that the claimant’s conduct was unreasonable.

Symrise claimed damages from its former solicitors for allegedly negligent Mexican tax advice concerning an intercompany loan used in an aggressive debt pushdown. The Mexican tax authorities treated interest payments as dividends and raised tax assessments. Symrise initially challenged those assessments but later paid the tax and withdrew the proceedings after obtaining advice from another firm and an informal, non-binding understanding concerning later tax years.

The defendant accepted responsibility for the local firm’s advice. The parties also accepted that the loan did not contravene Article 92(1) of the Mexican Income Tax Law and that Symrise would have succeeded in its Mexican proceedings on that issue. The principal questions were causation, mitigation and the value of the alleged loss.

1. Claim succeeded on breach, but failed overall. The defendant was responsible for the negligence or breach of retainer of its Mexican office. A reasonable Mexican tax lawyer would have warned that the on-demand wording in the loan agreement created a risk of challenge under Article 92(1) of the Mexican Income Tax Law. The wording could have been removed without affecting the transaction.
2. Causation. The wording was a good hook or peg for the tax authority’s challenge. Although other features of the transaction could also have prompted investigation, the breach was an effective and concurrent cause of the investigation and resulting risk of tax liability. The court therefore applied the principle that a contract-breaker is liable where the breach is one of two co-operating effective causes.
3. Mitigation. The relevant question was whether Symrise’s decision to pay the assessments and abandon its nearly completed proceedings fell within the reasonable range of responses in all the circumstances. The court applied the factors identified in Siemens v Supershield, namely the strength of the claim, legal advice, litigation uncertainty and expense, and the benefits of settling rather than litigating.
4. The defendant bore the burden of showing that Symrise’s conduct was unreasonable. That burden was satisfied. Symrise had strong advice that it was likely to win, the proceedings required little further expenditure, and success offered recovery of substantial sums and protection against later assessments. The informal understanding with the tax authorities was expressly unenforceable and carried a substantial risk. The advice obtained from the second firm did not properly analyse the merits and was produced after the commercial decision to settle had effectively been made. The tax recovery claim therefore failed.
5. Quantum. If Symrise had succeeded on mitigation, the court would have valued the loss by reference to the diminution in the value of the shareholding, using the valuation method based on the discounted value of potential future dividends. The court would have adopted a valuation of €3,276,000.
6. Judgment was given for the defendant.

This was a first-instance decision in the High Court Commercial Court. No appellate history is stated in the judgment.