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Court of Appeal decision on remoteness of damage in solicitors’ professional indemnity case

Wright v Lewis Silkin LLP [2016] EWCA Civ 1308

At a trial in 2015 Mr Justice Hamblen decided that in May 2008 the defendant firm of solicitors had failed, in breach of duty, to advise the Claimant whether or not to include a jurisdiction clause in his contract of employment with a company of unknown seat, which turned out to be based in India.  The Judge did not, though, identify what the correct advice ought to have been in the circumstances of this case, simply that jurisdiction was insufficiently raised and that, had it been sufficiently raised, the Claimant would (irrespective of the advice) have insisted on having an exclusive jurisdiction clause although the solicitors’ view was that jurisdiction should have been left open.  The contract contained a clause entitling the Claimant to a £10,000,000 severance payment from the Indian Company and, following his constructive dismissal in early 2009, the Claimant commenced proceedings in England to recover that sum.  Had the employment contract contained a clause providing for exclusive English jurisdiction, as the Judge found the Claimant would have insisted upon, the Judge’s view was that the Claimant’s litigation in England against the Indian company, in which the Indian Company took little part and resulted in the Claimant obtaining judgment in excess of £10,000,000, would have proceeded quickly enough to enable the Claimant to have had a chance of recovering some of that £10,000,000 contractual severance payment before the Indian company went bust in 2012.  The Judge assessed that lost chance at 20%, thus resulting in a damages figure of £2,000,000, plus a small amount of costs, (£40,000), that the Claimant would not have had to pay in his litigation against the Indian Company had the employment contract contained an exclusive English jurisdiction clause. 

Appeal

The solicitors appealed on three grounds.

First, that the Judge erred in failing to identify the advice which the solicitors ought to have given.  The solicitors’ case was that it did advise on jurisdiction and that the advice was to keep the question open, and although the Judge decided that the matter had been insufficiently raised, he still should have gone on to say what correct advice would have been.  In the circumstances, correct advice would clearly not have been to have an exclusive English jurisdiction clause, and accordingly the Court of Appeal was invited to conclude that the Claimant would not have ignored that advice.  The Court of Appeal dismissed this ground of appeal, concluding that it would not disturb the Judge’s finding of fact that the Claimant would have rejected any advice and would have insisted on an exclusive English jurisdiction clause, and that the first instance judgment was not flawed in failing to identify what the correct advice ought to have been.

Secondly, that the Judge erred in finding that the Claimant lost a 20% chance of recovering the severance payment.  The Court of Appeal dismissed the appeal on this ground, deciding that evaluations about the loss of chance are pre-eminently matters for the trial judge and that it will only substitute its own evaluation if “the judge has made an error of principle or reached a perverse decision”.

But the solicitors’ third ground of appeal was successful.   The solicitors argued that the 20% loss of chance of recovering the severance payment was too remote, or outside the scope of duty which it owed to the Claimant.  Solicitors owe both contractual and tortious duties to their clients.  There is Court of Appeal authority, Wellesley Partners LLP v Withers [2016] Ch 529, to the effect that, where there are such concurrent duties, the Court must adopt the contractual test of remoteness of damage, namely whether the loss would have been in the reasonable contemplation of the parties when the contract was entered into, in this case in May 2008, and not the tortious test, namely whether the loss was reasonably foreseeable.  In May 2008 both the Claimant and the solicitor had thought that the Claimant’s employer, a large Indian media group which had purchased a franchise to set up a cricket team in the Indian Premier League for $107 million with the Claimant taking the role of Chief Executive Officer, was a substantial entity, and the Claimant gave evidence at trial to that effect.  The trial Judge made the point in his judgment that the Claimant had been confident at the time that the Indian company could pay the £10 million severance payment if that became necessary.  On that basis, in May 2008, and with the collapse of Lehman Brothers and the financial crash still some months away, how could the parties  reasonably contemplate that within a few years the Indian company would be unable to meet its debts and in particular would not honour the Claimant’s contractual severance payment and would ignore a judgment of the English Court in respect of that payment?  The Court of Appeal agreed with this analysis, and Lord Justice Jackson, who gave the lead judgment, said that the 20% lost chance that the Indian Company “would honour the judgment debt voluntarily…is not damage of a kind that either party in May 2008 would have had in mind as not unlikely to result from the omission of an exclusive jurisdiction clause”.   Thus, the Claimant’s damages of £2,000,000, representing the lost chance, were too remote.  The same argument did not apply to the extra £40,000 in the costs that the Claimant incurred in the English litigation against the Indian company.  The damages figure was, therefore, reduced to £40,000 plus interest.

An alternative argument, based on SAAMCO [1997] AC 191, that the Claimant’s lost chance of recovering the judgment debt was outside the scope of duty which the solicitors owed to the Claimant, did not need to be considered by the Court of Appeal. (As an aside, the Supreme Court is considering the scope of duty arguments in the context of a solicitors’ negligence in a case where judgment is expected in early 2017).

The decision illustrates the importance of the distinction, in solicitors’ cases, between the contractual and tortious duties owed to a Claimant.  There is a real difference, not simply a semantic one, between the two tests.  That said, the solicitors in this case contended that the same result would have been reached had the tortious test of reasonable foreseeability applied, though that did not have to be decided, particularly in the context of the solicitors’ scope of duty.

DWF (John Bennett, Helen Smith and Sarah McMorrow) acted for the solicitor defendant/appellant.

Contact

For further information, please contact:
- John Bennett on +44 (0)20 7280 8807 or at john.bennett@dwf.law
- Helen Smith on +44 (0)20 7220 5235 or at helen.smith@dwf.law
- Sarah McMorrow on +44 (0)20 7220 5208 or at Sarah.McMorrow@dwf.law

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This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

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