UK: Recoverability Of Damages In Loss Of Chance Claims Against Professional Advisers

Are we now seeing the effects of a stricter test for the recoverability of damages in loss of chance claims?

This is an area of law which might be said to produce some odd results. Say a client sues its adviser for failing to raise a particular issue on the negotiation of a corporate transaction. The loss suffered would generally be calculated on loss of chance principles, based on the likelihood of the counter party to the transaction having agreed to vary the deal if the issue had been raised.

Assume the chances of a successful negotiation were only 30%. The client can sue its adviser for 30% of its losses. Yet in all likelihood even if the issue had been raised in negotiations as it should have been, the deal would not have changed.

One might say the client is better off pursuing the adviser than he would have been negotiating the issue in the first place.

The Court of Appeal in Wellesley Partners LLP v Withers LLP [2015] EWCA Civ 1146 decided that the applicable test for recoverability of damages where there are both contractual and tortious duties (generally the case in a claim by a client against a professional adviser) is the contractual one; that is, whether the loss was in the contemplation of the parties at the time of the contract.

The recent Court of Appeal decision in Timothy Wright v Lewis Silkin LLP [2016] EWCA Civ 1308 (21 December 2016) demonstrates helpfully how this narrowing of the application of the test can operate to limit damages flowing from a failure by a professional to provide advice to his client. It seems to us a useful decision. The Court also flagged the forthcoming Supreme Court judgment in Gabriel v Little, which may lead to a re-examination of the much-litigated SAAMCO principles.

The background

In May 2009, Lewis Silkin were engaged by Mr Wright to provide legal advice in connection with his appointment as Chief Executive of Deccan Chargers Sporting Ventures Limited ("DCSV"), a company controlling one of the teams in the Indian Premier League.

Lewis Silkin drew up Heads of Terms ("HoT") for Mr Wright's appointment with DCSV. The HoT included a guaranteed severance payment – in the event that Mr Wright's employment was terminated he was to receive the immediate payment of £10 million. The HoT were governed by English law, but did not include a jurisdiction clause.

Mr Wright was dismissed in late January 2009. DCSV failed to make the guaranteed severance payment, and on 2 February 2009 Mr Wright commenced proceedings in England to recover the sum. After overcoming a challenge to the jurisdiction of the English courts – which involved a number of contested hearings – Mr Wright obtained judgment in July 2012 for £10.3 million plus interest and indemnity costs.

Following unsuccessful attempts to enforce the judgment in India, Mr Wright commenced proceedings against Lewis Silkin, alleging that his inability to recover the outstanding sums was due to negligence in drafting and advising upon the HoT.

The High Court decision

Mr Wright succeeded at first instance. The High Court judge held that Lewis Silkin had failed to advise about the inclusion of an exclusive jurisdiction clause in favour of the English Courts in breach of duty. Lewis Silkin had maintained they had advised on jurisdiction but had no record of that advice.

The judge found that Mr Wright had been under the misapprehension that the choice of law clause in the HoT carried with it a jurisdiction clause, and if he had known that was not the case he would have insisted upon an exclusive jurisdiction clause.

Applying loss of chance principles, the High Court judge awarded Mr Wright £2 million in damages on the basis that, had there been an exclusive jurisdiction clause, he would have had a 20% chance of recovering the severance payment of £10 million.

This award reflected the judge's view as to the likelihood of the companies paying the debt voluntarily in June 2011 (when Mr Wright could have obtained a judgment had it not been for the jurisdiction challenges) as against the position in July 2012 (by which time the Indian Premier League franchise controlled by DCSV was in the process of being withdrawn for financial reasons, and there was little motivation for the company to make a voluntary payment).

Mr Wright was also awarded £40,000 in respect of legal costs which had been wasted on dealing with the jurisdictional challenges.

The Court of Appeal decision

Lewis Silkin appealed to the Court of Appeal, and were successful in overturning the award of £2 million on grounds of remoteness.

The Court held that the £40,000 of wasted legal costs were recoverable damages – the absence of a jurisdiction clause provided scope for a challenge to the jurisdiction of the English courts, and the wasted costs could have been avoided if the HoT had been properly drafted to include such a clause – but the £2 million was too remote.

Applying the principle from Wellesley Partners LLP, the court held that the loss of a 20% chance to secure voluntary payment of the judgment due to the change in the financial circumstances of DCSV was not something that the parties would have contemplated as a possible result of the omission of the jurisdiction clause.

Lewis Silkin also developed a separate argument that the lost chance of recovering a voluntary payment was outside the scope of duty which they owed to Mr Wright, relying on South Australia Asset Management Corp v York Montague Ltd [1997] A.C. 191 ("SAAMCO").

The Court considered that the loss of the 20% chance of a voluntary payment was not a loss within the scope of Lewis Silkin's duty, but due to the fact that the appeal from Gabriel v Little [2013] EWCA Civ 1513 (which considers the application SAAMCO to solicitors negligence cases) was being heard by the Supreme Court the same month the court based its decision solely on grounds of remoteness.

Comment

As with many cases involving alleged failure to advise by a professional, this case serves as a reminder of the importance of not taking matters for granted in discussions with a client. Options should be discussed and a clear record of any advice given and instructions received taken so as to avoid potential future disputes.

Perhaps more interestingly, however, the case demonstrates how the narrowing of the test for recoverability of damages in concurrent liability claims derived from Wellesley Partners LLP can work to the advantage of a professional, and help reduce the amount of damages payable where there is found to have been a breach.

It also further focusses interest on the pending judgment of the Supreme Court in Gabriel v Little, which could potentially lead to revisiting SAAMCO "scope of duty" principles. If the Supreme Court does go down that road, it would represent a significant development in the landscape for claims against all professional advisers.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.