Somatra Ltd. v Sinclair Roche & Temperley

LORD JUSTICE WALLER: We are dealing with an application for permission to appeal the judgment of Morison J by which he awarded damages of over $5 million to Somatra against the solicitors, SRT, who acted for them in litigation against underwriters in relation to the loss of a tanker. The judge found that SRT, through their partner, Mr Harvey Williams, was in breach of duty in various respects. That breach of duty, it is said, led to such a loss of confidence that Somatra settled the litigation for 66 and two thirds per cent of the claim; that without that breach and loss of confidence, settlement would have been reached for 75 per cent of the claim with, the difference being the $5 million.

There can hardly be a worse example of the horrors of litigation. Somatra were involved in this enormous case in the Commercial Court which was then settled within a short period of time prior to the trial. There were clearly serious shortcomings in the conduct of the senior partner of the firm of solicitors who were instructed by Somatra. Somatra then commenced proceedings against their erstwhile solicitors alleging that, but for the shortcomings, the action would either have been settled for much more than 66 and two thirds per cent, or fought through to victory and judgment for 100 per cent. That action was fought between 8th October and 20th December 2001, combing in considerable detail the whole history of the way in which the action had run by SRT and, in particular the senior partner, and then trying out the action that had been settled with slightly different witnesses; the difference, it is now said, being down to an objection to certain experts who had been available for the original trial.

There was a welter of material for the judge to consider. Final written submissions were of enormous length, and there were great number of daily transcripts of evidence and many files of documents. A draft judgment of 160 pages was handed down on 30th July 2000. This was then supplemented by a final judgment in October 2002. This itself was further supplemented, in the light of criticisms of the reasoning by a further judgment dated 15th October 2002.

The judge refused SRT's application for permission to appeal. His reason was essentially that no points of principle arose and his decision was one of fact. SRT applied to this court for permission. The written submissions are, on the main case 114 pages long. So far as the original trial submissions are concerned, they cover a further 150 odd pages. There were about ten or more bundles supplied. The submissions bore the signature of counsel and solicitors, and contained a statement to the effect that it was thought that the length of the written submissions and the number of documents were justified. I disagree. A mass of material does not make a case any stronger. I had some anxiety that what was being hoped for was that the enormity of the task for a single Lord Justice would be such that he or she would simply grant permission. I was not prepared to do that and adjourned the matter for this oral hearing. I express the sincere hope that on permission to appeal bundles and documents of this sort of length will not appear again --

Sir Sidney Kentridge, who has appeared on this oral hearing, has demonstrated that it is possible to put the points that could be put shortly and in persuasive terms. As indicated during the course of the hearing, we have been persuaded that there are points on which permission to appeal should be granted, but one on which we are not prepared to grant permission.

It is relevant to stress that SRT do not contest certain findings of the judge that Mr Williams acted in breach of duty. Those findings include a finding, unfortunately that Mr Williams disobeyed his client's instructions so far as instructing the expert, Professor Bull, was concerned; that he was not frank with his clients about that at the time when they discovered it; and that he was untruthful when he gave evidence about it in the witness box at the trial. Those are serious allegations against a professional man. It was that incident that in fact led to a Mr Hamilton of White & Case being brought into act for the shareholders and to oversee what SRT were doing.

SRT wish to challenge only two findings of breach. The first relates to a further occasion on which the judge found that Mr Williams was not frank with his clients. Somatra had borrowed money from a bank and the bank held a mortgage which covered the proceeds of the claim against the underwriters. There was a tension between the bank and Somatra because Somatra feared that the bank, as it had the right to do unless Somatra paid off the loan, might take over the proceedings and then settle simply with an eye on what it was owed rather than on what was the true value of the claim. Somatra had given strict instructions that, if there was to be any meeting with the bank or its advisers, Mr Hamilton at least should be there. The bank had wished to know what advice was being given by, Mr Rokison, leading counsel for Somatra. That advice was not available because Mr Rokison was not, by that at stage, up to speed to give it. The bank accordingly sought advice from Mr David Steel QC. Mr Williams kept his clients in the dark about the fact that a conference was fixed with Mr Steel which he and Mr Gruder, junior counsel for Somatra, were to attend. The judge held this to be a breach of duty; there is no challenge to that finding. It is as to what happened after the meeting and to a different point that the challenge arises. The judge found that at a later meeting Mr Williams first denied that lay persons from Somatra had been invited to that meeting, and then admitted that they had. The judge found that there had been an invitation to the lay people and that Mr Williams had lied about it when denying that there had been. Those acting for SRT submit that they should be entitled to challenge this finding on appeal. They suggest it is a "finding of inexcusable professional dishonesty". They say they will have a reasonable prospect of reversing the finding by virtue of the following factors:

They criticised the fact that all the judge relied on was a note from Mr Jennings, with which Mr Williams had been confronted, and the recollections of Mr Hamilton and Mr Mustafa of what happened at the meeting where Mr Williams was confronted. In their written submissions it is suggested that these recollections were not supported by Mr Jennings or by Mr Berg. Mr Jennings was a witness who was originally an employee of Somatra but had been dismissed by them and he was called by SRT at the trial.

The first difficulty for SRT is that there are certain passages from the evidence of Mr Berg and Mr Jennings quoted in paragraphs 87 and 91 of Somatra's written submissions at tab 2 of the purple bundle. They would indicate that Mr Berg and Mr Jennings did in effect support Mr Hamilton and Mr Mustafa. Even if it was not fair to suggest that Mr Williams had been inconsistent in his accounts on this aspect, it is relevant that the judge had made serious findings against him on other matters.

Obviously this is a serious finding, but in my view there was ample material on which the judge could base the same. This is not an issue on which it can be said that there are any contemporaneous documents which actually conflict with the finding. In my view there simply is no prospect of persuading the Court of Appeal to reverse that finding.

The second breach of duty which SRT wish to challenge relates to Mr Williams' conduct of and at the settlement meeting on 29th March 1994. Sir Sidney Kentridge made clear that he is not seeking to challenge the factual account given by the judge of this meeting. He limits his challenge to whether it can be said that in his conduct of and at that meeting Mr Williams can be said to have fallen below the standard of a solicitor. The description is contained in paragraphs 214 to 217 of the judge's judgment. It includes a description by Mr Hamilton which the judge accepted as accurate.

This is a meeting which clearly went very badly, but I take the view that there is a reasonable prospect of persuading the Court of Appeal that, however badly the meeting went, having regard to the nature of such a meeting, a finding of breach of duty is not justifiable.

That brings me to the nub of the case. Somatra's case was that the breaches of duty caused a loss of confidence in Mr Williams; that on the evening after the settlement meeting on 29th March they took over the settlement negotiations themselves, negotiating directly with representatives of the underwriters; that they would not have settled at all but for the loss of confidence; and that they had a meeting with Mr Domingo on that evening. Mr Domingo was the underwriter for ARIG, who were insuring a large part of the risk. He had come from the Middle East to attempt to arrive at a settlement. At that meeting, Mr Alireza made clear that settlement had to be at 75 per cent. According to Mr Alireza of Somatra, Mr Domingo said he would recommend 75 per cent to the market and would come back with his answer on 7th April. On 6th April a meeting was arranged through Mr Domingo with Mr Arditti, representing about 15 per cent of the market. At the meeting Mr Arditti offered 50 per cent which he thought he could persuade the market to offer. Mr Alireza stated that he would take only 75 per cent. Mr Arditti suggested splitting the difference and they shook hands on 66 and two thirds per cent.

A hard fought issue at the trial related to the position of Mr Domingo. Mr Domingo gave evidence that he in fact obtained the authority of the market prior to the meeting with Mr Arditti on 6th April to settle for 75 per cent. This was hotly contested by SRT. Mr Domingo produced one memorandum which he suggested supported his evidence. An attempt was made to obtain documents from the underwriters and their lawyers which produced only limited documentation in the form of what became known as the Arditti letters. These were memoranda from Mr Wilson of Holman Fenwick to the market which, on their face, would conflict with Mr Domingo's evidence that he had authority to go to 75 per cent. The judge, despite these memoranda, accepted Mr Domingo's evidence.

The argument at the trial was that Somatra would not have settled on 6th April at 66 and two thirds per cent but for the breaches. Their primary case at trial was that they would not have settled at all but for the breaches. Thus the argument was that, but for the breaches, the case would have been fought out and, if it had been fought out, they would have won. The loss was thus, they were arguing, the difference between 66 and two thirds per cent and 100 per cent.

Their alternative argument was that they could establish through the evidence of Mr Domingo that Mr Domingo had authority from the market to go 75 per cent. Thus, it was argued that, if they had pursued the action, an offer would have come from Mr Domingo on behalf the whole market at 75 per cent and, at the very least, their loss was represented by the difference between 66 and two thirds per cent and 75 per cent. It is fair to add that they had a further argument which in effect combined both approaches, suggesting that there was a loss of a chance of the settlement which should be added to the loss of a chance of succeeding 100 per cent at the trial.

The judge found that Mr Domingo had been authorised to offer 75 per cent by the market. He found that offer would have been made. He also found that, if there had been no breaches, Somatra would have accepted that offer at 75 per cent. He went to hold, in case he was wrong about that, that if the trial had been fought through, Somatra would in fact have won.

SRT wish to challenge the finding that Mr Domingo was authorised by the market to offer 75 per cent. As I have said, there were certain contemporaneous memoranda, the Arditti documents, which appear to conflict with that evidence. We have also been shown a note of a meeting of 31st March 1994. That note is set out in paragraph 221 of the judgment without comment by the judge. It seems to be contrary to the suggestion that Mr Alireza contemplated an offer of 75 per cent being recommended to the market and to any expectation that an offer in that area might be forthcoming on 7th April.

This was a matter which the judge only dealt with in his supplemental judgment of 15th October. In that judgment he accepted the explanation given by Mr Mustafa in evidence that the note was written recording the views of members of the team who had not been informed of the meeting with Mr Domingo. Mr Mustafa's evidence was that the meeting with Mr Domingo was confidential and they did not want other members of the team to know of it because they did not know to where that would lead.

I am troubled about that explanation. It does seem to me that there are contemporaneous documents which tend to contradict Mr Domingo's evidence. However, Mr Symons argues, the judge heard Mr Domingo give evidence, saw how he dealt with those documents and the judge believed him. Mr Symons says that is not so surprising because Mr Domingo had no motive to lie and the only alternative is that he was lying. In my view, because of the contemporaneous documents and because this aspect is tied up with the arguments, to which I am about to turn, permission to appeal should include permission to challenge this finding relating to Mr Domingo.

I now turn to the most difficult aspect. There are various ways in which the questions of remoteness, forseeability and causation might be approached. If Mr Domingo's evidence is accepted, or if it were found that in any event that prior to the trial an offer of 75 percent would have been forthcoming, if Somatra had rejected the 66 and two thirds per cent, and if, as the judge found, Somatra would have settled without any breaches of duty at 75 per cent, have Somatra established on the balance of probabilities that they would have rejected 66 and two thirds per cent even if there had been no breaches of duty? Have Somatra established that any of the breaches of duty found, caused Somatra to take 66 and two thirds per cent and not continue to insist on 75 per cent? Is there a causative link between the loss of confidence in Mr Williams and in accepting negotiations in which Mr Williams was playing no part, 66 and two thirds per cent rather than 75 per cent?

If Mr Domingo's evidence is rejected, and if it were found that no offer of settlement would have been made if the 66 and two thirds per cent had been rejected, and if Somatra approved that they would even then still have rejected an offer of 66 and two thirds per cent, would the judge's approach of trying out the action and forming a conclusion as to who would have won, have been right or should he have assessed the loss of a chance? If it were the appropriate exercise to assess the loss of a chance, should he have paid greater regard to the advice being given at the time, together with the views of underwriters by reference to the offers they were prepared to make?

I am not suggesting that I have necessarily formulated the right questions. But, even as formulated, I am not sure of the right answer or that the judge's approach was right. It seems to me that there are arguable points which should be considered by the Court of Appeal.

Mr Symons also seeks permission to appeal on certain aspects. He seeks to challenge the judge's finding in relation to there being no breach in relation to Mr Smallwood. Mr Smallwood was a partner in Watson Farley Williams who were advising the bank. The difficulty is that, so far as SRT are concerned, they will seek to argue on an appeal that certain aspects, which the judge has found not to be breaches, were causative of the loss of confidence and trust. Mr Symons wishes to put himself and his clients in the position of being able to argue that they were indeed breaches and, as we have already indicated, we think it right that there should be permission to appeal on the Smallwood aspect.

Mr Symons also seeks permission to appeal on his point that, even if the judge was right in his finding in relation to Mr Domingo, he should have approached the matter by reference not just to the loss of the opportunity of that settlement, but should have added to it the loss of a chance of 100 per cent victory at a trial, which would have increased the damages that the judge would have awarded. Having regard to the fact that we are granting permission to SRT, it is right that Somatra should have the opportunity of raising those points.

There was also debate as to how we should deal with the findings in relation to what might or might not have occurred at the original trial. It is quite clear that there should be permission to appeal in relation to the aspects which deal with matters of principle. The question which arose was, what should happen in relation to certain individual items where the judge has made a finding in coming to his answer that the trial would in fact have been won by Somatra. It may well be arguable that the judge should not have entered into the area of making any such findings. Thus, even without regard to the individual merits of the points, it seems to me that it should be open to SRT to challenge those findings.

In relation to the individual merits, obviously there are strong points to be made as Mr Rainey demonstrated but, as I say, it is right that permission should be given to appeal those points.

I now turn to deal with the question of indemnity costs. We have already indicated shortly that, having regard to the fact that whole matter it going to the Court of Appeal in any event, it is right that this aspect also should be reviewed.

So far as the stay is concerned, we have indicated our views and we stress, as we did during the course of argument, that this is no slight on Mr Alireza so far as the offer he has made to stand by the company. It is and would be most unusual either to accept such a personal undertaking without a form of security from any individual, no matter where he resides but, in particular in relation to any individual that resides outside the jurisdiction. This form of undertaking has to last for a very considerable period of time. No one can tell what the future holds. The right course is that there should be some form of security as we made clear.

The costs of providing the security should be costs in the appeal. The order will be that there should be a stay, or the monies should stay where they are unless a guarantee is supplied by a first-class bank, that being a bank acceptable either to SRT or those advising SRT or, if necessary, satisfactory to the court. If any problem arises, then the matter can be dealt with in writing and the court can rule in writing so that the costs of coming back can be spared. As indicated, the costs of supplying such a guarantee will be costs in the appeal.

There is only one other matter with which to deal. That relates to the production of skeletons for the Court of Appeal that have to hear this matter. As will already be clear from the dissatisfaction expressed in relation to the length of the skeletons which were put in for permission to appeal, one must ask, particularly the appellants, to look carefully at the contents of such written submissions. There are certainly aspects which are unsatisfactory on any view expressing the view of the lawyers, rather than making submissions. But the most important point is that they duplicate matters in a vastly extended argument which is quite unnecessary so far as presenting this matter clearly to the Court of Appeal is concerned. There are aspects on which permission has been refused and those should be removed from the written submissions.

Hopefully, if a more limited document is put in, then the respondents will correspondingly be able to produce a shorter answer to those submissions in order to help the court. I contemplated putting a limit on the number of pages for the submissions, but that would be unsatisfactory. One must leave it to the good sense of those acting for the parties to see whether this matter can be put before the Court of Appeal in a way which will enable them to deal with it as speedily as possible.

LORD JUSTICE JONATHAN PARKER: I agree with everything my Lord has said and with the order he proposes.