Wright v Lewis Silkin LLP

This judgment is in seven parts, namely:

This is an appeal by solicitors against a judgment holding them liable for professional negligence in the sum of £2.04 million. The principal issue in this appeal is whether the bulk of the claimant’s loss is too remote and/or outside the scope of the duty which the solicitors owed to the claimant.

The claimant in this action and in certain related proceedings is Timothy Wright. The defendant solicitors are Lewis Silkin LLP (“LS”), a substantial firm of solicitors based in the City of London.

This litigation concerns the Indian Premier League. The Board of Control for Cricket in India (“BCCI”) administers the Indian Premier League. It sells off the franchises for teams representing the major Indian cities. The Indian Premier League’s season is usually April to May in each year. During the season there is a series of Twenty20 cricket matches. These are extremely popular and generate huge returns for the franchisees. The inaugural season of the Indian Premier League was in 2008.

The Indian companies which will feature in the narrative are Deccan Chronicle Holdings Limited (“DCHL”) and Deccan Chargers Sporting Ventures Limited (“DCSV”). DCHL was at the material time a media group which owned the Deccan Chronicle. That was India’s fourth largest English language newspaper. DCSV was a subsidiary of DCHL, formed in 2008. Where appropriate, I shall refer to DCHL and DCSV collectively as “Deccan”.

The Indian Premier League was established at the beginning of 2008. The BCCI sold off franchises to organisations which were fielding teams for the major Indian cities.

DCHL purchased the franchise for Hyderabad for US $107 million. DCHL agreed to pay that sum to the BCCI in ten annual instalments. DCHL formed a team to represent Hyderabad and called it the “Deccan Chargers”. The team logo was a charging bull.

Mr P. K. Iyer was the managing director of DCHL. He caused DCHL to transfer the Hyderabad franchise to DCSV in August 2008. Mr Iyer had ambitions to extend the activities of DCSV beyond the realm of cricket.

The claimant is a man with long experience of sports management, both in India and elsewhere. In April 2008 he received approaches from Mr Iyer concerning Deccan’s future plans.

In the course of three meetings between 20^th and 30^th April 2008, Mr Iyer explained that he intended to create a “sports city”. This would comprise a stadium on the scale of Wembley and a sports/entertainment arena on the scale of London’s O2.

On 7^th May 2008, Mr Iyer offered the claimant the position of Chief Executive of DCSV. The plan was that the claimant would run the Deccan Chargers team and also take forward the sports city project. Mr Iyer offered an initial salary of £300,000 per annum and 3.5% of the equity of DCSV. If the claimant accepted the proposal, he would work for part of the time in England and part of the time in India.

The claimant took time to think about the offer and take advice. A friend recommended that the claimant should talk to an individual who had offices at Clifford Street in London. The individual’s name was not revealed until a later stage, but apparently he was an Indian man of much wisdom and business experience. Both parties and the judge have referred to him as “the wise Indian” and I shall follow suit.

The claimant went to see the wise Indian on 9^th May 2008. The wise Indian advised the claimant that he was in a strong position. The claimant should require a signing on bonus of £250,000. He should also ensure that any dispute was resolved in England. The wise Indian said “because, as you know, India very slow, no good, must be here”. He tapped on his desk as he said “here”.

On 12^th May 2008 there was a further meeting between the claimant and Mr Iyer to discuss the proposal. After that meeting the claimant contacted LS in order to take legal advice. He had been a client of that firm for many years.

Later that day the claimant spoke to Mr Burd, the joint head of LS’s employment department. He told Mr Burd the gist of Deccan’s offer and said that the headline terms were agreed. Since there was some urgency about the matter, Mr Burd suggested drawing up “Heads of Terms”, rather than a detailed employment contract. Mr Burd made a handwritten note of the conversation. This included:

“Making a rather seductive offer…”

“Went to see wise Indian guy”.

On the 13^th May the claimant sent two emails to Mr Burd. The first email set out the headline commercial terms in greater detail. The second email forwarded a note from someone called “PRR”. This commented on the individuals running DCHL and stated that some of them had bad reputations.

After sending those two emails the claimant spoke to Mr Burd by telephone. After that phone call the claimant sent an email to Mr Burd stating:

“English law or otherwise, can we just give some thought to how we would enforce the provisions of the contract on a company based in Singapore? Talk after 4.00 pm.”

The claimant sent this email because, following the wise Indian’s advice, he wanted any future litigation to be in England.

Mr Burd’s opinion was that there were “pros and cons” for including such a clause and that it would be better to leave the question of jurisdiction open. He did not, however, express that opinion to the claimant or discuss the jurisdiction issue with him.

Later on the 13^th May a terrorist bomb exploded in Jaipur, India, killing 63 people. This caused the claimant to have second thoughts about committing himself to Deccan. Despite those misgivings, after talking to Mr Iyer on 14^th May, he agreed to go ahead. One of the matters which persuaded the claimant was Mr Iyer’s promise of a guaranteed severance payment of £10 million in the event of dismissal. Mr Iyer also agreed to pay a signing on bonus of £250,000.

On the 15^th May 2008 the claimant had a long meeting with Mr Burd for the purpose of drafting. Mr Burd prepared a Heads of Terms, which set out all the matters agreed between the claimant and Mr Iyer. Mr Burd included a number of terms to protect the claimant’s position. These included the following:

“Severance Guarantee

In the event that TW’s employment is terminated by the Company (including as a result of a constructive dismissal) at any time, TW will receive the immediate payment (to include contractual notice entitlement and the value of then vested equity (“total package”)) of the higher of the then value of his total package or £10 million.

Tax efficiency

The parties will cooperate in the structuring of these arrangements to achieve optimal tax efficiency for TW.

Guarantee

Any financial obligations to TW arising out of these arrangements to be guaranteed by Deccan Chronicle Holdings Limited.

Law

These terms to be governed by English law.”

Unfortunately, there was a misunderstanding about one matter. The claimant thought that the effect of the last quoted clause was that the English courts would have exclusive jurisdiction. That was not correct. But since Mr Burd did not specifically discuss the jurisdiction issue, he did not correct the claimant’s misapprehension.

Subsequently there were further meetings and drafting amendments, none of which are material for present purposes. In relation to the choice of law clause, Mr Iyer was quite content that English law should apply. He commented: “You may have English law or Timbuktu law for all I care. I don’t intend to break this contract.”

The parties signed the final version of the Heads of Terms on 24^th May 2008. The terms which I have set out in paragraph 20 above remained in the final version, subject to some additional and beneficial provisions in respect of severance.

The claimant commenced his employment with DCSV in early June 2008. He received the agreed signing on bonus and salary, but he never received the promised share of DCSV’s equity.

As is well known, Lehman Brothers collapsed in September 2008 and financial turmoil ensued. The prospects of creating a large scale sports city in India receded. At the same time there were differences between the claimant and Mr Shankar, the chairman of DCSV, as to which of them was in charge of the company. Matters escalated from there. The claimant’s employment ended in late January 2009 in circumstances which, it is common ground, constituted constructive dismissal. Deccan did not make the guaranteed severance payment of £10 million to the claimant.

On 26^th January 2009 the claimant instructed new solicitors to act in his dispute with Deccan. On 2^nd February he issued proceedings against DCSV as his former employers and DCHL as guarantors. He obtained permission to serve out of the jurisdiction. His agents effected service, or at least asserted that they had done so.

DCSV and DCHL disputed that there had been valid service and also challenged the jurisdiction of the English court. The claimant concluded that the safest course was to start again, rather than to press on with those proceedings.

On 19^th November 2009 the claimant commenced a second action in the English High Court. Once again he obtained permission to serve out of the jurisdiction. After some mishaps his agents in India effected valid service.

Once again DCSV and DCHL issued an application challenging the jurisdiction of the English courts. Master Fontaine heard and dismissed that challenge on 15^th December 2010. Mr Justice Tugendhat upheld the Senior Master’s decision on appeal. Those jurisdiction challenges resulted in adverse costs orders totalling £137,000. Deccan duly paid those sums to the claimant.

The action proceeded. Deccan served a defence and counterclaim. The parties exchanged lists of documents. After that Deccan ceased to play any active part in the litigation.

The action came on for trial on 16^th July 2012 before His Honour Judge Seymour QC, sitting as a High Court judge. The claimant was represented by counsel. Deccan were not represented. Judge Seymour awarded damages of £10,323,094 plus interest of £210,384. He dismissed the counterclaim. He awarded indemnity costs plus interest on costs at the rate of 4%.

The claimant made substantial attempts to enforce his judgment against both DCSV and DCHL in India. He has had no success to date. Both companies took every possible point in their efforts to resist enforcement. The Indian courts are overburdened with work and civil proceedings do not generally move with alacrity. It appears from the undisputed expert evidence that the claimant has no realistic prospect of making any recovery from Deccan in the foreseeable future.

The claimant took the view that his inability to recover the outstanding sums from Deccan was due to LS’s negligence in drafting and advising upon the Heads of Terms. Accordingly, he commenced the present proceedings.

By a claim form issued on the 3^rd April 2014 in the Queen’s Bench Division of the High Court, the claimant claimed against LS damages for breach of contract and professional negligence. In the particulars of claim he alleged two breaches of duty:

In relation to the first allegation, the claimant pleaded four possible means of securing enforcement. He subsequently abandoned three of the suggested methods. His case at trial was that LS ought to have sought a UK bank guarantee or performance bond to secure the severance payment which would be due in the event of dismissal.

LS served a defence denying breach of duty and denying causation of loss. LS also disputed the quantum of the claimant’s loss.

The action came on for trial before Mr Justice Hamblen in June 2015. The principal witnesses were the claimant and Mr Burd. There was no suggestion that either of them was lying, although their recollections differed on a number of significant matters. The other witnesses included Mr Tapia, an expert on Indian law, and Mr Modi, who had been vice-president of the BCCI and chairman of the Indian Premier League until April 2010.

The judge handed down his reserved judgment on 3^rd July 2015. In relation to the first alleged breach of duty, he rejected the claimant’s case for a number of reasons, including:

In relation to the second alleged breach of duty, the judge held that Mr Burd (contrary to his recollection when he gave evidence) did not advise about the inclusion of a jurisdiction clause. That was a breach of duty. As a result the claimant remained under the misapprehension that the choice of law clause carried with it choice of jurisdiction. If Mr Burd had advised on this aspect, the claimant would have insisted upon an exclusive English jurisdiction clause.

Turning to causation, the judge held that if the contract had contained an exclusive jurisdiction clause, the claimant’s litigation against Deccan would have proceeded more smoothly and swiftly. He would have had a 20% chance of recovering the severance payment of £10 million. Therefore the value of the claimant’s lost chance was £2 million. Also there would have been a saving of litigation costs, agreed by the parties to be £40,000. On that basis the judge gave judgment in favour of the claimant for £2,040,000 together with interest.

The defendant was aggrieved by the judge’s decision. Accordingly, the defendant appealed to the Court of Appeal.

By an appellant’s notice filed on 27^th August 2015, LS appealed to the Court of Appeal on three grounds, which I would summarise as follows:

The appeal was argued on 6^th December 2016. Mr Justin Fenwick QC together with Mr George Spalton appeared for the appellant, LS. Mr Nicholas Davidson QC together with Mr Muhammed Haque QC appeared for the respondent claimant. I am grateful to counsel for their considerable assistance, both orally and in writing.

Having set the scene, I must now turn to the first ground of appeal.

Mr Fenwick submits, as is the case, that the judge did not set out in his judgment the advice which Mr Burd ought to have given in relation to the jurisdiction issue. Mr Fenwick argues that such advice would have been against including an exclusive English jurisdiction clause for a number of reasons. From there he submits that the court should not proceed on the basis that the claimant would ignore such advice. Therefore Mr Burd’s omission had no causative effect.

I do not accept this argument. Mr Burd sets out in paragraph 52 of his witness statement the advice which he believes that he gave. The judge has held that Mr Burd’s recollection is mistaken and he did not in fact give such advice. Even so the paragraph is significant. It sets out the advice which Mr Burd would have given, if he had addressed the jurisdiction issue. That paragraph is cautiously phrased and balanced. It included the following passage:

“I commented that with so many unknown elements here the best course was perhaps to ensure that the agreement was governed by English law. Having therefore touched on the pros and cons of whether to specify a jurisdiction for the contract, I cautioned against it. I suggested that in the circumstances it was preferable to leave the question of jurisdiction open.”

Mr Fenwick in his submissions was much firmer than that in setting out why an English exclusive jurisdiction clause was inappropriate. But he accepted that, if Mr Burd had given the advice set out above, that would not be negligent.

The judge has held that if Mr Burd had raised the issue of jurisdiction, this would have removed the claimant’s misunderstanding about the effect of the choice of law clause. The claimant would then have insisted upon a clause giving the English courts exclusive jurisdiction. There were two particular reasons for this. First, the claimant had personal experience of the slow progress of civil litigation in India. Secondly, there was the emphatic advice of the wise Indian, a man whom the claimant respected.

In my view, the judge was quite entitled on the evidence to conclude that the claimant would have insisted on the English courts having exclusive jurisdiction, if he had been told that the choice of law clause did not have that effect.

It was not necessary for the judge to spell out what advice Mr Burd should have given. I say that for two reasons:

In the result, therefore, I dismiss the first ground of appeal.

The claimant’s pleaded case on causation was as follows. If he and Mr Burd had insisted upon an exclusive English jurisdiction clause, Mr Iyer would have conceded that. If there was such a clause the litigation following the claimant’s dismissal would have proceeded much more smoothly. The claimant would have obtained judgment by July 2010. At that time DCHL was a solvent company holding the extremely valuable Hyderabad franchise. DCHL would have voluntarily paid out the judgment sum, in order to protect its own position. Defaulting on a judgment debt was the sort of conduct which might cause the BCCI to take away the franchise. Thus there would have been no need for tortuous enforcement proceedings through the Indian courts. By the time the claimant had actually obtained judgment against DCHL and DCSV circumstances had changed. Those companies were in serious financial difficulties. The BCCI was taking steps to cancel the franchise because DCHL had failed to make payments to players, support staff, associates and overseas cricket boards. Those payments had fallen due on 1^st May 2012.

In those circumstances, in and after the summer of 2012, Deccan were unwilling to pay the sums due to the claimant voluntarily. They therefore left the claimant to pursue his remedies by enforcement proceedings through the Indian courts. That is a long drawn out process with no prospect of success in the foreseeable future.

The judge dealt with the causation issues in accordance with the principles stated by the Court of Appeal in Allied Maples v Simmons & Simmons [1995] 1 WLR 1602. Where a claimant’s loss depends upon what a third party would have done, the court does not determine on the balance of probabilities what the third party would have done and then award everything or nothing. Instead the court assesses damages on the “loss of a chance” basis, provided that the lost chance was real or substantial, rather than speculative.

Applying those principles to the present case, the judge held that there was a high probability that Mr Iyer would have agreed to an exclusive English jurisdiction clause if asked. The judge then examined, hypothetically, how the claimant’s litigation against Deccan would have proceeded. He concluded that the claimant would have obtained judgment in June 2011 (rather than July 2012, as actually happened). The judge then considered what pressure the BCCI would have brought to bear on Deccan. He concluded that overall there was a 20% chance of Deccan voluntarily paying the judgment debt without any need for enforcement proceedings.

Mr Fenwick is strongly critical of the judge’s findings. His first point is that the judge made no allowance for the possibility that Mr Iyer would not have agreed to the exclusive jurisdiction clause. In my view this is a bad point. The judge found a “high probability” that Mr Iyer would have agreed. That finding fits with the evidence. In May 2008 Mr Iyer was keen to conclude the deal. His comments, when agreeing to the choice of law clause quoted in Part 2 above, indicate that he did not expect litigation and he was unconcerned about the details of the dispute resolution clauses. It seems to me that either (a) the judge thought that there was no real or substantial risk of Mr Iyer objecting or (b) the risk was very low and the judge allowed for it in the overall 20% figure.

Next Mr Fenwick pointed to the judge’s finding that Deccan would have taken every possible step to resist the claimant’s claim. He argued that Deccan would probably challenge the jurisdiction of the English court, even if the Heads of Terms had included an exclusive English jurisdiction clause. He argued that the BCCI would have been far more concerned about the non-payment of players and support staff, than the failure to pay a very large sum for severance to the claimant on the other side of the world. He said that Mr Modi’s evidence was of very little relevance, since Mr Modi had left the BCCI in April 2010 and the new management had their own ideas.

As Mr Fenwick gained in enthusiasm, it was almost as if he was making a closing speech at trial. Those were all good points to urge upon the trial judge. But they carry little weight on appeal. The judge was weighing up a mass of evidence and conflicting considerations, which both counsel had explored very fully in the course of a six day trial. Assessing the value of a lost chance in a case such as this is pre-eminently a matter for the trial judge. The Court of Appeal should not step in, after reading snippets of the transcript of evidence, and substitute its own evaluation, unless the judge has made an error of principle or reached a perverse conclusion.

In my view the judge has made no such error in the present case. His finding that the claimant would, hypothetically, have obtained judgment in 2011 was open to him on the evidence. That was 11 months before Deccan started defaulting on its debts to players and others. Deccan were obviously determined to retain their franchise for the next cricket season. I can see nothing wrong with the judge’s overall assessment of the chance at 20%. That makes proper allowance for all the vicissitude which Mr Fenwick urged upon us. The judge correctly valued a 20% chance of recovering £10 million at £2 million. I would therefore reject the second ground of appeal.

Four months after the judge’s decision in this case, the Court of Appeal gave judgment in Wellesley Partners LLP v Withers LLP [2015] EWCA Civ 1146; [2016] Ch 529. That was a solicitors’ negligence case in which there was concurrent liability. The court held where there were contractual and tortious duties to take care in carrying out instructions, the test for recoverability of damage should be the same, and it should be the contractual one.

It is common ground between the parties that Wellesley is binding upon this court, although Mr Davidson reserves the right to challenge it in the Supreme Court. Mr Justice Hamblen could not, of course, foresee the Wellesley decision. Nevertheless we must apply the law as it now stands.

For present purposes, it is not necessary to trace the long line of authorities stretching back from the present day to the classic case of Hadley v Baxendale [1854] 9 Ex 341. In essence, D is liable for damage resulting from his breach if, at the time of making the contract, a reasonable person in D’s position would have had damage of that kind in mind as not unlikely to result from a breach: see Chitty on Contracts (32^nd edition, 2015), paragraphs 26 – 109 to 26 – 125 and Wellesley at [69].

In the present case the absence of an exclusive jurisdiction clause provided scope for Deccan to challenge the jurisdiction of the court. They did so in both actions. Eventually those challenges failed, but only after there had been contested hearings first before the Senior Master and then before Mr Justice Tugendhat. This caused the claimant to incur £40,000 irrecoverable costs, which he would have avoided if the contract had been properly drafted. So clearly that wastage of costs, which the claimant could have avoided if the contract had been properly drafted, satisfies the remoteness test. That is exactly the kind of loss to be expected.

Suppose Deccan’s jurisdiction challenge had succeeded and the claimant had been forced to abandon the English proceedings and then litigate at additional cost in India. All those financial losses would have been well within the contemplation of the parties and the claimant would have recovered them as damages.

That, however, is not what happened. Despite the absence of an exclusive jurisdiction clause, the English court accepted jurisdiction and Deccan’s subsequent challenge failed. There was then an unfortunate concatenation of circumstances between June 2011, when the claimant should have got judgment in England, and July 2012, when the claimant actually obtained judgment in England. During that period DCHL and DCSV, hitherto prosperous companies holding a valuable franchise, fell into financial difficulties. They failed to pay debts falling due in May 2012. BCCI then began the hotly contested process of withdrawing Deccan’s franchise. In those straitened circumstances Deccan were disinclined to pay out £10 million to the claimant in settlement of the judgment debt. Thus, as a result of the delay caused by defective contract drafting, the claimant lost a 20% chance that Deccan would honour the judgment debt voluntarily. In my view that loss 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.

Let me now draw the threads together. The £40,000 wasted costs are a head of damage that is properly recoverable. The loss of a 20% chance to secure voluntary payment of the judgment debt is too remote. Therefore the award of £2 million in respect of the lost chance must be set aside.

I am fortified in reaching this conclusion by the judge’s decision on the insolvency issue. One of the reasons why he rejected the first alleged breach of duty was that in May 2008 there was no reason to doubt the future solvency of Deccan. The judge observed in paragraph 131 of his judgment:

“At the time, however, DCHL and the owner of the franchise were considered to be substantial businesses with valuable assets. As Mr Wright said in evidence, he was confident that DCHL was able to pay £10 million if that became necessary.”

As Patten LJ pointed out during argument, there is an inconsistency between the judge’s decision on the insolvency issues and his decision on causation in respect of the jurisdiction issue.

Mr Fenwick developed a separate argument that the lost chance of recovering a voluntary payment in respect of the judgment debt is outside the scope of the duty which LS owed to the claimant. Therefore it is irrecoverable on that ground as well. In support of that contention he relied upon the House of Lords’ decision in South Australia Asset Management Corp v York Montague Ltd [1997] AC 191 (generally known as SAAMCO) and Pearson v Sanders Witherspoon [2000] PNLR 110.

Mr Davidson submits that this argument is not open to the appellant because it was not taken below. In support of that submission he relies upon Jones v MBNA International Bank [2000] EWCA Civ 514, Crane T/A Indigital Satellite Services v Sky In-Home Ltd & Another [2008] EWCA Civ 978, Mullarkey v Broad [2009] EWCA Civ 2 and Glatt & Ors v Sinclair [2013] EWCA Civ 241; [2013] 1 WLR 3602.

I readily accept that, as a general rule, parties should not be permitted to raise new grounds of claim or defence on appeal, which were not taken or reserved below. But there are exceptions and the decision must turn upon the circumstances of the particular case.

In the present case, despite being pressed in argument, Mr Davidson was unable to identify any further questions which he would have asked in cross-examination if the scope of duty defence had been advanced at trial. It seems to me that all relevant evidence was before the court and the judge has made all relevant findings of fact. The defence contention that the damage was outside the scope of LS’s duty is very close to the argument that the damage is too remote. Mr Davidson accepts that the remoteness issue is properly before this court. Furthermore, it appears that in SAAMCO the scope of duty defence was a new point taken on appeal.

For all these reasons I would allow LS to pursue the argument that the loss suffered was outside the scope of the duty which they owed, even though LS did not take that point at trial.

The duty which LS breached was a duty to advise about the possibility of including an exclusive jurisdiction clause. Clearly the additional litigation costs which the claimant incurred as a result of that breach are within the scope of LS’s duty. Similarly any losses which the claimant suffered as a result of the English courts declining jurisdiction would be within the scope of LS’s duty. But the loss of a 20% chance that Deccan would voluntarily meet a judgment debt in order to preserve their reputation in circumstances where enforcement proceedings would be ineffective was not a loss within the scope of LS’s duty.

I do not embark on any lengthy analysis of this issue, because counsel tell us that in the course of this month, the Supreme Court is hearing an appeal specifically to consider how SAAMCO applies in solicitors’ negligence cases. For the same reason, I have decided to base my decision solely on the grounds of remoteness. My brief observations about the scope of the defendant’s duty are an alternative basis for my decision, which is only relevant if my conclusions on remoteness of damage are rejected.

If Patten LJ agrees, LS’s appeal will be allowed on the third ground only and the award of damages will be reduced to £40,000. Appropriate interest should be added to that sum.

I agree.