English Court of Appeal considers the scope of a solicitor’s duty of care, loss of a chance, and remoteness of damage associated with a poorly drafted Exclusive Jurisdiction Clause

In a judgment dated 21 December 2016, in Wright v Lewis Silkin LLP [2016] EWCA Civ 1308, the English Court of Appeal has concluded that the Defendant law firm was negligent in failing to include an English exclusive jurisdiction clause in a valuable contract (as the client had specifically requested, further to some advice received from a ‘wise Indian man’ – whose advice was significant because the contract related to a lucrative commercial opportunity involving one of the teams, the Deccan Chargers, that participated in the Indian Premier League in cricket).

However, the Court concluded that the only loss which flowed from this breach of duty was the wasted expenditure of £40,000 GBP in irrecoverable legal costs associated with the fact that the client had to argue over jurisdiction when litigation was eventually commenced in the English High Court (and when the Court’s jurisdiction was wrongly disputed by the contractual counterpart).

The Court disagreed with the trial judge about the recoverability of £2 million GBP in consequential loss, in the form of the 20% loss of the chance to enforce a £10 million damages award against the Defendant (in circumstances where the jurisdictional challenge  resulted in such a delay to the legal proceedings that, by the time judgment was obtained and sought to be enforced, the Defendant had become insolvent).

The Court of Appeal concluded that this alleged loss was too remote to be recovered, and outside the scope of the solicitor’s duty with respect to the exclusive jurisdiction clause.

Why is this judgment of particular interest from a Bermuda and offshore perspective, you might ask?

There are at least 4 reasons why the judgment is interesting, and potentially important:

  • Firstly, it offers a reminder of the importance of jurisdiction/arbitration clauses in commercial contracts (particularly international contracts of the sort that are frequently seen in Bermuda and other offshore jurisdictions), and the wasted expenditure and liabilities that might flow from inaccurate or incomplete drafting of such clauses, or from a failure to explain their meaning and effect to a client;
  • Secondly, in following and applying another recent Court of Appeal decision in Wellesley Partners LLP v Withers LLP [2015] EWCA Civ 1146, the Court of Appeal has concluded that, while a solicitor may owe a client a contractual duty of care that is concurrent with a tortious duty of care at common law, the test for recoverability of damage in the event of a breach of duty should be the same, and it should be the contractual one (i.e. 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 – which is more restrictive than the test in tort). This is particularly significant in Bermuda, taking into account the evolving state of Bermuda law on the issue of concurrent liability in the case of professional services and pure economic loss (which I have discussed in a recent Blogpost);
  • Thirdly, the Court of Appeal recited the cases that discuss the circumstances in which an Appellant may be entitled to raise new lines of argument on appeal, even if they were not taken in the Court below (Jones v MBNA International Bank [2000] EWCA Civ 514Crane T/A Indigital Satellite Services v Sky In-Home Ltd & Another [2008] EWCA Civ 978Mullarkey v Broad [2009] EWCA Civ 2 and Glatt & Ors v Sinclair [2013] EWCA Civ 241[2013] 1 WLR 3602). In this case, the Court allowed a fresh point of law to be taken, since all of the relevant evidence was before the trial judge and the Court of Appeal. This line of authorities is of significance in Bermuda, since it is frequently the case that appellants try to present their arguments differently on appeal (although it should be noted that the Bermuda Court of Appeal’s procedural rules are slightly different to those applicable in England and Wales, being arguably more flexible on this and related issues, such as the introduction of fresh evidence on appeal);
  • Fourthly, the Court of Appeal allude to the fact that the UK Supreme Court is currently considering an appeal addressing the question of how the SAAMCO case (South Australia Asset Management Corp v York Montague Ltd [1997] AC 191) is properly applied in solicitor’s negligence cases. The Supreme Court’s judgment in that case (which was heard on 14 and 15 December 2016) will no doubt be of importance to the development of Bermuda law.

 

 

 

 

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