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Solicitors
were held liable for negligence for a "loss of chance" assessed
at 40%. A defendant cannot rely on a wrong which he has committed in
order to reduce the damages otherwise payable.
The claimant tendered for the purchase of a substantial share in a Russian
manufacturing company, which was being offered for sale under the Russian
Government's privatisation programme. The sale was subject to approval
by the State Property Committee (GKI). Under the terms of the tender,
the claimant was required to enter into a share purchase agreement and
retained the defendant firm of solicitors to advise on this.
The deal
subsequently fell through following a breakdown in the relationship
between the key participants, which resulted in the Russian Prosecutor
being requested to investigate the transaction. The agreement was subsequently
declared to be invalid by the Moscow Arbitration Court on the ground
that the claimant's original tender had been invalid, because the tender
offered investment over a five year period rather than the three years
which had been specified in the investment plan approved by GKI. Further,
the claimant had failed to obtain approval from the Russian Anti-monopoly
Committee for the transaction.
The claimant
sued the solicitors to recover its losses occasioned by the failure
of the transaction. At first instance, the solicitors were held liable
for failing to advise properly in relation to the tender. Causation
was an important issue at trial and the Judge found the solicitors liable
on the basis of a loss of chance and assessed that chance at 70%. The
Judge's thinking was, very broadly, that the solicitors should have
discovered the existence of the three year investment plan approved
by GKI; that had they done so, they would have advised the claimant
to re-negotiate; that this advice would probably have been accepted
by the claimants; and in turn, the Russian authorities would not have
made any challenge or it would have failed.
On appeal,
the solicitors put forward a number of arguments. In particular, they
contended that this was not a loss of chance case. For the claimants
to succeed, they must establish, on the balance of probabilities, that
a successful challenge to the transaction would not have occurred in
any event.
In giving
judgment, the Court of Appeal was led to consider the whole area of
loss of chance cases and looked at what could and could not amount to
such. The Court of Appeal took the view that it is only in limited circumstances
that the law allows for a head of damage "loss of chance".
This will be assessed at a percentage of a claim's full loss (where
the claimant cannot prove on the balance of probabilities that the wrong
alleged has caused the full loss).
In this
case, the solicitors were contractually bound to provide advice that
would have created the "chance" that the transaction would
not be defeated. This was so, even though that chance was dependent
on the hypothetical acts of third parties (i.e. what the Russian authorities
would have done). If that chance should have been provided, then unless
that chance was of no real value or totally incapable of being quantified,
damages for that loss should be recoverable (see: Allied Maples Group
Limited v Simmons & Simmons but Gregg v Scott (2000) doubted). This
case was therefore treated as a loss of chance case.
As to the
percentage to be applied, the Court of Appeal reduced this from 70%
to 40%. In their reasoning, the Court of Appeal said that one might
think that the sort of events that had happened were the very kind of
unforeseen and unlikely circumstances in which failure might have had
to be accepted even on proper advice (i.e. a possible 100% loss even
on proper advice). The Judge's reasoning at first instance had been
that if the agreement had been changed, then on the events that happened,
it was more probable than not that no prosecution would have occurred.
However, that could not upgrade the value of the loss of a chance that
the solicitors were contractually bound to provide. It overlooked the
fact that if the Prosecutor had prosecuted, the amended agreement might
have suffered the same fate as the unamended agreement actually did,
with a 100% loss. Further, the disagreement between the parties further
reduced the chances of the transaction being safe. The chance must therefore
be downgraded.
The Court
of Appeal judgment was also interesting for another reason. The solicitors
had argued on appeal that independently of the pleaded cause of action,
the failure to secure anti-monopoly approval meant that the transaction
was bound to fail in any event. This failure to seek approval was in
fact the solicitors' own responsibility. Thus, the solicitors were led
to argue that their own negligence broke the chain of causation and
it was the failure to maintain monopoly approval that was the real cause
of the loss. The Court of Appeal did not find this argument attractive.
A defendant should not be allowed to rely on a wrong which he has committed
in order to reduce the damages which would otherwise flow from a tort
or breach of contract. A person should not be entitled to rely on their
own wrong in order to secure a benefit.
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