“The Price of Justice is Eternal Publicity”

Arnold Bennett, Secret Trials (1923)

A question frequently asked in the course of mediation by a client to his or her lawyer is:
Will I win?
This question is usually posed in the context of an offer received or one to be made. The answer to the question will likely be the key to whether or your client agrees to settle the matter or not.

Ordinarily, a lawyer will express an opinion in terms of the percentage chance of success: “I think you have a 70% of winning”. Often the expression of the percentage chance is the product of the weighing or averaging of the following:

• The percentage chance of a finding of full liability
• The percentage chance of a finding of contributory negligence
• The effect if any of efforts to mitigate
• The chance that the quantum of damages can be proven
• And finally, the chance that the opposite party has the financial ability to respond to judgment and costs

Armed with that information, a client will factor the sunk costs and the present value of the rish attendant upon the expenditure of future costs.
Often the expression of the opinion on the chance of winning is couched in cautionary terms. Lawyers tell their clients:

A) Predicting trial outcomes is subject to a number of unpredictable factors often beyond the control of the lawyer and client;
B) Decision to accept, make, or refuse an offer of settlement is a business decision for the client to make, not a legal one;
C) Legal principles can be best viewed as a binary of countervailing principles and hence, the clarity in the law that clients often believe exists, may not.

The reality is that clients, even the most sophisticated are heavily influenced by what advice they receive from their lawyers on their chance of success.
It is common for counsel and client to ask a mediator for his or her view as to the chance of trial success. Sometimes, mediators will decline to express any such opinion for fear that they may be seen to be giving legal advice. Other mediators, after reminding parties that they cannot give legal advice, do express their thoughts.

Are lawyers who express opinions of risk and whose opinions prove to be wrong or inaccurate, expose themselves to liability for negligence? The answer may be yes.

In Levicom International Holdings BV, Levicom Investments Curacao NV v Linklaters (a firm) [2010] EWCA 494, the Levicom companies entered into two complex shareholders agreement in 1999 with two associated Swedish corporations, Tele2 and NetCom. The Shareholder Agreements granted the Swedish companies a 90% interest in AS Levicom Cellular, and a 20% interest in OU Levicom Broadband, both subsidiaries of the Levicom companies and which subsidiaries carried on business in Estonia. AS Levicom owned a 52% interest in another Estonian company, Ritabell which did have cellular operating licenses and retail stores in Estonia.

The Shareholder Agreements contained restrictive covenants barring shareholders Tele2 and NetCom from carrying on within any of the Baltic States any cellular network business or any Cable, TV, telephony, internet or similar business “which is the same as or competitive with any business carried on by” AS Levicom Cellular or its subsidiaries.

The Shareholder Agreements also contained a put option pursuant to which Levicom BV could require Tele2 to purchase for a price to be determined by banking experts its remaining 10% holding in AS Levicom Cellular.

Another important feature of the Shareholder Agreements was an anti dilution provision pursuant to which Tele2 had to provide funds to Levicom NV at no cost to maintain its 10% equity holding in AS Levicom Cellular should further shares be issued.

As a final matter, Levicom NV was to provide assistance to AS Levicom Cellular in acquiring certain licenses in Lithuania and Latvia. If it did assist, Tele2 would provide certain loan notes.

In 2000, Levicom came to learn that Tele2 had acquired shares for about US $227 M. in a Latvian company called Baltkom which held network licences in Latvia. Levicom took the position that the purchase violated the restrictive covenants which, they said, should be given a pan-Baltic interpretation. Levicom took the position that Baltkom should have been purchased through AS Levicom Cellular which would have resulted in Levicom owning 10% of Baltkom. Levicom argued that damages were equal to 10% of the purchase price of the company, or $27.7 M. US.

The position of NetCom and Tele2 was that AS Levicom Cellular had no cellular business in Latvia and hence there was no breach of the restrictive covenant. They also argued that there was no loss because there was no competition between the companies and as a result Levicom’s interest in AS Levicom Cellular was unaffected.

Between October 2000 and May 2001 Linklaters provided a series of written and oral opinions with respect to liability and relief. In the end, Linklater’s advised Levicom that it had a “not more than 70% chance” of obtaining a declaration compelling NetCom and Tele2 to dispose of Baltkom as well as substantial damages. Based on that advice, offers to settle were rejected.

The arbitration process was initiated in August 2002. In May 2004, the first arbitration hearing commenced and witnesses were called to give evidence. Levicom came to appreciate its case was not going in as well as hoped, particularly on the matter of the measure of damages. The parties settled in June 2004 at an amount much less than earlier offers. Levicom then sued Linklaters for negligence.

At trial, Levicom was awarded only nominal damages, but on appeal, the Court of Appeal awarded significant damages. The Court of Appeal was of the view that the Linklaters’ advice was based on negligent analysis and advice and that Levicom had relied on that advice to its detriment. Leave to appeal this case was refused in October 2010.

What is to be learned from this case?

A) Long before attending a mediation, make sure you understand the objectives of the client and the client’s financial ability to both pay and bear costs. Your understanding of these matters should be reduced to writing because it will form the bookends of your retainer, and protect you in the event of a disagreement with a client;

B) Before attending a mediation provide the client with a written opinion on the chances of success. It may well be that the failure to express any opinion may fall below the duty owed to a client by the barrister. The chance of success should be assessed on a critical review of the evidence to date, the existing case law, the value of legal costs expended to date and to be expended in the future, as well as intangible factors (reputation, precedent, privacy etc.). For a detailed discussion of intangibles, see my Keys to ADR: Key No. 001;

C) If your assessment of risk is altered in the course of mediation, provide the client after the mediation with a report which summarizes and explains the change in thinking;

D) It is prudent during the mediation to obtain your client’s written instructions on the making or accepting an offer;

E) Any opinion of the chance of success should be properly qualified;

F) Obtain expert of third party reports to assist you in assessing liability and damages as soon as reasonably possible to assist you in assessing risk. Don’t guess. If need be, get a second opinion;

G) From the outset of litigation, inform the client of the mechanics and consequences of Rule 49 or any other offer regime such as that contained in the Arbitration Act, 1991, and finally

H) if a client disagrees with your advice, ensue that this disagreement is documented.

For more information on this topic, please contact Gary Caplan.

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