This is a sad tale about an international business venture. When the deal goes sour, and it is near impossible to recover the millions that you are owed (despite a court order in your favour), what should you do? Ah yes, sue the lawyer who advised you on the deal. He must have done something wrong, he has insurance and he is based in a jurisdiction where the legal system works.
Specifically in this case, what should your lawyer advise in relation to choice of jurisdiction in the contract? We now have some guidance from the Court of Appeal.
The case of Wright v Lewis Silkin LLP  EWCA Civ 1308 (21 December 2016) was reported on BAILII this week. Mr Wright was advised by the well-known London law firm, Lewis Silkin, on a contract under which Wright was hired as the chief executive of an Indian company, Deccan Chargers Sporting Ventures Limited (DCSV). DCSV held the Hyderabad franchise of the Indian Premier League, which runs a Twenty20 cricket league across India. DCSV also had ambitious plans to create a “sports city” in India.
To err is human…
While this contract concerned an employment relationship, the same issue could easily have arisen in other types of international business contract, and would likely have been treated by the court in the same way.
The contract, described as Heads of Terms, included the following terms:
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.
These terms to be governed by English law.
The contract did not contain any clause stating which courts would have jurisdiction.
Later, Mr Wright was dismissed. He sued DCSV in the English courts. DCSV unsuccessfully challenged the jurisdiction of the English courts. There were other procedural difficulties. Eventually, the English High Court awarded Mr Wright the £10 million referred to above.
Mr Wright sought to enforce his award in the Indian courts, but the Indian courts are very overburdened with work. It is likely to take many years before he stands any chance of the Indian courts recognising and enforcing the English court decision.
So, he sued his solicitor. At trial he alleged that his solicitor should have advised on the following:
- To obtain a bank guarantee from the Indian party for the £10M.
- To include an exclusive English jurisdiction clause in the contract.
At trial, the judge rejected the bank guarantee point. Thank goodness! In IP Draughts’ view this was a commercially unrealistic argument, for the reasons stated at paragraph 38 of the Court of Appeal’s judgment.
On the second point, the trial judge found that the solicitor had not advised on jurisdiction and was in breach of duty for this failure.
The facts in relation to the second point are a little complicated, but can be summarised briefly as follows:
- Mr Wright had been recommended to take business advice on the transaction from someone referred to by the parties as the “wise Indian”. The wise Indian had advised Mr Wright to ensure that disputes were resolved in England, “because …India very slow, no good, must be here”.
- Mr Wright had wrongly assumed that the above-quoted reference to English law meant that disputes would automatically go to the English courts.
- If the solicitor had advised on this point, he would have indicated, perfectly reasonably, there were pros and cons of including an exclusive jurisdiction clause.
- But Mr Wright would probably have insisted on exclusive English jurisdiction in light of the wise Indian’s advice.
- A first action was brought in the English courts for the £10M but was abandoned after DCSV challenged jurisdiction.
- A second action was brought in the English courts and was successful (as mentioned above), despite a further challenge to jurisdiction.
- Mr Wright argued that if he had been successful in the first action, he would have been able to bring pressure on DCSV to pay up at an earlier time. At that earlier time, DCSV was a thriving business and would not have wanted to prejudice its business by resisting payment. However, DCSV’s circumstances had changed by the time of the award of damages under the second action. It lost its franchise for Hyderabad in 2012.
- The trial judge (in the negligence action) held there was a 20% chance that DCSV would have paid up voluntarily if the first action had been successful, and therefore held that the solicitor’s firm was liable for 20% of the £10M judgment debt, ie £2M. There were also some wasted costs in relation to the first action, of a few tens of thousands, for which the solicitor’s firm was liable.
Jackson LJ, a very senior English judge, gave the lead judgment in the Court of Appeal. He dismissed the appeal on the bank guarantee point.
On the jurisdiction clause point, Jackson LJ accepted the trial judge’s view that there was a 20% chance of Mr Wright having recovered his judgment debt if the first action had proceeded. However, he disagreed with the trial judge on whether the £2M was recoverable.
Citing the Court of Appeal case of Wellesley Partners LLP v Withers LLP  EWCA Civ 1146;  Ch 529, he held that where a solicitor owes duties concurrently in contract and in tort, the test for recovering damages should be the contractual one. Applying the principles set out in Hadley v Baxendale and subsequent English cases, he considered that the £2M damages were too remote to be recoverable, in that a reasonable person would not have had damage of that kind in mind as “not unlikely to result from the breach”. [Apologies for the double negative.]
Thus, the solicitor’s firm, Lewis Silkin LLP, was only liable for the approximately £40,000 of wasted costs that had been incurred as a result of abandoning one action and starting another.
Instinctively, this decision feels right. Mr Wright wanted English jurisdiction and he got it, despite the absence of a clause that said so. If DCSV’s challenge to English jurisdiction had been successful, a more predictable loss might have occurred. There was a risk that DCSV would have refused to include an exclusive jurisdiction clause, if asked. Litigation involves all kinds of delays. It would have been difficult to predict, at the time the contract was made, that a delay in enforcement of several months would make it much less likely that DCSV would voluntarily honour an English judgment.
This judgment prompts several thoughts for IP Draughts:
- Non-lawyers sometimes need to be reminded that choice of law and choice of jurisdiction are distinct points.
- In many or most cases, it is desirable to have both a choice of law and a choice of jurisdiction clause in the contract.
- It is good to get a judgment from a respected court. But if the defendant has no assets in that jurisdiction, enforcement will need to take place in the defendant’s home jurisdiction (assuming he has assets there). Is it better to get a judgment in the same court that will enforce the award? Perhaps not, as in this case. A court decision in India would likely have taken many years as well.
- Even if there is no perfect solution, it is better to discuss the issue with the client and decide on something than overlook the point.
The point about concurrent liability in contract and tort is an interesting one, which also arises in the context of warranties. Where a party “represents and warrants” that a fact is true, some lawyers consider that this gives the recipient of the promise a right to sue in contract or for misrepresentation (ie in tort). IP Draughts has never been comfortable with this idea, and sees little in the case law to support it, though there have been several obiter dicta. He wonders whether the principle in Wellesley v Withers points us in the opposite direction, ie that in such a situation the contractual test for damages is the one to apply. In the words of Floyd LJ in that case:
Nevertheless, I am persuaded that where, as in the present case, contractual and tortious duties to take care in carrying out instructions exist side by side, the test for recoverability of damage for economic loss should be the same, and should be the contractual one. The basis for the formulation of the remoteness test adopted in contract is that the parties have the opportunity to draw special circumstances to each other’s attention at the time of formation of the contract. Whether or not one calls it an implied term of the contract, there exists the opportunity for consensus between the parties, as to the type of damage (both in terms of its likelihood and type) for which it will be able to hold the other responsible. The parties are assumed to be contracting on the basis that liability will be confined to damage of the kind which is in their reasonable contemplation. It makes no sense at all for the existence of the concurrent duty in tort to upset this consensus, particularly given that the tortious duty arises out of the same assumption of responsibility as exists under the contract.