England and Wales Court of Appeal (Civil Division) Decisions

IN THE HIGH COURT OF JUSTICE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
COMMERCIAL COURT
Mr Justice Andrew Smith
Claim no. 2007 Folio 1384

		Royal Courts of Justice Strand, London, WC2A 2LL
		11/05/2010

Lord Justice Stanley Burnton:

Introduction

1. This is an appeal from the orders made by Andrew Smith J on 15 May 2009 following his judgment on the Appellants' claim against the Defendants for damages for their professional negligence as solicitors. The judge held that the Defendants, Linklaters, had negligently advised the Appellants, but that the Appellants had suffered no damage in consequence of that negligence. He awarded them nominal damages in the sum of £5, and they were ordered to pay the Defendants' costs. He refused permission to appeal, but permission to appeal was granted by Sir Richard Buxton on some, but not all, of the grounds put forward by the Appellants.
2. For the purposes of this appeal, as before the judge, it is unnecessary to distinguish between the two Appellants, since it is common ground that Linklaters owed duties of care to both of them in contract and in tort. I shall therefore refer to both as "Levicom".

The facts

(a) The background

3. The judge gave a detailed judgment from which the following account of the relevant facts is taken.
4. Linklaters were a leading firm of City solicitors, who converted to LLP status in May 2007.
5. The Levicom group of companies had interests in telecommunications businesses throughout the Baltic States. It was owned by Levicom International Holdings BV ("BV"), the First Appellant, which itself was a wholly-owned subsidiary of Levicom Investments Curaçao NV ("NV"), the Second Appellant. The majority shareholders in NV were Mr Tonis Palts, Mr Toomas Peek and Mr Markus Pedriks. Mr Kenn Robson, through a corporate alter ego, had a holding of some 5.5% in NV. Levicom's decisions were made by Mr Palts, Mr Peek and Mr Pedriks in consultation with Mr Robson.
6. Mr Robson was an investment adviser and had been interested in the telecommunications industry for over a decade. He became involved with Levicom in 1998 and from May 1998 to January 1999 he was effectively the Chief Executive Officer of AS Levicom Cellular. He was heavily involved with Mr Pedriks in dealing with the dispute with the Swedish companies that gave rise to this litigation. In March 2004 a formal agreement was made for his remuneration by Levicom in relation to the dispute. It provided for payment according to the outcome of the arbitration of the dispute.
7. In June 1998 the Levicom businesses comprised cellular and broadband divisions, and they also had some interest in multimedia and research and development. They were the largest private media and telecommunications business in the Baltic States of Estonia, Lithuania and Latvia; they had no interests outside the Baltic States. By early 1999, the cellular business had been allocated to an Estonian company, AS Levicom Cellular, and the broadband business to OU Levicom Broadband, another Estonian company. The broadband business consisted of running cable television networks and fixed line internet services. The cellular telephone business, the major activity of the group, consisted of a number of different operations related to mobile telephone services.
8. Levicom was the second largest operator in the field in Estonia, through Ritabell, another Estonian company. Ritabell held two cellular network operator licences, a "Global Standard for Mobile Communications" (or "GSM") licence and a "Digital Cellular System" (or "DCS") licence). They provided a mobile phone network under the GSM licence and had twelve retail shops.
9. A smaller cellular telephone business was carried on in Lithuania, through the Levi & Kuto Lithuania companies.
10. The smallest operation was in Latvia. Although Levicom intended to expand into Latvia through Levi & Kuto Latvia, they held no licence there and their only business in Latvia was two retail handset shops.
11. In order to raise finance to develop the businesses, in 1996 Levicom sold 48% of Ritabell to Millicom International Cellular SA ("Millicom"). In June 1998 NetCom, a substantial telecommunications company with businesses in Scandinavia, and Eastern, Central and Southern Europe, one of which was Tele2, began negotiations to acquire Millicom's interest in Ritabell. Heads of terms were agreed in September 1998.
12. Mr Robson saw the chance of a substantial injection of finance into Levicom, and he and Mr Palts negotiated an agreement whereby the Swedish companies (as, like the judge, I shall refer to NetCom and Tele2 collectively) would acquire shares in AS Levicom Cellular and OU Levicom Broadband. Mr Anthony Hickinbotham of Linklaters advised the Levicom shareholders. The Swedish companies were represented by American lawyers, Cleary Gottlieb Steen & Hamilton ("Cleary Gottlieb").
13. On 29 January 1999 Levicom and NetCom concluded a "framework agreement" and two shareholders' agreements whereby Tele2 were to acquire 90% of the issued share capital in AS Levicom Cellular and NetCom were to acquire 20% of the issued share capital in OU Levicom Broadband. The consideration for the shares was €50,941,000. Loan notes were to be issued by the Swedish companies to Levicom in the event that further cellular licences in Lithuania or Latvia were acquired with the assistance of AS Levicom Cellular, The two Shareholders' Agreements were broadly similar: that concerning AS Levicom Cellular ("the CSA"), is more directly relevant for present purposes.

(b) The terms of the CSA

14. The CSA regulated the relationship between the shareholders in AS Levicom Cellular. The parties to the CSA were Levicom, the Swedish companies and "the NV Shareholders", including Mr Palts, Mr Peek, Kenn Robson Consultants NV and Canisto Investments NV, a company owned by Mr Pedriks. AS Levicom Cellular was not a party to it. It provided that it was governed by English Law. Clause 25.2 was an arbitration agreement requiring any dispute between the parties to be submitted to arbitration under the rules of the London Court of International Arbitration.
15. Clause 6 of the CSA specified that certain matters, including any change in the share capital structure of AS Levicom Cellular and its subsidiaries, required the prior approval in writing of each of the Shareholders or the prior approval in writing of a member of the supervisory board of AS Levicom Cellular nominated by BV and of a member nominated by Tele2 in accordance with Estonian law. "Shareholders" was defined as BV and Tele2.
16. By clause 8 of the CSA, Tele2 granted to BV a put option entitling it to require Tele2 to purchase for the "Option Price" all (but not only some) of their remaining 10% holding in AS Levicom Cellular at any time between 15 December 2000 and 15 December 2003. BV exercised the option on 21 October 2003. The Option Price was to be determined in accordance with clause 8.4, in default of agreement between the Shareholders, by investment bankers appointed by each of the parties acting as experts, and in default of agreement by the investment bankers or if the price determined by them was rejected by either Shareholder, by arbitration under clause 25.
17. Clause 9 of the CSA was headed "Investment and Non-dilution of BV 10% holding". Under it Tele2 were entitled to provide funding for AS Levicom Cellular but were obliged to ensure that no funding would be provided by a third party if it would amount to Quasi-Equity if raised from a Shareholder. Quasi-Equity was a defined term, and broadly meant debt convertible into equity share capital. Clause 9.2 provided:

"[Subject to an irrelevant exception] BV shall have the right to maintain an equity investment equal to 10% of the Equity Share Capital and Quasi-Equity of the Company [i.e., AS Levicom Cellular] for so long as it remains a shareholder of the Company. Accordingly, upon each issue of Equity Share Capital or Quasi-Equity of the Company to Tele2, Tele2 shall provide funds, at no cost to BV, to the Company in respect of which BV shall subscribe for Equity Share Capital or Quasi-Equity sufficient to enable BV to maintain an equity investment equal to 10% of the Equity Share Capital and Quasi-Equity of the Company for so long as it remains a Shareholder of the Company."

18. Clause 10 of the CSA required NV to use all reasonable endeavours to assist AS Levicom Cellular to acquire a GSM 900 licence in Lithuania. If NV did assist in its acquisition, Tele2 were to issue to NV a loan note, referred to as the "Tranche C Loan Note", of a specified amount, "less any costs properly incurred by [AS Levicom Cellular] in connection with the … acquisition". The specified amount depended upon the licence that was acquired: if it was for a GSM 900 licence with 24 channels and 2 x 48 MHz of frequency, the specified amount was €6,519,750 and in other circumstances it was less. In order for NV to be entitled to a loan note, therefore, it did not suffice that AS Levicom Cellular in fact acquired a licence: NV had to have assisted in the acquisition. If NV became entitled to a loan note, the amount depended, in part, upon what costs were to be deducted.
19. Clause 11 of the CSA was a broadly comparable provision relating to the acquisition by AS Levicom Cellular of a GSM licence or a DCS 1800 licence for Latvia. NV was again obliged to use all reasonable endeavours to assist in the acquisition by AS Levicom Cellular of a licence. If NV assisted in the acquisition of a GSM licence, Tele2 was to issue to NV a "Tranche D Loan Note" for €4,346,500, less any costs properly incurred by AS Levicom Cellular in connection with the acquisition. If NV assisted in the acquisition of a DCS 1800 licence, Tele2 was to issue to NV a "Tranche E Loan Note" for €2,173,250, less costs.
20. Clause 13.1 of the CSA was at the centre of the dispute that arose between Levicom and the Swedish companies, and is at the centre of Levicom's claim against Linklaters. Clause 13 contained a number of covenants on the part of the parties to the CSA other than Mr Pedriks. By clause 13.1.1 they covenanted that, until the earlier of one year from Tele2 or BV ceasing to be a shareholder in AS Levicom Cellular and 15 December 2003, they would not:

"… carry on, or be engaged, concerned or interested in carrying on within any of the Baltic States any cellular network business which is the same as or competitive with any business carried on by the Company as at the Completion Date save for equity investments in publicly listed companies of less than 5% of the total equity of such companies."

The "Completion Date" was 29 January 1999. Although generally in the CSA the expression "the Company" referred to AS Levicom Cellular, clause 1.5 provided that in clause 13 it included "its subsidiaries for the time being". The expression "cellular network business" was not defined.

21. Clause 13.3 of the CSA was as follows:

"The Shareholders, NV, NetCom and the NV Shareholders consider the restrictions comprised in Clause 13.1 to be reasonable, but any Shareholder against whom it is sought to enforce any of such restrictions further agrees to accept and observe such substituted restriction(s) in place of all or any of those comprised in Clause 13.1 as any of the parties seeking such enforcement may from time to time specify, provided that such substituted restriction(s) are in all respects less restrictive in extent than those provided for in Clause 13.1 which they replace."

22. Clause 13.6 provided as follows:

"Each of Messrs. Palts and Peek undertakes to use all reasonable endeavours to provide such services as the Company may reasonably require at the Company's expense in order to assist the Company in relation to political and regulatory matters in the Baltic States and with obtaining licences and building permits in the Baltic States for so long as BV remains a Shareholder in the Company."

23. The Broadband Shareholders' Agreement ("BSA") was broadly similar to the CSA. The judge held that it is a legitimate aid to construing the CSA, and neither party has challenged this. Clause 10.1 in the BSA corresponded to clause 13.1 of the CSA and was as follows:

"… each of the Shareholders … covenants with the other Covenantors that it …shall not …

10.1.1 carry on, or be engaged, concerned or interested in, carrying on within any of the Baltic States any cable TV, cable telephony, internet or similar business which is the same as or competitive with any business carried on by [AS Levicom Cellular] as at [29 January 1999]."

(c) The acquisition of Baltkom and Levicom's reaction

24. In October 2000 Levicom learned through the press that on 7 October 2000 Tele2 had acquired the issued share capital in a Latvian company called SIA Baltkom GSM ("Baltkom"), one of two mobile telephone network operators holding a GSM network operator licence and carrying on business in Latvia. Tele2 apparently invested some US$277 million in Baltkom, paying SEK2,162 million, the equivalent of US$227 million, for the shares and discharging (or taking over) debts owed by Baltkom amounting to US$50 million.
25. Levicom considered that by acquiring Baltkom, Tele2 were in breach of the CSA. Mr Pedriks contacted Mr Svedberg, then the acting CEO of NetCom. In a telephone conversation Mr Svedberg accepted, on a "without prejudice" basis, that there had been a breach. Mr Pedriks offered to resolve the matter on the basis either that the Baltkom shares should be transferred to AS Levicom Cellular, or that 10% of the Baltkom shares should be transferred to BV, or that Tele2 should make an equivalent payment to BV. The judge found that Mr Pedriks expressly mentioned the amount of US$27.7 million, i.e., 10 per cent of Tele2's investment in Baltkom.
26. Mr Svedberg made the counter-proposal that Tele2 would, in the words of Mr Pedriks' witness statement, "route the acquisition through Ritabell on the basis that the acquisition was debt financed". This would have been less valuable to Levicom. First, AS Levicom Cellular had only a 52% interest in Ritabell, and so effectively Levicom would acquire only 5.2% of the value of Baltkom. Secondly, the significance of the acquisition being debt-financed (rather than financed by equity or "Quasi-Equity") was that Levicom would not benefit from the non-dilution provision in clause 9.2 of the CSA. Thus, AS Levicom Cellular would benefit from a share of any value that Baltkom had over what Tele2 had paid for it, not from the full value of Baltkom.
27. Mr Pedriks and Mr Robson considered that in view of clauses 13.1 and 9.2 of the CSA Baltkom ought to have been acquired through AS Levicom Cellular at no cost to Levicom: this was the thinking behind the proposals that Mr Pedriks had made to Mr Svedberg. Since Mr Svedberg's counter-proposal fell far short of recognising this, Levicom decided to instruct Linklaters in relation to the matter.

Linklaters' initial advice

28. Mr Pedriks continued discussions with Mr Svedberg, but in the meanwhile on 9 October 2000 Mr Robson telephoned Mr Legg of Linklaters and asked for advice to assist Levicom. The gist of their conversation is apparent from an email sent by Mr Robson to Mr Legg the following morning. Mr Robson said that in Levicom's opinion Tele2 was in breach of clauses 13.1 and 9.2 of the CSA, and he also referred to clause 11, which, he said, gave BV "the right to lobby for further cellular licences in Latvia". He continued as follows:

"In case such a licence should be obtained, Tele2 would pay a varying amount dependant on type of licence and degree of ownership. By Tele2 acquiring the Latvian company Levicom BV is effectively excluded from obtaining any licence. Although we might be able to obtain damages on [the basis of clause 11], we only want Tele2 to remedy its actions by contributing its shares in Latvian operator to AS Levicom cellular by way of equity infusion. Tele2 representative, Johnny Svedberg has agreed that they are in breach of the shareholders agreement but have only offered 'to let Ritabell do the acquisition'. This would reduce Levicom BV's share to only 5.1% instead of 10%. In our opinion this is not in accordance with the shareholder agreement either and therefore not an [option]."

He added that Levicom had a "good and business-like" relationship with Tele2.

29. On 10 October 2000 Mr Legg asked his colleague Mr Graham to assist him in advising Levicom, to consider the CSA and to draft a reply to Mr Robson's email of 10 October 2000. On 11 October 2000 Mr Legg sent Mr Robson an email which Mr Graham had drafted and that he had reviewed and discussed with Mr Graham. It set out Linklaters' "initial views as to possible breaches of the Shareholders' Agreement, and our suggested strategy for moving this matter forward". It stated that both Tele2 and NetCom appeared to have breached clause 13.1.1 of the CSA, although "further clarification" might be required about whether Baltkom could be considered "the same as or competitive with" any subsidiary of AS Levicom Cellular. Although he observed that "The language of clause 13.1.1 is not precise in this regard", Mr Legg advised that, on the basis of the information that Linklaters had been given, "the better view" was that Baltkom was "the same as" Ritabell and the Lithuanian GSM 1800 licence operator because the three companies were all cellular network operators within the Baltic States. Thus, Mr Legg advised on the basis that clause 13.1.1 was to be given what has been referred to as a "Pan-Baltic" construction. Under this construction, a business in one Baltic state would be considered to be the same as the same kind of business carried on in a different Baltic state. In other words, for the purposes of the clause, all three of the Baltic States could be considered as one. Mr Legg considered it less likely that Baltkom could be said to be "competitive with" AS Levicom Cellular or any of their subsidiaries in any relevant sense.
30. Mr Legg also considered that clause 13.3 provided "a mechanism for enforcing 13.1 covenant obligations". He continued:

"… As a party to the Shareholders' Agreement seeking to enforce clause 13.1 covenants, Levicom BV may specify a substituted restriction (or restrictions) which Tele2 and NetCom AB are then bound to accept by reason of clause 13.3, provided that such substituted restriction(s) are less restrictive in extent than the clause 13.1 restrictions sought to be replaced. This would be a convenient mechanism for Levicom BV [to] utilise, however, whether your preferred outcome (an equity infusion) is one which is amenable to being put as a restriction which fits within clause 13.3 will require further consideration and discussion with you."

31. Mr Legg also expressed the opinion in the email of 11 October 2000 that Tele2 had arguably breached clause 11 "or a related implied term" because the acquisition of Baltkom by Tele2 had hindered NV in the performance of their obligations under clause 11.1, although he considered this argument less strong than Levicom's complaint about clause 13.1. With regard to clause 9.2 of the CSA, Mr Legg stated that Linklaters did "not see how the acquisition by Tele2 of [Baltkom] has any effect on Levicom BV's right to maintain its 10% equity investment".
32. Under the heading "Strategy for resolution", Mr Legg recorded Linklaters' understanding that Tele2 had admitted a breach and that Levicom's "preferred outcome" was for "an equity infusion of the Baltkom GSM shares to AS Levicom", while also wishing "to maintain [a] good relationship with Tele2". He continued:

"We suggest that, assuming that Tele2 does not respond favourably to your latest request, we draft for you a letter that sets out the legal bases for your assertion that Tele2 is in breach of the Shareholders' Agreement and which then (a) specifies a clause 13.3 restriction and/or (b) demands that Tele2 accepts your preferred course, and sets a date for compliance/acceptance by Tele2."

33. That evening Linklaters spoke to Mr Robson by telephone. Mr Legg said that there had been a breach of clause 13.1.1 and "Levicom were entitled to damages". Financial compensation was said to be a matter for commercial negotiation but Mr Legg commented that Levicom was "on strong ground" and "should take a hard line". Mr Robson again made it clear to Linklaters that Levicom did not consider that the offer to route the acquisition through Ritabell was satisfactory to them. He referred to clause 11, commenting that Levicom would be "hindered" by the acquisition of Baltkom. He said that Levicom had a "pretty good relationship" with the Swedish companies and he thought that the dispute could be resolved by agreement, but that Levicom needed to give a response, "possibly from Linklaters". He wanted the response "to set ground for how this will continue". There was some discussion of clause 13.3, which was referred to, as is recorded in Linklaters' attendance note, as an "enforcement mechanism".
34. Mr Legg said that he advised that Levicom should take a "hard line" in negotiations in view of the fact that Mr Svedberg had apparently accepted that there was a breach of the CSA. Linklaters were not in a position to judge the value of any damages claim, but he thought that Levicom were in a strong negotiating position. Mr Pedriks gave evidence that Linklaters made it clear in their initial advice that Levicom should not accept the proposal that Baltkom be acquired through Ritabell. The judge accepted that Levicom understood this to be the implication of the view expressed by Mr Legg on 11 October 2000 and that this was a reasonable inference from what Mr Legg said in the email and his subsequent conversation with Mr Robson.
35. Mr Graham drafted a "without prejudice" letter to be sent to NetCom and sent it to Mr Legg for his consideration. It took, and Mr Legg considered rightly took, what was described as "a robust line". On 13 October 2000 it was sent by e-mail to Levicom. The draft stated that Linklaters had given Levicom this advice:

i) that Tele2 were "in clear breach of its clause 13.1.1 covenant";

ii) that NetCom were in breach of their obligation under clause 13.1.1 "to procure [Tele2] not to engage in proscribed conduct";

iii) that "by hindering Levicom NVs performance of its obligation under clause 11 to assist AS Levicom Cellular in the acquisition of a GSM licence in Latvia… Tele2 AB is in breach of implied terms of the Agreement"; and

iv) that "by reason of the breaches set out above Levicom NV and Levicom BV would be entitled under English law to remedies including substantial damages and injunctive relief, as well as to enforcement mechanisms contained in the Agreement itself".

36. The draft letter called for the Baltkom shares to be transferred to AS Levicom Cellular and stated that, while Levicom would prefer to resolve the matter without bringing proceedings, they would instruct Linklaters to bring "enforcement action immediately" unless they received by a specified date (the draft suggested 19 October 2000) the stock transfer forms for the Baltkom shares (or Tele2's confirmation that they would transfer the shares) and supporting documentation.
37. Both Mr Legg and Mr Graham agreed that this draft would not have been sent to Levicom if it misrepresented Linklaters' advice. In particular, Mr Legg confirmed that on the basis of his understanding of the position he felt that damages "were likely to be substantial", and also that Levicom could obtain injunctive relief, although he was uncertain what order might be made.
38. Mr Pedriks and Mr Robson thought that the draft letter suggested by Mr Graham was too aggressive, and Mr Pedriks sent a more conciliatory letter to Levicom on 17 October 2000. The letter that Levicom sent offered to compromise Levicom's complaint if the Baltkom shares were transferred to AS Levicom Cellular at no cost and indicated that, as an alternative, Levicom would be prepared to "accept a cash offer… and not to participate in" the acquisition of Baltkom. The letter did not state any specific amount for which Levicom would settle the dispute, but referred to Levicom's "share in the value of this transaction". Levicom still expected that the matter would be resolved by agreement.
39. On 30 October 2000 Mr Svedberg replied to the letter of 17 October 2000. He denied any breach of the CSA. He said that clause 13 only prevented Tele2 from engaging in "activities competitive with AS Levicom Cellular as at the Completion Date" and that at that date "AS Levicom Cellular owned no interest in an entity that undertook cellular network business in Latvia and undertook no cellular network business in Latvia itself". He pointed out that clause 11 provided for payment in the event that NV assisted in procuring a licence, not simply for payment in the event of a licence being awarded. He acknowledged Levicom's "desire to be economically interested in Baltkom GSM" and indicated a willingness to agree to "a structure to ensure that your interest in AS Levicom Cellular will economically reflect the position that would have existed if AS Ritabell had made the acquisition". The Swedish companies were "drafting an agreement that will alter the mechanism for the determination of the option price in the Shareholders' Agreement such that the value of your holding will be determined as if Baltkom GSM was owned by AS Ritabell. This will utilise a valuation of Baltkom GSM as at the date that the option is exercised".
40. Levicom provided Linklaters with a copy of this letter on 31 October 2000 and it was discussed in a telephone conversation between Mr Robson, Mr Legg and Mr Graham later that day. Mr Graham's note of the conversation, which the judge accepted as accurate, includes this: "Clause 13, we do not demur from our earlier position. No compete clause applies to the whole of the Baltic states, (not just Latvia)." Mr Legg considered and rejected Mr Svedberg's argument that there would only be a breach of clause 13 if Baltkom's business in Latvia competed with a cellular network business in Latvia in which AS Levicom Cellular engaged or had an interest: he maintained his view that clause 13.1 was to be given a Pan-Baltic rather than a Same State construction. Mr Legg reiterated that Levicom's position on clause 11 was less strong than in respect of clause 13.
41. Mr Robson said that Levicom should arbitrate rather than accept in negotiations something less than, as he put it, an agreement to "rectify" the breach of clause 13. Mr Robson said that there were to be further discussions with the Swedish companies and that he would await the outcome of those, but he considered that the Baltkom shares should be transferred to AS Levicom Cellular. Linklaters said nothing to dissuade him from that view, but Linklaters were not in a position to analyse the value of the offer from the Swedish companies.
42. There were further negotiations between Mr Pedriks, Mr Robson and Mr Palts on the one hand and Mr Svedberg on the other hand. On 8 November 2000 Mr Svedberg told Levicom that lawyers would be providing a settlement proposal, and Mr Robson told Linklaters that a decision to pursue proceedings would not be taken until it had been received and the opportunities for a commercial settlement investigated.
43. On 21 November 2000 Cleary Gottlieb sent to Mr Pedriks proposed amendments to the CSA, proposals that were referred to as the "first offer". They reflected Mr Svedberg's letter of 30 October 2000 and were designed to amend the provision in the CSA relating to the option price by providing that the market value of the shares would be assessed on the basis that Ritabell had acquired the shares in Baltkom and on specified assumptions as to the financing of the hypothetical acquisition. The implications of this proposal were (i) that Levicom would benefit from only 5.2% (not 10%) of the value of Baltkom's shares; and (ii) that, since the purchase price was to be deducted from the share capital of Baltkom, Levicom would benefit only to the extent (if any) that the Baltkom shares were worth more than Tele2 paid for them. The proposed amendment was sent to Levicom (and Mr Svedberg) by Cleary Gottlieb inviting "comments and thoughts".
44. Levicom sent the first offer to Linklaters and Mr Robson asked Mr Legg for a letter of advice. Mr Robson had already made it clear to Linklaters that what the Swedish companies proposed was not acceptable as far as he and Mr Pedriks were concerned.

(d) The November letter

45. On 27 November 2000 Mr Legg and Mr Graham produced and sent Mr Robson a letter of advice, or more strictly a draft letter of advice, referred to as "the November letter". It stated that Linklaters awaited further instructions about what subsidiaries of AS Levicom Cellular carried on business as cellular network operators in the Baltic States. Nevertheless and although the advice was sent in the form of a draft, there was no dispute before the judge that Levicom could properly have relied upon it. Linklaters appreciated that the letter might be deployed in discussions with the Swedish companies, but it was not said that this coloured or distorted the advice that Linklaters gave. The primary purpose of the letter was to advise Levicom.
46. The November letter stated that Linklaters had been asked to advise "whether the acquisition of SIA Baltkom GSM by Tele2 breaches any provision of the Shareholders' Agreement and, if so, what remedies may be available to the Levicom entities". Under the heading "Summary of Advice" there were these three bullet points:

Both Tele2 and NetCom appear, clearly, to have breached clause 13 of the Shareholders' Agreement and it is arguable, though less certain, that Tele2 has also breached clause 11 or a related implied term.

To enforce its contractual rights, Levicom BV (and/or other affected parties) should commence arbitral proceedings in London against Tele2 and NetCom.

An award of damages is the usual remedy for the breaches of the Shareholders' Agreement committed by Tele2 and NetCom."

47. The letter expanded upon the advice about breach of clause 13 by stating that, on a plain reading of the expression "the same as or competitive with" in the context of the CSA, Baltkom was "in the relevant sense" the same as Ritabell and "the Lithuanian GSM 1800 licence holder"; and therefore Tele2 had breached clause 13.1 and "by indirectly acquiring Baltkom through its subsidiary and failing to procure compliance with clause 13 by Tele2, NetCom too was in breach of the clause". It continued: "We regard these breaches of clause 13 as clear and the claims arising therefrom as straightforward." It rejected the contention about this in Mr Svedberg's letter of 30 October 2000 as wrong on the basis that "the clause 13.1 restriction is not confined to carrying on of businesses in competition with each other in particular Baltic states". The letter described as "at least arguable" the contention that "the acquisition of SIA Baltkom GSM by Tele2 has hindered Levicom NV in its performance of clause 11.1 obligation such that Tele2 has breached an implied term of the Shareholders' Agreement that it would not hinder Levicom NV's performance on clause 11".
48. With regard to remedies for breach of the CSA the material part of the letter read as follows:

"Levicom and other parties to the Shareholders' Agreement could now commence arbitral proceedings against Tele2 and NetCom for breaches of the Shareholders' Agreement. In any such proceedings that principal relief which the claimants would seek is an award of damages. The usual measure of damages for breach of contract is compensatory; that is, to compensate the claimants for the loss that flows from the breach. We understand that such "general" damages could be substantial in this matter. The claimants would also seek orders as to interest and their costs of the proceedings.

Finally, in the context of remedies available to Levicom BV and other affected parties to the Shareholders' Agreement, it should be noted that:

Clause 13 itself provides a mechanism for enforcing clause 13.1 covenant obligations. Clause 13.3 provides that a party to the Shareholders' Agreement seeking to enforce clause 13.1 covenants may specify a substituted restriction (or restrictions). Tele2 and NetCom would be obliged to accept such restrictions(s) by reason of clause 13.3, provided that such substituted restrictions(s) are less restrictive in extent than clause 13.1 restrictions sought to be replaced.

NetCom has guaranteed Tele2's performance under the Shareholders' Agreement and has undertaken to indemnify Levicom NV against any loss occasioned by Tele2's non-performance (clause 17)."

49. Levicom did not plead that the advice in the November letter was itself negligent. However, the judge commented on what Linklaters said in it and what Mr Pedriks and Mr Robson said that it conveyed to them because subsequent advice given by Linklaters in some ways reflected and developed this advice.
50. It was pointed out on behalf of Linklaters that the advice that the claims arising out of the breaches of clause 13 were "straightforward" was in the part of the letter dealing with liability, not remedies. Linklaters' evidence was that they intended to convey that it would be straightforward to prove the breach, which essentially turned upon a question of construction; and that the advice that "To enforce its contractual rights, Levicom BV … should commence arbitration proceedings …" was intended to give advice only about how Levicom might enforce its contractual rights and was not intended to suggest that they should do so. It was also said that the statement that "general" damages could be substantial did not amount to advice that damages would be substantial or were likely to be so, and in any case Linklaters only stated their understanding of the position.
51. The judge accepted that these points were justified by a careful and somewhat literal reading of the letter, and that that is what Mr Graham and Mr Legg intended the letter to convey. Mr Legg had difficulty in remembering his thinking at the time that the letter was written about what damages Levicom might recover but he thought that damages would be substantial, and he did not consider that he was in a position to assess whether the offer made by the Swedish companies was a reasonable one or not. The judge did not consider that he intended to give advice about that in the November letter.
52. In his witness statement Mr Pedriks said that the letter of 27 November 2000 "confirmed our understanding of the Shareholders Agreement". In cross-examination he said that he considered that the letter confirmed that there was a clear breach of clause 13.1 and that damages were available as a remedy; and that Levicom considered the advice consistent with their understanding that they would recover either 10% of the shares in Baltkom or US$27.7 million. Mr Robson said that he regarded the November letter as "robust" and giving "very positive" advice about the remedy that Levicom "could and should claim"; and he understood that it confirmed what he had been told by telephone that Levicom's claims in the arbitration would be straightforward to prosecute. While the November letter did not give any specific support for Levicom's belief that the Swedish companies should transfer Baltkom to AS Levicom Cellular or have equivalent compensation, Mr Robson said that, against the background of Mr Legg's earlier advice, he understood there was a straightforward remedy by way of damages calculated as if Baltkom had been acquired through AS Levicom Cellular.
53. The November letter did not in terms advise that Baltkom ought to have been acquired through AS Levicom Cellular or that Levicom were therefore entitled to 10% of the purchase price of US$277 million or to 10% of the value of Baltkom. The judge commented:

"However, Mr Legg appreciated that Mr Robson considered that Levicom were entitled to an effective remedy because of the wrongful acquisition of Baltkom, and that the proposals from the Swedish companies were inadequate. As the November letter stated, Linklaters had been asked to advise what remedies were available to Levicom, and the November letter did not indicate that those expectations of Mr Robson were unrealistic or had no proper legal basis and I accept that it encouraged Levicom to believe that Linklaters did not disagree with Mr Robson."

But he added:

"However, I cannot read the November letter as giving more specific advice, or accept that it could reasonably be understood as giving advice that Levicom were entitled to 10% of the shares of Baltkom, or 10% of the value of Baltkom."

(e) The discussions between Levicom and Linklaters in January 2001

54. After the Levicom shareholders had discussed the November letter, they decided to seek further advice from Linklaters. On 17 January 2001 Mr Robson met Mr Legg and Mr Graham. Mr Graham took a note of the meeting, which the judge accepted as reliable evidence of what was said.
55. Mr Robson discussed the agreements of 29 January 1999, referring to the non-dilution provision in clause 9, and explained the background to the dispute, saying that Levicom hoped that it could be resolved through negotiation. Mr Robson said that there were rich profits to be made in the year or more after acquiring a licence and that, as a result of the breach of the CSA and because the same owner could not hold two licences, Levicom had been unable to benefit from exploiting the Latvian market in this way. To illustrate the potential profits that Levicom had lost, Mr Robson explained that Levicom had invested US$8 million in Ritabell; when the shares were sold a year and a half later Ritabell had been valued at US$100 million.
56. Mr Robson said that the Swedish companies were acting in a hostile manner and that the dispute would become litigious, but at the same time Levicom wanted to maintain a good working relationship with them. He asked Linklaters to write a letter that could be deployed by Levicom in their discussions with the Swedish companies, which should state that a court might well rule that "Baltkom should be contributed to AS Levicom Cellular", and make the point about the quick profits to be earned after acquiring a licence.
57. Mr Legg initially suggested that Linklaters could write a letter that set out the legal arguments and the merits of Levicom's position, "building on" the November letter. After some discussion, it was decided that Linklaters should write three letters: a letter of advice to BV setting out the legal arguments and the merits of their claim; a letter to Mr Robson about the merits and also the costs involved in bringing proceedings; and a letter before action to the Swedish companies. Mr Robson could then decide which of the letters to use in the discussions that he and Mr Pedriks would be having with the Swedish companies in the following week. Although it was contemplated that it might be shown to the Swedish companies, the purpose of the first letter was to give advice about the overall strengths and weaknesses of Levicom's case, including what remedies they might have.
58. On 18 January 2001 Mr Robson sent to Mr Graham a copy of the letter that Levicom had sent to the Swedish companies on 17 October 2000, in order that Linklaters might endorse the line taken in the letter if they agreed with it.
59. On 19 January 2001 Mr Robson spoke to Mr Graham by telephone. Mr Robson told him that Levicom were entitled under clause 10 of the CSA to a Tranche C loan note following the acquisition on 29 December 2000 by Levi & Kuto Lithuania of a Lithuanian GSM 1800 licence, but that Tele2 were seeking to deduct from the €6.5 million not only "costs properly incurred … in connection with the … acquisition" (such as payments to persons who lobbied for the grant of licences) but promotional expenses, such as free handsets for customers. He said that the letters that Linklaters were drafting should assert Levicom's claim that, but for the wrongful acquisition of Baltkom, they would have become entitled under clause 11 to a Tranche D loan note.
60. On 19 January 2001 Mr Graham sent to Mr Robson a draft of a letter of advice for Levicom, which developed into the January letter. The email under cover of which it was sent stated that it dealt with the breaches arising from the acquisition of Baltkom, the obligation of Tele2 in relation to the Tranche C loan note and "remedies that can be expected to flow from the breaches by NetCom and Tele2". The advice about clause 13 generally reflected that in the draft letter of 27 November 2000. With regard to remedies, the draft of 19 January 2001 observed that the usual measure of damages for breach of contract is compensatory, designed to compensate the claimants for the loss that flows from the breaches, and continued:

"… . Compensatory damages would include sums to reflect the significant increase in value which could be expected to be realised from the growth of the AS Ritabell business. It would also include the value of the loan note which Tele2 AB is obliged to issue to Levicom NV pursuant to clause 10.2 (Euro 6,519,750), and the value of the loan note that Tele2 AB would have been obliged to issue to Levicom NV pursuant to clause 11.2 (Euro 4,346,500). The claimants would also seek orders as to interest and their costs of the proceedings."

(The reference to Ritabell was clearly a slip, and it was intended to refer to Baltkom.)

61. On 22 January 2001 there was a telephone conversation between Mr Robson and Mr Graham about the draft letter. Mr Robson said that Levicom should be compensated with 10% of the value of Baltkom, because the Swedish companies "should not be rewarded for a breach", and that it would be acceptable if Baltkom were transferred to AS Levicom Cellular without any amendment to the CSA. Mr Robson asked that the letter include Linklaters' comments upon Levicom's proposal and the counter-proposal, and spoke of the need to "get tough", saying that the draft letter before action should stipulate a 45-day deadline.
62. Mr Graham revised the draft letter of advice following his conversation with Mr Robson, and passed the revised draft to Mr Legg. Mr Legg added an observation that the amount of damages would require detailed analysis and would be a matter for expert evidence. Against the comments about the settlement proposals Mr Graham had introduced, Mr Legg wrote, "Are we able to make these judgments?" Mr Legg and Mr Graham discussed the draft and were satisfied with the final version of the letter, including the comments about the settlement proposals.
63. Linklaters sent Mr Robson the January letter by email on 22 January 2001. Mr Robson was also sent a draft letter of demand and a letter explaining arbitration proceedings with a rough cost estimate for acting for Levicom to the conclusion of a reference to arbitration. Linklaters recommended that the January letter should not be shown to the Swedish companies.

(f) The January letter

64. The January letter recorded that Linklaters had been requested to give advice "concerning certain activities of [the Swedish companies] and, specifically, whether those activities entitle [BV] (or others) to remedies for breaches" of the CSA and the BSA. It claimed to present Linklaters' "analysis" of the activities of the Swedish companies in the context of their contractual obligations under the two agreements and the remedies that would be available for their breach. Before summarising their advice Linklaters stated: "The facts are an important element of any claim. We have received instructions in relation to the facts from you and have not yet independently verified those facts. Our advice must therefore be qualified to that extent."
65. Levicom alleges that the advice in the January letter was negligent in its assessment of whether there was a breach of clause 13, with regard to the remedies available to Levicom if there was a breach and with regard to the first offer. No complaint is made about the advice in it about clause 11 of the CSA, about the Tranche C loan note or about the BSA.
66. Linklaters advised that the Swedish companies were clearly in breach of clause 13. Their reasons for this advice were similar to those in the November letter, rejecting Mr Svedberg's reasoning in his letter of 30 October 2000 on the basis that clause 13.1 was not concerned only with competing businesses and advising that the clause had been contravened because Baltkom's business was the same as "an existing AS Levicom business".
67. Under the heading "Remedies for Breach of Contract", Linklaters said this:

"[Levicom] and other parties to the Cellular Shareholders' Agreement could now commence arbitral proceedings against Tele2 and NetCom for breaches of the Cellular Shareholders' Agreement.

In any such proceedings the principal relief which the claimants would seek is an award of damages. The usual measure of damages for breach of contract is compensatory; that is, to compensate the claimants for the loss that flows from the breach. In this instance, Levicom BV would seek damages to compensate it for the value which it would have received had the Baltkom GSM investment been pursued legitimately, through AS Levicom Cellular, rather than by Tele2 in breach of the Cellular Shareholders' Agreement. We understand that the damages for this "lost" value could be very substantial indeed. The exact amount will require detailed analysis and will be a matter for expert evidence. Levicom NV would also seek the value of the loan note which Tele2 is obliged to issue to Levicom NV pursuant to clause 10.2 (Euro 6,519,750), and the value of the loan note that Tele2 would have been obliged to issue to Levicom NV pursuant to clause 11.2 (Euro 4,346,500). The claimants would also seek orders as to interest and their costs of the proceedings.

Finally, in the context of remedies available to Levicom BV and other affected parties to the Shareholders' Agreement, it should be noted that:

Clause 13 itself provides a mechanism for enforcing clause 13.1 covenant obligations. Clause 13.3 provides that a party to the Cellular Shareholders' Agreement seeking to enforce clause 13.1 covenants may specify a substituted restriction (or restrictions). Tele2 and NetCom would be obliged to accept such restriction(s) by reason of clause 13.3, provided that such substituted restriction(s) are less restrictive in extent than the clause 13.1 restrictions sought to be replaced.

NetCom has guaranteed Tele2's performance under the Shareholders' Agreement and has undertaken to indemnify Levicom NV against any loss occasioned by Tele2's non-performance …"

68. Linklaters also advised that the acquisition of Baltkom also gave rise to a breach of clause 10.1 of the BSA, for reasons similar to those relating to clause 13.1 of the CSA, and that similarly Levicom could bring arbitral proceedings for damages ("which could again be substantial"), interest and costs. Baltkom was applying for a further wireless licence in Latvia.
69. As Mr Robson had requested, the January letter contained Linklaters' views about "the offers to settle", and they were as follows:

"… We have reviewed a letter from Levicom BV to NetCom dated about 17 October 2000, a letter from NetCom to Levicom BV dated 30 October 2000 and a draft "First Amended Agreement to [the Cellular] Shareholders' Agreement" dated November 2000.

... From those documents, we understand that Levicom BV offered to resolve this dispute on the basis that NetCom and Tele2 either transfer the Baltkom GSM shares to AS Levicom Cellular or they pay Levicom BV for its share of the value of that transaction. For the reasons set out above in relation to breaches of the Cellular Shareholders' Agreement and the damages which Levicom BV could expect to be awarded for the loss incurred as a result of those breaches, in our view, the offer made by Levicom BV is reasonable.

... On the other hand, the counter-offer from NetCom (that AS Ritabell be treated as a wholly-owned subsidiary for the purposes of the option price calculation mechanism in the Cellular Shareholders' Agreement) does not fairly compensate Levicom BV for NetCom and Tele2's breaches of contract and does not reflect the parties' positions pursuant to the Cellular Shareholders' Agreement.

... We recommend that Levicom BV and other affected parties now proceed to enforce their rights under Cellular Shareholders' Agreement by commencing arbitration proceedings in London pursuant to clause 25.2, seeking damages on the basis set out …, interest and their costs of the arbitration."

70. It can be seen that the January letter echoed the November letter in advising that there was a "clear" breach of clause 13 of the CSA. The only contrary argument that was considered in the January letter was that advanced in the letter of 30 October 2000. As for the remedies available to Levicom if there was a breach of clause 13, the letter referred to damages and using clause 13.3 as "a mechanism for enforcing clause 13.1 covenant obligations". Linklaters did not advise that Levicom might obtain an order for the disposal of the Baltkom shares (despite Mr Legg's advice about "injunctive relief" in October 2000), and the letter before action similarly referred only to Levicom seeking "an award of damages, interest and their costs".
71. Levicom's case is that the advice in the January letter about remedies was negligent: in particular that Linklaters knew what Levicom wished to advance, and believed that they were entitled to advance, a claim for damages assessed on the footing that Baltkom had been acquired through AS Levicom Cellular, and that the January letter "effectively agreed that this was Levicom's remedy", when Linklaters should not have agreed with this.
72. Mr Pedriks acknowledged that the January letter did not specifically say that Levicom had a strong case for compensation amounting to US$27.7 million, but he said that he took this to be the implication of the advice that Levicom's offer was reasonable. The judge rejected Mr Pedriks' evidence that he understood that the January letter was giving this advice.
73. Levicom approved the letter of demand (subject to minor and inconsequential amendments), and on 23 January 2001 Linklaters sent it by fax to the Swedish companies. It asserted breaches of clauses 13 and 11 of the CSA, threatened a claim under clause 10 of it and raised the possibility of a claim under clause 10 of the BSA. In respect of the claim under clause 13, the letter stated:

"In any such proceedings, our clients may seek the value they would have realised had the SIA Baltkom GSM investment been pursued legitimately, through AS Levicom Cellular, rather than by Tele2 in breach of the Cellular Shareholders Agreement."

The letter did not state that Levicom might seek an order for the disposal of the Baltkom shares. It said that unless satisfactory proposals were received by 4.00pm on 2 March 2001, "appropriate enforcement proceedings" would be commenced.

(g) Ms Pavlopoulos' advice

74. On 23 January 2001 Mr Robson had told Mr Graham that Levicom wanted Linklaters to act for it in the proposed arbitration. Linklaters decided that Ms Eleni Pavlopoulos should assist in this, and on 24 January 2001 Mr Graham discussed the case with her.
75. On 31 January 2001 Ms Pavlopoulos told Mr Robson that Mr Legg and Mr Graham would be away for 10 days and that in their absence she would be the main point of contact for Levicom. She also referred to Mr Robson's suggestion of a further claim against Tele2 for breach of the BSA and advised that Levicom had no such claim. Mr Robson accepted that advice.
76. At around this time, Mr Robson asked Linklaters to retrieve from storage their files about the making of the agreements of 29 January 1999, and Linklaters did so.
77. Ms Pavlopoulos also sent Levicom Linklaters' engagement letter, which stated that Mr Legg would be responsible for the matter and that he would be assisted by Ms Pavlopoulos, who would have day-to-day conduct and management of it, and by Mr Graham.
78. On 8 February 2001 Ms Pavlopoulos and her trainee met Mr Robson, Mr Pedriks and Mr Palts. Much of the meeting was taken up with Levicom instructing Ms. Pavlopoulos about how licences were issued. She advised (as it is put in Linklaters' attendance note) that "on the non-compete clause related to Baltkom, it would be 60-70%, assuming that the facts and documents proved [Levicom's] case". She thought that the critical question was the meaning of the expression "carry on business" in clause 13.1 of the CSA (and indeed clause 10.1 of the BSA), and in particular whether this would be interpreted as covering the business of subsidiary companies as well as the business of AS Levicom Cellular. As later became apparent, Ms Pavlopoulos had overlooked the provision in clause 1.5 of the CSA that references in clause 13 to "the Company" included AS Levicom Cellular's subsidiaries for the time being.
79. Ms Pavlopoulos revised record of the meeting stated:

"In relation to the Baltkom acquisition, Levicom's starting point would be to ask for 10% of the purchase price amounting to $27.7 million (which is the percentage which Tele2 should have given to Levicom Cellular). … It was noted that Tele2 had stated that their investments would have to be deducted from the 10% ($27.7m) that was claimed by Levicom Cellular."

The judge held that this revised record, reflecting that Ms Pavlopoulos acknowledged how Levicom would set out their case rather than that she endorsed it, reflected what she said at the meeting.

80. On 14 February 2001 Cleary Gottlieb replied to Linklaters' letter of 23 January 2001. The letter stated about the clause 13 complaint:

"We have consulted leading counsel on the issues raised by your letter. We continue to disagree with your construction of the meaning and effect of Clause 13 of the Cellular Shareholders' Agreement, and leading counsel agrees with us. Our clients deny that they are in breach of clause 13.1.1- on a careful reading of the whole of that clause, we think you will agree; and our view is supported by leading counsel."

81. Cleary Gottlieb took issue with the suggestion that, if there were a breach of clause 13, damages should be assessed on the basis that Baltkom would have been acquired through AS Levicom Cellular, arguing that "there would have been no reason for AS Levicom Cellular to make the acquisition" and that "the logical buyer" would have been Ritabell. They also said that since any value of Baltkom carried with it a corresponding liability by way of debt incurred to finance the purchase price, "There would have been no increase in 'value' of AS Levicom Cellular as a direct result of the acquisition. The only potential change in value is a prospective future change in value due to the increase, or decrease, in the value of Baltkom as against the purchase price, and then only to the extent that such change in value would be reflected in the value of your clients' shares." Cleary Gottlieb said that in view of the volatile market in the telecommunications sector, there was a significant risk of the value of shares in Baltkom falling, and that given these inherent uncertainties they did not understand how a claim for damages could be framed. On clause 11 Cleary Gottlieb said that there was no basis for implying into the CSA a term to support a claim. On the question of the Tranche C loan note, they said that no note was to be issued because the licence had been acquired as a result of the efforts of Tele2 and AS Levicom Cellular, and not NV. Thus, in a detailed response to Levicom's claim written after consulting leading counsel, Cleary Gottlieb advanced no argument that the assessment of damages would be governed by the minimum performance principle.
82. Cleary Gottlieb made clear that the Swedish companies were still willing in principle to settle the dispute on the basis of an agreement "which will achieve the same economic effect as it the Baltkom acquisition had been undertaken by Ritabell", and enclosed a further copy of the draft agreement sent in November 2000. The offer was open to be accepted until 2 March 2001 and thereafter was to lapse. It was an offer made "in full and final settlement of any claims arising directly or indirectly from the purchase of Baltkom including in relation to Clause 11 of the [CSA]". The judge held that, unlike the first offer made in November 2000, this constituted a formal offer and by accepting it Levicom would have concluded a legally binding agreement settling any claim under clause 13 and clause 11 of the CSA, but not their claim in respect of the Tranche C loan note.
83. On 23 February 2001 Ms Pavlopoulos, who was preparing an advice about Cleary Gottlieb's letter, spoke with Mr Robson on the telephone. Mr Robson had not seen the letter. Ms Pavlopoulos' note of the conversation records that she required input about the effect of the acquisition of Baltkom on Tele2's share price, and that she referred to Cleary Gottlieb's argument that the value of the acquisition of Baltkom would be matched by a liability for the funding of it. Mr Robson's response was that this was an unrealistic suggestion because, had the acquisition been through AS Levicom Cellular, it would have been impossible to raise the whole of the finance by external debt: it would have been necessary to raise funds by way of "quasi equity" (within the definition of the CSA), and accordingly because of clause 9 Levicom BV would have benefited from 10% of the investment so financed.
84. In her letter of advice dated 23 February 2001 to Levicom about Cleary Gottlieb's letter, Ms Pavlopoulos reiterated her misplaced concern that AS Levicom Cellular, as a holding company, did not itself carry on business, but observed that a literal interpretation which confined the application of clause 13.1 to businesses directly carried on by AS Levicom Cellular would rob the clause of any purpose. She wrote that, to succeed in an arbitration, Levicom would have succeed on this point and also "it is necessary to imply a term into Clause 13.1 and/or into the non-dilution provision in Clause 9.2 that if Tele2 wished to take shares in the Cellular Network business in the Baltic States, it had to do so via AS Levicom Cellular". She warned that the determination of these questions might depend upon "the identity of the individual arbitrators", and that "a tribunal might have difficulty with the concept that Levicom could obtain $27 million worth of shareholder value for nothing if this interpretation including an implied term were upheld".
85. The letter also considered Cleary Gottlieb's arguments about damages and said that the arbitrators would take into account "the value of Tele2's shares immediately before and immediately after the acquisition" of Baltkom. It continued:

"It seems to me that Cleary's point that the balance sheet of AS Levicom Cellular would show a liability of $277 Million to the financiers and a corresponding asset of Baltkom's shares seems a good one. However, I would welcome your views on the actual loss to Levicom International Holdings BV as a result of Tele2 acquiring Baltkom: Clearys say that there is none. If that is the case (because, for example, the value of the shares in Tele2 dropped immediately upon acquiring Baltkom), then you would most likely recover nominal damages only if you were successful in the arbitration. Legal fees will certainly outweigh the nominal damages recoverable (usually about £5).

…

Of course, if the arbitral tribunal finds that the CSA did not oblige Tele2 to purchase the shares in Baltkom via AS Levicom Cellular, then Tele2 may have approached Levicom B.V. to negotiate some payment or financing for the acquisition … and the most likely outcome would be an award to Levicom of nominal damages only. "

Her advice about the clause 11 claim and the Tranche D loan note claim was also pessimistic.

86. The reaction of those acting for Levicom to Ms Pavlopoulos' advice is reflected in an important e-mail sent by Mr Pedriks to Mr Robson dated 24 February 2001:

"I have read the minutes of our meeting with the lawyer and she missed the point on a lot of things. Also her most recent note I find disturbing. Unless we get Andrew Legg or someone senior on this I am not comfortable going forwards."

In an e-mail to Ms Pavlopoulos dated 28 February 2001 Mr Pedriks wrote that he had found that the record of the meeting of 8 February 2001 and the letter of 23 February 2001 contained "significant errors". Her advice is criticised because, for example, she enquired whether Levicom had information about Tele2's share price before and after the acquisition, although their shares were not listed, and because she did not refer to clause 9 of the CSA.

87. The judge considered Levicom's reaction to the letter to be understandable: they were expecting more clear-cut guidance than Ms Pavlopoulos was able to provide and some of her enquiries seemed to them to be off the point. However, as he commented, she appreciated that the right measure of Levicom's loss was not a straightforward question and, while she did not identify the precise difficulties about damages that later surfaced, she was casting around to find a proper formula for measuring damages, and indicated concerns about this aspect of Levicom's claim.
88. Mr Pedriks understood that Ms Pavlopoulos did not consider that Levicom would be entitled to 10% of the purchase price of Baltkom, and in his email of 28 February he asked to discuss the position with Ms Pavlopoulos and Mr Legg "so that we might feel comfortable that pursuit of this action would actually result in a positive outcome", explaining that "at present we feel less than comfortable and this should not be the case". He continued:

"… Tele2 is clearly in breach, why else did they ask for a waiver for the Latvian purchase. With respect to Lithuania they cannot say that we did nothing because in the last two months all we have been doing with them is arguing about the amount due to us, not that it is not due. They have simply argued that they would like to deduct the cost of the handsets that they gave away as part of a marketing campaign."

Mr Pedriks asked Linklaters to discuss the position with Mr Hickinbotham, who had impressed Mr Robson and Mr Pedriks when he had acted for Levicom when they entered into the agreement of 29 January 1999.

89. On 1 March 2001 Ms Pavlopoulos had a long telephone conversation with Mr Pedriks: Ms Pavlopoulos' attendance note records that she was engaged for 3 hours (including time preparing the note). According to the note (which the judge accepted as accurate) Mr Pedriks said that clause 13 of the CSA had to be read with clause 9 and that Levicom were entitled to 10% of Baltkom: "Here there was a double breach – first of the non-compete provision, and then of the non-dilution provision which provided how any competition should be affected. This was the remedy that should be given." Ms Pavlopoulos advised that specific performance is only awarded under English law where damages are not available: if Levicom wanted to acquire 10% of Baltkom, it would have to argue that money could not compensate for the breach of contract, and therefore it should receive 10% of the shares. Mr Pedriks said that the loss resulting from the breach was 10% of the purchase price paid for Baltkom's shares, that being the value to Levicom if the acquisition had been through AS Levicom Cellular. Ms Pavlopoulos responded that she did not consider this to be the correct measure of damage: "rather, Levicom BV had lost out on the value of the Baltkom shares (10%) as held by Tele2."
90. By way of comment upon the letter from Cleary Gottlieb Mr Pedriks said that there was "every reason" that the acquisition of Baltkom would, if made in accordance with the CSA, have been made by AS Levicom Cellular and that "The logical buyer would not be Ritabell". He also said that the acquisition of Baltkom could never have been funded entirely by bank lending, and therefore Baltkom would have been acquired "with appropriate injections from Tele2 and Tele2 raising the financing": clause 9 would therefore be triggered. Mr Pedriks responded to Ms Pavlopoulos' enquiries about the change in the value of shares that he considered it irrelevant: "Levicom wanted 10% of ownership i.e. US$27.7 million - it was prepared to accept the risk of the share value going down." He initially instructed Mr Pavlopoulos not to respond to the offer from Cleary Gottlieb, but then he said that "the only appropriate response would be to put the shares into Levicom Cellular where they were meant to be".
91. They also discussed the Tranche C loan note claim. When Ms Pavlopoulos asked what assistance NV had given to acquire the Lithuanian licence, Mr Pedriks responded, as recorded in the attendance note, that Levicom had provided assistance but "he was not sure whether he should tell me. There was a money trail from Tele2 to NV to somewhere else and Tonnis Palts had helped Tele2 to achieve its aim". Ms. Pavlopoulos said that she did not understand what Mr Pedriks was saying, but if there was a question of fraud, it might bring into question the jurisdiction of an arbitral tribunal. Mr Pedriks explained that "Tele2/NetCom had US listed subsidiaries and there was an issue of the Foreign Corrupt Practices Act for American Companies, but this did not apply to foreign companies. Tele2/NetCom would not want this to come out which was why NV was asked to assist in obtaining the licences in the first place. Two months ago Johnny Svedberg had asked MP [Mr Pedriks] if the money paper trails could lead back to Tele2/NetCom. MP had confirmed that there were some". Mr Pedriks said in evidence that he had no knowledge of any unlawful lobbying for the licence.
92. Ms Pavlopoulos asked about seeking the advice of leading counsel's views. Mr Pedriks said that Linklaters "were his attorneys' and he wanted their input: he did not did need "a second opinion which said exactly the same". Mr Pedriks expressed to Ms Pavlopoulos his concerns about the advice that Levicom had been given.
93. Mr Pedriks and Mr Robson both made clear in their evidence that they did not place any reliance upon Ms Pavlopoulos' advice. However the judge found that after these discussions Mr Pedriks and Mr Robson could not have failed to appreciate the difference between measuring the damages for a breach of clause 13 on the basis that AS Levicom Cellular had acquired Baltkom and measuring damages so as to give Levicom the benefit of 10% of the US $277 million used to fund the acquisition.
94. Mr Pedriks said that the Swedish companies were "very nasty opponents" and "he wanted [Linklaters] to turn over every possible leaf". He considered that Levicom had a very strong case, but if they did not, he was not happy to proceed to arbitration. Levicom accepted that Mr Pedriks had his own strongly held view that the Swedish companies were in breach of clause 13 and about the redress to which Levicom were entitled. So too did Mr Robson. But the judge said that this did not mean that, although they were dismissive of Ms Pavlopoulos' views, they would not listen to the advice of others at Linklaters. Accordingly, at the end of the conversation with Ms Pavlopoulos, Mr Pedriks asked that Linklaters provide their "concerted view".
95. Mr Pedriks confirmed this in an email sent to Ms Pavlopoulos on 2 March 2001. He wrote "Prior to contacting leading counsel, we would like to understand that Linklaters continues to feel as strongly about this breach [of clause 13] as we do and as was written in Andrew Legg's note to us. Also we want you to … then make a recommendation to us based on the facts and collective thinking of yourselves and Mr Hickinbotham". Mr Pedriks:

i) instructed Linklaters that there was no need to respond to the offer in Cleary Gottlieb's letter, which expired that day, "unless it is to say that we will take our chances in court and that the offer is a non-offer anyway";

ii) requested that Linklaters "edit and correct" the record of the meeting of 8 February 2001;

iii) emphasised that Mr Svedberg had orally acknowledged a breach of clause 13, commenting that the Swedish companies were not "doing this out of the goodness of their corporate heart"; and

iv) instructed Linklaters that they should pursue at this stage only claims "related to the Baltkom breach and Lithuanian licence".

In a separate email Mr Pedriks added that he had omitted to request that Linklaters review the non-dilution provision in clause 9.

(h) The March letter

96. Ms Pavlopoulos therefore spoke to Mr Hickinbotham on 2 March 2001 before preparing a further letter of advice. They discussed the intention behind clause 13, and Mr Hickinbotham said that he was not sure that the parties meant it to have the broad effect given by a Pan-Baltic construction.
97. After discussions on 5 March 2001 with Ms Pavlopoulos, on 6 March 2001 Mr Graham prepared a first draft of what was to become the March letter. In this first draft, having echoed the November and the January letter that Linklaters regarded the breach of clause 13 "as clear and the claim arising therefrom as straightforward", he opined that Levicom's "prospects of success in establishing this breach are 80%". He wrote that Levicom would not succeed in a claim for specific performance by way of an order for the transfer of the Baltkom shares to AS Levicom Cellular if damages were an adequate remedy, and "in this case it appears that they are". The calculation of damages would be complicated, and "One way of assessing the loss in this case would be to assess the market value of the Tele2 shares immediately before and after the [Baltkom] acquisition". He made a note to discuss this with Mr Legg, and suggested that liability should be determined before quantum.
98. Ms Pavlopoulos added her comments to the draft, and she noted that on 8 February 2001 she had assessed Levicom's chances of success to be lower than Mr Graham's 80%, putting them at 60% to 70%.
99. On 5 March 2001 Ms Pavlopoulos had a further conversation with Mr Hickinbotham. He questioned whether there was a material difference between one business "competing with" another and the two businesses being "the same", but recognised that a business in Latvia might not compete with one in Estonia. However, he and Ms. Pavlopoulos agreed that the Baltkom acquisition was prohibited by clause 13.1, and there had been a clear breach of the clause. They discussed what remedies Levicom had: the judge interpreted their note as indicating that they agreed that it would be very difficult to assess damages, that there was no requirement under the CSA for any acquisition to be through AS Levicom Cellular and that clause 9 did not assist Levicom.
100. Mr Pedriks wrote to Ms Pavlopoulos on 5 March 2001, emphasising that the focus should be on the "central issues", namely the claim of breach in relation to the acquisition of Baltkom and the claim in respect of the Tranche C loan note "unless you, Andrew [Legg] and Tony [Hickinbotham] feel that we do not have a case". He asked for Linklaters' "concerted view" on these two claims in light of the definition of "company" in the CSA, a review of "clause 9 as it pertains to remedy for breach of clause 13", Tele2's "verbal acknowledgment of breach in Latvia", and Mr Svedberg's emails acknowledging that Levicom were entitled to payment in respect of the Lithuanian licence. He sought a recommendation from Linklaters about taking an opinion from leading counsel.
101. Ms Pavlopoulos had sent Levicom a draft reply to Cleary Gottlieb, and Mr Pedriks responded with some suggestions about it. He repeated his request that Linklaters review the claim for breach of clause 13 "in the context of clause 9". He suggested that the letter should not call for a proposal, which would effectively invite negotiations, but call for the Swedish companies to "put [the situation] back to the way it should be", that is to say, to the position if the Baltkom shares had been acquired by AS Levicom Cellular.
102. On 7 March 2001 the draft of the March letter went to Mr Legg, who added his comments and discussed them with Mr Graham. Mr Legg formulated an assessment of the prospects of success in establishing breach of clause 13 as follows: "very good (and in terms of prospects for success, in the region of, but not less than, 70%)". This formulation was adopted in the March letter when it was sent to Levicom. Mr Legg thought that the assistance of an expert valuer was needed to quantify damages since he suspected that "there is a range of valuation techniques and what we have suggested is perhaps not the right one (or the only, or most sensible one)". He disagreed with Mr Graham's suggestion that Levicom, as prospective claimants, should seek separate hearings for liability and quantum.
103. Linklaters sent the March letter to Levicom on 7 March 2001. They referred Levicom to their analysis in the January letter of "the activities" of the Swedish companies and of the remedies available if they were in breach of the CSA and the BSA. They recorded that Linklaters had been asked for further advice on two aspects of the dispute, the acquisition of Baltkom and the Lithuanian licence, and for their assessment of Levicom's prospects in an arbitrated determination of these issues. The letter made it clear that, despite having further instructions and more documents, Linklaters had not been able to verify all the facts or to proof witnesses. They identified in their advice when they had been unable independently to verify something of importance, including whether Baltkom's business was a "cellular network business" and whether at least one of AS Levicom Cellular's majority-owned subsidiaries in the Baltic states were carrying on a business at 29 January 1999 which was the same as or competed with the cellular network business of Baltkom.
104. The March letter confirmed that, as stated in the January letter, the acquisition of Baltkom involved a breach of clause 13, and said:

"… by indirectly acquiring SIA Baltkom GSM, Tele2 and, probably, NetCom, are in breach of Clause 13.1 of the CSA as they have indirectly become concerned or interested in a competing business. We regard this breach as clear and the claim arising therefrom as straightforward. In our view, on the basis of the information we have to date, your prospects of success in establishing this breach are very good (and in terms of prospects for success, in the region of, but not less than, 70%).

105. With regard to Levicom's remedy, having observed that the usual remedy for breach of contract is an award of compensatory damages, the March letter continued as follows:

"However, in this situation where the breach is a continuing breach of a negative proscription …, we think that a declaratory order which compels Tele2 (and, probably, Netcom) to procure that its subsidiary disposes of Baltkom GSM and thereby cease the breach of Clause 13, would be an appropriate remedy.

We think that a declaratory order would be appropriate in this situation because, as a matter of law, it will be very difficult to confidently assess, for the purposes of quantifying damages, the loss that the shareholders of AS Levicom Cellular have incurred as a consequence of the breach of Clause 13. If the loss cannot be accurately assessed then damages will not be an adequate remedy.

A declaratory order would also be appropriate in this situation because, as a practical matter, it would provide a mechanism for effecting the disposal of Baltkom GSM by Tele2's subsidiary, whereupon the transfer of Baltkom GSM to AS Levicom Cellular (or to another entity) could be negotiated between the parties to the CSA. … An arbitration involving a request for a declaratory order would be far simpler – and therefore cheaper – than an arbitration in which a quantification of damages is at issue.

In addition to the declaratory order, you could possibly seek an account of profits and of the capital gain which Tele2 has, through its subsidiary, realised as a result of the acquisition of Baltkom GSM in breach of Clause 13. Before this remedy is sought, we recommend that the opinion of expert accountants be sought as to the likely value of this claim so that you can decide whether that value (pro-rated according to your shareholdings in AS Levicom Cellular) justifies the cost of pursuing it in arbitration."

106. The advice that a declaratory order would be an appropriate remedy had not been in earlier drafts of the March letter and reflected a suggestion made by Mr Legg and introduced at a relatively late stage in its drafting. Mr Legg explained his reasoning: it would be difficult to assess the loss suffered as a result of the breach of clause 13, and declaratory relief would assist to achieve Levicom's purpose of preventing Tele2 from carrying on a cellular network business in Latvia in continuing breach of the CSA. In his witness statement Mr Legg said that in raising the possibility of declaratory relief he was emphasising the difficulties that he perceived in measuring the loss suffered by Levicom. When asked in cross-examination to identify those difficulties, he referred to the fact that the CSA said nothing about AS Levicom Cellular being the vehicle to make an acquisition such as that of Baltkom, and that, while Linklaters understood that "the logical purchaser of Baltkom was Levicom Cellular", the question remained whether this was how the acquisition would have been made, if Tele2 had not acquired Baltkom. Mr Legg acknowledged that the March letter did not specify the difficulties in assessing damages.
107. The judge found that Levicom had not been given any significant advice before the March letter about the difficulties of quantification that Mr Legg had in mind when he came to the view that declaratory relief was appropriate. He rejected Mr Legg's evidence to the contrary. Levicom might have been able to discern something of the sort of difficulties that might arise from their exchanges with Ms Pavlopoulos, but they had made it clear that they were not relying on her advice and accordingly had requested the March letter in order to know Linklaters' "definitive and collective" opinion. However, the March letter said nothing about how damages might be measured if declaratory relief was not granted and damages were awarded for the breach of clause 13, other than that the usual relief for breach of contract is an award of compensatory damages. It did not withdraw or qualify the advice given in the January letter about this.
108. The March letter also included advice about clause 9. Linklaters recorded that they had been asked to consider "whether the acquisition of Baltkom GSM involves a breach of the non-dilution requirement contained in Clause 9 of the CSA" and expressed the view that it did not. They also said that they had been asked to consider "a related argument that draws upon both Clauses 9 and 13 to the effect that there is a positive obligation on Tele2 to make the Baltkom GSM acquisition through AS Levicom Cellular". They observed that this would depend on implying such a term into the CSA and that it was "very unlikely" that Levicom would succeed in this argument.
109. Linklaters recorded their understanding that Baltkom had obtained a fixed wireless licence in Latvia and that as a result Tele2 and probably Netcom were in a breach of clause 10 of the BSA. They made it clear that that view depended upon Levicom's instructions, not independently verified, that a fixed wireless business was competitive with a "cable TV, cable telephony, internet or similar business" carried on by OU Levicom Broadband or its subsidiaries as at 29 January 1999.
110. With regard to the dispute about the Tranche C loan note, Linklaters expressed reservations about whether Levicom could show that NV had provided assistance in connection with obtaining a licence, so as to entitle it to a loan note. They also advised, no doubt as a result of Mr Pedriks' rather oblique remarks to Ms Pavlopoulos on 1 March 2001, that if assistance given by Levicom was "improper, then under English law, as a matter of public policy it could not be relied upon in support of a claim for breach of contract". They said that "rather than arbitrate this issue the most practical course would be to try to revive the negotiations … and negotiate a resolution to that issue".
111. Towards the end of the March letter Linklaters expressed the view that an opinion of leading counsel would be more useful after relevant witnesses had been properly proofed. They asked for instructions whether Levicom wished to obtain leading counsel's advice, and also asked to be told when Levicom were likely to reach a decision about taking the claim to arbitration.

(i) Linklaters' advice between the March letter and May 2001

112. On 15 March 2001 Mr Robson and Mr Pedriks discussed the March letter by telephone with Mr Legg, Ms. Pavlopoulos and Mr Graham. Mr Robson agreed that a declaratory order should be sought. Mr Pedriks expressed some concern that it might lead to Tele2 disposing of the shares to a third party, but Mr Legg pointed out that Tele2 could not dispose of them to a company in which they had a direct or indirect interest, and Mr Robson considered that in practical terms, once a declaratory order had been made, Tele2 would have difficulty in obtaining a good price for the shares and would be driven to negotiate with Levicom.
113. There was discussion about clause 9: as Mr Graham's note records, despite Linklaters' advice in the March letter Mr Pedriks "thought [clause] 9 was ideal mechanism, to use as remedy (non-dilution)", but Mr Legg confirmed that in his view "clause 9 was not a runner".
114. Towards the end of the conversation Linklaters asked whether Levicom were ready to make a decision about proceeding to arbitration, and Mr Pedriks said that they were not: they would have further meetings at the weekend about that. Levicom authorised Linklaters to start preparing an arbitration request on the following Monday.
115. On 20 March 2001 Mr Pedriks sent an email to Mr Graham in which he reported that he had had a "positive" meeting with Mr Svedberg, who had agreed to review Levicom's position in relation to the Tranche C loan note claim and to have a further meeting in Estonia on 29 March 2001.
116. On 21 March 2001 Linklaters, in accordance with Levicom's instruction, replied to the letter of 14 February 2001 from Cleary Gottlieb. They rejected the offer, inviting them to "submit a proposal which would put our clients in the position they would have been in, had [the CSA] been performed i.e. the shares in Baltkom had been acquired by AS Levicom Cellular". With regard to the dispute about the Lithuanian licence the letter stated, "We understand that your clients are well aware of the assistance in acquiring the licence provided by our clients, including attending meetings with the relevant Ministers in Lithuania together with our client".
117. On 28 March 2001 Linklaters sent Levicom an account for the work done between 11 October 2000 and 16 March 2001. They stated that they had not included a charge for Ms. Pavlopoulos' time for work in analysing the points raised by Cleary Gottlieb's letter.
118. Ms Pavlopoulos and Mr Graham prepared a first draft of a request for arbitration, which was sent to Levicom on 2 April 2001. It contemplated that Levicom would claim for a breach of clause 13.1 of the CSA because the Swedish companies, by acquiring Baltkom, became "engaged, concerned or interested in carrying on" in Latvia a cellular network business that was "the same as or competitive with" a business carried on by AS Levicom Cellular or their subsidiaries, without specifying in what way the businesses were the same or in competition; and that Levicom should seek relief by way of a declaration of that breach and an order for the disposal of the Baltkom shares (and possibly an account of profits, which Linklaters were still considering).
119. As planned, Mr Pedriks had met with Mr Svedberg in late March 2001. They discussed their differences about the acquisition of Baltkom and about the Tranche C loan note. Mr Svedberg argued that Baltkom could have been acquired through Ritabell, and that Tele2 could have brought that about because they controlled the board of AS Levicom Cellular. Mr Pedriks responded that this would have required a change in the share structures of AS Levicom Cellular and Ritabell, which would have required the approval of all shareholders including Levicom, and Levicom would not have agreed to it.
120. On 2 April 2001 Mr Pedriks sent Mr Graham an e-mail, responding to the draft request for arbitration and stating that with regard to the Tranche C loan note Mr Svedberg had "admitted that he believed he owed us the funds but his lawyers [had] told him differently". He reported Mr Svedberg's argument about how Tele2 could have ensured that Ritabell acquired Baltkom, and asked Mr Graham to review the documentation to assess it, explaining that Levicom felt that "this would have required a change to the capital structure and therefore would have needed our approval".
121. In an e-mail later that day Mr Graham advised that there was no express restriction in the CSA that answered Mr Svedberg's point: it might be argued that this procedure would involve breach of an implied term of the CSA "to the effect that Tele2 and NetCom would not thwart NV in the assistance it is required to provide pursuant to Clause 11", but Mr Graham thought that it was not a strong argument. He suggested that the principal answer was that in fact the Swedish companies did not acquire Baltkom through Ritabell and whether they could have done was "beside the point". Mr Pedriks took this to confirm that he could dismiss Mr Svedberg's argument.
122. In a telephone conversation on 17 April 2001 with Mr Graham, Mr Robson reverted once more to a possible argument based upon article 9 of the CSA, and Mr Graham referred him to the arguments in the March letter. He also repeated his advice to Mr Pedriks about how Levicom might respond to the argument presented by Mr Svedberg. Mr Graham invited Mr Robson's comments on the draft request for arbitration and Mr Robson responded that he agreed with the strategy of requesting declaratory relief, adding that "this would force their hand".
123. On the same day Mr Robson sent an email to Mr Graham suggesting an argument that Levicom should receive a Tranche D and a Tranche E Loan note, which he described as "the best case scenario": that by bringing arbitration proceedings against the Swedish companies Levicom were assisting AS Levicom Cellular to obtain licences and if this resulted in AS Levicom Cellular obtaining shares in Baltkom, Levicom should therefore receive the loan notes.
124. Between late March 2001 and early May 2001 Levicom carried on negotiations with the Swedish companies. On 17 April 2001 Mr Pedriks sent Mr Svedberg an email suggesting that AS Levicom Cellular might expand outside the Baltic states (mentioning in particular Belarus) if the differences could be resolved. Mr Pedriks preferred an initial meeting without lawyers present and such discussions were arranged for 2 May 2001 in Estonia, to be followed by a meeting with lawyers in London on 3 May 2001. Mr Svedberg said in an email sent on 19 April 2001 that he would "expect any agreement to include all the disputes currently being discussed including the Baltkom purchase, Latvian … Licence and the GSM 900 licence in Lithuania".
125. On 19 April 2001 Mr Graham telephoned Mr Pedriks to discuss his email of 2 April 2001 and to receive his comments on the draft request for arbitration. Mr Pedriks told him about the meetings that had been arranged and expressed himself optimistic that a settlement would be reached. He gave instructions that work on preparing the draft request should be suspended pending the outcome of the meetings.
126. On 8 May 2001 Mr Robson had another telephone conversation with Mr Graham, and on this occasion with Ms. Pavlopoulos as well. Mr Robson suggested seeking a declaration that it would have been a breach of the CSA for Ritabell to have acquired Baltkom. Mr Graham had already advised that Levicom did not have a strong argument that it was, and Ms. Pavlopoulos too warned of the risk of an adverse finding.
127. In a letter dated 10 May 2001 Linklaters advised about what Mr Robson had called "the best case scenario" in his email of 18 April 2001, and opined that his argument would not be accepted by an arbitral tribunal. They also referred to the suggestion that Levicom might seek a further declaration that the CSA prohibited Ritabell from acquiring Baltkom, and warned that there was a "real danger" that the declaration would not be made "because it is not clear from a plain reading of the CSA that the Baltkom acquisition could not be routed through Ritabell". They therefore advised against seeking a declaration which was not likely to be made.
128. Levicom were concerned to maintain good relations with the Swedish companies partly because they wanted to negotiate a satisfactory arrangement about the shares in OU Levicom Broadband. Mr Robson reached an agreement in May or early June that BV should have a put option in respect of their shares that could be exercised at any time between December 2001 and December 2003. Levicom did exercise the option in December 2001, and reached an agreement upon the option price and thus Levicom were, as they pleaded, "free to pursue the arbitration during 2002" in respect of the CSA. Thus in the summer of 2001 relations between Levicom and the Swedish companies were sufficiently cordial for this agreement to be reached through negotiations.
129. Mr Pedriks could not recall whether in the event he did meet Mr Svedberg on 2 May 2001 to discuss the disputes about the acquisition of Baltkom and the Tranche C loan note, nor could he recall specific meetings or other discussions with Mr Svedberg or others representing the Swedish companies over the following months. It appears that there was some discussion on a "without prejudice" basis between Mr Pedriks and Mr Svedberg on 1 August 2001. (Mr Pedriks could not recall, and it is unclear, whether it was at a meeting or by telephone.) Mr Svedberg apparently maintained his stance about Baltkom being acquired through Ritabell. He said that telecommunication companies were faring badly and spoke of Tele2 not being able to afford to pay what Levicom were demanding. Although Mr Pedriks accepted that "there was some truth behind this argument", he thought that the Swedish companies could have found the funds for a settlement with Levicom.
130. In an email sent later that day, Mr Pedriks pointed out to Mr Svedberg that the offer made by the Swedish companies would mean that Levicom would "have to assume a large amount of debt" whereas the CSA contemplated that "all debt supplied by the parent company should be dealt with as though it were equity (quasi equity)"; and that routing the acquisition of Baltkom through Ritabell would mean that Levicom would have 5.2% of the value, rather than 10%. The judge inferred that the Swedish companies were still making the proposal in the first offer, and had not put forward terms more favourable to Levicom. In his email Mr Pedriks indicated that Levicom would show some flexibility in their demands provided that it led to an overall settlement.
131. There are no other documents indicating what negotiations took place between Levicom and the Swedish companies between May and September 2001, in part because email records were lost when Mr Pedriks' laptop was damaged. Although Mr Pedriks said that discussions did take place, he was quite unsure about how frequently he spoke with Swedish companies about their differences. There was no other evidence about what negotiating stances were adopted by the parties, whether the discussions made any progress towards a settlement, and what difficulties prevented them from reaching an agreement.

(j) The second offer

132. On 15 October 2001 Mr Svedberg sent Mr Pedriks an e-mail suggesting on a "without prejudice" basis a possible settlement of the dispute. This was referred to during the trial as "the second offer". Mr Svedberg wrote that he had been "assessing the issues discussed in London and outlined potential package deal". He set out his suggestion under the heading "Package".

"Tele2 Latvia, for valuation purposes of the Put Option only, it is assumed that 30% of the purchase price is treated as equity, the balance debt and the company a wholly owned subsidiary of [Ritabell].

The floor value of the [Broadband] Put Option is replaced by a market valuation.

60% of the Lithuania licence success fee/price is paid by Tele2 when the CellCo put is called off, having a Loan Note interest as of the date of the GSM 900 licence.

The Put Options may not be called off prior to [1 January 2003]"

133. Thus, the second offer required Levicom to retain their investment in AS Levicom Cellular until 1 January 2003, and:

i) Because 30% of the purchase price of Baltkom was to be treated as equity and it was to be supposed that Ritabell acquired Baltkom, Levicom would receive a benefit of US$4,321,000, being 30% of 5.2% of the acquisition price of US$277 million.

ii) Levicom were to give up the benefit of a "floor value" of €17,820,650 for Levicom's shares in OU Levicom Broadband upon the exercise of the put option. Mr Pedriks estimated that the market value of the shares was about half of the "floor value".

iii) Under the CSA the Tranche C loan note was to be for €6,519,750, less any proper deductions for costs, and therefore the second offer represented a deduction of €2,607,900.

134. Mr Robson and Mr Pedriks were not attracted by the second offer. On 16 October 2001 Mr Robson wrote an e-mail to Mr Pedriks, Mr Palts and Mr Peek in which he wrote: "I don't know who gave Johnny the impression that he was dealing with idiots but he must have smoked dope if he thinks that this could fly. I will recommend that we offer to settle on a flat immediate cash payment of €15-20m and if turned down that we start proceedings as soon as possible." As for deferring the date for exercising the option, he commented that by 2003 "the market might have collapsed completely".
135. In order to analyse the offer, Mr Pedriks revised a spreadsheet that he had prepared for the purpose of negotiations, and sent the revised version to Mr Robson, Mr Palts and Mr Peek. On the basis of Mr Pedriks' estimates about the number of Baltkom's subscribers (90,000 in October 2000 and 300,000 in 2001) and of subscriber values (estimates of $870 and $1,000 per subscriber), the spreadsheet set out in columns the financial consequences of various arrangements for the acquisition of Baltkom, including those proposed in the first offer and in the second offer, and Mr Pedriks calculated them to be worth US$1,352,000 and US$5,668,000 respectively.
136. Another column, the first in the spreadsheet, set out what Levicom would receive from 10% of the value of Baltkom on the basis that it was acquired by equity or quasi equity, and produced a figure of US$27,400,000. (Mr Pedriks had taken a purchase price for Baltkom of US$274 million, rather than US$277 million, and the sum of US$27,400,000 reflected this.) The calculation on the spreadsheet supposed that Levicom had a claim in respect of both a Tranche D and a Tranche E loan note. On this basis, Levicom's claims resulting from the Baltkom acquisition were valued at US$34,900,000.
137. The second column was a calculation of 10% of the value of Baltkom, again on the basis that it was acquired by equity or quasi equity, but calculated on the basis of Mr Pedriks' estimate of the then current value of Baltkom.
138. In his witness statement Mr Pedriks described the calculation in the first column as a calculation of what Levicom believed it would obtain as a result of a successful arbitration against Tele2. The judge accepted this evidence. The spreadsheet also set out a calculation under the heading "Levicom's contractual rights", and compared the items in it with the second offer. They included €38,390,000 in respect of "lc put option Latvia", that is to say, the claim in respect of the value of the shares in AS Levicom Cellular. The spreadsheet used a conversion rate of US$1 to €1.1 and the sum of €38,390,000 represented US$34,900,000. The judge concluded that the spreadsheet presented figures on the basis that, if Levicom established a breach under clause 13, they would be entitled by way of compensation to 10% of the purchase price, that is to say US$27.7 million. When the figures were so presented within Levicom, nobody dissented from that view.
139. The spreadsheet also compared the value to Levicom of the first offer and the second offer, and Mr Pedriks calculated that, although the offer in respect of the Baltkom claim was improved by some €4 million, the other elements of the second offer meant that it was worth less to Levicom by some US$8 million. Although the spreadsheet was prepared and revised as a document for Levicom's internal purpose, on 21 October 2001 Mr Pedriks sent a copy of it to Mr Svedberg on a "without prejudice" basis. He said that the figures shown in the spreadsheet were intended to be conservative, and wrote, "Please review the attached spreadsheet, which reflects Tele2's proposal, and then come back to us with a proposal that makes sense for all parties. We would consider meeting you half way on the Latvian issue." He offered to meet Mr Svedberg to discuss the model in the spreadsheet and to seek a resolution of the dispute. In this email Mr Pedriks also wrote that Levicom had "no interest in putting all our shares at 15/12/01" and were "far more interested in working with you to increase the value of all operations. We would be very interested in discussing with you secured loans on the put values, for some later date, if this was of value to Tele2. However, as we cannot get a reasonable offer in the Latvian matter, then we will have to resort to litigation which is, as you know, of no benefit to anyone except the lawyers".
140. Mr Svedberg replied on 22 October 2001. He gave no indication that the Swedish companies would modify their position, dismissing any suggestion that the Swedish companies would give Levicom what they were asking for. Mr Robson commented in an email of 24 October 2001 to Mr Pedriks, Mr Palts and Mr Peek that Mr Svedberg "is clearly under the influence of some kind of drugs", and repeated his recommendation that Levicom offer to settle on a "flat immediate cash payment" of €15-20 million, and that if that was turned down, Levicom start proceedings as soon as possible. With regard to exercising the option, he recommended that Levicom "discuss strategy but that we exercise before a full blown recession will hit Europe (sometime in early 2002)". In response to Mr Svedberg, Mr Pedriks referred to the credit risk that would have been involved in agreeing to deferred payments in a turbulent market, and commented that the second offer proposed that Levicom should "trade certainty for risk with no additional benefit".

(k) The third offer

141. On 3 October 2001, after hearing nothing from Levicom for some five months, Linklaters had contacted Levicom about some outstanding fees and asked whether the dispute had been resolved and whether Levicom wished Linklaters to do any more work on the case. Mr Pedriks responded that Levicom had been having discussions to try to avoid arbitration, and asked Linklaters not to close their files. He also said that Levicom had "had a great deal of difficulty with some of the advice and information communicated by Linklaters to Levicom", referring to some of the work of Ms Pavlopoulos. Mr Legg understandably thought that Levicom were preparing to negotiate a reduction in Linklaters' fees.
142. On 9 November 2001 Mr Pedriks and Mr Robson met Mr Legg and Mr Graham. The question of Linklaters' fees was resolved at the start of the meeting when Linklaters agreed to reduce them. The purpose of the meeting was not for Linklaters to advise about the second offer but to decide how to proceed in light of proposals that Levicom had already decided were unacceptable. Levicom had not provided Linklaters with Mr Svedberg's email setting out the second offer and the judge did not accept Mr Pedriks' evidence that Levicom might have sought advice on the offer without providing a copy of it.
143. Nevertheless Levicom told Linklaters of the second offer at the meeting. Mr Pedriks said that he had calculated that it would leave Levicom worse off than if they had accepted the first offer by some US$8 million. He said that Levicom were ready to go to arbitration. He spoke of Levicom "looking for" US$15 million to US$20 million to settle. Mr Robson said that Levicom had been "too nice" and spoke of the claim in respect of the Tranche C loan note being worth €6 million and that in respect of Latvia being worth "10% of opportunity ($28m)".
144. Levicom did not explain all the figures that they mentioned, and Mr Legg's response was that Linklaters would leave the "commercial stuff" to Levicom, although he was happy to assist, and that Linklaters would "provide legal pressure". He suggested that it would put pressure on the Swedish companies to bring arbitration proceedings, and that it might achieve a settlement of the outstanding disputes to do so. He said that Levicom should seek a declaration that the Swedish companies were in breach of clause 13 and also claim damages for the breach; and that Levicom should try to have the claim for a declaration determined as a preliminary issue. He repeated his advice that Levicom had a strong claim that there was a breach of clause 13 but that their claim in respect of clause 11 was less strong. He also suggested that leading counsel should settle the request for arbitration, and Levicom agreed to this.
145. Linklaters said nothing at the meeting to suggest that they considered that Levicom were being unrealistic in looking for a settlement of the sort to which Mr Pedriks referred. Mr Robson therefore understood that Linklaters expected that Levicom would achieve a settlement at the sort of figure that he was mentioning.
146. Levicom had further discussions with Mr Svedberg. On 22 November 2001 Mr Svedberg sent Levicom a proposal, referred to as the "third offer". He proposed that, for the purposes calculating the option price, it was to be "assumed that 40% of the purchase price is treated as equity, the balance debt and the company a wholly owned subsidiary of [Ritabell]" This would effectively give Levicom the benefit of US$5,761,600, being 40% of 5.2% of the acquisition price of US$277 million. However, three quarters of this payment was to be deferred for a year. Mr Robson considered that this created a "considerable risk" in view of "a very unpredictable market".
147. The other parts of the "package" were these:

i) Levicom were to be paid an additional €1 million (the equivalent of about US$900,000) on the exercise of the put option to represent half of the value of a Tranche E loan note.

ii) The first date at which the put option under the CSA could be exercised was to be deferred from 15 December 2001 to 1 January 2003, but its duration was to be extended by one year. This presented a further credit risk from Levicom's point of view.

iii) Levicom were to be paid 70% of the Tranche C loan note of €6,519,750, and the payment was to be deferred until the option was exercised, that is to say until 1 January 2003 at the earliest.

iv) Payment under the option in the BSA would be made in three tranches over 15 months between December 2001 and March 2003.

148. Levicom estimated that overall the third offer was worth some US$4,901,140 more than the first offer (and Mr Golob, Levicom's valuer expert calculated the third offer to be worth €4 million more). However, it presented a greater credit risk than the second offer, and Levicom regarded the third offer as less attractive than the first offer had been. Levicom gave the Swedish companies the opportunity to improve the third offer, but no improved proposal was forthcoming.
149. Levicom's concern about the credit risk presented by the second and third offers is understandable. The period following the collapse of the tech bubble in March 2000 was one of growing concern and pessimism about the financial prospects for the technology and telecoms industries. This sentiment affected the Swedish companies. By autumn 2001 Tele2's share price had fallen by two thirds from its high in March 2000. As Levicom pleaded, "the fall looked set to continue" and "there was a possibility that the company could have gone into liquidation". According to Mr Robson, NetCom were fully leveraged and could not have secured further funding, and had Levicom agreed to the second offer, "The risk of [Tele2] defaulting on its loan [inherent in the second offer] was high". This was so in October 2001 even though, according to Mr Pedriks, the risk of Tele2 going into liquidation receded to some extent between the spring and the autumn of 2001.

(l) Instructing counsel

150. On 20 December 2001 Linklaters sent Mr Robson and Mr Pedriks a revised draft of the request for arbitration. It envisaged that Levicom would seek a declaration that the Swedish companies were in breach of clause 13 of the CSA, and an order requiring Tele2 to dispose of their interest in Baltkom. It included no claim for damages, despite what Mr Legg had said at the conference on 9 November 2001, but, as in the draft sent on 2 April 2001, there was a note that Linklaters were still considering whether an account of profits should be sought.
151. On 10 January 2002 there was a meeting between Levicom (Mr Robson) and Linklaters (Mr Legg and a trainee) to discuss preparations for the arbitration. Mr Robson indicated that Levicom considered that only two issues needed to be arbitrated: the dispute about breach of clause 13 and the dispute about a Tranche C loan note. It was agreed that more information needed to be collected, particularly for the claim in respect of the Tranche C loan note. Mr Legg advised, in answer to Mr Robson's enquiry, that there was no point in seeking the opinion of leading counsel until the information had been obtained and collated. Mr Graham prepared a further draft of the request for arbitration and circulated it on 13 February 2002. He advised that "We consider it is an appropriate time to involve Leading Counsel". He also provided an updated advice on the merits of the claim about the Tranche C loan note.
152. On 20 February 2002 Mr Robson discussed the draft request for arbitration with Mr Graham. Mr Robson agreed with Mr Graham's view that damages should not be sought, but a claim for damages should be reserved. On 21 February 2002 Mr Graham sent Levicom a further draft of the request in which Levicom reserved a right to claim damages in respect of breach of clause 13. It was agreed that Queen's Counsel should be asked to settle the request, although Mr Robson suggested that this should be done when the draft was more developed. Mr Graham sent further drafts of the request and arranged a meeting at Linklaters for 30 April 2002.
153. The meeting was attended by Messrs Pedriks, Robson, Peek and Palts, and by Mr Ants Karu, Levicom's Estonian lawyer. Mr Legg, Mr Graham and a trainee from Linklaters were there. There was discussion about what Levicom understood by "cellular network business". Mr Pedriks expressed the view that the expression covered both the entire chain of businesses between distributor and network operator and also each link in the chain. There was also discussion about the operations of subsidiaries of AS Levicom Cellular in each Baltic state. It was agreed that Linklaters would select a barrister to settle the request for arbitration and to act as advocate in the reference.
154. When Mr Legg inquired about negotiations with the Swedish companies, Mr Pedriks referred to his spreadsheet, which he said had prompted a slightly improved (i.e., the third) offer. He said that all discussions were without prejudice and did not go into details about them. Nor did he supply the spreadsheet to Linklaters.
155. Instructions were sent to Ms. Catharine Otton-Goulder QC on 28 June 2002, with a draft request for arbitration. The draft request still did not include a claim for damages. She was also sent, among other documents, the January and March letters. Ms Otton-Goulder was instructed that Baltkom was a competitor of AS Levicom Cellular in the cellular network business, and was asked to "consider the materials with a view to discussing Counsel's views as to the merits of the Claimants' claims in a consultation, to settle the Request for Arbitration and to appear as advocate in the proposed arbitration". Linklaters sought Ms. Otton-Goulder's views about the relief that should be claimed, and wrote that they were "instructed that it would be very difficult to quantify the loss arising from a breach of Clause 13.1".
156. The draft Request for Arbitration presented a Pan-Baltic construction of clause 13.1, and alleged that AS Levicom Cellular was an "established participant in the Latvian cellular network business" as at 29 January 1999 since, through Levi & Kuto Latvia, they were involved in lobbying for a cellular network licence in Latvia, and therefore Baltkom was "a direct competitor with Levi & Kuto Latvia in the Latvian market".
157. On 22 July 2002 Ms Otton-Goulder advised by telephone that damages should be sought, as well as a declaration and order for disposal of the shares: Levicom should apply for separate hearings of liability and quantum, although Ms Otton-Goulder warned that the tribunal might not be willing to order this. On 23 July 2002 she sent Linklaters an amended version of the draft Request.
158. On 25 July 2002 Ms Otton-Goulder advised Mr Pedriks and Mr Robson in consultation. Mr Legg, Mr Graham and a trainee solicitor attended. Ms Otton-Goulder's advice included the following: that the claim under clause 13 turned on a question of construction, Levicom had a strong case on it, and Tele2 had not advanced any real arguments to answer it; that she believed that Levicom would win both on the basis that Baltkom's business was the same as that of AS Levicom Cellular and on the basis that Baltkom's business was competitive with it; that, looking at the contract as a whole, the Baltic states were to be seen as an entity and clause 13 should be given a Pan-Baltic construction; and, while she was less confident that the arbitrators would accept Levicom's interpretation of "cellular network business" as including network operation, services provision and distribution because the CSA did not define "cellular network business", she believed that Levicom would also win on this point.
159. Ms Otton-Goulder advised about the merits of the claim in respect of a Tranche C loan note, which she thought were good. She considered that Levicom would succeed in establishing an implied term to support the Latvian licence claim under clause 11.
160. Mr Robson said "that he was happy with the relief sought", that is to say, that the request should include a claim for damages as well as one for a declaration and an order that Tele2 dispose of their shares in Baltkom. Ms Otton-Goulder, however, advised that a declaration and order for the disposal of the shares would be "difficult to get" and that damages would be hard to measure and it would be an expensive exercise. The consultation continued as follows:

"[Mr Robson] said that he wanted to receive 10% of the equity value of the company. [Ms Otton-Goulder] said that the amount recoverable in respect of the Put Option would be determined with reference to the Exercise Date (pursuant to clause 8.4 of the CSA). Having said that, if the dispute did not settle, she felt that the Exercise Date (15 December 2003) would not be "overly significant". She explained that, by splitting determination in respect of liability and damages, that latter could be determined by December 2003".

(m) The start of the arbitration

161. Ms Otton-Goulder settled the Request for Arbitration and on 1 August 2002 Linklaters sent a letter before action to Cleary Gottlieb. It set out Levicom's allegations in respect of (i) breach of clause 13 of the CSA through the acquisition of Baltkom; (ii) breach of clause 10 in not issuing a tranche C loan note; (iii) breach through not cooperating with Levicom in seeking to acquire a licence in Latvia as contemplated in clause 11; and (iv) NetCom's obligation under clause 17 as guarantor. It stated that unless admissions and adequate proposals were forthcoming by 4.00pm on 8 August 2002, arbitration proceedings would be brought.
162. Levicom filed a request for arbitration against the Swedish companies on 9 August 2002, asking that the case be expedited. The request defined cellular network business as including distribution and provision of mobile telephones and related services, and relied amongst other matters upon Levi & Kuto Latvia being engaged in distribution with plans for "rolling out" service provision and network operations and for acquiring a DSC 1800 licence. As in the draft sent to Ms Otton-Goulder with her instructions, it asserted that Baltkom were a direct competitor of Levi & Kuto Latvia in the Latvian market. The judge did not consider that this indicated a departure by Linklaters from the advice about the meaning of clause 13 that it had given in 2000 and early 2001.
163. On 6 September 2002 Herbert Smith wrote to Linklaters stating that they had been instructed by the Swedish companies. They rejected the suggestion that the reference should be expedited. They denied breaches of the CSA, but gave no details of the defence to be advanced.
164. In an email to Mr Legg on 7 September 2002, Mr Pedriks explained why Levicom wanted expedition, and referred to the likelihood that Millicom would default on bond payments due in December and the possibility that this would "cause a default at Tele2". He expressed fears that Tele2 would become insolvent during the course of an unexpedited arbitration.
165. The tribunal, consisting of Mr Kenneth Rokison QC, Ms. Hilary Heilbron QC and Mr Alan Redfern, was appointed and, by order dated 29 October 2002, they directed that a pre-trial review should be held in May 2003.
166. On 15 November 2002 the Swedish companies served a defence in the arbitration. It contended in answer to the claim of breach of clause 13 that, of the subsidiaries of AS Levicom Cellular, only Ritabell operated a cellular network business and AS Levicom Cellular's business in Latvia was neither the same as nor competitive with that of Baltkom. It contended for a Same State construction of clause 13: that the CSA, properly construed, did not prohibit a party from carrying on in one Baltic state a business that was the same as or competitive with a business carried on in a different Baltic state by AS Levicom Cellular or one of their subsidiaries.
167. The defence also pleaded that clause 13.1 was in restraint of trade and therefore unenforceable. This prompted Mr Graham for the first time to consider the question of restraint of trade in relation to clause 13.1 (although, Ms Pavlopoulos had briefly considered this point in early 2001). He was assisted by a trainee of Mr Legg, who prepared a note that pointed out (among other things) that restrictive covenants are construed narrowly and concluded that, "… case law would seem to suggest that because the Company did not carry on business in Latvia (and only did so in Estonia through a subsidiary) the Court is likely to hold the covenant to be unreasonable and, as such, unenforceable against the [Swedish companies]". Mr Graham, however, considered that an argument that clause 13 was unenforceable was unlikely to prevail.
168. The Swedish companies also alleged that Mr Peek and Mr Palts were in breach of the CSA and requested that they be joined in the reference. Levicom discussed this request with Mr Graham on 20 November 2002 and, on Linklaters' advice, opposed the joinder of Mr Peek and Mr Palts, who consulted other solicitors, Clyde & Co.
169. In about early February 2003 Mr Pedriks contacted Mr Graham about what he considered to be another breach of the CSA on the part of the Swedish companies, namely the acquisition of a new UMTS (3G) licence in Latvia, and asked Mr Graham to review the position. He did so with the assistance of Ms Otton-Goulder, and sent Levicom a draft letter to be sent to the Swedish companies about this. Linklaters advised that Levicom should not try to introduce a new claim into the arbitration, but should "proceed with the existing arbitration, ideally with a view to negotiating an early global resolution of all your issues (i.e. the issues the subject of the arbitration, the UMTS issue and even the share put option valuation)". Mr Graham understood that Levicom's preference was still to achieve a resolution of the dispute through negotiations. Mr Pedriks suggested that Linklaters should send directly to Tele2 the letter that Mr Graham had drafted because he was "still on reasonably good speaking terms with them at the moment", but Linklaters were unwilling to do so and the letter was sent by Mr Pedriks for Levicom.
170. On 7 March 2003 Ms Otton-Goulder advised in consultation about the witness evidence that Levicom should obtain. It was suggested that it would be helpful to have expert evidence about the market usage of the expression "cellular network business".
171. On 24 March 2003 Mr Legg and Mr Graham travelled to Estonia to interview potential witnesses. During those interviews Mr Peek explained that Levicom had only two retail outlets in Latvia and they did not constitute "a cellular network business" because "such a business had to have a licence plus a network and internet agreements". When this was later discussed with Mr Pedriks and Mr Robson, Mr Pedriks considered that Mr Peek did not understand the issues and would "come round" to the view that, although having only two retail outlets, AS Levicom Cellular had a cellular network business in Latvia that was competitive with Baltkom, and indeed that Mr Peek did later express that view. Mr Pedriks and Mr Robson considered that Levi & Kuto Latvia carried on a cellular network business.

(m) The fourth offer

172. On 4 April 2003 the Swedish companies, having brought arbitration proceedings against Mr Peek and Mr Palts on 5 March 2003, made an offer, referred to as "the fourth offer", to pay €6,743.100 and reasonable costs in full and final settlement of the claims in the two arbitrations. This represented little more than the value of the Tranche C loan note (before deductions for costs). Mr Graham advised on 7 April 2003 that Levicom should make a prompt counterproposal in order to encourage settlement negotiations, and, for discussion purposes, drafted a possible response, which included a demand by Levicom that Baltkom be transferred to AS Levicom Cellular or that clause 8.4.4 of the CSA be amended to provide that, if the option was exercised, BV's shareholding was to be valued as if Baltkom had been so transferred. Mr Graham discussed the draft with Mr Robson at a meeting on 9 April 2003, and also with Clyde & Co. On 15 April 2003 Linklaters replied to the fourth offer, proposing a change to the valuation formula and also payment of €6,519,750 and €4,346,500 for the claims in respect of Tranche C and Tranche D loan notes and interest and costs. This counter-proposal was not accepted. Clyde & Co rejected the Swedish companies' offer on behalf of Mr Peek and Mr Palts.
173. When considering how Levicom should respond to the fourth offer, Mr Robson sent an email to Mr Graham on 8 April 2003 upon which Linklaters rely in support of their contention that, but for the dispute about the acquisition of Baltkom, Levicom would probably have exercised the option under the CSA in early 2001 or at least earlier than it did, that is to say before October 2003. Mr Graham advised a measured response designed to encourage continuing discussions and tried to restrain Mr Robson from a potentially provocative response.

(n) Ms Otton-Goulder's advice on quantum

174. Mr Pedriks asked on 10 April 2003 that Linklaters research whether there was a precedent for the remedies that Levicom were seeking in the arbitration, saying that he knew that "transactions [had] been unwound on the basis of unfair competition" but doubting whether they would assist. This was apparently because Mr Svedberg disparaged the claim for declaratory relief and reflected a request made by Mr Robson. Linklaters asked Ms Otton-Goulder to suggest about where they might find a precedent.
175. At around this time Linklaters were seeking to formulate the claim for damages in the arbitration, and asked Ms Otton-Goulder to advise. Having prepared a preliminary note, she gave advice on 16 April 2003 in a telephone conversation with Mr Graham, Ms Harrop and a trainee at Linklaters. She was unable to suggest a close precedent for an order for disposal of the shares such as Levicom were seeking, but she was confident that such relief could be granted. She observed, however, as it is recorded in Linklaters' attendance note, that "Of particular relevance to the present facts might be the issue whether or not one party's situation has been irredeemably altered, as there were now interwoven operations…", but that, if the arbitrators were not willing to give such relief, "then the damages awarded ought to be significant". Ms Otton-Goulder considered it too soon to make a decision about whether Levicom should seek separate hearings for liability and quantum. There was discussion of the quantum of damages, including the instruction of an expert and the difficulties in showing when, but for Tele2's breach, Levicom would have exercised the option. Mr Graham explained that Levicom wished to argue that they would "have exercised their option at the highest price (i.e. around January 2001)".
176. After the telephone conversation, Ms. Otton-Goulder provided a written advice on damages. She wrote this about Tele2 acquiring Baltkom through AS Levicom Cellular (to which she referred as "the Company"):

"In considering the possibility of the Company's acquiring a licence we should consider the possibility that Tele2 would have acquired Baltkom through the Company. If Tele2 were acting in accordance with the contract, it would not have been able to acquire Baltkom itself or through an entity other than the Company. This would also make the assessment of the outcome easier to achieve. We know that Baltkom had a licence and that Tele2 made considerable investment in "building out" the business on the basis of that licence and Baltkom's own assets and networks. The increase in Baltkom's value and the increase in Tele2's value as a result of that acquisition and investment may therefore be a good guide to what would have been the increase in Baltkom's value and the increase in the Company's value if the Company had acquired Baltkom and its licence and if Tele2 had then made the investment in the business which it made after its own acquisition of Baltkom."

177. Another passage of her advice was cited by the judge as of some importance to see how an argument that damages should be measured by reference to AS Levicom Cellular could be presented, notwithstanding there was no obligation under the CSA so to route the acquisition:

"There is a potential problem about the claim that Tele2 would have spent on the Company the money which it spent on the purchase of and investment in Baltkom. That is the fact that Tele2 had no obligation to make such an investment in the Company. By clause 9.1 of the CSA, Tele2 had the option to provide funding to the Company, and, if it did so, it had to comply with stipulations as to the source of such funding. That of itself is no bar to the claim that Tele2 would, in fact, have made such an investment in the Company, but it does not help us to show that it would have done so. We are driven to rely on the claim that Tele2 probably would have made that investment.

It may be that Tele2 would not have provided funds to the Company in order to assist it in acquiring a licence. It may be that Tele2, acting in accordance with the contract, would not have acquired Baltkom, but would then (as a matter of fact) have made no investment in the Company. The Company then would have made efforts itself to acquire a licence competing with Baltkom. It would then be necessary to value the Company on that basis. Equally, it might well be that Tele2 would have made a significant investment in the Company once it had obtained a licence. Then the valuation might well result in a similar figure to that reached by assuming that Tele2 would not have provided funds to the Company in order to assist it in acquiring a licence. But that result would be by a different route and it does not follow automatically that the result would be the same, so a valuation should be made on the basis of all three hypotheses."

178. Ms Otton-Goulder also explained the importance of the option: assuming that it would have been exercised before it expired, Levicom could argue that the value of their holding in AS Levicom Cellular was what they would have received upon exercising the option, and the loss resulting from the breach of clause 13.1 was the difference between (i) what they would in fact receive as the option price given that Baltkom's shares were acquired by Tele2 and (ii) what they would have received as the option price if AS Levicom Cellular had profited from a Latvian business being developed either because they had acquired Baltkom or because Tele2 had invested in developing a Latvian business through AS Levicom Cellular the funds that they had used to acquire Baltkom and develop the business. She considered whether Levicom could establish that they would have exercised the option, and she wrote, "I am told that our witnesses will say that they would have exercised the option in about January 2001, shortly after the acquisition of Baltkom, on the grounds that the market began to lose its value shortly after the acquisition; they say that they would have been aware of the fall in the market and would have formed the view that the market would fall further, and would, therefore, have sold before the market fell further."
179. On 28 April 2003 Mr Graham sent the advice to Mr Pedriks and Mr Robson by email. Neither challenged Ms Otton-Goulder's understanding of Levicom's evidence about exercising the option in January 2001, or indicated surprise at her advice that the measure of quantum of damages depended upon this factual question. Mr Pedriks considered that Ms Otton-Goulder's advice did not "give any real view on the merits of our case on quantum". On 28 April 2003 Mr Graham also sent them a note about the claim for an order for the disposal by Tele2 of the Baltkom shares. He emphasised that such an order was a discretionary remedy and would be available only it was just and equitable in view of the adequacy of damages; and suggested that the position be discussed further in conference.

(o) April to September 2003

180. On 21 April 2003 Mr Pedriks and Mr Svedberg had discussed the case and the parties' positions about settlement over dinner in London. Mr Pedriks asked for information relevant to the option price and Mr Svedberg sent some figures relating to the Estonian and Lithuanian businesses the next day. Mr Pedriks used them to revise the spreadsheet calculations that he had made in 2001 and sent them to others at Levicom and also to Linklaters. Mr Svedberg maintained that the performance of Levi & Kuto Latvia was irrelevant to the parties' discussions. He did, however, offer to meet Mr Pedriks for further discussions.
181. On 24 April 2003 Mr Graham sent Mr Pedriks the draft of a letter that he suggested sending to Herbert Smith. It proposed separate arbitration hearings about liability and quantum and Mr Pedriks agreed that that would be a sensible way to proceed. In his email Mr Graham referred to the expert evidence and wrote, "…as it appears that quantification will be complicated and, further, that you do not think you will need that information for your discussions with Johnny Svedberg etc, then there does not appear to be a need to pursue these issues with an accountant at this time."
182. On 30 April 2003 Ms Otton-Goulder had a consultation with Levicom. Before the consultation she had a telephone conference with Linklaters, including Mr Legg and Mr Graham. Linklaters reported that, having initially agreed with the proposal for a split hearing, Mr Robson was "having doubts" about that strategy: "[Mr Robson] said that he had initially thought that with a split trial, an injunction against Tele2 ordering the disposal of Baltkom would still be available as a remedy after the first hearing. As it appeared that this was not the case, [Mr Robson] felt that Levicom would be losing a vital part of their bargaining strategy". When Ms Otton-Goulder asked why Levicom wanted an order for the disposal of the shares, Mr Graham said that he understood that it would cause Tele2 "serious problems as Baltkom was now fully integrated into Tele2" but that "Levicom would not receive any benefit from it which was why damages were more important for the client". Ms Otton-Goulder said that she thought that the chances of obtaining an order for disposal of the shares were "low".
183. At the consultation attended by Mr Pedriks and Mr Robson later that day, Ms. Otton-Goulder said that she understood that Mr Rokison would not be available for a hearing of two or three weeks before December 2003 at the earliest. Mr Robson's response was that he had wanted a decision on liability before 15 December 2003 "in order to raise the value of the shares that Levicom BV would sell". Mr Pedriks said that "he had ascertained that Tele2's Latvian operation through Baltkom would be worth around $500m by the end of the year. Therefore, the longer the put option was delayed, the more money Levicom would receive". Mr Pedriks and Mr Robson considered that it would be better to exercise the option before 15 December 2003 and claim damages for the extra value of Tele2's Latvian operation. Mr Pedriks and Mr Robson thought that "given the market uncertainty in the telecoms sector" it was too much of a risk to let the option expire.
184. Ms Otton-Goulder reiterated that it would be "highly unlikely" that the arbitrators would order Tele2 to dispose of the Baltkom shares. Her suggestion was that Levicom should concentrate on the damages claim. Mr Pedriks and Mr Robson agreed with that advice. It was also agreed that Levicom should still seek separate hearings to decide liability and quantum. Mr Graham referred to Ms. Otton-Goulder's advice about damages and observed that there were difficulties in establishing Levicom's loss. He said that there were a number of possible approaches to assessing damages depending upon the factual position. He posited that Levi & Kuto Latvia might have obtained a Latvian licence but for the breach of clause 13, and suggested that Levicom would then have benefited from 10% of the value to Levi & Kuto Latvia. However, he observed that it might be difficult to prove (i) that Levi & Kuto Latvia were well placed to obtain a licence and (ii) that Tele2 would then have invested in developing the operation. If Levicom failed to prove this, they would not prove any loss. Accordingly, various possible ways of calculating damages were canvassed at the consultation, and the possibility that Levicom might fail to prove any loss was mentioned: there is no evidence that this came as a surprise to Mr Robson and Mr Pedriks, nor that it influenced how Levicom, through Mr Pedriks, conducted discussions with the Swedish companies. Mr Robson and Mr Pedriks said that discussions with the Swedish companies were continuing, and preferred direct negotiations between the parties rather than mediation.
185. On 19 June 2003 Ms Otton-Goulder produced a first draft of voluntary particulars of Levicom's case on loss and damage. The claim under clause 13 was put on the basis that, if Tele2 had not acted in breach of the CSA, they would have acquired Baltkom through either AS Levicom Cellular or Levi & Kuto Latvia. Alternatively, if they had not acquired Baltkom at all, then Tele2 would nevertheless have invested significant sums to develop AS Levicom Cellular's business in Latvia. In either event AS Levicom Cellular or their Latvian subsidiary would have acquired a Latvian licence. This would have increased the value of NV's option and Levicom would have exercised it before it expired. They claimed loss amounting to 10% of the increase in Tele2's value between October 2000 and 15 December 2003. Levicom questioned whether they should not simply claim the loss resulting from AS Levicom Cellular not acquiring Baltkom, but were generally in agreement with Ms Otton-Goulder's draft. The particulars were sent to the tribunal and to Messrs Herbert Smith on 26 September 2003.
186. On 6 August 2003 Mr Pedriks sent Linklaters an email about discussions that he had had with a director of Tele2 about settlement, and referred to the possibility of Levicom recovering as much as €65 million. He contemplated €50 million (or an even higher figure) based on recovering 10% of the value of Baltkom, some €7 million in respect of the Latvian licences and some €7 million in respect of the Tranche C loan note.

(p) The exercise of the put option

187. On 21 October 2003 Levicom exercised the put option. The parties did not reach agreement about the option price: Levicom asked for forecasts about the Latvian operations but the Swedish companies declined to provide them, arguing that the valuation should be based upon information about historic performance. In February 2004 Levicom instructed Linklaters to bring arbitration proceedings under clause 8 of the CSA. A request for arbitration was served on Tele2 on 6 May 2004.

(q) October 2003 to March 2004

188. On 6 November 2003 the arbitrators directed that a hearing should take place between 10 May and 21 May 2004. It was to deal with liability and such issues relating to damages as might be agreed by the parties or directed by the tribunal. The parties were to reach agreement about those issues by 16 January 2004.
189. On 15 December 2003 the Swedish companies served their response to Levicom's case on loss and damage. They pleaded that Tele2 were not obliged under the CSA either to acquire Baltkom or to have invested in the Latvian operation. This can be seen to be a reference, albeit somewhat obscure, to the minimum performance principle. They also pleaded that neither AS Levicom Cellular nor Levi & Kuto Latvia would have acquired a Latvian licence in around October 2000.
190. After Mr Graham left Linklaters in July 2003, Mr Reid, the partner who had temporarily taken over conduct of the arbitration, and then Mr Legg (who had returned from sabbatical) were assisted by Ms. Lucy Greenwood, an assistant solicitor. On 29 December 2003 she advised Mr Pedriks about making a reasoned offer in order to reach a settlement without incurring the costs of a hearing and in order to protect their position on costs if the dispute was not settled. Her letter said this about quantum (referring to AS Levicom Cellular as "the Company"):

"The difficulty Levicom faces is to put a value on the loss it suffered as a result of Tele2's breach of the Shareholders' Agreement. Under English law, the usual contractual measure of damages is for the court (or arbitral tribunal) to seek to put the injured party in the position it would have been [in] had the contract been properly carried out, i.e. had Tele2 not breached clause 13.1. Our primary case is that if Tele2 had not acted in breach of clause 13.1, Tele2 would not have acquired Baltkom itself, but would have acquired Baltkom through the Company. This would have led to significant investment by Tele2 in the Company, and accordingly the loss suffered by Levicom amounts to 10% of the increase which would have taken place in the Companies' value (but for the breach). Levicom is also claiming that it has suffered loss as a result of the breach of the implied term in respect of the Latvian licence (and has quantified this loss at Euro 2,173,259/Euro 4,346,500) together with Euro 6,519,750 in relation to the loan note. On this issue you will have recently seen Tele2's comments on Levicom's voluntary particulars of loss. Tele2, as one would expect, strongly resists Levicom's claim in relation to the loss it has suffered."

191. On 14 January 2004, in an exchange of emails with Ms Harrop about disclosure, Mr Pedriks expressed the opinion that Levicom would win on liability and "the big fight is quantum". Mr Robson observed that Levicom had a claim for about US$40 million and had been offered less than US$10 million.
192. At around this time, Mr Pedriks informed Mr Legg of his exchanges with Mr Svedberg about the option price, and indicated that he would, if necessary, settle that dispute and allow the claim for breach of clause 13 to proceed to arbitration. In an email on 19 January 2004 Mr Legg strongly recommended that any settlement should include all disputes. He wrote in relation to the clause 13 claim, "I do feel we have a strong case on construction, but the consequences of breach are going to be more difficult to establish. There could be a range of possible outcomes from the very low to the very high and rather than prolong what will be difficult and costly proceedings, it would be far preferable to wrap it all up in one go."
193. In January 2004 Mr Pedriks spoke to another solicitor, Mr John White of Baker Botts, about the construction of clause 13.1. Mr White's view corresponded with that of Mr Legg, that there had been a breach of the clause because of the words "the same as". He considered that any other interpretation would rely "on a literal reading of the word "same" (and a legally naïve interpretation of the clause)" and that, Mr White said, made no sense to him.
194. On 15 January 2004 Linklaters had written to Herbert Smith suggesting that the hearing in May 2004 should deal with "those issues of fact and law which relate[d] to the basis upon which damages [were] to be assessed". Herbert Smith responded by a letter dated 17 February 2004, broadly agreeing with the proposal and suggesting that the hearing should deal with the questions "On what basis should the Claimants' loss be quantified?" and "Have the Claimants mitigated their (alleged) loss?" In response on 19 February 2004 Linklaters identified the questions about damages that should be decided as follows: "Should such loss be quantified on the basis of our clients' primary case, namely that if Tele2 had not acted in breach of clause 13.1 Tele2 would not itself have acquired Baltkom but would have acquired Baltkom through [AS Levicom Cellular]; or on the basis of our clients' alternative case, namely that if Tele2 had not acted in breach of clause 13.1 [and] Tele2 would not itself have acquired Baltkom then Tele2 would have invested in [AS Levicom Cellular] in order to enable [it] to acquire a licence in Latvia; or on some other basis"; and also a question as to the date at which loss should be quantified.
195. Mr Legg's last working day with Linklaters was 5 February 2004. Mr Humphries took over conduct of the case. On 17 February 2004 he had a meeting with Mr Pedriks and Mr Robson, which was also attended by Ms Harrop and Ms Greenwood. He thought that there was no clear evidence about how much the claims were worth and how damage could be proved, and that Levicom did not have a clear picture about this either.
196. On 18 March 2004 Mr Robson told Mr Humphries that he was negotiating a mandate from Levicom to handle the case. Neither he nor Mr Humphries was optimistic that it would be settled. On 22 March 2004 Levicom made the agreement (wrongly dated 22 March 2003) to pay Mr Robson's company, KRC Communications Holdings NV, according to the outcome of the arbitration, or more specifically what they were awarded in respect of the claims in respect of clauses 13, 8 and 11 of the CSA: they were to pay €250,000 if the award was €25 million and larger amounts if the award exceeded €30 million.
197. The agreement was amended in April 2004 to include any recovery resulting from a breach of clause 9.2 of the CSA. Levicom's Estonian lawyer, Mr Ants Karu, drafted the amendment on the basis that Mr Robson had "discovered possible breaches of clause 9.2 (non-dilution)". At about this time Mr Robson was emphasising to Linklaters the importance, as he saw it, of the clause.

(r) Pre-hearing consultations

198. Levicom asked for a consultation with Ms Otton-Goulder, who was preparing a draft of the pre-hearing brief, and it took place on 24 March 2004. It was attended by Mr Pedriks and Mr Robson and by Ms Greenwood and Ms Harrop of Linklaters. Mr Robson explained that Levicom sought advice about the arbitration, about the method for assessing damages and about the joint expert report that was to be submitted to the arbitrators. Ms Otton-Goulder explained the procedural position: that, while a hearing in May 2004 would deal with the basis for the calculation of damages, the quantum of damages would be determined at another hearing.
199. Linklaters' attendance note records:

"[Ms Otton-Goulder] stated that in her view, she thought that Levicom would lose on construction (i.e. liability), however, this did not mean that she would not put forward as good a case as possible and that she would not fight the case to the full. Both Kenn Robson and Marcus Pedriks expressed surprise at Catharine Otton-Goulder's statement and commented that this was the first time they had heard such a negative view on the merits. Kenn Robson explained that it was important for him to have a clear opinion on this issue, since it would affect the advice he gave to the Levicom board about settlement. Catharine Otton-Goulder stated that she did not think it was appropriate to discuss the merits of the case at this stage, but it was agreed that this would be discussed at the meeting to be held in the near future, at which Mark Humphries would also be present."

200. As far as damages were concerned, Mr Robson said that it was very important that the arbitrators accepted Levicom's primary case, that damages were to be measured on the basis of the acquisition of Baltkom through AS Levicom Cellular. Ms Otton-Goulder said:

"… in her view, she did not think that it would be necessary or helpful to have an expert to assist on the issue of methodology. She pointed out that this was primarily a matter of argument based on the facts as they in fact happened. She did not think it would be useful to have an expert explaining what a business theoretically would have done in the same situation as Tele2. Rather the question was what Tele2 itself would have done and this must surely be based on what it in fact did do at the time. Catharine Otton-Goulder also stated that she thought that Levicom was quite strong on this point and that the primary argument put forward by Levicom was the obvious and logical inference from the subsequent actions of Tele2."

201. After the meeting with Ms Otton-Goulder, Levicom reiterated their surprise at Ms Otton-Goulder's pessimism about the merits of the claim, but Linklaters observed that this was not her "formal view" and arranged to discuss the matter with Mr Humphries before having a further meeting. However, her observations came as a surprise to Linklaters as well as to Levicom. Although Mr Humphries was not as optimistic about the construction of clause 13.1 as Mr Legg, he had independently come to the view that Levicom were "on the right side of the line" on the issue and in percentage terms put their prospects at 55% or 60%.
202. On 25 March 2004 Mr Humphries had a telephone conversation with Mr Robson. Mr Robson, as Mr Humphries recorded in his attendance note, "essentially thought that [Ms Otton-Goulder] had made a mistake in addressing the view that Levicom would lose the arbitration. He could not understand why, if she held that view, it had not been expressed before." Mr Humphries confirmed that her advice had surprised Linklaters too.
203. A further consultation with Ms Otton-Goulder was arranged for 1 April 2004. Shortly before it Mr Robson had agreed that Ms Otton-Goulder should be assisted by a junior barrister, and Mr Simon Salzedo had been instructed.
204. On 31 March 2004 Ms Otton-Goulder advised in an email to Linklaters that the application for an order that Tele2 dispose of the Baltkom shares should be abandoned. Mr Humphries agreed, considering that the claim was "hopeless" and would appear "vindictive".
205. Before the consultation with Levicom on 1 April 2004 Mr Humphries met Ms Otton-Goulder without Levicom present. After discussing the case with Mr Humphries, Ms Otton-Goulder considered that on liability the case was evenly balanced. Mr Humphries remained more optimistic.
206. When Mr Robson and Mr Pedriks joined them, the strength of the case that the Swedish companies had contravened clause 13 was discussed at length. Ms Otton-Goulder advised that it was a difficult case and that Levicom's prospects were 50/50. She thought that the stronger argument might be that Baltkom's business was "the same as", rather than "competitive with", a business carried on by AS Levicom Cellular or a subsidiary company.
207. On 2 April 2004 Mr Robson spoke to Mr Humphries on the telephone. Mr Robson agreed that Ms Otton-Goulder had been more optimistic on 1 April 2004 than the previous week, and expressed the view that in fact she thought that Levicom would win. Mr Robson told Mr Humphries, that he did not consider that "this was a 'slam dunk' case and had never thought it was". He was concerned that Ms Otton-Goulder should be "right behind the case".
208. On 6 April 2004 Mr Robson sent to Linklaters a "model" representing how he thought that the case on quantum might be presented at the arbitration hearing, and he requested that it be passed on to Ms Otton-Goulder. He emphasised clause 9.2, and the presentation included the argument that "Had Tele2 followed the provisions in the CSA [NV] would at no cost have been provided with 10% of the invested capital, all further funding and value … by Tele2". Later that day he spoke to Ms Harrop by telephone. Mr Robson said that Levicom's case on quantum was much stronger than that presented by Ms Otton-Goulder, and that clause 9.2 was designed to ensure that Levicom should benefit from any investment made by Tele2 in the business. He said that it would be "sensible for this breach to be arbitrated as part of the put option arbitration", which Levicom were soon to start, but he also thought that clause 9.2 "impacted" on the dispute about the acquisition of Baltkom. Ms Harrop was cautious about whether the argument was relevant in the option arbitration, and expressed reservations about its relevance to the clause 13 claim.
209. On 19 April 2004 Levicom served their pre-hearing brief drafted by Ms Otton-Goulder. She put forward three arguments about the breach of clause 13: (i) that Baltkom's business was "the same as" that of AS Levicom Cellular generally; (ii) that Baltkom's business was "competitive with" AS Levicom Cellular's business in Estonia and Lithuania; and (iii) Baltkom's business was "competitive with" AS Levicom Cellular's business in Latvia. The primary case on loss and damage was that, if they had observed their contractual obligations, Tele2 would in fact have acquired Baltkom through AS Levicom Cellular or Levi & Kuto Latvia; that this was "the only commercially realistic option" for Tele2; and this would give rise to very substantial damages. Levicom's alternative case was that, if Tele2 had not acquired Baltkom at all, AS Levicom Cellular or Levi & Kuto Latvia would have done so, or at least Tele2 would have made substantial investments in AS Levicom Cellular's business in Latvia; and in either event a licence would have been acquired.
210. On 26 April 2004 the Swedish companies served their pre-hearing brief. They submitted, among other arguments, that clause 13 was designed to protect Levicom's interests in Estonia and Lithuania and to give the Swedish companies the assurance that Levicom would not diminish their Estonian and Lithuanian cellular network businesses through involvement in "side ventures for their sole financial gain"; that Levicom had no cellular network business in Latvia to protect as at 29 January 1999; and that clause 13.1 was not to be construed to prevent the Swedish companies from operating in Latvia through Baltkom, an interpretation that would be so wide that clause 13.1 would be unenforceable as a restraint of trade.
211. The Swedish companies dismissed as "nothing more than wishful thinking" Levicom's claim for loss flowing from a breach of clause 13. They submitted that the claim was calculated on a false basis, putting forward, among other arguments, one based on the "minimum performance principle", since "the Shareholders Agreement did not impose any obligation on [the Swedish companies] to invest in [AS Levicom Cellular] or to use funds in any particular fashion". It cited the observation of Scrutton LJ in Abrahams v Herbert Reiach Limited [1922] 1 KB 477, 482 that, "A defendant is not liable in damages for not doing what he is not bound to do" (an observation cited in Diplock LJ's judgment in Lavarack v Woods of Colchester [1967] 1 QB 278). This was this first time that the Swedish companies had clearly stated their "minimum performance" argument, although it was covered by their pleading in December 2003.

(r) The 2004 settlement

212. By a letter from Herbert Smith dated 7 May 2004 the Swedish companies offered to settle the claims in the arbitration, together with their dispute with Mr Peek and Mr Palts and the issue about the option price, about which an arbitration had been started on 6 May 2004. Herbert Smith wrote that, even if Levicom established breach of clause 13, their case on loss and damage was "contrived and without legal or factual substance". They contended, in essence, that Levicom's loss would be calculated by reference to the loss of a chance suffered by AS Levicom Cellular to obtain a Latvian licence.
213. The offer, which was available to be accepted until the close of business on 14 May 2004, was that the Swedish companies would pay Levicom €35.2 million "in full and final settlement of all claims made (or to be made) in relation to the subject matter of the Levicom Arbitration, the Peek and Palts Arbitration and the Put Option Arbitration, subject to the agreement between parties being recorded in writing in terms acceptable to Tele2 and NetCom"; that the Swedish companies would contribute up to €750,000 towards Levicom's reasonable costs of the arbitration; and that the Swedish companies would discontinue the arbitration against Mr Peek and Mr Palts and contribute up to €50,000 in respect of their reasonable costs. The letter explained the rationale of the offer on this basis:

"(i) €25.5 million relates to the value of [NV's] Put Option;

(ii) €6.6 million relates to [Levicom's] claim in relation to the Tranche C Loan Note and including interest calculated in accordance with the terms of the Tranche C Loan Note. The sum of approximately $500,000 has been deducted to reflect some of the costs incurred by [AS Levicom Cellular] in obtaining the GSM 900 licence in Lithuania; and

(iii) €2.3 million relates to the Tranche E Loan Note, on the assumption that [Levicom] would have succeeded in assisting [AS Levicom Cellular's] acquisition of a DCS 1800 licence in Latvia (being part of the package of licences put out to tender by the Latvian Government in August 2002). No deduction is made in respect of expenses properly incurred by [AS Levicom Cellular]; …"

214. On 7 May 2004 Mr Salzedo telephoned Linklaters to discuss the offer, which he described as a "serious" one. He considered that the chances of Levicom succeeding on liability on the clause 13 claim were "50/50" and there was a "very big risk" that Levicom would lose on the issues about the measure of damages and that their damages could be "low".
215. That afternoon Linklaters met Mr Pedriks. Mr Humphries said that the questions about damages were "worrying the lawyers", and they could be very small. Mr Pedriks said that he and Mr Robson would negotiate over the weekend for a settlement at €53 million, but "the Estonians would not walk away from €40 million", although they wanted €43 million. He considered that the value of the Baltkom claim should be assessed on the basis of the value of 10% of the benefit to AS Levicom Cellular at €30 million.
216. Over the weekend of 8 and 9 May 2004 Levicom unsuccessfully attempted to make contact with the Swedish companies. The Levicom shareholders did not consider the offer acceptable. Mr Pedriks sent an e-mail to Mr Humphries saying, "Basically, they are offering nothing – they are trying to buy off the whole arbitration for the price of 10% option". Mr Humphries responded by an email on 10 May 2004, advising caution about further negotiations and explaining that Linklaters found it difficult to advise about settlement:

"You are aware that we do not have sufficient information as to the value of the put option or as to any other question of quantum to enable us to give you any advice on the level at which the whole dispute should be settled. This is largely the function of the arbitration having been split between liability and quantum and your advice that subjective criteria can have the effect of skewing the value of the Put Option by plus or minus tens of millions of Euros. There is equal uncertainty over the value of the claim for breach of clause 13.1 as we have discussed and indeed a substantial risk that the tribunal could assess damages, if you were to prove a breach of clause 13.1 by the acquisition of Baltkom, by reference to the loss of a chance to obtain and build out a Latvian licence through Levi & Kuto Latvia. Against these uncertainties I would advise caution against being too greedy in any forthcoming settlement negotiations, particularly having heard that the majority shareholders would be happy with a total settlement of the order of Eur 40 million to Eur 43 million, as you told me during our meeting on Friday afternoon."

217. On 10 May 2004 the hearing before the tribunal started with Ms Otton-Goulder's oral opening. Mr Rokison intervened with a number of questions, including questions about the measure of loss. Ms Otton-Goulder, and also Mr Salzedo and Mr Humphries, considered that he did not accept Levicom's case on the measure of damage, and Mr Salzedo said that this ought to influence Levicom's attitude to settlement.
218. On 11, 12, 13 and 14 May Levicom called their witnesses. After the hearing on 14 May 2004 there was a meeting between Levicom and their advisers. As Mr Pedriks and Mr Robson recognised, Levicom's case did not appear to appeal to the arbitrators. Ms Otton-Goulder and Mr Humphries advised Levicom to accept the offer of 7 May 2004. They said that Mr Peek's evidence had damaged the case in respect of the Tranche C Loan Note. Moreover Ms Otton-Goulder thought that Mr Rokison disagreed with Levicom's case on the construction of clause 13.1 and she was pessimistic about the level of recoverable damages. She considered that damages would not be assessed on the basis of AS Levicom Cellular acquiring Baltkom because of the minimum performance principle.
219. Levicom decided that it was pointless to pursue the arbitration further because, even if they succeeded in establishing a breach of clause 13, the damages would be insignificant; and so, as advised by their lawyers, they agreed to accept the offer in the letter of 7 May 2004. Linklaters sent Herbert Smith a letter communicating this. On 16 May 2004 Herbert Smith sent a draft deed of settlement, and on 7 June 2004 the settlement agreement was made. The parties agreed to enter into a share purchase agreement under which the Swedish companies paid €35,180,413 for Levicom's 10% shareholding in AS Levicom Cellular (and such a share purchase agreement was duly made on 7 July 2004). Thus, notwithstanding the rationale for the offer explained in the letter of 7 May 2004, the settlement agreement was structured on the basis that the price for Levicom's 10% shareholding in AS Levicom Cellular was €35,180,413. Levicom, Mr Peek and Mr Palts (and other parties) agreed to this in satisfaction of all their rights "under or in respect of" the three arbitrations.

The issues and the judge's findings

220. In paragraph 277 of his judgment, the judge set out the five broad issues he had to decide, by reference to the contentions of Levicom disputed by Linklaters:

i) The advice given by Linklaters in the January and March letters was too optimistic and wrong.

ii) The advice was given without the proper skill and care and was negligent.

iii) Levicom relied upon the advice in their negotiations with the Swedish companies.

iv) Because Levicom were relying upon that advice they did not reach a settlement of the dispute and proceeded to arbitration. They would have done so had they been given proper advice.

v) As a result Levicom suffered loss in that in 2004 they settled the dispute on less favourable terms than they could and would have agreed had they settled the dispute before proceedings were brought, and they incurred costs in bringing the arbitration proceedings.

221. The judge addressed issues (i) and (ii) together. He distinguished between the advice that Linklaters intended to give and the advice they in fact gave. He held that they were entitled to advise that clause 13.1 should be given a Pan-Baltic construction, which he considered to be correct. Linklaters' assessment of Levicom's chances of success, as set out in the January and March letters, was within the range of opinions that could properly be given. He cited the dictum of Salmon LJ in C W Dixie & Sons Ltd v Parsons (1964) 192 EG 197:

"There was no topic on which judges had differed more often than upon the construction of documents. No one is infallible, except the House of Lords, and there were many points of construction upon which outstanding learned judges differed."

222. The judge also considered that Linklaters were justified in considering that it would be a straightforward matter for Levicom to prove a breach of clause 13.1: "It was essentially a question of construction and did not present apparent evidential difficulties." In addition, he held that Mr Pedriks and Mr Robson knew that there was scope for dispute about the questions of construction, and that in any event the assessment of the prospects of success in the March letter at 'in the region of, but not less than, 70%' carried the inherent implication that there was a chance of up to 30% that Levicom would fail to establish a breach of clause 13, and so carried a warning that Levicom might not succeed despite Linklaters' optimism".
223. The judge then held that Linklaters had a reasonable argument that damages should be assessed on the basis of an acquisition through AS Levicom Cellular. He specifically held that the minimum performance principle did not apply. He held that Linklaters had not intended to advise Levicom that their damages were likely to be substantial.
224. However, the judge then held that Linklaters had given advice that damages were likely to be substantial, in circumstances in which they had no basis for giving that advice. He summarised his conclusion as follows:

"299. I conclude that Linklaters' January letter was negligent, not because they failed to exercise proper skill, care or competence in reaching the opinions that they were seeking to express in it, but because the letter did not properly convey their advice and was reasonably to be understood by Levicom to advise that damages for breach of clause 13.1 of the CSA were to be assessed on the basis of an acquisition of Baltkom by AS Levicom Cellular, and be substantial. They had no proper and sufficient basis to give that advice."

225. The judge rejected Linklaters' contention that their January letter had to be read in the light of the advice given by Ms Pavlopoulos in February and at the beginning of March 2001. He said that Ms Pavlopoulos had made it clear that she was cautious about how damages would be assessed and what Levicom might recover, but equally Levicom had made clear that they were not relying upon her advice and sought the "concerted" views of Linklaters, including Mr. Legg. Those were given in the March letter.
226. In the March letter, Linklaters advised that Levicom could appropriately seek a declaration that would have the effect of compelling Tele2 to dispose of Baltkom, and that they had good prospects of obtaining that relief. The judge held that this was negligent, for three linked reasons:

"(i) first, given the discretionary nature of the remedy, a tribunal would be unlikely to award it if it would occasion unfair hardship to the Swedish companies because of integration of Baltkom's business in Tele2 group operations; (ii) secondly, with the passage of time, there well might be increasing difficulty in obtaining a declaratory remedy and order; and (iii) the arbitrators might well be concerned not to put the Swedish companies in an unfair negotiating position that Levicom could exploit. Therefore Levicom might well be refused discretionary relief and still need to face the difficult questions about the measure of loss and the assessment of damages. The March letter, as it seems to me, gave a false impression that, in view of the availability of a "declaratory order", Levicom could avoid them, but, at best, there was always a serious risk that they could not do so and this risk was likely to increase as time passed."

227. As to the damages claim, the judge said:

"311. However, the March letter gave Levicom no advice about how damages were to be measured if they wished to claim them, either because an order for the disposal of the shares might not be made or for any other reason. Because Linklaters were over-optimistic about the chances of obtaining a "declaratory order", they did not explain in the March letter the difficulties in measuring damages that they now recognised. A proper letter of advice would have made it clear that, while Levicom might succeed in a claim for damages measured by reference to the position if AS Levicom Cellular had acquired Baltkom, this would depend upon them establishing the factual basis for it and even then Levicom could not be sure that arbitrators would accept that approach to quantifying the claim. Because the March letter did not so advise, it in no way qualified what Linklaters had said in the January letter. Although Linklaters had come to recognise the difficulties in measuring damages and in particular the uncertainty whether a claim measured by reference to AS Levicom Cellular acquiring Baltkom would succeed, they did not warn Levicom of them and Levicom were entitled, as it seems to me, to proceed on the basis that the advice in the January letter still represented Linklaters', and in particular Mr. Legg's, views.

312. … I consider that Linklaters gave proper advice about whether there was a breach. As for remedy, had Linklaters not been negligent, they would have advised Levicom of the difficulties in measuring damages generally and in particular that a claim based upon AS Levicom Cellular acquiring Baltkom was far from certain to succeed. Levicom should have been so advised whether by Linklaters themselves or by counsel instructed by Linklaters for Levicom.

313. I therefore consider that Linklaters were entitled to advise that Levicom had a strong case about clause 13; that, depending on the facts that they could prove, they had a reasonable prospect of establishing damages on the basis of AS Levicom Cellular acquiring Baltkom, and that the first offer did not represent fair compensation for them and should not be accepted. They were negligent because Levicom understood, and reasonably understood, from the January and the March letters that Linklaters' assessment of their position was considerably more optimistic than that."

228. The judge then turned to the issues of reliance and causation. These are at the heart of this appeal. He accepted that Levicom did rely on Linklaters' advice. As he aptly put it:

"324. … After all, Levicom were paying Linklaters not only to conduct correspondence and then act in the arbitration: they paid substantial sums for advice given on more than one occasion."

229. The judge then considered what he treated as a separate question, namely whether Levicom would have acted differently if they had received "proper advice". He said:

"327. … Levicom have to show on the balance of probabilities that, had they received proper advice, they would have adopted a different negotiating stance, and, if they show that, the court has to assess the chance of this bringing about a response from the Swedish companies that on the balance of probabilities Levicom would have accepted by way of settlement of the dispute. One corollary of this is that if, on the balance of probabilities, Levicom would with proper advice have accepted the first offer, or settled on the terms of the first offer after 2 March 2001 when it had lapsed, there would have been a settlement."

230. The judge rejected Levicom's case. He said:

"337. I do not accept that Levicom would have entered into such a settlement even if they had been given advice as pessimistic as that which they contend Linklaters should have given them, still less if they had been given what I conclude would have been proper advice. There is no evidence that I accept that indicates that they would have done so. Mr. Robson's evidence was only that, had Linklaters advised that there was "no real prospect of showing that Levicom's entitlement should have been assessed by reference to Tele2 acquiring Baltkom through AS Levicom Cellular", Levicom would have "pursued further negotiations with Tele2 on the basis of" the first offer: not that they would have accepted the first offer. Mr. Pedriks said that, if the advice had been that Levicom stood very little chance of obtaining more in an arbitration than was represented by the first offer, then Levicom would have settled on the best terms available, but I cannot accept that evidence without qualification. I accept that, as Mr. Pedriks also said, in those circumstances, Levicom would have been willing to negotiate with the Swedish companies on the basis of an acquisition of Baltkom by Ritabell, but that is very different from them accepting the first offer. I conclude that Mr. Robson's evidence about this presents a more probable picture than that of Mr. Pedriks.

338. In my judgment, even if given the pessimistic advice that they say should have been given, Levicom would not have been willing to accept terms as unfavourable as those of the first offer. They included no compensation for settling the claim under clause 11 of the CSA, and contemplated an acquisition by Ritabell funded by entirely by third party debt. Mr. Pedriks and Mr. Robson strongly believed that it was unrealistic to suppose that an acquisition would be so funded. Even if told that the chances of establishing a breach of clause 13 were evenly balanced, Levicom would still have been encouraged by Mr. Svedberg's admission, albeit without prejudice, that Tele2 were in breach of it.

339. Further, I do not consider that Levicom would have settled the claims under clauses 11 and 13 without resolving the claim in respect of a Tranche C loan note. As Mr. Pedriks put it in his email to Mr. Svedberg of 1 August 2001, "It must be a package". This too means that, while Levicom might have accepted the terms of the first offer as a basis for negotiations, it was not an offer that they would simply have accepted."

231. Thus the real question was whether the course of negotiations would have been affected by non-negligent (or "proper") advice. In rejecting Levicom's contentions, in paragraph 341 of his judgment the judge set out four considerations:

"(i) Levicom have not presented any real evidence as to the stance that they adopted in the discussions that they had with the Swedish companies after or indeed before they received the January and the March letters. For example, there is no evidence whether they were focused upon the strength of the parties' legal cases or whether they were more concerned with commercial considerations such as how the joint venture might be developed in the future. This, as it seems to me, makes it the more difficult for Levicom to argue that they have shown that, with proper advice, they would have been conducted differently.

(ii) Secondly, such evidence as there is indicates that in general terms Levicom did not present themselves to the Swedish companies as uncompromising and inflexible in their demands. This is reflected both in Mr. Pedriks' email of 1 August 2001 ('We are prepared to make amendments and changes in the spirit of finalising something before September…') and that of 21 October 2001 ('meeting …. half way on the Latvian issue'). This might well have been because Levicom saw it in their commercial interests to develop their shares business interests rather than because they were cautious about their prospects in an arbitral resolution of the disputes, but that is beside the point. It is not enough for Levicom simply to say that given proper advice they would have shown themselves willing to compromise in their demands: as it was, they made this clear in the emails, and it is probable, as I infer, that they did so in the earlier negotiations. As it was, Mr. Robson thought that Levicom had been 'too nice'.

(iii) In my judgment Levicom always knew that there was some risk that they would not succeed in establishing substantial damages, although they believed that they would do so. Hence Mr. Pedriks' observation on 14 January 2004, 'The big fight is quantum'. This is why he and Mr. Robson did not express surprise at Ms Otton-Goulder's advice on quantum on 30 April 2003 (in marked contrast to their understandable reaction when she gave pessimistic advice on liability on 24 March 2004). This advice did not, as far as the evidence goes, lead them to change their stance in the negotiations with the Swedish companies.

(iv) Fourthly, Levicom were reluctant to accept Linklaters' advice about quantum, more specifically that clause 9 did not assist their arguments on quantum. Mr. Robson in particular repeatedly revisited the question, still pressing the point in April 2004 in his "model" for the presentation on damages and having the point covered in the amendment of the agreement with Levicom for his remuneration.

232. Accordingly, the judge refused to infer that clear and proper advice about Levicom's remedies would have changed what Levicom did and concluded that it would not have done so (paragraph 342). He referred to the fact that Mr Pedriks and Mr Robson had strong views about the meaning of the CSA and how breach should be remedied, and said:

"343. I accept that they would have been dissuaded from going to arbitration if Linklaters had given them advice that their views were demonstrably wrong and that there was no, or only a negligible, chance that an arbitral tribunal would agree with them. I do not consider that they would have been influenced in what they did by advice that, while more cautious than that which they were given, told them that they had a reasonable chance of succeeding on liability and some real chance of recovering more than they would have received under the first offer."

233. The judge said that he was encouraged in this finding by Levicom's conduct when responding to the advice they received:

"344. … Not only did they challenge any adverse advice with contrary arguments, but at no point did they question any optimistic advice that they were given. On the contrary, they read even more into favourable advice than was justified. For example, Mr. Pedriks interpreted the January letter as endorsing his view that Levicom were entitled to 10% of the US$277 million purchase price of Baltkom, and prepared the spreadsheet (for Levicom's internal purposes, not initially for negotiations purposes) on the basis that this was Levicom's contractual entitlement. He interpreted advice that assessed the chances of success at no less than 70% as amounting to advice that the case on liability was a "home run". Similarly Mr. Robson managed unrealistically to interpret Mr. Graham's advice about how to respond to the fourth offer as indicating total confidence in Levicom's case."

234. The judge nonetheless proceeded to assess what would have been the chances of Levicom achieving a settlement with the Swedish companies if proper advice had been given and they had in consequence had adopted a conciliatory position in negotiations, and in particular had accepted a settlement based on Baltkom being acquired by Ritabell. He said he would have assessed the prospects as follows:

"349. … I would have assessed the value of the overall chances that Levicom would have had of reaching a settlement without bringing arbitral proceedings as equivalent to the following: that there was a 50% chance of an agreement in June 2001 whereby Levicom settled their claims in respect of the Baltkom acquisition under both clause 13 and clause 11 on the basis (i) that the option price should be determined on the basis of the assumptions proposed in the first offer (and set out in Cleary Gottlieb's draft of 21 November 2000) together with a further assumption that the acquisition was financed as to 30% by equity or "quasi-equity"; and (ii) of a payment of €1 million for the claim under clause 11, the amount included for this in the third offer.

350. The claim in respect of the Tranche C loan note requires separate consideration. In the letter of 7 May 2004 €6.6 million is attributed to it (presumably including some interest). I have scant evidence about how strong the claim was and the amount of any deductions that could properly have been made from it in respect of costs 'properly incurred in connection with the acquisition'. However, initially Mr. Svedberg did not resist the claim in principle, raising arguments only about proper deductions. The argument that the costs of handsets used for marketing purposes, albeit, as I would suppose, marketing purposes associated with the launch of the network, were properly deductible seems to strain any proper construction of clause 10. It seems to me a likely inference that the sum attributed to this claim in the 7 May 2004 letter reflects that it was a strong claim. I therefore conclude that, in the event that the 50% chance of a settlement of the Baltkom claims had been realised in (say) June 2001, it would have included settlement of the Tranche C loan note claim at €6.5 million.

235. The judge then considered the loss that Levicom claimed to have suffered. It had two components: the difference between the 2004 settlement and what it would have achieved if properly advised; and the legal and other costs incurred in the arbitral proceedings, which they would not have instituted if properly advised.
236. The total sum paid under the settlement was €35,180,414, expressed to be made up of €25.5 million payable on the exercise of the put option, €6.6 million for the Tranche C loan note and €2.3 million for the Tranche E loan note. The judge held that account had to be taken of the difference between the actual value of AS Levicom Cellular's interests in the businesses in Estonia and Lithuania, and the sum received under the settlement, which was €3 million more than their value according to the expert evidence accepted by the judge. He considered that the option price of €25.5 million included some recognition of the claims in respect of the acquisition of Baltkom. The judge made no finding as to the costs of the arbitration.
237. Having reviewed the evidence, the judge concluded that if the disputes between Levicom and the Swedish companies had been settled on terms that did not compromise Levicom's right to exercise its option, it would have exercised it in about June 2001. He reasoned that Levicom would have done so then because of its concerns as to the Swedish companies' continuing solvency.
238. In paragraphs 365 to 375 of his judgment, the judge resolved differences between the valuation experts called by the parties. He did not seek to quantify Levicom's claim for legal and other costs. Finally, he said that if Levicom had been entitled to more than nominal damages, he would have invited submissions on the further hearings or inquiries to quantify damages. In the event, he awarded Levicom nominal damages of £5.

The grounds of appeal and the parties' submissions

239. Levicom put forward 6 grounds of appeal:

i) Ground 1 asserts that the judge erred in finding that Linklaters' advice on the merits of Levicom's construction of clause 13.1 of the CSA was advice that a reasonably competent solicitor might have given. Sir Richard Buxton refused permission to appeal on this ground. He said that he agreed with the judge's view, i.e. that a Pan-Baltic construction was correct. Levicom renewed their application for permission to appeal before us, on the basis that if permission was granted, the hearing would include its appeal.

ii) Ground 2 contends that the judge erred in holding that the minimum performance principle did not apply, and in holding that it was unnecessary for Linklaters to advise of the risk that it might apply. Sir Richard Buxton refused permission on this ground, but on the basis that the principle was simply inapplicable, because Tele2 could not consistently with their obligation under clause 13.1, if it had the meaning found by the judge, make any acquisition at all.

iii) Ground 3 sought to challenge the judge's finding that the correct starting point for the purposes of causation was to consider what non-negligent advice could have been given closest to the advice actually given: the correct starting point is what would have happened if the claimant had been given the advice a reasonably competent solicitor was most likely to give. In respect of this ground, Sir Richard Buxton stated that it "does not appear to be in issue". I confess I do not find this comment clear. On balance, I think that permission to appeal was granted. At any rate, it was not refused.

iv) Ground 4 is the subject of controversy. In a long paragraph in the notice of appeal, it is contended that the judge erred in finding that if advised competently, Levicom would not have changed their attitude to the negotiations. Sir Richard Buxton granted permission to appeal on this ground.

v) Ground 5 contends that the judge erred in finding that Levicom would have exercised the put option on June 2001 rather than in October 2003, when they in fact did so. Permission to appeal was granted on this ground.

vi) Ground 6 contends that the judge erred in finding that account should be taken of the difference of €3 million between the expert valuation of the Estonian and Lithuanian interests and the sum attributed to them in the settlement agreement. Permission to appeal was granted on this ground also.

240. Each of these grounds is disputed by Linklaters. The central issue, of course, is causation. On this, Linklaters emphasised the very great weight to be attached to the trial judge's findings of fact, particularly where the judge is as experienced as Andrew Smith J and his judgment demonstrates the very great care taken over them.

Permission to appeal and the scope of this appeal

241. I would grant Levicom permission to appeal on Ground 1. As will be seen, I consider the correct construction of clause 13.1 of the CSA to be very arguable.
242. There was an issue between the parties as to whether Levicom's Grounds for which they now have permission to appeal included the contentions set out in their skeleton argument at paragraphs 47 to 51 as to the appropriate advice that should have been given by Linklaters as to Levicom's remedies, assuming that there had been a breach of the CSA. Mr Moriarty submitted that they did not. Mr Fenwick pointed out that Levicom's skeleton argument had been served together with their notice of appeal, and made it clear what issues they sought to raise on the appeal.
243. If it had been served without Levicom's skeleton argument, there would be force in Mr Moriarty's objection. However, I think it would be unduly formalistic to exclude Levicom from advancing these contentions. A commercial, indeed any, client, wishes to know what his rights are: what he is entitled to. That includes both questions of breach and questions of remedy. In fact, Linklaters' advice was sought on both, and their advice encompassed both; and both were and continue to be the subject of complaint by Levicom. In a case such as that on which Linklaters advised, questions of breach and remedy are inextricably linked. One cannot advise on remedy until one has decided not only whether there has been a breach of contract but also precisely what is the breach. In a case such as the present, it would have been pointless for a commercial solicitor to advise a client on his claim against a third party if he restricted his advice to the question whether there had been a breach of contract or not. Furthermore, in deciding whether a client would have acted differently if competently advised, the court has to address the difference between the advice actually given and the advice that should have been given; and in this case, that issue encompasses both liability and remedy.
244. Mr Moriarty did not suggest that he was not able and ready to address the contentions raised by those paragraphs of Levicom's skeleton. In my judgment the just resolution of this appeal requires these contentions to be addressed by the Court rather than excluded on formal grounds.

Discussion

245. I see the issues in this case rather differently from the judge, and indeed from the parties. To my mind, as I shall explain, the issues concerning the CSA and the remedies available to Levicom were indeed relatively straightforward, but not as advised by Linklaters. This is not to say that the issue as to the ambit of clause 13.1 admits of an easy answer. But to my mind, the issues concerning the remedies available to Levicom if their contentions as to the ambit of clause 13.1 (i.e., it did have a Pan-Baltic effect?) did admit of simple answers.
246. The starting point has to be the advice given by Linklaters in the period between October 2000, when they were first instructed in connection with the disputed acquisition of Baltkom by Tele2, and the beginning of the arbitration in August 2002. What I found striking is the bullish nature of the advice given by Linklaters, and the lack of any significant analysis or discussion of the issues. It is difficult to conceive of more bullish advice than that contained in the January letter, which advised in terms that the Swedish companies' offer did not fairly compensate Levicom, and recommended that Levicom begin arbitration proceedings. I do not see how that advice could reasonably have been given without some assessment of Levicom's recoverable loss, if any. The March letter repeated the advice that the breach of clause 13 was clear and the claim straightforward. It quantified the prospects of success at "in the region of, but not less than, 70 per cent". As the judge rightly commented, this implied up to a 30 per cent chance of failure. Nonetheless, on this figure, the chances of success were better than 2:1. I do not think it unrealistic to consider that lawyers do not advise that the prospects of success are that high unless they are very confident indeed. I am not surprised that after this advice Mr Pedriks thought that their case on liability was a "home run". The March letter also advised that "a declaratory order which compels Tele2 (and probably NetCom) to procure that its subsidiary disposes of Baltkom … would be an appropriate remedy".
247. I entirely agree with the judge that the advice contained in these letters was negligent. In the first place, with respect to the judge and to Sir Richard Buxton, I do not think it clear, and I am not convinced, that clause 13 should be given a Pan-Baltic construction. This construction implies that a cellular network business in one Baltic state is "the same" as that carried on in another state. But if this is what the parties intended, why did they simply not draft an agreement that none of the relevant parties would carry on in any Baltic state any cellular network business other than that of Levicom Cellular? The Pan-Baltic construction gives no effect to the qualifying words "as at the Completion Date". Thirdly, it is clear that a cellular network business (in the sense of the kind carried on by, say, Vodafone or Orange in the UK) in one state does not compete in any meaningful sense with one carried on in another state, by reason of the requirement of a national licence. Normally, a restraint against carrying on a "competing" business is wider than a restraint against carrying on "the same" business. Yet, under Linklaters' interpretation of clause 13, the restraint in relation to "the same" is wider than that relating to "competing"; indeed, the inclusion of the latter restraint appears to be otiose. Lastly, a national interpretation of clause 13 makes commercial sense. Clause 13 restrained BV, NV and the NV Shareholders (apart from Mr Pedriks) as much as the Swedish companies. Under the CSA, Tele2 paid a considerable sum for its shareholding in Levicom Cellular. It was understandable that they would want to prevent the shareholders from whom they acquired their shares from competing with the business in which they had acquired their investment, or starting the same business. Clauses 13.1.2 and 13.1.3 support this approach.
248. To my mind, the only argument in favour of a Pan-Baltic construction is that the Swedish companies' acquisition of a cellular network business in Lithuania or Latvia would make it more difficult for NV to satisfy the requirements of clauses 10 and 11. Even this consideration must be qualified: there was no similar provision in respect of Estonia, yet clause 13 extended to that state.
249. I do not think it necessary to resolve the issue as to the correct interpretation of clause 13. In circumstances in which a High Court judge, leading counsel and a retired judge of the Court of Appeal have concluded that the Pan-Baltic interpretation is correct, it would be wrong to make a finding of negligence in advising that it was correct. However, nowhere in the documents referred to in the judgment is there any consideration by Linklaters of the factors to which I have referred. In my judgment, they could not sensibly have advised that the breach of clause 13 was "clear". In my judgment, they were negligent in doing so. It was particularly relevant to give a balanced view in the context of potential arbitration proceedings, since if the arbitration tribunal were to arrive at a different interpretation, it could not (save in rare circumstances) be the subject of appeal, even if objectively that interpretation might be incorrect.
250. However, it is when I turn to remedies that I find the negligence of Linklaters more striking. For these purposes, I assume that clause 13 should be given a Pan-Baltic construction. Clause 13 was a negative stipulation. As Sir Richard Buxton pointed out, it simply prohibited the Covenantors from carrying on a restricted business. Damages are the normal remedy. What damage flowed from the breach? It is to my mind simply and obviously the loss to NV flowing from that competition. In relation to Baltkom, there was no loss in Lithuania, since Baltkom's business was only in Latvia. The only damages that flowed from the breach in acquiring Baltkom was that it may have rendered it more difficult, if not impossible, for NV to satisfy the requirements of clause 11, under which it would have been entitled to a Tranche D Loan Note. But Linklaters did not seek to quantify or to advise on whether NV otherwise would have had a real prospect of satisfying those requirements. It is asserted by Levicom that it did not. If there was no real prospect of its doing so, assuming that Baltkom had not passed into Swedish ownership, Levicom suffered no loss. Nowhere did Linklaters suggest that there was any such real prospect: the question was not addressed.
251. I am unable to see any sensible basis for Linklaters' advice that the loss that flowed from the breach of clause 13 was what NV would have received if Tele2 had acquired Baltkom legitimately. That would have been the measure of damages if clause 13 was a positive covenant requiring Tele2 so to acquire Baltkom; but it was not.
252. I see no reasonable basis for the suggestion in the March letter of a declaratory order requiring Tele2 to dispose of Baltkom. It was put forward because "If the loss cannot be accurately assessed then damages will not be an adequate remedy." The italics are mine. There is no such rule of English law. I can see no circumstances in which arbitrators could properly have made such a declaration. Any loss suffered by Levicom was financial, and could be estimated. Frankly, the claim for such a declaration reeked of improper pressure. Moreover, I have seen nothing to show that Linklaters had a sensible basis for concluding that damages were not an adequate remedy. Nowhere in their letters is there an attempt to quantify damages. In such circumstances, arbitration proceedings were liable to be a step in the dark. The suggestion of a declaratory order, the formulation of a draft request for arbitration that did not seek damages, but only reserved the right to claim damages, are indications that Linklaters came to appreciate the difficulties of a damages claim. The instructions to Ms Otton-Goulder of 28 June 2002 made it clear that there were such difficulties. Those difficulties should have been addressed early on. They were not.
253. It follows that I endorse the judge's finding of negligence. I would, however, have been more critical of the advice given by Linklaters in the January and March letters. In addition, I would not have sought to distinguish between the advice that Linklaters intended to give and the advice they in fact gave. It was only the latter that was relevant.
254. Of course, the above conclusions are academic if, as the judge found, Levicom would in any event have proceeded as they did. I have fully in mind the great weight to be given to the judge's finding of fact that they would. However, in my judgment that finding is flawed.
255. For this purpose, I do not think it necessary to resolve the issue as to whether this issue is to be resolved by reference to the advice that Linklaters could without negligence have given that approximated closest to the advice they gave, or to what correct advice in the circumstances would have been.
256. In my judgment, the crucial evidence relates to Levicom's reaction to Ms Pavlopoulos' advice. Her advice was less than encouraging. Indeed, in my judgment, apart from her failure to take account of clause 1.5 of the CSA, her views were by far the best of those expressed by Linklaters. In his email of 24 February 2001 Mr Pedriks stated to Mr Robson: "Unless we get Andrew Legg or someone senior on this I am not comfortable going forwards." Levicom then proceeded to seek further advice from Linklaters: they wanted their "concerted view". The email from Mr Pedriks to Mr Robson was internal to Levicom: there is no reason to believe that there was any element of posturing by Mr Pedriks, or that it did not represent his position at the time. Why, I asked Mr Moriarty, should Levicom have asked expensive City solicitors to give their "concerted view" if it was irrelevant to their conduct of the dispute with Netcom? I do not think the question received an sensible answer. This email was not referred to by the judge when he gave his reasons for concluding that Linklaters' negligence had not caused Levicom to act differently.
257. The second contemporaneous communication that the judge omitted to refer to, and I infer also failed to take into consideration, was Mr Pedriks' telephone conversation with Ms Pavlopoulos on 1 March 2001. According to her attendance note, under the heading "The Way Forward" he said:

"… We were up against very nasty opponents, and he wanted us to turn over every possible leaf. In his opinion, Levicom had a very strong case. Unless this was right, he was not happy to proceed with an arbitration. He asked us to review the position again. …"

Again, the italics are mine. I see no basis for discounting this contemporaneous expression of Mr Pedriks' view, consistent as it is with his email to Mr Robson. In my judgment, Levicom should not have been advised, as they were, that they had a very strong case.

258. Again, Levicom's hesitation about commencing arbitration, following the telephone discussion with Linklaters on 15 March 2001, is not indicative of a client who would have ignored reasoned pessimistic advice. And why did Mr Pedriks seek Linklaters' advice on Mr Svedberg's argument on 2 April 2001 if it was irrelevant?
259. I fully accept that when Levicom sought Linklaters' advice, they strongly believed that they had a strong case. Their views were reinforced by the advice they received from Linklaters. It is not surprising that they were then wholly convinced of the strength of their position. Nor is it surprising that they did not question the optimistic advice they were given. It is similarly unsurprising that, given Linklaters' advice, the meeting of 9 November 2001 was for them to advise not whether to accept the Swedish companies' offer, which on the basis of that advice was unacceptable, but how to proceed after its rejection. However, I see no point in their seeking and paying for Linklaters' views if they were not to influence their conduct of the dispute. The email and attendance note to which I have referred strongly indicate that Levicom sensibly considered Linklaters' advice to be crucial. The fact that Levicom sought Linklaters' advice again in connection with the Swedish acquisition of a new UMTS (3G) licence in Latvia is a further indication that Linklaters' advice would affect their conduct.
260. Of the four considerations that bore on his finding that Linklaters' negligence had no causative effect set out in paragraph 341 of his judgment, set out at paragraph 231 above, the first seems to me to be of little weight. The second, the fact that Levicom did not present themselves to the Swedish companies as uncompromising and inflexible in their demands, seems to me to point to the likelihood of Levicom accepting a settlement close to that originally offered if they had been correctly advised. It does not indicate an attitude that arbitration was the only way forward. The third seems to me scarcely to advance matters. Mr Pedriks' view that "The big fight is quantum" reflected Linklaters' advice. The fourth point again does not advance matters unless one concludes that if Linklaters had advised, as they should have done, that Levicom had a difficult case and no evidence of loss, Levicom would nonetheless have proceeded to arbitration.
261. Lastly, one has to ask why a commercial company should seek expensive City solicitors' advice (and do so repeatedly) if they were not to act on it. I think that the evidence that a client did not act on advice in a case such as the present must be stronger than that which persuaded the judge. I agree in this connection with the judgment of Jacob LJ.
262. I would therefore allow Levicom's appeal on the issue of causation. In my judgment, Levicom established that had they been properly advised, they would have settled their claim against the Swedish companies in or about 2001, on terms similar to but improved marginally on those then offered by the Swedish companies, as mentioned by the judge at paragraphs 348 to 350. In addition, they would have saved the costs of the arbitration proceedings.

Consequential issues

263. If Jacob and Lloyd LJJ agree with my conclusion on causation, a number of consequential issues considered by the judge fall to be considered by this Court. The first is Levicom's challenge to the judge's finding that if a settlement had been achieved earlier, Levicom would have exercised their put option in June 2001. The relevance of this issue is that the value of the option increased very considerably between June 2001, when the hi-tech sector, including mobile telephony, suffered following the bursting of the so-called dot.com (or hi-tech) bubble, and the date when the option was in fact exercised, October 2003. If the consequence of Linklaters' advice was that Levicom delayed exercising the put option, they gained very considerably from the increase in its value, and that increase must be brought into account in assessing their loss.
264. Levicom prepared for the hearing before the judge on the basis that their case was that they would have exercised the put option on the date on which they in fact did so, namely October 2003, and that there was no issue as to that. The judge held that the date of exercise was in issue, for reasons which he explained at paragraph 40 of his judgment. He held that the correct date would have been June 2001. If he had not held against Levicom on causation, he would have directed an enquiry as to damages in relation to the effect of this date: see his paragraph 41.
265. At all events, Levicom's starting position was that the actual date would have been the chosen date even if they had achieved a satisfactory settlement in 2001. The judge rejected this, even though supported by evidence from Mr Pedriks, as being inconsistent with more contemporaneous evidence and as ignoring commercial reality. He referred to material showing that there was concern within Levicom about the right date for exercise of the option from October 2001 onwards. In particular there was concern in 2001 about the solvency of the Swedish companies after the collapse of the hi-tech bubble.
266. The prospects as regards the solvency of the Swedish companies affected Levicom's decision about the exercise of the option in any event, and it also affected their tactical decisions generally. The amount at stake would be affected by a favourable settlement, but enough was involved, whatever happened, for "commercial reality" to be a compelling factor for Levicom regardless of the state of their negotiations about the acquisition of Baltkom.
267. One piece of evidence that weighed with the judge was that Ms Otton-Goulder mentioned, when giving advice on quantum, that she had been told that Levicom's evidence would be that the option would have been exercised in about January 2001, and that Mr Pedriks and Mr Robson, who saw her advice, did not correct this statement. In fact, at the consultation that ensued, Mr Pedriks and Mr Robson are noted as having said that they would exercise the option at the latest possible date. It is fair to observe, as Mr Moriarty submits, that this was in April 2003, by which time the economic situation was very different from that which had prevailed in 2001. However, the notes also record that, in relation to the quantification of loss to which the date of exercise was relevant, Mr Robson said that "the earnings potential was obviously rising if Levicom had formed a view that the business in the Baltic would grow, then it would make sense to hold onto the shares as long as possible and exercise the option at the latest date". That is not an acceptance, even if it is not an explicit correction, of the proposition that the option would have been exercised in January 2001.
268. Mr Robson had said in an email in April 2003 that: "Had Tele2 acquired Baltkom through [Levicom Cellular] we would probably have used our put option at an early stage", and later in the same sequence of emails he referred to uncertainty as to the assets that could be put, and said "under this uncertainty we decided not to put". He was cross-examined about this, but it seems to me that the judge was entitled to place reliance on these statements. On the other hand, a settlement in the early part of 2001 along the lines of the first offer from the Swedish companies would not have been on the basis that Baltkom had been, or was treated as having been, acquired through Levicom Cellular.
269. Mr Fenwick pointed out that the evidence included a number of conflicting comments, form 2001 onwards, within Levicom or by persons on behalf of Levicom to others, as to the appropriate time for exercise of the option. I would not accept Mr Fenwick's other argument that, as a matter of principle, the actual date of exercise should be adopted unless a different date can be shown to be correct. It is for the claimant to prove what it would have done if it had received advice that was not negligent, and that applies to all elements in the hypothetical situation which that enquiry postulates. Nevertheless, since Levicom's attitude to the exercise of the option was not, or at the very least not only, conditioned by the position as regards the dispute about the Baltkom acquisition, there is substance in the point that the hypothetical can, in this instance, be judged by reference to the actual.
270. Mr Moriarty relied, understandably, on the proposition that the judge had seen the witnesses and was best able to form a view on this issue as to what would have happened if a settlement had been reached in 2001 after competent advice from Linklaters. I recognise the force of that point, but with respect to the judge I do not consider that the factors on which he relied for his conclusion are sufficient for the purpose, in the face of other evidence. Mr Robson's suggestion to the board of Levicom in October 2001 that the option be exercised by early 2002 does not support a hypothetical date of June 2001, and in any event the board evidently disagreed with the suggestion, because it was not followed. Nor do Mr Pedriks' concerns in September 2002 support a hypothetical date of June 2001.
271. In my judgment there was no adequate basis for adopting a date for the exercise of the option in the hypothetical circumstances which was different from the date of its actual exercise.
272. Lastly, the judge held that the difference between the actual value of Levicom Cellular's interests in the Estonian and Lithuanian businesses and the value ascribed to them in the settlement was to be brought into account in any assessment of Levicom's damages. Levicom challenge this finding. I think that Levicom are right. There was no evidence before the judge to justify his finding that any part of the sum specified in the settlement agreement represented compensation in respect of Baltkom. In particular, there was no evidence that the Swedish companies shared the expert witnesses' valuation.

Conclusion

273. If my brethren share my conclusions, it will be necessary for there to be further proceedings, and the parties will be given time to consider the way forward. I should, however, like to think that these proceedings can now be settled.
274. In relation to the procedural question that arose in this appeal, I agree with paragraphs 278 to 281 of the judgment of Lloyd LJ below

Lord Justice Lloyd:

275. I agree that this appeal should be allowed to extent described in, and for the reasons given in, the judgment of Stanley Burnton LJ.
276. It seems to me that Linklaters' advice as to remedy, and in particular the quantum of damages, in late 2000 and early 2001 fell significantly short of what Levicom were entitled to expect, and of the standard of a reasonably competent solicitor. I agree that, if Levicom had received advice which was competent in this respect, they would have negotiated with the Swedish companies along the lines of the initial offer. That offer did not cover all aspects of the matters in dispute, and I see no reason to suppose that agreement would not have been reached on the other points as part of a negotiation undertaken at that time, as the judge said at paragraphs 348 to 350. I also agree that the damages should be assessed on the basis that, in that event, the put option would have been exercised at the time when it was in fact exercised in October 2003. I agree that no part of the sum paid under the eventual settlement can properly be taken as representing compensation as regards Baltkom.
277. It follows that the appeal should be allowed and the matter be remitted for the quantification of damages, by the court if it cannot be agreed.
278. I wish to comment on one procedural aspect of the appeal, to which Stanley Burnton LJ refers at paragraphs 242 and 243. As he says, the grounds of appeal annexed to the Appellant's Notice set out six separate grounds, of which the fourth is contained in a quite long and somewhat discursive paragraph. Nothing in it reflects the content of paragraphs 47 to 51 of the skeleton argument, which is headed "Competent Advice on Remedy". Paragraphs 49 and 51 set out points made on behalf of Levicom which are not contained in the grounds of appeal, but which Mr Fenwick sought to argue.
279. It is not correct to omit from the grounds of appeal a distinct point which the appellant wishes to argue and to set it out instead in the skeleton argument. That does not amount to compliance with paragraph 3.2(1) of the Practice Direction supplementing Part 52 to the CPR. Not least, if permission to appeal is sought from and granted by the Court of Appeal on the basis of the Appellant's Notice, there may be uncertainty as to the grounds to which the permission to appeal extends. In the present case Sir Richard Buxton did not refer to this separate point, no doubt because it was not identified in the grounds. He therefore neither granted nor refused permission to appeal on it.
280. I agree that, in the event, no prejudice was caused by this procedural error, and since the respondents were on notice of the point and in a position to argue it, it was right to allow the point to be taken. The fact that the skeleton argument was prepared at the same time as the Appellant's Notice and served together with it contributed to this position. However, in one sense, the fact that the point had been identified and formulated in the skeleton argument made it less, rather than more, excusable that it was not also set out in the grounds of appeal. It had the effect, among other things, that the respondents did not deal with it in their skeleton argument.
281. The fact that we allowed the point to be argued should not be taken as justifying an argument that, if the point is in the skeleton argument, it does not matter whether it is in the grounds of appeal.
282. However, on the substance of the case, I agree with Stanley Burnton LJ as to the disposition of the appeal. I also agree with paragraph 284 of Jacob LJ's judgment.

Jacob LJ:

283. I agree with both judgments.
284. When a solicitor gives advice that his client has a strong case to start litigation rather than settle and the client then does just that, the normal inference is that the advice is causative. Of course the inference is rebuttable – it may be possible to show that the client would have gone ahead willy-nilly. But that was certainly not shown on the evidence here. The Judge should have approached the case on the basis that the evidential burden had shifted to Linklaters to prove that its advice was not causative. Such an approach would surely have led him to a different result.