The case of Wright v Lewis Silkin (EWHC 1897 (QB)) flags some important risk management reminders for firms involved in negotiating commercial contracts of any nature.
Wright v Lewis Silkin: the case in brief
Lewis Silkin (LS) were engaged by Wright to advise him regarding his appointment as CEO to a franchise in the newly created Indian Cricket Premier League (IPL) in 2008. In additioning to running one of the teams in the IPL, they had a bold vision to build an international Sports City in India, to compete with some of the largest sports complexes in the world.
As with many commercial start-ups, the deal evolved during the course of negotiations. At the time that LS were instructed, there was considerable uncertainty regarding who and what the employing entity would be and where it would be registered (Singapore or India). The negotiation timescales were also very tight: Mr Wright's first substantive negotiations on the deal were on 6th May 2008. LS was instructed on 12th May, and the the Heads of Terms were executed on 15th May, albeit subject to some further amendments in the weeks that followed.
When Mr Wright was (constructively) dismissed in 2009, he sought to rely on a provision in the Heads of Terms that he should, amongst other things, receive a £10m severance payment. The contract was subject to English law, and Mr Wright ultimately obtained judgement in his favour, in the sum of £10.3m plus almost £1m costs. The judgement has never been successfully enforced in India, and Mr Wright was advised that he had no realistic chance of recovering any of the sums.
The nub of the case against LS was that they had failed properly to advise Wright regarding matters of jurisdiction. The court suggested that LS's submission implicitly accepted that, "any solicitor dealing with an international contract of this type should consider and advise of jurisdiction issues". LS argued that they had done so, but, in absence of evidence to back up LS's statements in this regard, the court at first instance found in Wright's favour.
Risk Management lessons
Negotiations regarding any complex matter carried out to tight deadlines are more likely to give rise to errors and omissions. In the Wright v Lewis Silkin case, an added complexity was that the structure of the deal was evolving 'on the hoof', and there was little clarity regarding the employer entity, it's status, or where it was/would be registered.
Effective transaction vetting and scoping is essential. Consider:
- whether there is sufficient time to undertake the necessary work to an adequate standard
- whether the anticipated fee justifies the quantum of risk in all the circumstances
- whether you have sufficient information to provide all relevant advice. Be particularly wary in situations where you are providing unbundled services.
- warning the client about the risks associated with proceeding with undue haste, particularly where there is a lack of clarity regarding key details in high value/potentially long-term deals
The intial scoping meeting plays a large part in determining how the transaction runs thereafter. Flusing out all the relevant considerations as early as possible helps ensure that they are clearly flagged to the client.
Particular complexities (foreign law and jurisdictional issues are a classic case in point) always need to be explained to a client in writing.
Where matters emerge during the course of negotiations, it is important to review the appropriateness of the scope and pricing, and also revisit the legal issues that need to be flagged to the client. It is all too easy to allow your early assessment of a matter to blind you to risk issues that emerge later down the line.
As the Lewis Silkin case demonstrates, matters can often move quickly. The court judgement hints that the assessment, at the time the inital draft of the Heads of Terms were composed, that the employing company would most likely be based in Singapore, was perhaps not revisited when the structure and location of the company (in India) became clearer.
In the Lewis Silkin case, a significant proportion of advice was given over the telephone, and the drafting was undertaken and revised 'in situ' at or immediately following meetings between the parties.
It is impossible to keep comprehensive notes of every nuance of every conversation.
- At meetings, particularly those relating to high risk matters, try to have a trainee or other member of support staff to take contemporaneous notes.
- Follow up telephone calls with an email confirming what was discussed and any action points arising.
How Lockton can help
Allegations of failures to advise are all too common in the claims experience. The majority of claims arise from assumptions and communications errors, such as those noted above.
This is one of the most difficult areas to consistently get right, and it is simply not possible to eliminate such claims, but regular awareness training can help mitigate the risk.
We can provide seminars and workshop materials to firms who wish to conduct some in-house training. Contact our Risk Manager, Calum MacLean, for more information.