Neutral Citation Number: [2009] EWHC 812 (Comm)
Case No: 2007-1384
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 21/04/2009

Before :

MR JUSTICE ANDREW SMITH
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Between :

	1.Levicom International Holdings BV 
2. Levicom Investments Curacao NV	Claimants	
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	Linklaters (A Firm)	Defendants	

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Justin Fenwick QC and Ben Patten (instructed by Manches) for the Claimants
Stephen Moriarty QC and Derrick Dale (instructed by Clyde & Co) for the Defendants

Hearing dates: 26, 27, 28, January and 2, 3, 4, 5, 9, 11, 23, 24, 25 
and 26 February 2009
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Judgment

Mr Justice Andrew Smith: 

1.	The claimants (to whom I refer together as “Levicom”) allege that the defendants, Linklaters, their former solicitors, were negligent in early 2001 when advising about a dispute that they had with two Swedish companies, Tele2 Sverige AB (formerly, Tele2 AB) (“Tele2”) and Tele2 AB (formerly NetCom AB) (“NetCom”), and that, relying upon the defendants’ advice, they did not settle the dispute but brought arbitration proceedings, which, having incurred considerable costs, they made a settlement (the “2004 settlement”) on unsatisfactory terms in June 2004.    The defendants deny that their advice was negligent and deny that, if they were at fault, their negligence caused any loss to Levicom.
Linklaters
2.	The defendants were a leading firm of London solicitors, who converted to LLP status in May 2007.   Mr. Andrew Legg worked for Linklaters from 1982 to 2004, and was a partner from 1990.    In 2004 he left to join another leading London firm.   He had already had many years’ experience in advising about commercial disputes when he was consulted by Levicom in October 2000.    He was assisted in advising Levicom by Ms Eleni Pavlopoulos, who had joined Linklaters in 1990 and worked in the Litigation Department from 1994 to May 2001, and then, after maternity leave, worked in the firm’s internal compliance department; and by Mr. Justin Graham, who had been admitted as a barrister and solicitor in Victoria, Australia, in May 1998, and worked for Linklaters in London between August 2000 and July 2003. 
3.	Mr. Mark Humphries is a solicitor and a member of Linklaters LLP, having joined Linklaters in 1986 and become a partner in 1993.   He too has had many years’ commercial litigation and dispute resolution experience.   When Mr. Legg left Linklaters in February 2004, Mr. Humphries took over conduct of the arbitration proceedings brought by the claimants.   No complaint is made about his work for Levicom.
Levicom
4.	The Levicom group of companies, which had interests in telecommunications businesses throughout the Baltic States, was owned by a company incorporated in the Netherlands, Levicom International Holdings BV (“BV”), the first claimant, which itself was a wholly owned subsidiary of a company incorporated in the Netherlands Antilles, Levicom Investments Curacao NV (“NV”), the second claimant.   The majority shareholders in NV were Mr. Tonis Palts, Mr. Toomas Peek and Mr. Markus Pedriks: their shareholdings fluctuated, but were generally of the order of 30 to 35%, 30 to 35% and 18 to 25% respectively.    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.   (The formal position was that decisions had to be made unanimously by the board of NV, which comprised Mr. Palts, Mr. Peek, Mr. Pedriks and Mido Trust & Management NV, but Mido Trust & Management NV was effectively the company secretary and accepted the decisions of the other board members.) 
5.	Mr. Palts and Mr. Peek are Estonians.   Mr. Palts has held political office, including serving as the Estonian Minister of Finance, and on 9 April 2003 he resigned as a director of NV because Estonian regulations prevented government officials from holding corporate directorships: he was replaced by his brother.
6.	Mr. Pedriks, who has dual Canadian and Estonian citizenship, has worked with telecommunications since 1984, and since 1993 he had had interests in Eastern Europe, including the Baltics, the Czech Republic and Romania.     In 1993 he, Mr. Palts and Mr. Peek founded the business that was to become Levicom.     
7.	Mr. Robson works as an investment adviser and has 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, but it was only in March 2004 that any formal agreement was made for his remuneration by Levicom in relation to it.   I refer further to this agreement below: it provided for payment according to the outcome of the arbitration.
8.	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 (formerly AS Levicom), 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 telephones services.  
9.	Levicom were the second largest operator in the field in Estonia, trading under the brand name “Q-GSM” 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 (but not the DCS licence), marketed services to customers of the network and sold service subscriptions, handsets and accessories through twelve retail shops, which also carried out repairs. 
10.	A smaller cellular telephone business was carried on in Lithuania, through the Levi & Kuto Lithuania companies (namely UAB Levi & Kuto Lithuania, UAB Levi & Kuto Kaunas Lithuania and UAB Levi & Kuto Klaipedia Lithuania).  They held a DCS 1800 licence, but did not provide a network service, although this was planned for the future.   They sold service subscriptions, handsets and accessories through four shops.    They also planned to bid for a GSM 900 licence and were optimistic that they would acquire it, or that the government would allow them additional channels under their existing licence.
11.	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. 
The Agreements with Tele2 and NetCom.
12.	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. 
13.	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 I shall refer to NetCom and Tele2 collectively) would acquire shares in AS Levicom Cellular and OU Levicom Broadband.  They negotiated with Mr. Anders Bjorkman and Mr. Johnny Svedberg, the President and Vice President of NetCom respectively.    Mr. Anthony Hickinbotham of Linklaters advised the Levicom shareholders. The Swedish companies were represented by the American lawyers, Cleary Gottlieb Steen & Hamilton (“Cleary Gottlieb”).
14.	On 29 January 1999 Levicom and Net Com concluded a “framework agreement” and two share purchase 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, of which €24,826,000 was to be paid by bank transfer on completion and the balance of €26,079,000 by a loan note issued on completion. As I shall explain, further 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, to which I shall refer as the “CSA”, is more directly relevant for present purposes and I must go through some of its provisions.
15.	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 were not a party to it.    (The agreement that was signed appears, rather curiously, to have been drawn up as a draft that had not been perfected, and there is a note before the recitals reading, “Consider whether the Company [sc. AS Levicom Cellular] should be a party to the Agreement”.)    
16.	Clause 6 of the CSA specified that certain matters, including any change in the share capital structure of AS Levicom Cellular and their 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 such a member nominated by Tele2 in accordance with Estonian law.
17.	By clause 8 of the CSA, Tele2 granted to BV a put option entitling them 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 in fact exercised it on 21 October 2003.
18.	The Option Price was to be determined in accordance with clause 8.4.   If BV exercised the option, Tele2 and BV were to “discuss in good faith and use their respective reasonable endeavours to attempt to agree the Option Price”.   If they did not reach agreement within 10 days of the exercise of the option, the parties were each to appoint from a list attached to the CSA “an independent firm of investments bankers”.  The investment bankers were to determine the Option Price, acting as experts and not arbitrators, in accordance with the clause 8.4.4, which provided as follows: 
“(a)  by valuing the BV Shares as a proportion of the market value (determined as on an arm’s length sale between a willing seller and a willing buyer) of the Shares and all Quasi-Equity of the Company disregarding the fact that they constitute a minority interest;
(b)  on the assumption that the Company will continue to carry on business as a going concern.”
Subject to one immaterial exception, “Quasi Equity” was defined in clause 1.1 as “the amount of any debt convertible into warrants to subscribe for equity share capital, or any loan by a shareholder (or affiliated company) which was subordinated to the rights of creditors generally”.
If the valuers were unable to agree on the Option Price or if either shareholder rejected the Option Price that they reached, there was an arbitration procedure to determine it in accordance with clause 8.4.4.
19.	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 the third party if it would amount to Quasi-Equity if raised from a Shareholder.  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 [sc. 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.”     
20.	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 Cellular Network in fact acquired a licence but the acquisition had to have come about through NV’s assistance; and if NV became entitled to a loan note, the amount depended, in part, upon what costs were to be deducted.     
21.	Clause 11 of the CSA was a broadly comparable provision about the acquisition by AS Levicom Cellular of a GSM licence or a DCS 1800 licence for Latvia.  NV were again under an obligation to use all reasonable endeavours to assist in the acquisition by AS Cellular Levicom of a licence.   If NV assisted in the acquisition of a GSM licence, Tele2 were 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 were to issue to NV a “Tranche E Loan Note” for €2,173,250, less costs.    
22.	By clause 13.1 the parties to the CSA other than Mr. Pedriks entered into a number of covenants, including one in clause 13.1.1  whereby 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.”
In this clause 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 in the CSA.
23.	As I have said, the Broadband Shareholders’ Agreement (“BSA”) was broadly similar to the CSA.  It is a legitimate aid to construing the CSA and I shall set out (as far as relevant) clause 10.1 in the BSA that corresponded to clause 13.1: 
“… 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]”  
24.	I return to the CSA and set out clause 13.3: 
“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.”
25.	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.”
26.	By clause 14, the parties undertook obligations of confidentiality for as long as BV remained a shareholder in AS Levicom Cellular and for three years thereafter.
27.	By clause 17 NetCom guaranteed to BV the due and punctual performance by Tele2 of their obligations under the CSA.   
28.	Clause 25 provided that the CSA was governed by, construed by and to take effect in accordance with English law and included an arbitration agreement providing for arbitration in London under the rules of the London Court of International Arbitration (“LCIA”). 
The acquisition of Baltkom
29.	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”: sometimes the spelling “Baltcom” is used), 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. 
30.	Levicom considered that 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.   It is unclear from the evidence whether Mr. Pedriks expressly mentioned the amount of US$27.7 million, and to my mind this is not important: in any case it would have been apparent to Mr. Svedberg that Mr. Pedriks had a payment of that order in mind as an alternative to transferring the shares.    If it be relevant, I consider it probable that this amount was mentioned, and so find.
31.	Mr Svedberg made a 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 of the full value of Baltkom.
32.	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.    
33.	Mr. Pedriks continued discussions with Mr. Svedberg, but in the meanwhile on 9 October 2000 Mr. Robson telephoned Mr. Legg and asked for advice to assist Levicom in the discussions.   Neither Mr. Robson nor Mr. Legg can recall what was said but, as I infer, the gist of it is apparent from an e-mail sent by Mr. Robson to Mr. Legg the following morning.  Mr. Robson said that in Levicom’s opinion Tele2 were in breach of clauses 13.1 and 9.2 of the CSA, and he also referred 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.”
34.	Before setting out Linklaters’ response to these instructions and the history of the relationship that gives rise to this litigation, it is convenient first: 
i)	to explain something of Levicom’s complaint against Linklaters; 
ii)	to say something about the witnesses who gave evidence; 
iii)	to consider the duty of care owed by Linklaters to Levicom and the standard of care required of them; and
iv)	to say something about two legal questions that arose in the arbitration proceedings.
Levicom’s case
35.	Levicom contend that Linklaters gave them negligent advice in two letters, which were dated 22 January 2001 (the “January letter”) and 7 March 2001 (the “March letter”), about (i) their prospects of establishing that the Swedish companies were in breach of clause 13.1 of the CSA as a result of the acquisition of Baltkom; (ii) about the remedies available to them; and (iii) about the positions taken by them and by the Swedish companies in exchanges about settlement.  They say that Linklaters were too optimistic in the advice that they gave and did not identify and convey to them the difficulties that they faced.   Levicom also plead that Linklaters were negligent in that they “failed to advise Levicom to obtain the advice of senior and experienced leading counsel on either the prospects of establishing liability or the likely recoverable quantum at an appropriately early stage of the dispute with Tele2 …”.     Linklaters instructed Ms. Catharine Otton-Goulder QC to advise and act for Levicom in June 2002: as Mr. Justin Fenwick QC, who represented them, made clear, Levicom’s complaint here is that the advice of leading counsel should have been obtained much earlier.  
36.	Levicom are therefore carefully and properly specific about what negligence they allege, and:
i)	they allege that Linklaters were negligent only in relation to their advice about the acquisition of Baltkom.    They do not criticise Linklaters’ advice about other disputes with the Swedish companies, to which I shall refer.    
ii)	they do not plead any complaint about the advice that they were given when they first consulted Linklaters in October 2000, nor about advice that they were given in an earlier letter dated 27 November 2000 (the “November letter”), although they do not accept that Linklaters’ earlier advice is not open to criticism. 
iii)	they do not base any claim upon the advice of Linklaters, and in particular Ms. Pavlopoulos, in February 2001. 
iv)	they do not make any complaint about the way that Linklaters conducted the arbitration against the Swedish companies, which was begun in August 2002, or about any advice that they were given once the reference had been brought, including the advice about settlement.
37.	As I shall explain, the Swedish companies made a proposal to settle the dispute (referred to as the “first offer”) by letter dated 30 October 2000, which was developed in a draft amendment to the CSA sent by Cleary Gottlieb on 21 November 2000.    This essentially reflected the terms that had been originally proposed by Mr. Svedberg and which Mr. Robson reported to Mr. Legg in his email of 10 October 2000.  Levicom say that if they had been given proper advice by Linklaters, they would have sought to negotiate a settlement with the Swedish companies without bringing arbitration proceedings, and that their prospects for reaching a settlement were extremely good because, whilst there was a very real chance of improving the terms of the first offer, they would have accepted them if they had not negotiated more favourable terms.  They say that such a settlement would have been more valuable to Levicom than that which was eventually reached in June 2004, and that the prospects of agreeing such favourable terms were (at least) much reduced once the arbitration proceedings were brought.
38.	The settlement in June 2004 was not only of the claims based on the alleged breach of clause 13.1 (and costs relating to the arbitration).  It also was in settlement of three other disputes: 
i)	Levicom had claimed that under clause 10 of the CSA Tele2 should have issued a Tranche C loan note for €6,519,750 (less deductible costs) because, as they said but the Swedish companies disputed, NV had assisted AS Levicom Cellular to obtain a GSM 900 licence in Lithuania.
ii)	Levicom had a claim based upon clause 11 of the CSA that, because of Tele2 acquiring Baltkom, NV were effectively prevented from assisting AS Levicom Cellular from obtaining a Latvian cellular network licence (either a GSM 900 licence or a DCS 1800 licence), and so from being issued with a Tranche D or a Tranche E loan note; and they said that therefore the Swedish companies were in breach of clause 11 or an associated implied term of the CSA. 
iii)	Tele2 had brought arbitration proceedings against Mr. Peek and Mr. Palts, to which I refer further later in this judgment.
39.	There is no dispute that the settlement was a proper one for Levicom to have made, but Linklaters dispute that, even if their advice was negligent and Levicom relied upon it as they claim, Levicom suffered any loss as a result.    They do not accept that, under the terms of the settlement agreement, Levicom were worse off than they would have been if they had accepted the first offer.     This issue depends in part upon whether, if they had accepted the first offer or reached some other early settlement with the Swedish companies, Levicom would, as they say, have exercised the option under clause 8 of the CSA in October 2003 or, as Linklaters submit, they would have exercised it in early 2001 or some other earlier date.
40.	At one point in his final submissions, Mr. Fenwick argued that it is not open to Linklaters to dispute that Levicom would have exercised the option in October 2003, submitting that the pleadings precluded this, that Levicom’s factual evidence about the timing of the exercise of the option was not challenged and that they should not be permitted to do so in view of the expert evidence.   I reject that submission.   As for the pleadings, the absence of a specific plea by Linklaters about when the option would have been exercised is understandable in view of Levicom changing the formulation of their damages claim in the course of the proceedings, and I observe that the date when the option would have been exercised is identified as being in dispute in the list of issues.    In so far as the evidence of Levicom’s factual witnesses supports their case about when the put option would have been exercised (which I consider below), the position was sufficiently and, in my judgment, appropriately explored in the course of cross-examination by Mr. Stephen Moriarty QC, who represented Linklaters.  In particular, he invited comment upon documents that Linklaters rely upon as evidencing that the option would have been exercised earlier.    While the expert evidence of both parties is directed to the value of a settlement on the terms of the first offer if the option had been exercised in October 2003, that does not mean that Linklaters accepted that it would have been exercised then: they were simply adducing evidence about the loss if Levicom’s factual case was accepted.
41.	Levicom, however, conducted the trial on the basis of their understanding that there was no issue about when the option would have been exercised, and that they have not proved loss on any basis other than that it would have been exercised in October 2003.    It would not be just to dismiss their claim because of this, and I would have ordered an inquiry as to damages had the result of the case depended upon this. 
Witnesses
42.	None of the witnesses of fact claimed to have a detailed recollection of the matters about which they gave evidence.     This is not surprising given the lapse of time and the detailed subject matter of their evidence but, while I consider that all the witnesses were honest and sought to give a truthful account of what happened, I have generally relied upon the documents rather than the oral evidence.    Indeed, all the witnesses themselves relied heavily upon the contemporaneous written exchanges and attendance notes in order to recall, or to some extent reconstruct, their account of what happened. 
43.	The exchanges between Levicom and Linklaters are well documented, but the exchanges between Levicom and the Swedish companies are not: the documentary evidence of them is largely confined to an exchange in October and November 2000 and some proposals put forward by Mr. Svedberg in the autumn of 2001.   There were oral settlement negotiations between Levicom (and in particular Mr. Pedriks) and Tele2 (and in particular Mr. Svedberg), and one question that I must consider is whether, if Linklaters’ advice was negligent, they would have taken a different course had Levicom been given proper advice.   Mr. Pedriks’ recollection of them, however, was very vague, and the evidence about them is exiguous. 
44.	Linklaters called four witnesses to give evidence of fact: Mr. Legg, Ms Pavlopoulos, Mr. Graham and Mr. Humphries.   They also adduced a witness statement of Mr. Greg Reid, a partner in Linklaters who had conduct of Levicom’s matter between July and October 2003 when Mr. Legg was on sabbatical leave, but his evidence was of peripheral relevance and Levicom did not wish to cross-examine him.   I consider that the evidence of Ms Pavlopoulos and Mr. Graham was reliable: both were careful not to be drawn into giving evidence about which they were unsure and to distinguish between what they could recall and what they might be reconstructing.  Mr. Humphries was an impressive and clear witness and I have accepted his evidence.      I do not doubt that Mr. Legg was seeking to give an accurate account of his contemporaneous thinking and the advice that he gave, but it was clear that at times he found it more difficult than Linklaters’ other witnesses to recollect what he was in his mind when he was advising Levicom and the thinking that led him to give the advice that he gave.    In particular, I reject his evidence that before sending the March letter Linklaters had communicated to Levicom the complexities involved in calculating damages, and that on various occasions, which he believed were around April 2003, he told Mr. Pedriks that he ought to keep in mind the possibility that, if Levicom did not accept an offer by Tele2, there was a risk of recovering less in the arbitration. 
45.	Levicom called two witnesses of fact, Mr. Robson and Mr. Pedriks.  They also put in evidence two witness statements of Mr. Palts, but, while Mr. Moriarty made it clear that Linklaters did not accept all his evidence, it was not necessary for him to be cross-examined since Linklaters’ case was put sufficiently to Mr. Robson and Mr. Pedriks.    
46.	Mr. Robson and Mr. Pedriks were both forceful witnesses who undoubtedly held strong views about what would have happened had Linklaters given more cautious advice, but I am unable to accept all of their evidence.   As far as Mr. Pedriks is concerned, I am unable, for example, to accept his evidence that the “spreadsheet” to which I shall refer below did not present as “Levicom contractual rights” under the CSA a calculation that proceeded on the basis that Levicom was entitled to 10% of the price paid for Baltkom.    Nor do I accept that he did not properly understand the implications of advice given in April 2003 by Ms Otton-Goulder that there was little prospect of the arbitrators making the declaratory order that Levicom sought: he was too intelligent and was taking too alert an interest in the case to have allowed this to happen.    As I shall explain, I have not, for example, been able to accept Mr. Robson’s evidence about what he understood from Linklaters’ advice in October 2000 when they were first consulted, nor about Linklaters’ response to the so-called fourth offer in April 2003.  The limitations upon his recollection are also illustrated by the fact that he thought when he made his witness statement that Mr. Pedriks was at a meeting with Mr. Legg and Mr. Graham on 17 January 2001 when it is clear from the documents, and Mr. Pedriks confirmed, that he was not.    In the case of both of them I was left with the impression that their conviction that Levicom had been poorly advised coloured their recollection and, at times, their evidence.
47.	Levicom and Linklaters both called expert evidence about the value of settlement proposals made by Mr. Svedberg: Levicom called Mr. James Golob, who until his retirement in 2006 worked for Goldman Sachs as head of European telecom research and as co-head of telecom research globally, and Linklaters called Mr. Philip Haberman, a forensic accountant with Ernst & Young.   I shall refer to their evidence later in my judgment.
Linklaters’ duty of care and the requisite standard of care
48.	Unsurprisingly there is no dispute that Linklaters owed Levicom both a contractual duty and a duty in tort to give advice and to act for Levicom in relation to the dispute with the Swedish companies and the arbitration with reasonable skill and care.       They were, of course, obliged to attain a proper standard not only in forming their own views about Levicom’s rights against the Swedish companies; they were also obliged to exercise reasonable skill and care to convey their advice to Levicom with proper clarity.   Linklaters are not liable for any error of judgment: they are only liable for errors that no reasonably well-informed and competent member of the profession in their position could have made.    The question whether Linklaters failed to attain the proper standard of skill and care depends, of course, upon how matters stood when they advised and as they were known or should have been known to Linklaters at the relevant time.   Mr. Moriarty cited the judgment of Megarry J. in Duchess of Argyle v Beuselinck,[1972] 2 Lloyd’s Rep 172, 185:
“In this world there are few things that could not have been better done if done with hindsight.  The advantages of hindsight include the benefit of having sufficient indication of which of the many factors present are important and which are unimportant.  But hindsight is no touchstone of negligence.  The standard of care to be expected of a professional man must be based on events as they occur, in prospect and not in retrospect… on any footing, the duty of care is not a warranty of perfection… a marginal case does not make negligence.”
49.	Linklaters were a leading London firm of solicitors, both generally and specifically in relation to advising about international commercial disputes and in relation to arbitration matters.   They held themselves out as having particular expertise in these (and other) areas of law, and Levicom consulted them on that basis.  They were required to meet the standard of skill and care reasonably to be expected of solicitors of such standing and so acting: Matrix Securities Ltd v Theodore Goddard [1998] PNLR 290.    
50.	Mr. Moriarty submitted that in deciding whether Linklaters were negligent, it is important to consider both the instructions that Levicom gave them and also the client who was consulting them. I accept that submission.  The instructions are important not only because Linklaters were generally entitled to advise upon the basis of Levicom’s factual instructions, but also because they specified the advice that Linklaters were to give.  Levicom, and specifically Mr. Pedriks and Mr. Robson, were clearly experienced in international business and were intelligent and perceptive clients who were capable of questioning and analysing what they were told, and did so.    Both had been closely involved in the negotiations leading to the agreements of 29 January 1999 and were familiar with them and what they were intended to achieve.   
51.	Two examples will suffice to illustrate that Levicom were clients who applied their own mind to the advice that they received and made independent decisions.   As is clear from the email of 10 October 2000, Levicom had already before consulting Linklaters taken the view that Tele2 were in breach of the CSA, and Tele2’s offer to “let Ritabell do the acquisition” was inadequate to satisfy them.   As I shall explain, when responding to the Swedish companies, Levicom altered Linklaters’ suggested response and stated that, if Tele2 did not acquire Baltkom through AS Levicom Cellular, the Swedish companies would be in breach of the CSA: Mr. Pedriks sent this letter, as I find, without seeking Linklaters’ advice about this.    
52.	Similarly, after Linklaters had advised that clause 9.2 did not give rise to an obligation to acquire Baltkom through AS Levicom Cellular, Mr. Robson sent an email to Mr. Graham on 18 April 2001, setting out his “best case scenario”.  Although Linklaters rejected the argument suggested by Mr. Robson, this illustrates that Mr. Robson, like Mr. Pedriks, was not only capable of understanding Linklaters’ advice about but also of suggesting arguments of his own that might support Levicom’s position.  
53.	However, the point must not be overstated: there is no evidence that Levicom had any relevant knowledge of English law or significant experience of English litigation or arbitration, and I infer that they did not.   They consulted Linklaters because they wanted the advice of lawyers about the dispute with the Swedish companies, and while they were capable of weighing and questioning the advice that they received, Linklaters agreed to advise Levicom and were obliged to give advice of a proper standard, however demanding Levicom might have been as clients.     
The meaning of clause 13.1.1
54.	In the arbitration proceedings that they brought against the Swedish companies Levicom complained that the Swedish companies were in breach of the CSA because they, through Baltkom, carried (or procured Baltkom to carry on) in Latvia
“a cellular network business which was, and is, the same as and/or competitive with the cellular network business carried on by [AS Levicom Cellular]  as at 29th January 1999.”
In support of this contention, Levicom argued that AS Levicom Cellular carried on a relevant business because of their operations in Estonia through Ritabell and in Lithuania, which were the same as the Latvian business carried on by Batlkom.   (They also ran an alternative argument, which is irrelevant for present purposes, that AS Levicom Cellular carried on a relevant cellular network business in Latvia through Levi & Kuto Latvia and its two retail shops in Latvia.)   The Swedish companies denied that clause 13.1.1 was “capable of being construed so expansively … such that Tele2 would be restricted from carrying on in a Baltic State any cellular network business carried on by any of [AS Levicom Cellular’s] subsidiaries in any of the other Baltic States”.   Thus, in the arbitration Levicom adopted what has been called a “Pan-Baltic” construction of clause 13.1.1, arguing that the prohibition was directed to business that was the “same as” that carried on anywhere in the Baltic states by AS Levicom Cellular or one of its subsidiaries.   Levicom say in these proceedings that the clause could equally be given what they call a “Same State” construction and taken to be directed only to businesses carried on in the same Baltic state as one carried on by AS Levicom Cellular or a subsidiary. 
55.	Mr. Fenwick submitted that there were arguments in favour of both the Pan-Baltic construction and the Same State construction, that there was a substantial risk that a tribunal might reject the Pan-Baltic construction and the chances of Levicom succeeding on this issue were “very evenly matched”.     He says that nothing in the CSA itself identifies which construction was intended by the parties, and that there was no relevant evidence of the factual matrix in which the agreements of 29 January 1999 were concluded.   An argument against the Pan-Baltic construction, he suggested, is that the words “the same as” would be otiose if the offending business can be any sort of cellular network business, and something more by way of similarity between the businesses is required if the offending business and the protected business are to be regarded as “the same” within the meaning of the clause: and that further “sameness” might naturally include similarity as to the state in which the business was carried on.   For my part, I do not find that a convincing argument: it seems to me natural to suppose that the parties to the CSA regarded the (undefined) expression “cellular network business” as too vague and uncertain by itself and intended to convey that the offending business was a cellular network business in the same sense as the protected business, or at least sufficiently similar to be in competition.    I find it difficult to read it as importing geographical “similarity”. (It might be that the corresponding provision in the BSA, clause 10.1, provides some support for the view that the “sameness” requirement is directed the nature of the business and not the place that it is carried on.)   
56.	Linklaters contend that the Pan-Baltic construction is right, and that they rightly so advised Levicom.   They say that it reflects the natural meaning of the words of the clause.    It is suggested, as I understand it, that the Pan-Baltic construction is indicated by the expression “within any of the Baltic States”.  However, it seems to me that that expression is concerned with where the offending business, not the protected business, is conducted, and I do not consider that it supports either the Pan-Baltic construction or the Same State construction.  It is also said that a Pan-Baltic construction gives proper point to the expression “the same as”, and that the Same State construction ignores the expression.  I see more force in this point: if clause 13.1.1 was concerned only with competition with a business carried on as at 29 January 1999, the expression “competitive with” would have sufficed in clause 13.1.  However, this in itself is, to my mind, far from compelling: the words “the same as or competitive with” can easily be taken as a composite phrase, and need not be analysed as having two distinct limbs, each of which operated in its own sphere.  
57.	The real argument in favour of a Pan-Baltic construction, as it seems to me, is that the CSA was an agreement regulating something in the nature of a joint venture in which the participants were to develop a network throughout the Baltic States and in each of them, and were to seek to obtain licences to do so.  This provides a strong argument in favour of a Pan-Baltic construction.  It is said that this construction might offend the law regarding restraint of trade and that therefore a less restrictive construction should be preferred, but I cannot accept that the Pan-Baltic construction does more than protect the very purpose of the parties’ participation in the joint venture, and cannot see any real force in an argument that it would give rise to an unreasonable restriction.  
58.	For the purpose of deciding whether Linklaters’ advice was negligent, it is not necessary to decide myself which is the correct construction, but I find the arguments in favour of a Pan-Baltic construction are distinctly more compelling than the arguments against it.    Indeed, if it matters, I consider the Pan-Baltic construction to be correct.
The “minimum performance” principle
59.	The other legal question with which I should deal before returning to the factual history concerns the basis upon which Levicom’s damages would properly be assessed if they were entitled to them because Tele2 were in breach of clause 13.1, and what Mr. Fenwick called the “minimum performance” principle.   The Swedish companies pleaded in the arbitration by way of a response to Levicom’s particulars of loss and damage that they “were not in any way obliged, pursuant to the CSA or otherwise, to: a. acquire Baltcom through [AS Levicom Cellular] or one of its subsidiaries; and/or b. lend and/or guarantee lending to [AS Levicom Cellular] or one of its subsidiaries to fund the acquisition of Baltcom; and/or c. make considerable, or indeed any, investment in [AS Levicom Cellular] or one of its subsidiaries by way of money and effort to enable [AS Levicom Cellular] or one of its subsidiaries to build out the cellular network business of Baltcom in Latvia.”    Mr. Fenwick argues that the arbitrators were required to assess damages on the basis that minimised the liability of the Swedish companies, even if that involved an unreal assumption about what the Swedish companies would in fact have done.    He cites among other authorities Lavarack v Woods of Colchester Ltd, [1967] 1 QB 278 in which Diplock LJ said this (at p.294B-D): 
“The general rule as stated by Scrutton L.J. in Abrahams v Reiach (Herbert) Ltd., that in an action for breach of contract a defendant is not liable for not doing that which he is not bound to do, has been generally accepted as correct, and in my experience at the Bar and on the Bench has been repeatedly applied in subsequent cases.  The law is concerned with legal obligations only and the law of contract only with legal obligations created by mutual agreement between contractors – not with the expectations, however reasonable, of one contractor that the other will do something that he has assumed no legal obligation to do.  And so if the contract is broken or wrongly repudiated, the first task of the assessor of damages is to estimate as best he can what the plaintiff would have gained in money or money’s worth if the defendant had fulfilled his legal obligations and had done no more.” 
60.	Linklaters do not accept that the minimum performance principle applies in the circumstances relevant to this case.   First, Mr. Moriarty submitted that the principle is concerned with how it is to be supposed a defendant to a contractual claim would have acted if he had not acted in breach of contract, and so it does not bear upon any question about how AS Levicom Cellular might have acted with regard to the acquisition of Baltkom.   As is apparent, however, from the pleading in the arbitration that I have set out, this does not, in my judgment, meet the argument that faced Levicom. Mr. Moriarty’s submission has some validity in relation to what AS Levicom Cellular would have done.   The reality is that without financial support from Tele2, there would have been no prospect of AS Levicom Cellular making the acquisition.   In realistic commercial terms what matters is what Tele2 would have done, or what in assessing damages it is to be supposed that Tele2 would have done, no less than what AS Levicom Cellular would have done. 
61.	However, Mr. Moriarty has two other points, which are perhaps related and which seem to me to have more force: first that the minimum performance principle does not require an assumption that a defendant will minimise his contractual liability if it would not make sense for him to do so, for example because it would be contrary to his own commercial interests; and secondly that the principle applies only where a defendant could carry out his contract in a number of different ways and requires damages to be assessed on the basis that he would choose to confer on the claimant the least benefit that would be consistent with the contract.    It is not concerned with his conduct extraneous to the contract. 
62.	Both these submissions are well established in the authorities (and were established in authorities at the time that Linklaters advised Levicom).    In the Lavarack case, after the passage in his judgment which I have cited, Diplock LJ explained that the general principle applies only to the defendant’s discretion about how he performs his contract.   The position is different as to “events extraneous to the contract” (loc cit at p.295F), and here “one must not assume that [the claimant] will cut off his nose to spite his face and so control [events which are within his control] as to reduce his legal obligations to the [claimant] by incurring greater loss in other respects.   That would not be the mode of performing the contract which is ‘the least burthensome to the defendant’” (at pp.295G-296A).    In The World Navigator, [1991] 1 Lloyd’s Rep 23 Staughton LJ, having referred to “the general principle that a defendant, in performing his contractual obligations, is assumed to have chosen to perform them in the way least beneficial to the [claimant] where the contract gave him that choice”, continued, “It is only in that connection with the possible occurrence of events extraneous to the contract, whether in the control of the defendant or of anyone else, that the probability has to be considered” (at p.33).   In North Sea Energy Holdings NV v Petroleum Authority of Thailand, [1999] 1 Lloyd’s Rep 483 Waller LJ said that “a contract breaker will not be assumed to act contrary to his own commercial interests” (at p.496).
63.	Again, in order to consider the allegations of negligence against Linklaters, I do not need to decide whether the minimum performance principle had any application to Levicom’s claim against the Swedish companies.  I have, however, explained why I consider that there are strong arguments that it does not, and indeed in my judgment it does not apply.   Clause 13 imposed a contractual restriction on the parties: it is not concerned with a positive obligation and its observation does not involve positive contractual performance of the kind which attracts the application of the minimum performance principle.    It is in the nature of a contractual restriction of this kind that the contract breaker, in choosing how to act without contravening the restriction, is acting extraneously to the contract: it is simply that he must avoid extraneous action that the contract prohibits.  It is contrived to characterise, for example, a decision of Tele2 whether to acquire Baltkom through AS Levicom Cellular or to acquire it through Ritabell or not to acquire it at all as being about ways of performing the CSA simply because the CSA included the restriction in clause 13.1.
Linklaters’ first advice
64.	On 10 October 2000 Mr. Legg asked 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 said 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 were “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 a “Pan-Baltic” construction.   He 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.  
65.	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.”
66.	In my judgment, Mr. Legg and Mr. Graham here misunderstood the purpose and effect of clause 13.3: it was intended to apply if any restriction in clause 13.1 was an unreasonable restraint of trade and so unenforceable.     Mr. Graham said in cross-examination that “clause 13.3 seems on its face to provide an element of self-help to the party not in breach”.    Although Mr. Moriarty submitted that, despite the opening words of clause 13.3, it might be understood to provide a more general right for the parties to the CSA to impose substitute obligations that Levicom could have deployed to require the Swedish companies to transfer Baltkom to AS Levicom Cellular, to my mind that is an impossible interpretation of clause 13.3 and this part of the advice of 11 October 2000 was wrong.   However, Levicom do not allege negligence in relation to this email nor indeed do they allege negligence in relation to the advice about clause 13.3 when it was later repeated in the November and January letters.
67.	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.  
68.	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”.
69.	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.”
70.	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 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”.  
71.	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, as he explained and as I accept, 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.     I accept 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.   Mr. Fenwick went rather further and submitted that the obvious implication of Linklaters’ advice was that Levicom were entitled to more than the Swedish companies had offered.    I do not accept that Levicom can have supposed that Linklaters had the information to make a judgment of that kind or that they were doing so: in my judgment, they were not making the sort of assessment suggested by Mr. Fenwick’s submission and Levicom did not so understand the email. 
72.	Mr. Graham drafted a “without prejudice” letter to be sent to NetCom and on 11 October 2000 he 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”.  
73.	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.
74.	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.   
75.	Mr. Robson was cross-examined about what he understood from Linklaters’ initial advice given in the first week after they had been consulted.    I did not find his answers at all easy to follow and do not regard them as reliable.  He said that he was told that clause 13.3 provided for specific performance and “that eventually a tribunal could rule that the shares [should be] transferred to Levicom Cellular”, and that he was led to think that it was “one of the alternatives” that entitled Levicom to have an “equity infusion”, although he acknowledged that it was “a lesser important issue”.    It was not clear to me whether in the end Mr. Robson maintained that his thinking was influenced by clause 13.3, but I am unable to accept that Mr. Robson or Levicom relied specifically upon clause 13.3 in any significant way in their dealings with the Swedish companies.  Levicom did not refer to it when they questioned Linklaters over the coming months about their advice and none of Levicom’s witnesses referred to clause 13.3 in their witness statements. While in some general way the reference to clause 13.3 might have engendered some optimism about the strength of Levicom’s position, it did not play any more specific part in how matters developed.    
76.	Mr. Robson also said, as I understood his answers in cross-examination, that Linklaters advised that damages would be assessed on the basis of Baltkom being acquired though AS Levicom Cellular.   I am unable to accept that Linklaters went that far: again there was no suggestion that they had done so before Mr. Robson’s cross-examination; there is no documentary support for the suggestion, and I consider that there would have been if this advice had been given.   
77.	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.  He believed, but was not certain, that it was checked with Linklaters before it was sent, but Mr. Robson said otherwise.   I reject Mr. Pedriks’ (tentative) evidence: I consider that if Linklaters had seen the letter in draft, this would have been reflected in their files and it is not.     In fact, Mr. Robson telephoned Mr. Graham to explain that Levicom had sent a “very watered down” version of the letter (as Mr. Graham described it when he reported to Mr. Legg by email), and that Levicom thought that they could “work through the issues with the other side”.  
78.	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. Linklaters were not provided with a copy of the letter of 17 October 2000 until January 2001.  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. 
79.	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.”   
80.	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 I accept 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).”    Thus, as I infer, 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. 
81.	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, as Mr. Robson acknowledged in his evidence, Linklaters were not in a position to analyse the value of the offer from the Swedish companies.   
82.	There were further negotiations between Mr. Pedriks, Mr. Robson and Mr. Palts on the one hand and Mr. Svedberg on the other hand, but there is no evidence about what was said.  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.
83.	On 21 November 2000 Cleary Gottlieb sent to Mr. Pedriks proposed amendments to the CSA, proposals that have been 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 in clause 8.4 that the market value of the shares would be assessed on the basis that Ritabell had acquired the shares in Baltkom and “Baltkom is a wholly owned subsidiary of AS Ritabell”, and the further assumption that “any loan agreements entered into between [Baltkom] and its actual parent entity would have been entered into between [Baltkom and Ritabell], and would be further reflected by loan agreements between [Ritabell] and its ultimate parent entities, including (for the avoidance of doubt) that a loan of US$277 million was entered into for the purchase of [Baltkom] by [Ritabell].     The Valuers shall deduct the aggregate amount of such shareholder loans from the stand-alone valuation of the share capital of [Baltkom] and shall then aggregate this sum with the Option Price …”.    The implications of this proposal were (i) that Levicom would benefit from only 5.2% (not 10%) of the value of Baltkom’s shares since Ritabell were the only subsidiary that AS Levicom Cellular did not wholly own; 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.     (I refer later to an issue between the parties about the meaning of the draft amendment, given that US$50 million of the acquisition funding was used to relieve Baltkom of debts that were owed to third parties.)
84.	The proposed amendment was sent to Levicom (and Mr. Svedberg) by Cleary Gottlieb inviting “comments and thoughts”.    In my judgment, neither Mr. Svedberg on 8 November 2000 nor Cleary Gottlieb on 21 November 2000 made an offer of settlement in the strict legal sense, or that Levicom could have simply accepted it and thereby created a legally binding agreement.     In particular, there was no proposal as to what consideration Levicom were to give for the amendment of the CSA: that is to say, what claims were thereby compromised. 
The November letter
85.	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.   
86.	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, the November letter.  It stated that Linklaters awaited further instructions about what subsidiaries of AS Levicom Cellular carried on business as network cellular operators in the Baltic States.    Nevertheless and although the advice was sent in the form of a draft, there is no dispute 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.
87.	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.”  
88.	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 were “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 the 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”.  
89.	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 NVs performance on clause 11”.
90.	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).”
91.	Although it is not pleaded that the advice in the November letter was itself negligent, I comment upon what Linklaters said in it and what Mr. Pedriks and Mr. Robson say that it conveyed to them because the January letter and the March letter in some ways reflected and developed this advice.   
92.	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 is 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.
93.	I accept that these points are justified by a careful and somewhat literal reading of the letter, and I accept 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.    I do not consider that he intended to give advice about that in the November letter.     
94.	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 and 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.    
95.	Mr. Moriarty observes that the November letter does not 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.   This is true so far as it goes.   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.   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.
The discussions between Levicom and Linklaters in January 2001 
96.	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, and, as with his other notes, I accept it to be reliable evidence of what was said.   
97.	Mr. Robson explained 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 and when the shares were sold a year and a half later Ritabell had been valued at US$100 million.    
98.	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.      I so infer from Mr. Graham’s notes, although Mr. Robson had no recollection of such a conversation with Linklaters.   
99.	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, as Mr. Graham and Mr. Legg confirmed in their evidence, to give advice about the overall strengths and weaknesses of Levicom’s case, including what remedies they might have. 
100.	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, as Mr Legg understood and as I accept, that Linklaters might endorse the line taken in the letter if they agreed with it.  
101.	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.  
102.	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 said 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, having observed the usual measure of damages for breach of contract is compensatory, designed to compensate the claimants for the loss that flows from the breaches, 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 is clearly a slip, and it was intended to refer to Baltkom.)
103.	On 22 January 2001 there was a telephone conversation between Mr. Robson and Mr. Graham about the draft letter.  Mr. Robson is recorded in Mr. Graham’s attendance note (which again I accept as accurate) as saying 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.          
104.	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, although they cannot remember their precise thinking, they were both satisfied with the final version of the letter, including the comments about the settlement proposals.     
105.	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.   
The January letter  
106.	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 breach of them.  Before summarising their advice Linklaters observed that “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”.
107.	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.
108.	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”.
109.	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 …”.
110.	Linklaters then 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 were applying for a further wireless licence in Latvia.
111.	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 shared 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.”

112.	Thus, 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”.      Levicom’s case is that the advice in the January letter about remedies was negligent: in particular that Linklaters knew that 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.
113.	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, as I understood his evidence, he said that he took this to be the implication of the advice that Levicom’s offer was reasonable.  On any view, this was an extremely optimistic interpretation of the letter, and, to my mind, was not justified by a reasonable interpretation of it.  It was one thing for damages to be measured on the basis of an acquisition made through AS Levicom Cellular.  It was another thing for them to be measured on the basis that the acquisition was made without any borrowing from third parties.   I cannot accept that Mr. Pedriks understood that the January letter was giving this advice. 
114.	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”.
It did not indicate that Levicom might seek an order for the disposal of the Baltkom shares.    The letter said that unless satisfactory proposals were received by 4.00pm on 2 March 2001, “appropriate enforcement proceedings” would be commenced.
Ms Pavlopoulos’ advice  
115.	On 23 January 2001 Mr. Robson had told Mr. Graham that Levicom wanted Linklaters to act for it in the arbitration.  Linklaters decided that Ms Eleni Pavlopoulos should assist in this, and Mr. Graham discussed the case with her on 24 January 2001.  Soon afterwards Ms Pavlopoulos asked her trainee, Mr. Samrad Nazer, to look into whether Levicom’s claim might be affected by competition law, and he wrote notes concluding that clause 13 of the CSA and clause 10 of the BSA would not offend against the Competition Act 1998, the Treaty of Rome or the Restrictive Practices Act 1976.   I also find that Ms Pavlopoulos considered whether the clauses might be in restraint of trade and concluded they were was not.    Although she had no specific recollection about this, it would have been in accordance with her normal working practice and it is the more likely that she did so because she asked Mr. Nazer to research the statutory competition regime. 
116.	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 the advice.
117.	At around this time, Mr. Robson asked Linklaters to retrieve from storage their files about the agreements of 29 January 1999, and Linklaters did so.   Mr. Robson gave evidence that he asked Mr. Graham to do this, but was hazy in his recollection about when he asked: there is no reason to think that it was long before Linklaters did in fact retrieve them in February 2001.
118.	Ms Pavlopoulos also sent Levicom Linklaters’ engagement letter, which said 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.   Although Levicom have not relied upon the engagement letter in support of their claim, I observe that it said that advice on important matters would be confirmed in writing.   Consistently with this, Levicom rely in support of their claim upon advice given in the January and March letters rather than upon oral discussions with Linklaters. 
119.	On 8 February 2001 Ms Pavlopoulos and her trainee met Mr. Robson, Mr. Pedriks and Mr. Palts.  There are two notes of the meeting: some manuscript notes taken by Mr. Nazer, and Linklaters’ typed record, which Ms Pavlopoulos approved and tried, as she put it, “to put [Mr. Nazer’s] notes into some kind of rational order”.     A copy of the typed record was provided to Levicom on 14 February 2001.  
120.	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-complete 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.  
121.	Linklaters’ typed attendance note records that Ms Pavlopoulos then said this about the quantum of Levicom’s claim: that the usual way that quantum is decided under English law “focus[es] on putting the parties back in the position they would have been in had the contract been performed. i.e. in relation to the Baltkom acquisition Levicom would ask for 10% of the purchase price amounting to US$27.7m (which is the percentage they would have to give Levicom Cellular)”; but that the question might be complicated by the fact that AS Levicom Cellular, who suffered the loss, were not a party to the CSA.    Mr. Nazer’s manuscript note reads “Quantum: purchase price of Baltkom at the time = correct way (EP)”.     
122.	However, Ms Pavlopoulos’ evidence was that the notes reflect the argument that Levicom presented to her about the measure of damages, and that she did not endorse it.    The first part of this evidence finds some support in another part of Mr. Nazer’s manuscript note: “KR=Lev[icom] to ask Netc[om] for i.e. 10% of the purchase price, $27.7 m (wh[ich] = the % they wld have to give Levicom)”.   I interpret this as recording Mr. Robson saying that Levicom should require the Swedish companies to pay them 10% of the purchase price paid for Baltkom or US $27.7 million, being the percentage that the Swedish companies should have given to Levicom.   The second part of Ms Pavlopoulos’ evidence would mean that the notes were inaccurate, but I accept the evidence.  Ms Pavlopoulos was to my mind a careful witness both generally and with regard to this particular piece of her evidence.      I found convincing her explanation that, at this early stage of dealing with the matter, she would not have offered any decided view about how quantum would be assessed: in my judgment, Ms Pavlopoulos was too careful and cautious a lawyer to have done so.   She might well have said that she followed how Levicom would present a case on quantum of damages, but that is different.   
123.	After a telephone conversation with Mr. Pedriks on 1 March 2001, to which I shall refer, Ms Pavlopoulos revised the record of this conversation, and the relevant part of her note was changed to read as follows: “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”.    In my judgment, this revised record, reflecting that Ms Pavlopoulos acknowledged how Levicom would set out their case rather than that she endorsed it, more closely reflected what she said at the meeting.  Mr. Robson’s evidence was that Ms Pavlopoulos confirmed that Levicom had a claim for 10% of the purchase price of US$277 million, but he said that her advice was vague and he found the summary of her advice incomprehensible: there was room for misunderstanding.     
124.	There was also discussion at the meeting on 8 February 2001 of a further dispute with the Swedish companies arising from their decision, expressed in a letter dated 31 January 2001, that “NetCom/Tele2 has no intent to extend or enter into any new service agreements for any of the representatives of the Shareholders”, effectively terminating service agreements that Mr. Palts and Mr. Peek had had.     On 9 February 2001 Ms Pavlopoulos advised that (on the basis of the information that she had) this would give rise to no claim, and Mr. Palts and Mr. Peek did not pursue the matter.
125.	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”.”
126.	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.   
127.	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]”.   In my judgment, 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. 
128.	It is also to be observed that the proposal is, on its face, that the valuers were to treat US$277 million as debt to be deducted from the value of Ritabell.   This does not reflect the fact that Tele2 provided US$227 million to acquire Baltkom by way of “shareholder loans”, and the further US$50,000 was by way of satisfying Baltkom’s indebtedness at the date of acquisition.    This leads to the question whether the first offer meant that the valuers should take account of the fact that the loan to be assumed to be owed by Baltkom to Ritabell did not match that to be assumed to be owed by Ritabell to “its ultimate parent entities”.   If it did not do so, then it would not give effect to the purpose expressed in the letter of 30 October 2000 that the value of Levicom’s shareholding for the purpose of clause 8 of the CSA should be determined “as if Baltkom GSM was owned by AS Ritabell”, nor would it achieve the similar purpose expressed in the letter of 14 February 2001, nor would it be in accordance with what seems to me to have been the obvious commercial structure that was intended: after all the first offer contemplated that the assumed loan agreements between Ritabell and the parent entities were to “reflect” the same loan agreements that existed between Baltkom and “its actual parent entity” and were to be assumed to have been entered into by Baltkom and Ritabell.    It seems to me that, if an agreement had been entered into in the terms of the first offer, the valuers would properly suppose, as a matter of the natural commercial interpretation of the terms of the first offer, that Ritabell had the benefit of the US$50 million included in the loan that they are to be supposed to have taken.      (This question was considered in the expert evidence but to my mind that evidence was not properly admissible.   It suffices to say that, had I taken it into account, it would not have affected my conclusion about this.)       I add that, if I am wrong that this would have been the proper construction to be given to an agreement in the terms of the first offer, there would have been every prospect of it being rectified to have this effect. 
129.	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 benefit from 10% of the investment so financed.  
130.	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 themselves 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”.
131.	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.
132.	The reaction of those acting for Levicom to Ms Pavlopoulos’ advice is reflected in an 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.  Levicom’s reaction to the letter is 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 I see it, that reflects the fact that she appreciated that the right measure of Levicom’s loss was a 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 indicating some concerns about this aspect of Levicom’s claim.    
133.	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, the former partner of Linklaters who had advised Levicom when they entered into the agreement of 29 January 1999 and who had impressed Mr. Robson and Mr. Pedriks.  
134.	Later 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 I accept 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’ response was 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”.  
135.	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”.    Mr. Pedriks 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”. 
136.	I also refer to the discussion about the Tranche C loan note claim.    When Ms Pavlopoulos asked about 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.
137.	When 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”.  
138.	Mr. Pedriks expressed to Ms Pavlopoulos his concerns about the advice that Levicom had been given.    Levicom do not abandon those criticisms, but I do not need to consider them further because Mr. Pedriks and Mr. Robson both made clear in their evidence that they did not place any reliance upon Ms Pavlopoulos’ advice.  However after these discussions Mr. Pedriks and Mr. Robson cannot 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.     
139.	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.  The conversation makes it clear, and Levicom accept, 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 that does 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”.   
140.	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.
The March letter
141.	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. 
142.	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 [sic: unlike in the earlier letters, the singular was used] 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.   
143.	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%.
144.	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: as I understand the attendance note, 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.    
145.	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’ “collective 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.    
146.	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.   
147.	Mr. Moriarty observed that thus Mr. Pedriks sought advice about clause 9 in three separate e-mails within a five day period, and submitted that he, and Levicom, were utterly convinced that clause 9 would provide the remedy that they sought.     I accept that Mr. Pedriks thought that there was merit in the point and was anxious that Linklaters should not overlook it, as Levicom thought Ms Pavlopoulos had done in her letter of 23 February 2001, but I draw no other conclusion than this from the emails.  
148.	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%)”.   It was this formulation that 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.      
149.	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 was carrying on a business at 29 January 1999 which was the same as or competed with the cellular network business of Baltkom. 
150.	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%).

151.	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.”
152.	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 does not specify the difficulties in assessing damages (although, as I explain below, it did advise about clause 9).    
153.	Mr. Legg’s evidence was that he believed that “the complexities that were involved in the calculation of damages were something that we had communicated to the client previously”.   He was unable to recall to whom this had been explained (although he observed that Mr. Robson was more closely involved at the relevant time) and he had no recollection whether it was communicated at meetings or by telephone or both.    Mr. Legg accepted that if Linklaters had given Levicom significant guidance about this, it would, as a matter of practice, have been recorded in an attendance note and, as I have said, Linklaters’ engagement letter stated that any advice on important matters would be confirmed in writing.     There is no attendance note or other document recording advice or explanations of this kind.  I am unable to accept that Levicom had been given any significant advice before the March letter of the difficulties of quantification that Mr. Legg had in mind when he came to the view that declaratory relief was appropriate.    I reject 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.
154.	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.
155.	As I have said, the March letter 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 implying such a term into the CSA and that it was “very unlikely” that Levicom would succeed in this argument.
156.	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.
157.	With regard to the dispute about the Tranche C loan note, it suffices to say that 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”.
158.	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.  
Linklaters’ advice between the March letter and May 2001
159.	On 15 March 2001 Mr. Robson and Mr. Pedriks discussed the March letter by telephone with Mr. Legg, Ms. Pavlopoulos and Mr. Graham, and the essence of the conversation is recorded in Mr. Graham’s notes.  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.   
160.	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”.  (In cross-examination Mr. Pedriks was unable to say whether he meant that he still thought on 15 March 2001 that clause 9 provided a mechanism for Levicom to obtain a satisfactory remedy or that he had previously so thought.   It is clear from Mr. Graham’s note that he was saying that he still so believed.)    Mr. Robson said that he was not concerned about clause 9 and that the suggested declaratory order was an “ingenious way of doing it”: that is to say, he thought that a declaratory order would provide an ingenious way of putting pressure on Tele2 and NetCom to transfer the Baltkom shares to AS Levicom Cellular.  
161.	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.  
162.	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.  
163.	On 21 March 2001 Linklaters, in accordance with Levicom’s instruction, replied to the letter of 14 February 2001 from Cleary Gottlieb and 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 ie. 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”.  
164.	On 28 March 2001 Linklaters sent Levicom an account for the work done between 11 October 2000 and 16 March 2001, and 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.  
165.	Ms Pavlopoulos and Mr. Graham wrote 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).   
166.	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.  
167.	On 2 April 2001 Mr. Pedriks sent Mr. Graham an e-mail, responding to the draft request for arbitration and saying 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”.
168.	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 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. 
169.	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”.   
170.	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. 
171.	As I have said, Mr. Pedriks met Mr. Svedberg in late March 2001, and 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, 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”.     
172.	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.     
173.	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.  
174.	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.   Mr. Fenwick observed that this assessment of the chances about obtaining a declaration about an acquisition by Ritabell did not lead Linklaters to revisit or to qualify their advice in the January letter about the first offer. 
175.	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.   The details are not important for present purposes: essentially, under the agreements of 29 January 1999 Tele2 had a call option over 80% of the shares, which they had not exercised and expired in June 2001.     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 plead, “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. 
176.	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 in evidence that “there was some truth behind this argument”, he thought that the Swedish companies could have found the funds for a settlement with Levicom.   
177.	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%.     It appears, therefore, and I infer, 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: “… we understand that the markets have changed and valuations for mobile operators have changed.    We are prepared to make amendments and changes in the spirit of finalising something before September, but we require you to address the issues listed above in a revised proposal.  Once we have this and understand the Lithuanian issue, then we would be prepared to settle something, if it is reasonable.    It must however be a package”.    
178.	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 is 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.   
The second offer 
179.	 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”, and I adopt that expression although Mr. Svedberg made it clear that he had no mandate to make any offer on behalf of Tele2.  He wrote that he had been “assessing the issues discussed in London and outlined potential package deal”.  (It is not clear whether this was a reference to discussions on 3 May 2001 or on some other occasion.)    He set out this 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]”
180.	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.  
181.	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”.   
182.	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.   
183.	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.    
184.	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.   
185.	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.  In cross-examination Mr. Pedriks said that the second column was intended to make that calculation.   I reject his oral evidence and consider that his witness statement set out the true position.  The spreadsheet also sets 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 represents US$34,900,000.   I therefore conclude 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.
186.	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.  (This assessment is supported by the evidence of Mr. Golob, who calculated that the second offer was worth some €9 million less than the first offer, as well as introducing a credit risk for Levicom.)
187.	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”.       
188.	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”.
The third offer
189.	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 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 thought that Levicom were preparing to negotiate a reduction in Linklaters’ fees.
190.	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, although Mr. Pedriks said that Levicom might have sought advice on the offer without providing a copy of it, I am unable to accept that.    
191.	Nevertheless Levicom told Linklaters of the second offer at the meeting, and 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.   Levicom’s pleaded case is that at or before the meeting Linklaters were provided with a copy of the spreadsheet. Mr. Pedriks did not recall whether they were, but said that Linklaters saw him referring to it.   Mr. Robson could not recall whether Levicom discussed the spreadsheet with Linklaters.    Mr. Legg had no recollection of being provided with it, and Mr. Graham’s evidence was that it was not provided either at the meeting or later.    His notes of the meeting include nothing to suggest that it was provided.  I accept Mr. Graham’s evidence and reject this part of Levicom’s pleaded case.     
192.	Mr. Pedriks said that Levicom were ready to go to arbitration.  Mr. Graham’s notes of the meeting record, and I accept, that Mr. Pedriks 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)”.    
193.	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. 
194.	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’s evidence was, and I accept, that he therefore understood that Linklaters expected that Levicom would achieve a settlement at the sort of figure that he was mentioning.
195.	Levicom had further discussions with Mr. Svedberg and on 22 November 2001 Mr. Svedberg sent Levicom a proposal which has been referred to as the “third offer”.  (Like the second offer, the proposal was strictly not an offer in that Mr. Svedberg again made it clear that he did not have authority to commit the Swedish companies.)   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”.
196.	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 it 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.
197.	Levicom estimated that overall the third offer was worth some US$4,901,140 more than the first offer (and Mr. Golob 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.   According to Mr. Pedriks’ evidence, which I accept, Levicom gave the Swedish companies the opportunity to improve the third offer, but no improved proposal was forthcoming.  
198.	Levicom’s concern about the credit risk presented by the second and third offers is understandable. Mr. Golob described the period between November 2000 and August 2002 as follows: “… one of growing concern and pessimism about the financial prospects for the technology and telecoms industries which started with the collapse of the tech bubble in March 2000.   It would not be an overstatement to say that at times this pessimism reached panic with concerns that even very major companies … might go bankrupt … Many US and European internet and telecom start up companies did go bankrupt”.  He also said that the period between November 2000 and November 2001 was “when sentiment in the European telecom sector was at its most negative”.    
199.	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.   I do not overlook that Mr. Pedriks emphasised that, although valuations were falling, the businesses were still growing significantly, but a mood of financial uncertainty prevailed.
Instructing counsel
200.	On 20 December 2001 Linklaters sent Mr. Robson and Mr. Pedriks a revised draft of the request for arbitration.   It was contemplated that Levicom should 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.
201.	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 went about preparing 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.    
202.	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 suggest that this should be done when the draft was more developed.  Mr. Graham sent further drafts of the request on 8 April 2002 and 26 April 2002, and arranged a meeting at Linklaters for 30 April 2002.  
203.	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.
204.	When Mr. Legg inquired about negotiations with the Swedish companies, Mr. Pedriks  referred to his spreadsheet, which he said had prompted a slightly improved offer (referring, of course, to 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.
205.	On 16 May 2002 Mr. Graham sent Levicom details about two barristers including Ms. Catharine Otton-Goulder QC.  Instructions were sent her 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 were 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”.   
206.	The draft Request for Arbitration presented a Pan-Baltic construction of clause 13.1, and also averred that AS Levicom Cellular were 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 were “a direct competitor with Levi & Kuto Latvia in the Latvian market”.     Mr. Fenwick suggested that this indicated a change of emphasis from the advice originally given by Linklaters about a Pan-Baltic construction and about the businesses being the same rather than in competition.    I am not persuaded of this: understandably the draft pleaded alternative cases.      
207.	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.  
208.	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.  
209.	Ms Otton-Goulder advised about the merits of the claim in respect of a Tranche C loan note, which she thought were good.  Ms Otton-Goulder considered that Levicom would succeed in establishing an implied term to support the Latvian licence claim under clause 11.  
210.	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 a 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.    According to Linklaters’ attendance note, which I accept as accurate, 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”.
The start of the arbitration
211.	Ms Otton-Goulder, as instructed, 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.  
212.	Levicom filed a request for arbitration against the Swedish companies on 9 August 2002, asking that the case be expedited.  Mr. Fenwick pointed out that the request sought to define 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, but I can attach no significance to the fact that the request put forward an alternative case in this way, and do not consider that it indicates a departure by Linklaters from the advice about the meaning of clause 13 that it had given in 2000 and early 2001.
213.	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.  
214.	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 wrote, “The entire telecom market is in turmoil over its finances.   This is cause enough to expedite, let alone Tele2’s own potential difficulties.  I would argue that a failure to expedite on Tele2’s part would be seen as a way to delay a settlement until possibly some time after they themselves are in liquidation”. 
215.	The tribunal, Mr. Kenneth Rokison QC, Ms. Hilary Heilbron QC and Mr. Alan Redfern, was appointed and, by order dated 29 October 2002, they directed a pre-trial review should be held in May 2003.  
216.	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. 
217.	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, as I have found, 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.   
218.	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.    They consulted other solicitors, Clyde & Co. 
219.	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, 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 that might 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 (ie 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.
220.	On 7 March 2003 Ms Otton-Goulder advised in consultation about the witness evidence that Levicom should obtain, and it was suggested that it would be helpful to have expert evidence about the market usage about the expression “cellular network business”.    From around April 2003 another assistant solicitor at Linklaters, Ms. Susan Harrop, began to work on the case and in particular to deal with expert evidence. 
221.	On 24 March 2003 Mr. Legg and Mr. Graham travelled to Estonia to interview potential witnesses.    During those interviews Mr. Peek is recorded in Mr. Legg’s notes as explaining 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”.    Mr. Graham recalled that Mr. Peek expressed that view, but that, 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.
The fourth offer
222.	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 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.
223.	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. Robson wrote this: “Had Tele2 acquired Baltkom through [Levicom Cellular] we would probably have used our put option at an early stage.  We should therefore rephrase the counterproposal to include that the put option value would be no less than the maximum in the period for the first date where we could exercise the option until the settlement date”.    Mr. Graham questioned whether this would not be a difficult and possibly inflammatory position to advance, but Mr. Robson responded, “Technically you are right that we could have put on a time of our own choice.  However I note that great uncertainty have prevailed as to the assets that could be put and I therefore add that under this uncertainty we decided not to put”.    
224.	In his witness statement Mr. Robson said that the letter of 15 April 2003 merely restated Levicom’s position and was not “a genuine attempt to communicate and settle the case”.  He criticised Linklaters for adopting a “cavalier” approach to the fourth offer, “effectively put[ting] an end to settlement talks” and contributing further to Levicom’s belief that Linklaters had “total confidence on the strength of our case”.  I cannot accept this.  On the contrary, Mr. Graham advised a measured response designed to encourage continuing discussions and tried to restrain Mr. Robson from a potentially provocative response.   
Ms Otton-Goulder’s advice on quantum
225.	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.    
226.	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 (ie around January 2001)”.    
227.	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.”
228.	I shall set out another passage of her advice, because it is 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.”
229.	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”.     
230.	On 28 April 2003 Mr. Graham sent the advice 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.   Mr. Pedriks considered that this advice “purported to support our case that we were entitled to equitable relief”: I do not consider that it did so in unqualified terms, or that Mr. Graham’s note might reasonably be so understood.   
April to September 2003
231.	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.  
232.	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.  
233.	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”.     Mr. Pedriks said in cross-examination that Mr. Graham was confused to associate the question of instructing an expert with his discussions with Mr. Svedberg, and that he had not spoke to Mr. Graham in such terms.    However, he did not suggest this in reply to Mr. Graham’s email and I am unable to accept that Mr. Graham was confused: on the contrary, at all times he recorded his discussions with Levicom with great care.   I accept Linklaters’ suggestion that this reflects that Mr. Pedriks was seeking to conclude with the Swedish companies an overall settlement dealing with both the acquisition of Baltkom and the exercise of the option.  
234.	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.   It is recorded in Linklaters’ attendance note, which I accept as accurate.   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”.    Levicom rely upon this in support of their criticism of the advice in the March letter about Levicom’s remedy.   There is, however, no evidence about whether Baltkom’s business was integrated with the rest of Tele2’s operations in March 2001.
235.	At the consultation attended 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 the 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 explained in his evidence that he 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. 
236.	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 and 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.  
237.	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.    
238.	Mr. Pedriks’ evidence was that he and Mr. Robson did not “fully understand” the implications of Ms Otten-Goulder’s advice about the tribunal being unlikely to order the disposal of the shares and that the focus should be on the damages claim.   Indeed, at one point in his evidence he said that he could not recall whether he understood that she was advising that Levicom were unlikely to obtain declaratory relief.  I am unable to accept this: Mr. Pedriks and Mr. Robson both took an alert and intelligent interest in the discussions about Levicom’s case and would not have allowed themselves to be present at a consultation without following what was being said.
239.	On 6 June 2003 Linklaters informed Levicom that Mr. Graham would return to Australia in mid-July 2003, and at about the same time Mr. Legg was to have sabbatical leave for 12 weeks.  While Mr. Legg was away Mr. Greg Reid was to be the partner dealing with this matter. 
240.	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.
241.	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.
The exercise of the put option
242.	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.  
October 2003 to March 2004
243.	Mr. Legg had returned from his sabbatical leave at the end of October 2003 and resumed conduct of the matter until the end of February 2004. 
244.	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.
245.	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.   (It was also asserted that Levicom claimed reflected loss suffered by AS Levicom Cellular, but neither party before me advanced any argument about that and I say no more about it.)
246.	After Mr. Graham left Linklaters in July 2003, Mr. Reid and then Mr. Legg 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 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.”
247.	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.   
248.	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”.    
249.	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.
250.	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.
251.	Mr. Legg’s last working day with Linklaters was 5 February 2004, although his resignation from the partnership did not formally take effect until the end of April 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.   
252.	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.   
253.	The agreement was amended in April 2004 to include any recovery resulting from a breach of clause 9.2 of the CSA.   Mr. Robson explained in evidence that he was concerned to cover the position if, following an order that Tele2 dispose of the Baltkom shares, they did do so without observing clause 9.2 and Levicom had to bring further proceedings.    I do not accept that explanation: Levicom’s Estonian lawyer, Mr. Ants Karu, drafted the amendment on the basis that (as he put it in his covering email of 12 April 2004) Mr. Robson had “discovered possible breaches of clause 9.2 (non-dilution)”.   As I shall explain, at about this time Mr. Robson was emphasising to Linklaters the importance, as he saw it, of the clause.
Pre-hearing consultations
254.	 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.  
255.	Linklaters’ attendance note, which I accept as accurate, then records this:
“[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.”
256.	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 Baltkom being acquired through AS Levicom Cellular.  Ms Otton-Goulder said:
“… that, 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.”
257.	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%.
258.	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 all at Linklaters too were surprised about Ms Otton-Goulder’s advice.  
259.	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. 
260.	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”.    
261.	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.    
262.	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.  
263.	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.    As Mr. Humphries recorded in his file note and as I accept, 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”.
264.	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.   Linklaters rely upon the model and this conversation as further evidence that Mr. Robson still believed that clause 9.2 of the CSA assisted Levicom.   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, as I have said, 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. 
265.	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.  
266.	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.    
267.	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 by Diplock LJ’s judgment in Lavarack v Woods of Colchester (cit sup), which I have already set out).     This was this first time that the Swedish companies had clearly stated their “minimum performance” argument, although, as I have said, it was covered by their pleading in December 2003.
The 2004 settlement
268.	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.  
269.	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]; …”
270.	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”.
271.	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 assessed on the basis of the value of 10% of the benefit to AS Levicom Cellular at €30 million. 
272.	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 e-mail 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.”
273.	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.  
274.	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.   (It is disputed whether he said anything that Linklaters had not previously been told, but that question is of no relevance for present purposes.)    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. 
275.	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 a settlement agreement was made.    The parties agreed to enter into a share purchase agreement under which 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.    
Issues
276.	As I have, there is no dispute that Linklaters were advising and acting for both claimants, and that they accordingly owed them a duty of care.
277.	There are broadly five issues between the parties.  The claimants assert and Linklaters dispute that:
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.
Was the advice given by Linklaters wrong, over-optimistic and negligent?
278.	I shall deal with the first two issues together.  In broad terms, Linklaters’ advice in the January and March letters is criticised on the grounds that:
i)	It was too optimistic about the prospects of Levicom showing a breach of clause 13.1 of the CSA.
ii)	Levicom faced difficulties in obtaining a substantial remedy for breach of clause 13.1 that Linklaters failed to appreciate or to convey to Levicom.
iii)	Linklaters’ advice about the proposals for settling the dispute was excessively aggressive and optimistic.
Levicom say that the “correct” advice for Linklaters to have given was that clause 13.1 might easily be construed on a “Same State” basis and the Swedish companies held not to be in breach of it; that, even if given a “Pan-Baltic” construction, Levicom were not entitled to have damages assessed on the basis of a notional purchase of Baltkom through AS Levicom Cellular, and were very unlikely to recover such damages; that in fact Levicom’s entitlement to damages was at best what the Swedish companies proposed in the first offer and at worst a good deal less; and that there was no good reason for Levicom to do other than to settle on the best terms available. Levicom also criticise Linklaters for not advising them to obtain advice from leading counsel about these questions at around the time of the January and March letters.
279.	It is important to consider not only what views Linklaters had formed about Levicom’s case and intended to convey to Levicom in the January and March letters, and whether they were negligent to have formed those views; but also whether they were negligent because they failed properly to convey their advice to Levicom.    As Mr. Fenwick observed, the question is how Linklaters should have anticipated Levicom would understand the letters, not what they might mean if construed like a contract or a statute.    In order to discharge his duties, a solicitor in Linklaters’ position must exercise proper skill and care to ensure that his advice is sufficiently clear.    In the end the question is whether any reasonably competent solicitor of Linklaters’ standing and in Linklaters’ position could have given the advice that they gave in the terms that they gave it.    
280.	What matters is the advice itself, not how it came to be given: see Adams v Rhymney Valley District Council, [2000] Lloyd’s Reports PN 777.   A solicitor fulfils his duty to his client if he gives advice which meets the required standard whether he does so as a result of sound reasoning or as a lucky product of aberrant reasoning to which no competent solicitor could subscribe.   (As I understand it, this is not itself controversial, although Mr. Fenwick submits that, where a solicitor’s reasoning falls below the standard to be expected of a reasonably competent practitioner, an evidential burden falls upon him to show that, albeit perhaps by chance, his advice was within the proper limits.   He draws an analogy with the position when a solicitor, having advised the client that he has a strong case, later seeks to contend that the claim was valueless, citing Mount v Barker Austin, [1998] PNLR 493.  I reject the analogy and the submission about an evidential burden shifting to the defendant, but none of the conclusions that I have reached has depended upon this question.)
281.	Although Linklaters’ witnesses found it difficult to recall their contemporaneous thinking, I conclude that Linklaters intended to give this advice in the January letter:
i)	That Levicom had a strong argument that the Swedish companies were in breach of clause 13 of the CSA because they acquired Baltkom as they did; and that it would be a straightforward matter to prove the breach.   In the March letter, Linklaters expanded upon this advice, assessing Levicom’s chances of success as being very good and, in percentage terms, in the region of, but not less than, 70%.
ii)	That the usual remedy for a contractual claim of this kind is compensatory damages, and one possible way of measuring damages was to put Levicom in the position in which they would have been if AS Levicom Cellular had acquired Baltkom.
iii)	That the proposal that Levicom had put forward in their letter of 17 October 2000 was a reasonable proposal to make, and the first offer would not fairly compensate Levicom.
282.	I have not sought to set out exhaustively the advice that Linklaters intended to give about Levicom’s claim under clause 13 in the January letter: for example, I have not listed their advice that Levicom should bring arbitration proceedings if they wished to enforce their claims, which was clearly right, and advice about clause 13.3, which Levicom do not plead was negligent.   I have sought to identify what is relevant to what I have to decide.   
283.	In my judgment Linklaters were entitled to conclude that clause 13.1 was to be given a Pan-Baltic construction, and that the acquisition of Baltkom put the Swedish companies in breach of it because both Baltkom and AS Levicom Cellular’s subsidiaries carried on cellular network businesses in one or more of the Baltic states.   Linklaters’ instructions justified them in advising on this basis, and in any case the January letter made it clear that their advice was subject to this being verified.   I have already explained why I consider that there were cogent arguments in favour of the Pan-Baltic construction, and indeed I consider it correct.   While Linklaters’ assessment of Levicom’s chances of success in the January and March letters was more optimistic than some more cautious solicitors would have expressed, I consider that it fell well within the range of opinions that could properly be given.     I also observe that Ms Otton-Goulder when she first advised, Mr White and Mr Humphries considered that the acquisition of Baltkom gave rise to a breach of clause 13.1.  Even if I had myself taken a different view about the meaning of the clause, I should not have concluded that Linklaters were negligent in their view about the proper construction of the clause.   As Salmon LJ observed 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”.  
284.	I also consider 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.
285.	It seems to me that the only real issue about this part of Linklaters’ advice is whether, recognising that different views can be taken by lawyers on a question of construction of this kind, they were negligent in not stating in their letters of advice that arbitrators might not agree with them about the meaning of clause 13 and therefore they might not succeed in establishing breach of the clause.  Sometimes a solicitor will be in breach of duty if he does not give such a warning: see Queen Elizabeth School Blackburn Ltd v Banks Wilson, [2002] PNLR 14 esp at para 29 (per Arden LJ) and at para 50 (per Sedley LJ).    I do not regard it as necessary in this case where Linklaters were advising clients as sophisticated and experienced in business as Levicom were, and where Linklaters were entitled to take a relatively robust view about the meaning of the clause.    I consider that Linklaters could properly proceed on the basis that Mr Pedriks and Mr Robson knew for themselves that there might be scope for dispute about questions of construction, and indeed I conclude that they did know this.    In any case, 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.
286.	I therefore reject the complaint about the optimistic advice about breach of clause 13.  Levicom’s prospects of success were the greater because they were able to put forward their complaint not only on the basis of the Pan-Baltic construction but also on the basis that Levi & Kuto Latvia were carrying on a cellular network business in competition with Baltkom because of their foothold by way of having two retail shops and their intentions to expand and develop the business.  However I do not understand this consideration to have played a major part in at least Mr. Legg’s thinking at the time of the January and March letters, a successful claim on this basis would give rise to different questions about the measure of damages and about remedy more generally, and in my judgment Linklaters’ views about the Pan-Baltic construction provided sufficient justification for their optimism about constituting a breach to answer the allegation of negligence in that regard.  
287.	It is convenient next to consider the advice about settlement proposals, which was introduced into the January letter at the request of Mr. Robson after he had seen Mr. Graham’s draft of the letter.  Levicom say that Linklaters had no proper basis for making any assessment of the value of the first offer and were not in a position to advise whether it would fairly compensate Levicom.  They complain that their actual entitlement to damages was “at best” what the Swedish companies offered in the first offer, and at worst “a good deal less”.  This contention depends, at least in part, upon the argument that the “minimum performance” principle answered a claim on the basis of Baltkom being acquired by AS Levicom Cellular, and for reasons that I have already explained, I do not consider that it does.  In any case, I am unable to accept Levicom’s argument.    The first offer did not recognise the claim that, but for the breach of clause 13.1, BV would have assisted in obtaining Latvian licences, and so that Levicom had a claim in respect of Tranche D or Tranche E loan notes.   Further, it was based upon treating a hypothetical acquisition of Baltkom by Ritabell financed entirely by third party debt: it included nothing in respect of the value of Baltkom upon acquisition.    (Although Mr. Legg did not recall whether at the time of the January and March letters consideration was given to whether it was open to the Swedish companies to finance the transaction entirely by debt, this does not affect the question whether the advice itself was negligent, judged by the objective standard to which I have referred.)
288.	As for the advice about the offer made by Levicom in the letter sent on the 17 October 2000, Mr. Moriarty argued that Linklaters advised only that the proposals were reasonable ones to make, and that, in view of the exchanges that had taken place between the parties, this was indeed the case.  Mr. Svedberg had acknowledged that at least Tele2 were in breach of the CSA.  The Swedish companies appeared to be concerned to resolve the dispute.  I agree that in these circumstances it was a perfectly sensible negotiating step for Levicom to write that they were prepared to accept in settlement of their complaint the transfer of the Baltkom shares to AS Levicom Cellular, with the alternative of a “cash offer” in an unspecified amount.  If that is all the passage in the January letter about Levicom’s proposals could reasonably be understood to be saying, no complaint could be made about it.  
289.	I accept that Linklaters intended when advising about the proposal of 17 October 2000 and the counter proposal in the first offer to give only the advice to which I have referred.  I infer that, when asked by Mr. Robson to include comments about the proposals, Mr. Graham chose terminology designed to limit Linklaters’ advice in this way and on this basis, as I conclude, Mr. Legg, having questioned whether Linklaters were “able to make these judgments”,  was satisfied that they were.  The real question, it seems to me, is whether the January letter could reasonably be understood by Levicom to be giving other and more optimistic advice, and so was negligent.  I shall consider this after saying something about the rest of Linklaters’ advice in the letters.  
290.	I go back to the second aspect of the advice that Linklaters intended to give.    There is no question that, if the Swedish companies were in breach of contract, Levicom had a claim for compensatory damages.   Mr Fenwick argued, however, that it would not be permissible for the damages to be calculated on the basis of Baltkom being acquired through AS Levicom Cellular because (i) there was no obligation upon the Swedish companies so to route any acquisition of Baltkom or indeed to acquire Baltkom at all, (ii) the damages would be less if it was not supposed that AS Levicom Cellular acquired Baltkom than if they were so measured, and (iii) therefore it would contravene the minimum performance principle to assess damages on the basis of Baltkom being acquired through AS Levicom Cellular.    If this argument is correct, it would significantly reduce Levicom’s damages claim.    
291.	I agree with the first step in this reasoning, and indeed it is not disputed: Linklaters rightly advised Levicom in the March letter that the CSA contained no express obligation upon the Swedish companies to route any acquisition of Baltkom through AS Levicom Cellular, and that it was very unlikely that they would be held to be under such an implied obligation.   Linklaters put forward on Levicom’s behalf a claim for damages on the basis of AS Levicom Cellular making the acquisition in order to maximise the damages claim.  However, I do not agree that the minimum performance principle applies to this case.
292.	Linklaters advised in the January letter that damages would be sought on the basis that the investment in Baltkom was made through AS Levicom Cellular and would have been made “legitimately”.  That is uncontroversial if it means no more than that it would not have involved a breach of the CSA or otherwise have been unlawful; but that in itself would not support a case for Levicom’s damages being measured by reference to the investment being through AS Levicom Cellular.     
293.	Neither Mr. Legg nor Mr. Graham was able actually to recall what was intended when the January letter referred to Baltkom being “purchased legitimately” though AS Levicom Cellular, but I cannot believe they meant that that was the only way that Baltkom could have been acquired without contravening the CSA: there is no evidence that Linklaters ever thought that, and the March letter made it clear that they did not.  Mr. Graham thought it likely that he had in mind, as well as the fact that it would have been in accordance with the CSA, that AS Levicom Cellular were “the natural and logical buyer of Baltkom within the Levicom business”: that is to say, as I understand his evidence, the framework established by the agreements of 29 January 1999 would make it natural for Baltkom to have been acquired as a subsidiary of AS Levicom Cellular, leaving aside any possible tension between the Swedish companies financing the acquisition and an acquisition by AS Levicom Cellular giving Levicom a share in the value of Baltkom.  Mr. Legg gave evidence to similar effect, and I conclude that this is what Linklaters had in mind when using the expression “purchased legitimately”.    Both Mr. Legg and Mr. Graham recalled being instructed that the intended structure created by the agreements of January 1999 made AS Levicom Cellular, rather than, in particular, Ritabell, the “logical” purchaser of Baltkom in that sense, and I accept that they were so instructed by Levicom.
294.	This being so, in my judgment Levicom had a reasonable argument that damages should be assessed on the basis of an acquisition through AS Levicom Cellular.  It was explained by Ms Otton-Goulder in her advice on quantum and presented in the voluntary particulars of loss and damage, and depended upon proving that in fact, if they had acted in accordance with the CSA, the Swedish companies would have invested the funds that they invested in acquiring Baltkom and developing Baltkom’s business by way of funding the development of a Latvian business through AS Levicom Cellular.
295.	I therefore conclude that Linklaters were not negligent in reaching the views that I have thus far identified as the advice that they intended to give.   I also consider that, if this is the advice that they intended to give, they were not negligent in failing specifically to warn of the possible, but in my judgment fallacious, argument based on the minimum performance principle.    It would be too demanding to require a solicitor who suggests a possible way of presenting a case to identify and warn about every potential counter-argument.   Did Linklaters intend to go further by way of advising Levicom that they had a valuable damages claim?   In October 2000 Linklaters had written in the draft letter to the Swedish companies that they had advised Levicom that they would be entitled to substantial damages, and that represented their initial and preliminary view of the position.  Mr Legg accepted when he was cross-examined that in January 2001 he “felt” that Levicom were likely to have a substantial damages claim.   Nevertheless, I do not consider that Mr. Legg thought that he was in a position give advice to that effect when the January letter was sent.    Linklaters had a general understanding that the acquisition of Baltkom by Tele2 had had a major impact on the development of AS Levicom Cellular and so on the value of Levicom’s interest in the company, but that was largely based upon what Mr. Robson had emphasised to them, and particularly to Mr Graham, in the meeting on 17 January 2001.  Linklaters were not in a position to express their own definitive view about how damages would be measured and did not intend to do so, and neither do I consider that they intended to advise Levicom that their damages were likely to be substantial.
296.	However, Levicom understood, and say that they reasonably understood, the January letter to be more encouraging about damages than, as I have thus far found, Linklaters intended it to be.  They plead that Linklaters gave negligent advice in that they wrongly advised that Levicom’s “likely redress against Tele2 was to be put into the position it would have been in had Baltkom been acquired by AS Levicom Cellular ie the acquisition of 10% of the value of Baltkom”.     Mr Moriarty submitted that Linklaters gave no advice in either the January letter or in the March letter about how damages would be measured or about what damages Levicom would recover.    He analysed the precise wording of the January letter, and argued:
i)	That the advice that the claims were “straightforward” meant only that Levicom could expect to establish breach of clause 13.1 easily.
ii)	That the January letter said that Levicom would seek damages assessed by reference to a supposed acquisition through AS Levicom Cellular, and not that Levicom were entitled to, or would be awarded, damages so assessed.
iii)	That, in referring to the Baltkom investment being pursued legitimately through AS Levicom Cellular, the January letter did not state that this was the only legitimate way of making the investment, still less that the Swedish companies were under an obligation so to invest.  
iv)	That, in stating that they understood that the damages so assessed “could be very substantial indeed”, Linklaters were recording only their understanding on the basis of Levicom’s instructions.
v)	That, in advising that Levicom’s offer was reasonable, Linklaters were simply saying that it was a reasonable offer for Levicom to have made.
297.	I am unable to accept the argument that the January letter was reasonably to be understood to give no more advice about Levicom’s entitlement to damages than this analysis suggests.    Indeed, if it were correct, it seems to me that Linklaters would not have included in the January letter any real advice about the remedies available to Levicom although the letter itself said that they were doing so.  If Mr. Moriarty’s approach is correct, it amounts to saying that Levicom would have had to go through a minute, even pedantic, examination of the January letter to understand Linklaters’ advice, but even on this basis, the submission is not justified.   Linklaters wrote that Levicom’s settlement offer was reasonable “For the reasons set out above in relation to … the damages that Levicom could expect to be awarded for the loss incurred as a result of [the] breaches”.   I can only interpret this as advice that Levicom could expect to be awarded damages assessed on the basis of the value to them of Baltkom being acquired through AS Levicom Cellular: there is no other candidate referent for “the reasons set out above”.   More generally, and I think more importantly, Linklaters knew Levicom’s views about how they were to be compensated: the absence of any indication in the January letter that Linklaters disagreed with Levicom’s views or even that they had reservations about them was naturally to be understood to be an endorsement of them.  This was reinforced by the advice about the settlement proposals.   In my judgment the January letter was naturally read as giving advice that Levicom’s damages were likely to be substantial and measured on the basis that the investment in Baltkom had been made through AS Levicom Cellular.
298.	In the January letter Linklaters had said that the “exact amount [of damages would] require detailed analysis and will be a matter for expert evidence”.     They did not go on to suggest that there were significant difficulties in quantifying Levicom’s loss, either in identifying the proper measure or in the calculation in accordance with the proper measure.    I conclude that they did not recognise major difficulties of this kind before Ms Pavlopoulos attempted an analysis in February 2001. Mr. Legg said that he saw difficulties of different kinds: specifically in relation to the impact of the acquisition of Baltkom on the chances of AS Levicom Cellular acquiring a Latvian licence and in relation to a claim based upon AS Levicom Cellular being the “logical” purchaser of Baltkom.    At one point in his cross-examination he thought that he had discussed the difficulties in quantifying damages with Levicom before sending the March letter.   I am unable to accept that: I conclude that Mr. Legg himself did not really appreciate them until the beginning of March 2001 when he became involved in preparing the March letter.   
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. 
300.	Mr. Pedriks gave evidence that he understood the January letter to endorse Levicom’s view that they had a strong case for compensation amounting to US$27.7 million, that is to say, to 10% of the investment by the Swedish companies.      I reject that evidence, but in any case I do not consider that that was the implication of the January letter or could reasonably be so understood.   
301.	Linklaters suggested, as I understand it, that, even if this was the meaning of the January letter itself, nevertheless it was to be read in light of the advice that Ms Pavlopoulos gave in February and at the beginning of March 2001.  I am unable to accept that this affects the position.  Certainly Ms Pavlopoulos made it clear that she was cautious about how damages would be assessed and what Levicom might recover, but equally Levicom 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.
302.	In the March letter, Linklaters advised that damages would be complex to calculate and difficult to quantify, and that, in view of the difficulties in measuring damages, Levicom could appropriately seek a “declaratory order” about the breach of clause 13, which would bring it about that Tele2 had to dispose of Baltkom, and that they had good prospects of obtaining such relief.   It was Mr. Legg who suggested this.  His purpose was, at least in part, to circumvent difficulties in assessing damages that he had come to realise Levicom faced.  The March letter referred to “a declaratory order which compels Tele2 (and probably NetCom) to procure that its subsidiary disposes of [Baltkom]”.   Mr Moriarty submitted that, albeit perhaps rather elliptically, the letter suggested seeking both a declaration and an order that Tele2 dispose of the shares in Baltkom, and Mr. Fenwick too took that to be the meaning of the March letter when presenting Levicom’s submissions.    Certainly, under section 48 of the Arbitration Act 1996 and the relevant LCIA rules, a tribunal would have had jurisdiction to make such an order.   For my part, I would read the letter as referring only to declaratory relief, albeit the practical effect of a declaration would be that the Swedish companies would have to come to an arrangement which would bring their breach to an end and so would have to dispose of the Baltkom shares.   However, nothing turns upon this: as I shall explain, when the arbitration was brought, Levicom sought, among other remedies, an order that Tele2 dispose of the shares within 30 days.    I am content to deal with the matter on the basis that Linklaters were advising that it was appropriate to seek both a declaration and an order for disposal of the shares.  Levicom say that this was not a case in which the arbitrators would be likely to order a discretionary remedy rather than damages.  
303.	As I have said, Mr. Legg considered that “a declaratory order” was appropriate because of the difficulties in assessing damages, and that Tele2 continued to be in breach of the CSA and so to cause Levicom loss in that Levi & Kuto Latvia could not obtain a licence and NV could not assist them to do so: a second licence would not be granted to another company in the same ownership as Baltkom.  There was a real risk that damages would undercompensate Levicom.  
304.	Mr. Fenwick criticised this reasoning on the grounds that difficulty in assessing damages does not mean that damages are not adequate and in itself provides no basis for awarding a discretionary remedy instead of damages for breach of contract.  This states the position too broadly: there are cases where damages are an inadequate remedy because of difficulties in quantification or proof: see Chitty on Contracts [2008] 30th edition Vol. 1 para. 27-008, “in a number of … situations damages are considered to be an inadequate remedy because of the difficulty of quantifying them… damages may also be an inadequate remedy because the claimant’s loss is difficult to prove…”.
305.	Mr. Fenwick also pointed to Levicom’s delay in seeking an order.    In the five months since the beginning of October 2000, Levicom had not warned the Swedish companies that they intended to seek relief of this kind.     I do not accept that Linklaters should have seen this in itself as necessarily preventing an order from being made: discretionary remedies are not generally refused on the grounds of delay without more, and the doctrine of laches is directed rather to unreasonable delay that makes the relief unjust.    It was not on its face unreasonable for Levicom first to seek to negotiate a consensual resolution to their dispute.    However, there is no reason to think that Mr. Legg had any information about whether the Swedish companies had integrated Baltkom into the rest of their business or that he considered whether this might be, or become, relevant to whether discretionary relief was appropriate.  
306.	In 2004 Mr. Humphries and Ms Otton-Goulder regarded the claim for an order for the disposal of the shares as hopeless and it was abandoned.   By then, however, the option had been exercised and the covenant in clause 13.1 expired.    I accept Mr. Moriarty’s submission that the position was very different when the March letter was sent, and it would be wrong to judge the advice in the March letter by reference to the position three years later.    Nevertheless, inevitably the passage of time would increase the chances that it would be unjust to order the Swedish companies to dispose of Baltkom.  Whether or not Levicom decided to exercise the option, and even if the prohibition in clause 13.1 was still operative at the time of the arbitrators’ decision, the position was likely to be affected by the Swedish companies’ continuing investment in Baltkom and, foreseeably, increasing integration of Baltkom with the rest of their business. 
307.	I consider that a claim for declaratory relief faced another significant obstacle.   A further reason given in the March letter for a declaratory order being appropriate was that it would “provide a mechanism” for the disposal of Baltkom and enable a transfer of Baltkom to AS Levicom Cellular to be negotiated: the thinking was, as I understand it, that a declaration would place the Swedish companies in an awkward negotiating position that Levicom could exploit.   This in itself might be an objection to the order being made: the court is concerned not to make discretionary orders that expose the wrongdoer to extortionate demands:  Co-operative Insurance v Argyll Stores Ltd., [1998] AC 1 at p.15B/C per Lord Hoffmann.
308.	Linklaters’ advice was that an arbitration in which Levicom sought a declaratory remedy would be far simpler and cheaper than an arbitration in which damages had to be quantified.   Levicom plead that Linklaters should not have given this advice in the March letter because the prospects of obtaining such relief were slight.    In my judgment, this overstates the point, but I do accept that the advice is open to criticism 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.   (I add that the March letter ignored the question whether Levicom would have any claim for damages in respect of loss suffered before any disposal of the Baltkom shares following a “declaratory order”, but, since Levicom make no complaint about this, I need say no more about it.)
309.	In my judgment, therefore, the March letter was negligent, although, as with the January letter, I consider that Levicom overstate their complaint.    While Linklaters could properly advise in the March letter that Levicom should seek a declaration and an order that Tele2 dispose of the shares in arbitral proceedings, they should have made clear to Levicom the risk that they would not be awarded this relief and, at the very least, considered whether a claim for damages should also be made and how damages might be quantified.      I therefore accept the criticism of Levicom that, by sending the March letter, Linklaters “avoided having to consider and advise upon the appropriate measure of loss and the likely quantum of loss”.   
310.	What is the significance of this?    It seems to me that the importance of the March letter is not that it advised in over-optimistic terms that “a declaratory order” would be appropriate.    On 25 July 2002 Ms Otton-Goulder advised that a declaration and an order for the disposal of the shares would be “difficult to get”, and that Levicom should also bring a claim for damages notwithstanding they would be hard to measure and quantification of them would be expensive.   Mr. Robson’s evidence was that if that advice had been given in 2001 (the expression used was “a year earlier” but in context this was clearly a reference to the time of the March letter) Levicom would have done nothing different from what they did in fact do.     I accept that evidence and find that Levicom would not have dealt with the dispute differently if they had been told in the March letter that, while Levicom could and should make a claim for a declaration and an order for disposal in the arbitral proceedings that were contemplated, the arbitrators might well refuse such relief and Levicom should also claim damages.     Indeed, as I understood the evidence of Mr. Robson, who discussed his understanding of the March letter with the Levicom board, Mr. Robson never thought that Levicom should go to arbitration without making a damages claim, even though he was attracted by what he thought to be a brilliant idea of Mr. Legg.
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.	Levicom complain that Linklaters were negligent in not instructing appropriate leading counsel to give advice about liability and “the likely recoverable quantum”.    I am not persuaded of this complaint: I consider that a firm of solicitors of Linklaters’ standing could properly give advice of the kind sought by Levicom on the basis of their own assessment of the position and were not obliged to advise their clients to instruct counsel.    In any event, however, it seems to me that this complaint is really beside the point.   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.
Reliance and causation
314.	I come to consider whether Levicom relied upon the advice in the January and March letters and whether it affected how they dealt with their dispute with the Swedish companies.    In principle a distinction is to be drawn between reliance (whether Levicom relied upon the advice at all) and causation (whether proper advice would have led them to conduct themselves differently in the discussions with the Swedish companies or in any other way).  However, the two questions are linked and depend largely upon the same evidence.
315.	I do not understand it to be disputed, and in my judgment it is clear, that Levicom understood from the January and March letters that Linklaters considered that they had a strong case that Tele2 were in breach of clause 13.1 of the CSA, and that they would not have difficulty in establishing this in an arbitration.    I should examine in more detail the evidence about what advice Levicom understood Linklaters to be giving about their rights arising from the breach, the remedies available to them and the proposals passing between Levicom and the Swedish companies to resolve the dispute.
316.	In his witness statement Mr. Pedriks said that he understood from the January letter that Linklaters shared his understanding that clause 13.1 prevented both Levicom and the Swedish companies from investing in a business competing with AS Levicom Cellular and that clause 9.2 preserved Levicom’s 10% equity share in AS Levicom Cellular; and that he understood from the letter that Linklaters thought that the first offer was not reasonable.    He said, and I accept, that he understood, in particular from the advice that the claims were “straightforward”, from the reference to the Baltkom investment being pursued “legitimately” through AS Levicom Cellular and from the advice about the settlement proposals, that “Linklaters believed that we had a strong case to have AS Levicom Cellular acquire these shares”, that is to say, that the letter confirmed his view that Levicom were entitled to a remedy for a breach of clause 13 on the basis of an acquisition by AS Levicom Cellular of Baltkom.   (When cross-examined he also said that he understood Linklaters to advise in the January letter that Levicom had a strong case to have AS Levicom Cellular acquire the shares in Baltkom and that there was a straightforward claim for US$27.7 million, but I have rejected that evidence.)   
317.	Mr. Robson gave evidence, and I accept, that he understood from the January letter that in Mr. Legg’s opinion “the way to assess damages would be to look at the legitimate way that such an acquisition should have been done, namely through Levicom Cellular”, or, as he put it at another point of his cross-examination, that it was “very likely” that Levicom would be awarded damages on that basis.   He said that his understanding about how damages would be assessed derived from what Mr. Legg had previously told him: in fact, it was his view before he had consulted Linklaters at all.   On any view, it did not originate from the January letter.  Mr. Robson understood from the January letter that Mr. Legg considered that it would be “straightforward” to establish with an arbitral tribunal that this was the proper “legal framework” for assessing damages, and that the damages would be substantial, although Linklaters could not quantify them.
318.	Thus, Levicom understood from the January letter that Linklaters endorsed their view that the proper remedy for the breach was based on the position that would have resulted from AS Levicom Cellular acquiring Baltkom.  As I understood the evidence, at least Mr Robson understood that Levicom were entitled to damages on that basis, and that they would not have difficulty in establishing that damages should be so measured, even if the calculation that was to be made on that basis might be complex.   Mr. Pedriks was less specific in his evidence, and as I conclude was less clear in his own mind in 2001, about whether Linklaters considered that Levicom might be entitled to an order for the transfer of the shares, rather than damages.
319.	Coming to the March letter, Mr. Pedriks’ evidence was that, when he read the advice that the prospects of success were not less than 70%, he understood that the case was a “home run”, and that it would be simple and straightforward to obtain a declaratory order.    He also said that, while understanding Linklaters’ advice that an argument based upon clause 9 was “a non-runner”, he did not understand them to be advising that Levicom were not entitled to have the Baltkom shares acquired through AS Levicom Cellular.  Thus, the advice reassured him that Levicom would have a strong case if the matter went to arbitration, and he understood that any doubts expressed by Ms Pavlopoulos had been superseded by the March letter, which reflected Mr. Legg’s analysis of their case.   Mr Robson understood from the March letter that Linklaters considered that there were very good prospects of succeeding in obtaining a “declaratory order” (which would avoid any complex damages calculation), and considered that this would bring about a satisfactory settlement with the Swedish companies.   He appreciated that Linklaters advised that they were not in breach of clause 9 but this did not concern him: he understood that, in order to remedy the breach of clause 13, Tele2 would have to route the acquisition of Baltkom through AS Levicom Cellular if they wanted to avoid divesting themselves of the shares altogether, and thought that Levicom could insist that any acquisition though AS Levicom Cellular should be in accordance with clause 9.     I accept the evidence of Mr. Pedriks and Mr. Robson about this.    
320.	Mr. Robson said that he did not understand that the March letter qualified the advice in the January letter about damages if that remedy had to be pursued, and neither did Mr. Pedriks.   He understood from the March letter that Linklaters’ advice was that Levicom “got to [that] end result in a different way”. 
321.	Mr. Pedriks and Mr. Robson said that they relied upon the advice that Linklaters gave in the January letter and in the March letter when they decided to pursue their claims against the Swedish companies in arbitration proceedings and not to accept the first offer, either after negotiating improvements to it, or, if they did not succeed in this, on the terms in which it was made.   Mr. Pedriks’ evidence was that, if Linklaters had advised either that the merits of Levicom’s claim were not straightforward or that Levicom were unlikely to recover more in arbitration than through negotiations, he would have recommended to others in Levicom that they negotiated and reached an agreement with the Swedish companies.      Although he gave that evidence about the March letter, I infer that the same applies to the January letter.    Mr. Robson gave evidence, and I accept, that he explained Linklaters’ advice in detail to the Levicom board.   
322.	Linklaters argued that the evidence of Mr. Robson and Mr. Pedriks does not, on detailed analysis, support a case they relied upon the January and March letters, at least as to the remedies available to Levicom.  Mr. Robson said that he understood that clause 13.3 provided a mechanism for requiring an equity infusion, and that this, apparently, provided support for the contention that damages should be assessed on the basis of AS Levicom Cellular acquiring Baltkom.  Mr. Pedriks said that, when he read the March letter, he realised that Linklaters advised that no argument based on clause 9 would succeed, but did not really understand the implications of this advice.  However, he thought that because of the advice about a declaratory order this did not matter.  Accordingly, as Linklaters argue, Mr. Robson relied upon clause 13.3 having an effect that Linklaters did not advise that it had and could not reasonably be understood to advise that it had, and about which, in any case, there is no pleaded complaint; and Mr. Pedriks did not rely upon advice about damages because he thought that he did not need to understand it.
323.	Linklaters submitted that in fact Mr. Robson and Mr. Pedriks continued to act in accordance with their own views about Levicom’s claim against the Swedish companies.  This, they say, is demonstrated by Mr. Pedriks’ instruction to Ms. Pavlopoulos to let the offer of 14 February 2001 lapse; from his insistence to Mr. Graham in the conversation on 15 March 2001 that clause 9 provided a remedy; from the spreadsheet showing the calculation that Levicom were entitled to 10% of the purchase price as setting out “Levicom contractual rights”; from Mr. Robson’s comments upon the second offer; from the fact that they were not influenced in their approach to the arbitration or the negotiations by Ms. Otton-Goulder’s cautious advice about remedies in July 2002 or her Advice on Quantum; from their response to the fourth offer despite Mr. Graham’s concern that it should not be inflammatory; and from the suggestions that Mr. Robson made in April 2004 to strengthen the presentation of the case on quantum. 
324.	Undoubtedly both Mr. Pedriks and Mr. Robson had their own views about what the CSA meant and how it was to operate: they were willing to defend their views and did not accept contrary arguments uncritically.   In particular Mr. Robson strongly believed that clause 9 assisted Levicom to argue that their remedy for breach of clause 13 should be based upon a 10% interest in the value of Baltkom, and, as I conclude, was never convinced otherwise, despite the advice of Linklaters in the March letter and at other times.    They made their own decisions both before and after receiving Linklaters’ advice in the January and March letters: for example in October 2000 they sent a more conciliatory proposal than Linklaters suggested and they decided to delay bringing arbitration proceedings in 2001 in order to seek a settlement through negotiations.   None of this means that they took no notice of Linklaters’ advice, and I accept their evidence that they, and through them Mr. Palts and Mr. Peek, did rely upon it.   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.    
325.	Levicom’s case is not only that they relied upon the advice given in the January and March letters but that they would have acted differently if they had been given proper advice: more specifically:
i)	that, but for the negligent advice, Levicom would have accepted the first offer, if they could not negotiate more favourable terms; or
ii)	that, but for the negligent advice, Levicom would have conducted their discussions with the Swedish companies differently, so that there was a substantial chance that the Swedish companies would have agreed to settle on terms that Levicom would have accepted.
326.	This involves considering how Levicom would have acted in the hypothetical circumstances that Linklaters’ advice was not negligent: Levicom must show how they would have acted on the balance of probabilities, and also that there was a substantial chance that the Swedish companies would have agreed to settle on terms that Levicom would have accepted: Allied Maples Group v Simmons & Simmons, [1995] 1 WLR 1602 at pp.1610G-1611B per Stuart-Smith LJ.    
327.	There appeared to be some difference between Mr. Fenwick and Mr. Moriarty about the proper application of the Allied Maples Group case.   Mr. Moriarty said that Levicom had to show that they would have agreed to a settlement at a particular level.  Mr. Fenwick disputed this because the response of the Swedish companies to a hypothetical proposal or negotiating stance by Levicom is not a matter to be determined on the balance of probabilities: what Levicom have lost is the chance of the Swedish companies responding favourably.    It seems to me that the difference between Mr. Fenwick and Mr. Moriarty is more apparent than real.  I would apply the principles in Allied Maple Group to this case as follows:  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.  
328.	For this purpose it is to be supposed that Levicom received “proper” advice: see Sykes v Midland Bank, [1971] 1 QB 113, per Salmon LJ at p.127D/E.     Neither Mr. Fenwick nor Mr. Moriarty suggested that I should simply consider whether Levicom would have acted differently if they had not been given the negligent advice, without regard for how they would have responded to proper advice: see Jackson & Powell on Professional Liability (2007) 6th Ed para 11-236.   What then is the “proper advice” that it is to be supposed that Linklaters gave (or ensured that Levicom received from counsel, if not themselves)?     
329.	Mr. Moriarty cited authority that the court should suppose that Linklaters gave the advice that they, Linklaters, would have given but for their negligence.  This is the test adopted by Hart J in an accountants’ negligence case,  University of Keele v Price Waterhouse, [2004] PNLR 112 at paras 36-38.       In Bolitho v Hackney and City Health Authority, [1998] AC 232, a medical negligence case in which a doctor had failed to attend upon the claimant’s young son, the trial judge found that, had she attended, she would not have intubated the boy and this would not have been negligent, but that without intubation the boy would in any event have died.  Lord Browne Wilkinson, with whose speech the other Law Lords agreed, adopted the approach to causation taken by Hobhouse LJ in Joyce v Merton, Sutton and Wandsworth Health Authority, [1996] 7 Med LR 1, who said at p.20, “… a plaintiff can discharge the burden of proof on causation by satisfying the court either that the relevant person would in fact have taken the requisite action (although she would not have been at fault if she had not) or that the proper discharge of the relevant person’s duty towards the plaintiff required that she take that action”.    Thus Mr. Moriarty argued that the question whether damage was caused by negligence depends upon how the defendant would have behaved if he had not been negligent either as he was or in some other way: that is to say here, how Linklaters would have advised and what they would have done had they not been negligent.
330.	Mr. Fenwick submitted that, whatever might be the law in cases of medical negligence, Bolitho has no application here.  He argued that causation depends upon what Levicom would have done if Linklaters had given the “correct” advice, the advice that should have been given by a solicitor such as Linklaters in the situation in which they were and with the clients and information that Linklaters had (or would have had if they had taken instructions and otherwise acted as they should have done).  He cited South Australia Asset Management Corp v York Montague Ltd, [1997] AC 191, a case concerning the damages resulting from a negligent valuation of property offered as security for a loan.   Lord Hoffmann said this at p.221F-222A:   
“The valuer is not liable unless he is negligent.  In deciding whether or not he has been negligent, the court must bear in mind that valuation is seldom an exact science and that within a band of figures valuers may differ without one of them being negligent.  But once the valuer has been found to have been negligent, the loss for which he is responsible is that which has been caused by the valuation being wrong.  For this purpose the court must form a view as to what a correct valuation would have been.  This means the figure which it considers most likely that a reasonable valuer, using the information available at the relevant date, would have put forward as the amount which the property was most likely to fetch if sold upon the open market.  While it is true that there would have been a range of figures which the reasonable valuer might have put forward, the figure most likely to have been put forward would have been the mean figure of that range.  There is no basis for calculating damages upon the basis that it would have been a figure at one or other extreme of the range.  Either of these would have been less likely than the mean: see Lion Nathan Ltd. v C. C. Bottlers Ltd., The Times, 16 May 1996.”
Thus here, as Mr. Fenwick argued, a solicitor without being negligent might have given Levicom advice ranging from the properly optimistic to the properly pessimistic, but the question of causation is determined by reference to how the client would have responded to advice in the middle of the range, 
331.	There is a third candidate: Mr. Moriarty draws my attention to Flenley and Leech on Solicitors’ Negligence and Liability (2008) 2nd Ed who state (at para 3.18) that, “Although the principle is not demonstrated in the solicitors’ negligence cases, it appears that the defendant may rely on the principle that, as long as the conduct in question was non-negligent, the defendant would have behaved in that way that was most beneficial to the defendant rather than most beneficial to the claimant”.    The editors cite McGregor on Damages (2003) 17th Ed at para 8.060, and I infer that this is suggested as an application of the minimum performance principle.   The argument is that the claimant should be protected only in so far as the defendant went outside the proper (non-negligent) limits and should be compensated only for this.   (I think that led me to use the terminology that I did in Smith v National Health Service Litigation Authority, [2001] Lloyd’s LR Med 90 at pp.101,102 but there it made no difference on the facts which test was applied, and, as far as I recall, the question was not argued before me.)
332.	The authorities do not clearly establish what is the correct test of causation where a lawyer is negligent in forming his opinion upon legal or other questions in order to advise or to act for his client.      If it were necessary for me to decide this, I would adopt the test in Bolitho.   There the court was not concerned with deciding what conduct to attribute to the defendant instead of her negligent act: she should obviously have attended instead of negligently failing to do so.   The question was what the court was to suppose she did when she attended.   But that does not seem to me to be a distinction that in principle justifies adopting a different test.    Nor can I accept that in principle a different test for causation should be adopted for cases of medical negligence from that in other cases of professional negligence.    Bolitho reflected the law’s recognition that in matters of professional judgment there are a range of views properly held or courses of action properly adopted and does not generally select which of them is the correct one.
333.	I do not consider that the South Australia Asset Management case suggests otherwise.    The law accepts that property has a “correct” value, even though it is difficult to ascertain and a competent and careful valuer is not to be criticised simply because he fails to identify it precisely.   As Lord Hoffmann emphasised (cit loc at p.214C-F), the case was concerned with giving information negligently, and not with giving advice.         
334.	The distinction between information and advice is important.   As I see it, the only relevant question here is what advice should Linklaters have given, as Dyson LJ observed in Beary v Pall Mall Investments, [2005] EWCA (Civ) 415 para 30 will often be the case.    This is because:
i)	As far as the January letter is concerned, Linklaters were not negligent in forming their opinions about Levicom’s case, but in failing to convey them with proper skill and care.    There can be no question but that, if they had not been negligent, they would have explained their views sufficiently clearly for Levicom to understand them.   They failed properly to inform Levicom about what they thought.
ii)	As far as the March letter is concerned, it does not seem to me to matter whether it is supposed that Linklaters gave the “correct” advice or the Bolitho test is adopted.    The important point is that nothing in the letter significantly qualified the advice in the January letter, in particular about what damages Levicom might expect to recover, and so it provided no reason that Levicom should not rely upon the advice in the January letter.    
335.	Levicom’s case is that the proper advice for Linklaters to have given them was (i) that Clause 13.1 might easily be given a Same State construction; (ii) that, even if given a Pan-Baltic construction, the CSA did not give Levicom a right to have damages assessed on the basis of a notional acquisition of Baltkom through AS Levicom Cellular; (iii) that the damages to which Levicom were entitled were no more than were represented by the first offer and might be a good deal less; and (iv) that there was no reason to do anything other than settle on the best terms available.    For reasons that I have already explained, I do not consider that proper advice would have been as pessimistic as that.   However, it is understandable that Levicom’s evidence on causation is largely directed to such a case and is couched to rather general terms: they could hardly have been expected in a case like this to have anticipated every combination of conclusions that might be reached about how Linklaters were negligent.  Mr. Pedriks explained in various ways what led Levicom to act as they did and what would have led them to have acted differently: for example, that he recommended that Levicom proceed to arbitration because he had been led to believe that they had a “very strong” case that clause 13 had been breached and that they were “likely to obtain declaratory relief”, and that he would not have done so if Levicom had been given “more cautious advice”.   Mr. Robson’s evidence was similar.   There is no evidence from Levicom’s witnesses directed specifically to how they would have acted, had they been given the advice which I have concluded would have been proper.    Nor, equally understandably, did Linklaters put to Levicom’s witnesses that had they been given what I have concluded would have been proper advice, it would not have led them to deal with the Swedish companies and the dispute differently. Accordingly, my conclusions about what Levicom would have done themselves if properly advised are necessarily largely matters of inference rather than based upon the specific evidence of any witness.    
Would Levicom have accepted the first offer if given proper advice?
336.	I come to the first limb of Levicom’s case on causation, that, but for the negligent advice, Levicom would have accepted the first offer, if they could not have negotiated more favourable terms.  I take this to mean that they would have compromised on those terms their claims under clauses 13 and 11 in respect of the Baltkom acquisition.   
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.    
Would proper advice have affected the course of negotiations? 
340.	The real question, therefore, as it seems to me, is whether Levicom have shown that, if they had been given proper advice, this would have probably affected how they conducted negotiations so as substantially to improve the prospects of a settlement.    
341.	It seems to me that four considerations relevant to this question are these:
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.
342.	Against this background, I come to the question whether I should infer that, on the balance of probabilities, Levicom would have conducted settlement discussions differently if Linklaters had given clear and proper advice about the remedies to which they were entitled and about the first offer and Levicom’s proposal to which it responded.     I am unable to infer that that advice would have changed what Levicom did, and I conclude that it would not have done so.   I would have reached the same conclusion if Linklaters had also given rather more cautious advice than they did about whether the Swedish companies were in breach of clause 13, and had pointed out that on a question of construction an arbitral tribunal might take a different view from Linklaters.    (Levicom did not specifically argue that proper advice would have led to Linklaters’ response to the letter of 14 February 2001 being in more conciliatory terms than their reply of 21 March 2001, but I have considered this particular point, as well as the more general question, and am not persuaded that it would have done so.)
343.	The evidence about how Levicom responded to the advice that Linklaters gave provides no proper basis to infer that they would have conducted themselves differently if given advice such as I have discussed.    Mr. Pedriks and Mr. Robson held strong views of their own about both the meaning of the CSA and how breach of it should be remedied.   They had formed them even before they consulted Linklaters, and presented them forcefully, for example at the meeting of 17 January 2001.    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.     
344.	I am reinforced in this view by considering how Levicom did respond to the advice that they were given.  Not only did that 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.       
345.	I therefore conclude that Levicom have failed to prove that Linklaters’ negligence caused them any loss.
The chances of reaching a settlement
346.	If I had concluded that Levicom would have conducted their negotiations with the Swedish companies differently if they had been given proper advice, I should have had to go on to determine whether there was a substantial chance that the Swedish companies would have responded with a willingness to settle the dispute on terms which Levicom would have accepted.   On any view, this would have been a rather speculative enquiry: there is little evidence about the terms to which the Swedish companies would have been willing to agree in the first half of 2001.     In the autumn of 2001, they put forward the second and third offers, but those offers were significantly driven by their evident wish to defer payments: Levicom plead Mr. Pedriks and Mr. Robson believed that the second offer was “motivated by a desire to conserve cash”, and I accept that they were right.    In my judgment Levicom would never have been willing to accept a credit risk such as they presented, given the views expressed by Mr Robson in particular, about the financial instability of Tele2.     
347.	Since I have concluded that Levicom would have not conducted their negotiations with the Swedish companies differently if they had been given proper advice, the question does not arise.  If I am wrong about this, the chance of a settlement being reached would, of course, depend on how Levicom did change their negotiating stance.    Nevertheless, I should say something about this question in case my conclusions on other matters are overturned.     
348.	Mr. Moriarty submitted, and I agree, that any terms which the Swedish companies would have put forward in these circumstances or to which they would have been willing to agree would have been by way of an improvement to the basic structure of the first offer: that is to say, enhanced terms based upon the value to Levicom of an acquisition by Ritabell: that is to be inferred from the proposals that the Swedish companies in fact made in 2000 and 2001.    The enhanced terms, in my judgment, would probably have (i) included a payment in respect of the Tranche C loan note; (ii) added some payment in recognition of the claim that there had been a breach of clause 11; and (iii) recognised that an acquisition by Ritabell would not have been financed entirely by third party debt and accepted that this should be reflected in the assumptions about the supposed acquisition to be adopted for ascertaining the option price.    I do not consider that there was any substantial chance of the Swedish companies agreeing to a settlement in 2001 on the basis of any different structure.
349.	There are a range of possible terms and combination of terms whereby the first offer could have been enhanced in this way and when they might have been agreed.     I do not consider, given the inherently uncertain nature of this exercise, that it would serve any purpose for me to try to assess separately the various chances of different terms being agreed.   If I had concluded that it would have made a difference if Levicom had received proper advice in that in fact Levicom adopted an uncompromising stance in the negotiations between April and July 2001 whereas if they had received proper advice they would have shown themselves to be distinctly conciliatory and in particular made it clear that they would accept a settlement based upon Baltkom being acquired by Ritabell, then 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. 
Loss
351.	I therefore come to consider the issues between the parties about whether the failure to reach such a settlement caused Levicom loss.   They claim damages in respect of: 
i)	The lost opportunity to negotiate a better settlement with the Swedish companies than they in fact achieved, and
ii)	The legal and other costs that they incurred in pursuing the arbitration proceedings, which would not have been incurred if the dispute had been settled without proceedings being brought.
Loss of settlement opportunity 
352.	The loss in respect of the opportunity to achieve a better settlement depends upon the value of the settlement that Levicom in fact made and the value of the settlement that would otherwise have been reached.      Levicom’s case is that the starting point for the latter is €12.3 million on the basis that, if they had accepted the first offer and the option price under the CSA had been determined on the basis that Ritabell owned Baltkom, the option price would have been increased by 5.2% of the value of Baltkom (because the option was exercised in respect of a 10% holding in AS Levicom Cellular, which had a 52% interest in Ritabell).     They say that the value of Baltkom in October 2003, when the option was exercised, was €236 million and 5.2% of the value was therefore €12.3 million.    Of course the calculation would have to be adjusted to take account of the supposed enhanced terms of the first offer. 
353.	Linklaters say that this is not a proper starting point for measuring Levicom’s loss, submitting:
i)	That the loss to Levicom from not reaching an earlier settlement cannot be measured by looking in isolation at how the option price would have been affected if Ritabell had owned Baltkom, and it is necessary to consider the overall value of the 2004 settlement and to compare that with a settlement based on the first offer.
ii)	That it is irrelevant how it would have affected the option price in October 2003 if the first offer had been accepted because in these circumstances the option would have been exercised and the option price would have been determined more than two years earlier.
iii)	That in any event the value of Baltkom in October 2003 was €77 million (not €236 million) and therefore 5.2% of the value was €4 million (not €12.3 million).
The 2004 settlement
354.	By the 2004 settlement a payment of €35,180,414 was made by way of the option price.     It is, however, clear from the letter of 7 May 2004 that the parties originally agreed to settle on the basis that €25.5 million was attributable to the option price, €6.6 million to the claim in relation to the Tranche C loan note and €2.3 million to the claim in relation to the Tranche E loan note.    Linklaters rely upon (i) what was paid in respect of the loan notes and (ii) what was attributed to the option price in the 2004 settlement.    
355.	The first offer included nothing for the claims in respect of the Tranche C loan note or the Tranche E loan note.  Linklaters argue that this cannot be ignored in a proper comparison between a settlement that might have been achieved after Levicom had been given proper advice and the 2004 settlement.    I agree with that submission.   However, in the case of the Tranche C loan note this is of no practical effect upon my assessment of the facts.    If a settlement had been reached, it would, as I have found, have included payment for the Tranche C loan note claim equivalent to the payment in the 2004 settlement.   As for the Tranche E loan note, the first offer, at least as presented by Cleary Gottlieb’s letter of 14 February 2001, was proposed in satisfaction of any claim under clause 11 (as well as under clause 13), and so the payment of €2.3 million is simply an additional payment to what was included in the first offer.     
356.	Mr. Golob and Mr. Haberman were in agreement, for practical purposes, about the value in October 2003 of AS Levicom Cellular’s interests in the businesses in Estonia and Lithuania, albeit they used different valuation methods in order to calculate them.  They put their value at €22.4 or €22.5 million.     The payment in respect of the option price, as set out in the letter of 7 May 2004, was €25.5 million.    Thus, the payment was €3 million (or €3.1 million) more than the value of the Estonian and Lithuanian businesses.    I do not understand Levicom to dispute this if the experts’ assessments of their value is correct, but they dispute that they are.
357.	Mr Fenwick’s argument was as follows: Mr. Haberman valued the Estonian and Lithuanian businesses on the basis of a discounted cash flow (“DCF”) valuation, that is to say, one based upon the value of future cash-flows into the business, discounted to a present day value.   This required Mr. Haberman to assess and apply an appropriate weighted average cost of capital (or “WACC”), the return that financial stakeholders would require for that level of financial risk.     He took a WACC of 14.4% for the Estonian business and of 15.6% for the Lithuanian business.    Mr. Fenwick argued that these costs were too high and as a result the businesses were undervalued.   Had correct WACCs been used, the value of the Estonian and Lithuanian interests would have been more than €25.5 million.
358.	Mr. Haberman explained why he used the WACCs that he did.   He took into account in assessing the creditworthiness of the businesses their size and their status, as well as the country in which they were based.    Mr. Fenwick appeared to suggest in his cross-examination that this was inappropriate, but, given that smaller companies typically present a greater credit risk than larger but otherwise comparable companies and given that private companies tend to present a greater credit risk than public companies, I can see no reason to leave these considerations out of account.    Mr. Haberman was also criticised for using a study by Ibbotson Associates of New York Stock Exchange companies to assist assessment of the account that should be taken of the company’s size, on the grounds that this study was irrelevant to valuation of telecommunications businesses in the Baltic states, but he explained that it was the only systematic study carried out over a number of years, and the relevance of size to risk is a concept of general application.   I found his response convincing and see no proper reason to reject his expert evidence on the point, in the absence of any evidence to the contrary.     I also found convincing Mr. Haberman’s response, when asked about brokers reports that gave lower WACCs for other telecommunications companies than he had applied to AS Levicom Cellular: he thought that this was probably attributable to the public status of the other companies.
359.	There was another piece of evidence that Mr. Fenwick deployed when cross-examining Mr. Haberman about this part of the case.    On 22 December 2003 Mr. Svedberg wrote to Mr. Pedriks and others with Levicom that the Swedish companies had been provided by Price Waterhouse Cooper (“PWC”) with WACCs to be used for a DCF valuation, and they were 12.3% for Estonia and 12.8% for Lithuania.    Mr. Fenwick advanced two points in reliance upon this: first that it is in itself evidence that Mr. Haberman’s WACCs are too high; and secondly that, if in 2003 the parties had sought to determine the option price, as clause 8 of the CSA contemplated, they would not have adopted lower WACCs than those suggested by PWC, because there would have been no reason for Levicom to argue that higher WACCs should be used.    I consider that Mr. Haberman answered this point too: he did not know how PWC derived their figures, but pointed out that “when one looks at valuation, it’s a complete package.     It’s a package of estimates on future cashflows and assessments of weighted average costs of capital.   Some valuers will tend to take a more aggressive assumption on future cashflows, but then counter that by a higher assumed weighted average costs of capital.    They may do the opposite and may be rather conservative in their estimates of future cashflows and then use a lower weighted average costs of capital to reflect that.  But it’s not possible to see what is going on when one just sees one number”.      Mr. Haberman’s answer is supported by the fact that, using PWC’s WACCs, Mr. Svedberg derived a valuation of AS Levicom Cellular’s interests in the Estonian and Lithuanian businesses of €20.3 million.    
360.	I accept Mr. Haberman’s value, supported as it is by Mr. Golob’s valuations, of AS Levicom Cellular’s interests in the Estonian and Lithuanian businesses, and do not consider that it was undermined in cross-examination.    I consider that Mr. Svedberg’s email of 22 December 2003 and the WACCs from PWC are too fragile a basis for thinking that in fact in 2003 the parties would have agreed upon an option price on the basis of an overvaluation of the Estonian and Lithuanian interests.     I therefore accept Linklaters’ argument that account should be taken, when comparing the 2004 settlement with any settlement that might have been reached earlier, of the €3 million of the €25.5 million that represents payment over the value of the Estonian and Lithuanian interests.     It seems likely that the €25.5 million included some recognition of the claims in respect of the acquisition of Baltkom.  
When would Levicom have exercised the option?
361.	 Levicom contend that, had the dispute with the Swedish companies been resolved in early 2001 or thereabouts, they would still have exercised the option in October 2003.   The only direct evidence in support of that submission is in a second witness statement of Mr. Pedriks made in January 2009, relatively soon before the hearing.   In it he said that in these circumstances: “Subject to any agreement which might have been reached about the mechanism for valuing the put shares, we would have exercised in late 2003 and certainly not before 21 October 2003”.   I find the qualification about “the mechanism for valuing the put shares” curious.     The first offer was that the formula for valuation should be changed, and on one view Mr. Pedriks’ evidence does not support Levicom’s case about when the option would have been exercised if settlement had been reached in the terms of the first offer or on other such terms.  However, Mr. Pedriks was not asked directly about this statement when he was cross-examined, and I am prepared to accept that he intended to support the case that Levicom advanced.   Nevertheless, I reject that evidence: it is inconsistent with more contemporaneous evidence and ignores the commercial reality.
362.	It is clear from Mr. Robson’s email of 24 October 2001 that he was concerned about whether Levicom should exercise the option in the near future.    Although in cross-examination Mr. Robson said that he was suggesting only discussions and that in any case the decision was not for him but the Levicom board, in fact the email contains his recommendation that it be exercised before the expected recession in early 2002 and Mr. Robson’s recommendation would have carried weight with the board.  On 8 April 2003 Mr. Robson told Mr. Graham that, had Baltkom been acquired through AS Levicom Cellular, the option would probably have been exercised “at an early stage”.   Moreover, Ms Otton-Goulder’s advice on quantum stated that Levicom’s evidence would be that the option would have been exercised in about January 2001: her advice was seen by Mr. Pedriks and Mr. Robson, and they did not suggest that she had misunderstood Levicom’s position.
363.	As I have explained, in 2001 there was considerable uncertainty in the market about the future of the telecommunications industry, and it had affected confidence in the Swedish companies.   In my judgment, Levicom were concerned that the Swedish companies might become insolvent (as is reflected in Mr. Pedriks email of 7 September 2002), and this was a powerful reason for exercising the option in 2001.   Even in September 2002 Mr. Pedriks considered that the arbitration should be expedited because of concern about Tele2’s financial stability.   I recognise that he also hoped that the businesses would grow, but I do not accept that Levicom would have risked retaining their interest in AS Levicom Cellular.
364.	I conclude that, if the disputes had been settled on terms that did not compromise their right to exercise the option, Levicom would have exercised it in about June 2001. 
Issues about quantum of what would have been paid on exercise of the option.
365.	The valuation of the option required the parties to seek to agree upon an option price, and, if they could not do so, to appoint investment bankers as valuers to try to agree upon a “fair price” for the shares and if necessary resort to arbitration.    The valuers were to seek to agree the fair price upon the basis that they were to value the shares as a proportion of the market value of all the shares and quasi equity in AS Levicom Cellular, disregarding that they were a minority interest, and assuming that the business would continue as a going concern.    As I have said, the experts agreed, for practical purposes, about the values to be attributed to the Estonian and Lithuanian interests, but not about the value of the Baltkom business that would be brought into account if the AS Levicom Cellular shares were valued on the basis of the first offer, that is to say, in effect, the value of a 5.2% interest in Baltkom.   Mr. Golob valued it at €12.3 million.  Mr. Haberman valued it at €4 million.
366.	Mr. Golob was a market analyst with Goldman Sachs and he made his valuations on the basis of opining upon the value that a market analyst would put upon the business.       Mr. Haberman is a forensic accountant.    He has experience of making valuations.  He acknowledged that he had not himself previously carried out a valuation of a telecommunications business.  However, no features of the business were identified that suggest that any particular expertise in the industry would have been required or useful for valuing the AS Levicom Cellular shares, except possibly with regard to identifying appropriate businesses to use as comparators with Baltkom.     Both experts gave clear and helpful evidence.   I am particularly grateful to them both for the helpful joint statement that they produced: it exactly defined the issues between them, and is a model of what such a statement should be.    
367.	On some questions, however, I found the evidence of Mr. Haberman more useful and persuasive than that of Mr. Golob.    The essential question is how an investment banker appointed as an expert valuer would have gone about making the valuation required by clause 8 of the CSA.    Mr. Golob, although undoubtedly a distinguished market analyst, had no experience of making an expert valuation of the kind contemplated by clause 8, which requires the valuer to assess a “fair price” on the contractual basis.   In any case, his evidence was directed to how he, as a market analyst, would have gone about establishing a market price for a stock.     He accepted that this approach differed from that of an investment banker: in particular, he used as his primary valuation method an EV/EBITDA, that is to say a valuation in which the enterprise value (the equity market capitalisation adjusted to add back minority holdings and to subtract associates) is divided by the EBITDA (the earnings before interest, tax, depreciation and amortisation), but he accepted that an investment banker would primarily use a DCF valuation.   
368.	Mr. Haberman, on the other hand, sought to carry out the valuation as he thought it would have been carried out in October 2003.    He was not in a position to do so without modifications to the approach: in particular he did not have available a contemporaneous forecast for the Baltkom business in October 2003, and used actual financial results reported in the financial statements of Baltkom for 2003 as a proxy for the likely forecast at the time on the basis that, had the parties in October or November 2003 held discussions in good faith to agree upon the option price (as they were contractually obliged to do), then Tele2 would, in all likelihood, have provided actual results to September or October 2003 and therefore the results for the rest of 2003 could have been forecast with reasonable accuracy.     Although Mr. Haberman made a DCF valuation of the Estonian and Lithuanian interests, with a cross-check against valuations produced by other methods, he made a EV/EBITDA valuation of the Baltkom interest because, although he would have preferred a DCF valuation, the necessary information was not available.     
369.	The main shortcoming in the evidence of both experts is that, through no fault of theirs, it was directed to determining the option price in October 2003.   This is what they were instructed to assume.    On the basis of my findings of fact, this is not the appropriate date, and it might be that the issues between the expert witnesses would be significantly affected by taking an earlier valuation date.    I have therefore considered how far I should decide these issues since, if my conclusion on causation is overturned upon appeal, it might be necessary to determine the option price at an earlier date.   I have sought to avoid making findings that might encumber or embarrass such an inquiry.         
370.	An EV/EBITDA valuation is a market based evaluation which proceeds on the basis that over time different businesses operating in the same or similar markets are likely to achieve reasonably similar financial performance.     The equity value of the business is calculated by taking its earnings and multiplying them by an appropriate multiplier derived from the performance of other businesses, in order to provide an Enterprise Value before deducting the net debt.      Mr. Golob calculated a value of a 5.2% interest in Baltkom to be €12.3 million on the basis of earnings of €66.2 million, a multiplier of 6.4 and debt of €188 million (5.2% of [€66.2 million x 6.4] - €188).     Mr. Haberman calculated a value of a 5.2% interest in Baltkom to be €4 million on the basis of earnings of €54.7 million, a multiplier of 6.2 and debt of €262 million (5.2% of [€54.7 million x 6.2] - €188).        
371.	Thus, one reason that Mr. Golob and Mr. Haberman reached different values for the Baltkom business and AS Levicom Cellular’s interest in it is that they derived different multipliers from what they regard as comparable businesses.     This was because: (i) the comparator groups differed in that Mr. Golob included Tele2 in the group of comparables and Mr. Haberman regarded this as inappropriate, while Mr. Haberman included Turkcell, which Mr. Golob did not regard as having a sufficiently comparable business; and (ii) Mr. Golob used a weighted average of the comparator companies and Mr. Haberman used a simple average.     I shall not determine those differences: if a EV/EBITDA valuation of the Baltkom business were to be made as at June 2001 or thereabouts, the group of comparable businesses and the arguments for including or excluding a particular business might well be different, and it would not assist to determine the appropriate group for a valuation in October 2003.  Moreover, the question whether it is appropriate to use a weighted average is or might be closely related to the composition of the group: the effect of Mr. Golob including Tele2 in the group of comparators was accentuated by weighting the average. 
372.	The reason for the difference between Mr. Golob’s figure of €66.2 million for the earnings and Mr. Haberman’s figure of €54.7 is this: Mr. Haberman took the actual financial results reported by Baltkom in their financial statements for 2003, regarding this as the best proxy for the likely forecast of their results that would have been available in or about October 2003.   In his view, had the parties been in negotiations about Baltkom, it is likely that the Swedish companies would have provided Levicom with actual results to September or October 2003, which could have been used to assess with reasonable accuracy the results for the rest of 2003 and so to estimate the figures for the whole of 2003.    Mr Golob, on the other hand, considered that the market approach would have been to calculate the value of Baltkom predominantly on the basis of the prospective results for 2004, and therefore the approach would conventionally have been to take a proportion of the 2003 results to represent the remainder of 2003 and a proportion of the prospective 2004 results.   
373.	I do not understand there to be any difference of principle between the experts as to the proper approach.      Both recognised that in principle it was right to use forecasts of earnings, but both recognised that they should restrict themselves to figures that would have been available or calculable if the valuation had been made in about October 2003.    The differences between them were whether (i) it is to be supposed that forecast figures for 2004 would have been available to the valuers if the exercise had been carried out in October 2003, and (ii) if so, whether they are likely to have been sufficiently similar to the actual figures that were later available for the actual figures to be taken as a proxy for the supposed forecast figures.    I am prepared to assume that Tele2 did have forecasts: there are email communications from Mr. Svedberg in November 2003 in which he apparently declines to provide them to Mr. Pedriks on the grounds that they are not relevant rather than because they did not exist.    However, I am not persuaded that the actual figures for 2004 can properly be regarded as a reliable proxy for the forecasts that might have been available: Mr. Haberman gave evidence that he regarded that assumption as unjustified, and that seems to me a sound assessment.  Indeed, Mr. Svedberg described the figures as “a guess for the future combined with targets defined by me for the business”.    I prefer the approach of Mr. Haberman to seeking evidence of what forecasts for the business would have shown by way of earnings in so far as they would have been available to valuers in late 2003, and therefore accept his earnings figure of €54.7 million.
374.	I come to the deduction of debt from the equity value and the difference between Mr. Golob’s figure of €188 million and Mr. Haberman’s figure of €262 million.   There are two reasons for this difference.  One derives from the interpretation of the draft amendment put forward by Cleary Gottlieb and whether it requires the valuation to be made on the basis both that Baltkom were relieved of €50 million indebtedness because of the acquisition and that Ritabell had debts of €277 million to the parent entities.    Mr. Golob took it that the draft agreement is not to be interpreted as defeating the express purpose that the economic effect of the agreement should be as if Baltkom had been acquired by Ritabell, and I consider that he was right, for reasons that I have already explained.
375.	The second reason for the different debt figures used by the experts arises because Mr. Haberman used the figure of €25.2 million, which was Baltkom’s net debt as at 21 October 2003.  Mr. Golob sought to calculate Baltkom’s prospective net debt a year later by adopting the same method of “calendarising” figures from Baltkom’s 2003 and 2004 statements as he used when calculating the EBITDA.    Here, as it seems to me, Mr. Golob was drawing upon his experience as a market analyst and Mr. Haberman was using his experience as an accountant familiar with how valuations as at specified date are conventionally made.  I accept Mr. Haberman’s evidence that in his considerable experience current debt and not forecast future debt is used in a valuation of the kind required by clause 8, and that he was right to use it here.    
Levicom’s legal and other costs 
376.	Levicom also claim legal expenses and other expenses (including a payment made under the agreement of 22 March 2004).   Linklaters do not accept some parts of that claim but the individual items were not examined during the trial.
Conclusion on damages
377.	Had I concluded that Levicom were entitled to more than nominal damages, I should have invited further submissions as to what hearings or inquiries should be directed to quantify damages in light of these conclusions.
Conclusion
378.	I conclude that Linklaters’ advice was negligent in some respects, but the negligence did not cause Levicom any loss.   Linklaters were therefore in breach of contract, but are liable for only nominal damages of £5.