Wellesley Partners LLP v Withers was an appeal by Withers against the measure of damages awarded to a former client in an action for professional negligence. Wellesley cross-appealed on the measure of damages and against a finding that Withers had not been negligent regarding a related matter. There were essentially two questions for the Court of Appeal on the measure of damages:
- The old chestnut of the appropriate measure of damages where a claimant has concurrent claims in contract and in tort.
- The application of the loss of a chance principle to the assessment of damages.
Summary of the facts and first instance decision
As a result of Withers’ negligent drafting of a partnership agreement, Wellesley lost investor funding from a Bahraini bank called Addax and alleged that, as a result, it was unable to open an office in New York and expand its London base. Wellesley sought damages for loss of profits. It also sought damages to compensate it for the time spent by one of its founder members, Mr Channing, in dealing with the partnership dispute with Addax, which had been litigated and was eventually settled.
Concurrent liabilities
On the first point, the judge held that, where a professional is retained by a client, there is usually a concurrent liability in tort and in contract and the client has the right to take advantage of the more favourable regime (for example as to remoteness) afforded by the tortious cause of action.
Loss of chance to make profits
The loss of a chance to make profits point required a review of the cases:
- Allied Maples Group v Simmons & Simmons.
- Parabola Investments Limited v Browallia Cal Limited.
- Vasiliou v Hajigeorgiou.
In summary, those cases establish that, if the loss of a chance to make profits in the future depended on third parties (for example, business counterparties) acting in a certain way as well, a claimant had to show, not that he would have made such profits on the balance of probabilities, but only that there was a real and substantial chance that they would have so acted.
Once that chance was quantified in percentage terms, the claimant would then recover a like percentage of the profits which he had not made because of the loss of the chance. If a claimant was not asserting that he had lost the opportunity of acquiring a specific benefit which involved, at least to some extent, dependence on the actions of a third party, but instead was simply saying he had lost the chance to trade generally, then the court had to assess whether the claimant would have traded successfully.
That question could and should be answered on the balance of probabilities. If the court found that the claimant would have traded successfully, then it would move on to quantify the profits and that exercise did not involve the calculation of chances. In other words, there would be no discount to any damages award.
Awards for failure to expand in New York and London
The judge found that the withdrawal of some of Addax’s capital did make it impossible for Wellesley to expand into New York, as it had planned to do. This question was answered on the balance of probabilities.
The investment bank Nomura had been expanding in the US and Mr Channing claimed that Wellesley would have got its mandate had it had a US office to handle the work. Instead, Nomura hired two other large global executive search firms. The judge found that there was a real and substantial chance that Wellesley would have secured some of the mandate if it had had a New York office. He measured the chances at 15% of being awarded the sole mandate and 45% chance of being awarded half the mandate. He put those together and awarded 60% of the profits which he found could have been made as a result of the award of that mandate on those two bases.
Withers had known about the plan to expand into the US, but knew nothing about the Nomura opportunity. He held that it was reasonably foreseeable (using the remoteness test in tort) that if Addax were to withdraw its capital at short notice then that might prevent Wellesley from earning profits in the US. The award made came to just over £1 million. In addition, there was an award (unchallenged in the Court of Appeal) of £430,000 for loss of profits in the London office, as a result of not being able to expand.
“Time spent” claim
The “time spent” claim depended on Wellesley being able to show that the loss flowed from the negligence. There was a practical problem because Mr Channing’s time recording didn’t allow precise allocations to be made between different areas of the dispute with Addax, not all of which flowed from the drafting issue. Doing the best he could, the judge assessed the recoverable claim as £125,000, that being effectively one month of Mr Channing’s time.
The parties’ arguments on appeal
Both Wellesley and Withers appealed the quantum of the judge’s award, and its tortious basis.
Withers argued that, since the parties were not strangers, the scope of the duty in tort, and the remoteness test to be applied, should be informed by the scope of the contract. Support for this proposition could be found in South Australia Asset Management Corp v York Montague Limited, although it was accepted that this did not go so far as to deal with the test for remoteness.
Wellesley argued for the maintenance of the distinction between the two causes of action with their separate rules about remoteness. See Henderson v Merrett Syndicates Limited, a case which did not specifically deal with the rules for remoteness in a case of concurrent liability.
Was it unsatisfactory to have two different tests in such circumstances, as some writers thought and as the judge himself had mused? Should the law give two different answers to the question of the loss for which the solicitor would be liable, particularly in a case where the liable party has assumed responsibility to the other under a contract?
The Court of Appeal’s decision on the concurrent liabilities point
The Court of Appeal held that, in a case where contractual and tortious duties to take care in carrying out instructions existed side by side, the test for recoverability in damages for economic loss should be the same, and should be the contractual one.
The parties had the opportunity to draw special circumstances to the other at the time of the formation of the contract and the parties could be assumed to be contracting on the basis that liability would be confined to damage of the kind which was in their reasonable contemplation. But the damage represented by the loss of the Nomura mandates was of a kind which fell within the scope of the duty of care in tort and the type of damage which flowed from the breach was of a kind which fell within the scope of that duty.
However, the Court of Appeal was careful to say that this development of the principles applicable in cases of concurrent liability would not affect the ability of a claimant to utilise the principles of limitation applicable in tort, and the expression of the principle is carefully limited to cases of economic loss.
Guidance as to level of care that must be taken when providing important information
Wellesley also had success in its appeal against the judge’s finding that Withers was not negligent in relation to discussions with Mr Channing after Addax sought to withdraw its funding. When Addax told Wellesley that it intended to exercise its option to withdraw, Mr Channing’s first reaction, on 3 February 2009, was to check with Withers to find out if it could do so. Withers told Mr Channing that, under the agreement, Addax was entitled to exercise the option. Mr Channing commented that he suspected that had been done by Addax.
Subsequently, Withers discovered that the changes to the agreement which enabled Addax to withdraw its investment early had actually come from the firm and not Addax, but did not communicate this to Mr Channing. The Court of Appeal pointed out that solicitors must take care not only in the provision of advice which they are asked to give, but in relation to information which they provide to the client which is or may be important to the client. The advice being given was about the exercise of the option and what to do and it was clearly of importance that the negotiations about that should not take place on a wrong basis.
The passing remark by Mr Channing on 3 February that Addax must have been responsible made it entirely foreseeable that he would accuse Addax of having made the change. When the associate formed the view that the clause had been inserted on Mr Channing’s instructions, he should have told him so. Any information which could be or was of relevance to the course of action that Withers knew Mr Channing was contemplating with regard to Addax should have been provided. Withers had therefore been negligent in that respect also.
This finding led the Court of Appeal to increase the damages award by increasing the number of months of Mr Channing’s time which had been spent dealing with the consequences of the negligence from one month to four months. On this matter, however, Longmore LJ reacted slightly differently to Floyd LJ (with whom Roth J had agreed), holding that the solicitor’s duty to identify matters which may be important for the client to know and bring them to its attention did not continue after the transaction had closed unless the client sought specific advice.
In the absence of a specific request from Mr Channing to identify how the drafting mistake had been made, Longmore LJ held that Withers did not have a duty to investigate and report. The problem for Withers here was that Mr Channing had mentioned that he supposed that Addax were responsible, and Withers should have disabused him of that notion, with the result that Mr Channing would then have taken a less confrontational position with Addax.
This ancillary point is of obvious concern for transactional lawyers and it is a pity that the three Lords Justices did not take a united view on it. I think the Longmore LJ view is the one to be preferred, and it certainly is more workable in practice. If the case goes further, we shall see.
