Wellesley Partners LLP v Withers LLP

Where contractual and tortious duties of care arise from the same professional retainer, the contractual rule of remoteness governs recovery of economic loss. The defendant is liable for loss of a kind which, when the contract was made, was reasonably contemplated as not unlikely to result from breach.

The unforeseen scale or particular commercial source of the loss does not make it too remote where it remains within the type of risk assumed. Where recovery depends on a third party’s hypothetical decision, the claimant must establish a real and substantial chance of obtaining the benefit. Damages then reflect the value of that chance.

Wellesley Partners LLP retained Withers LLP to draft a partnership agreement governing a substantial capital investment. Withers negligently drafted an option which allowed the investor to withdraw half its capital much earlier than instructed. The High Court, in [2014] EWHC 556 (Ch), awarded damages of £1,612,313, including damages for the lost chance of obtaining profitable US executive-search mandates and one month of its principal fee-earner’s diverted time.

Both parties appealed. Withers contended that the contractual remoteness rule governed the concurrent claims and excluded the US loss. Wellesley challenged the loss-of-a-chance assessment, the percentage attributed to its prospect of obtaining the mandates, the rejection of further negligence on 3 February 2009, and the award for diverted management time.

1. Appeals disposed of: Wellesley’s appeal was allowed on the narrow issue of negligence on 3 February 2009 and, consequentially, in relation to diverted management time. Its remaining grounds and Withers’ appeal were dismissed.

2. Where contractual and tortious duties to exercise reasonable care in carrying out instructions exist side by side, the contractual test governs the remoteness of economic loss. The tortious duty arises from the same assumption of responsibility as the contract. It would be inconsistent with the parties’ contractual allocation of risk to impose a wider range of liability merely because a concurrent tortious cause of action exists. Roth J and Longmore LJ agreed with Floyd LJ on that conclusion: paras [80], [157]–[163] and [181]–[188].

3. The US profits were nevertheless recoverable. Withers knew that the investment capital was intended to fund business expansion, including expansion in the United States. Lost profits from the resulting inability to pursue US executive-search opportunities were therefore within the parties’ reasonable contemplation as not unlikely to result from breach. The particular Nomura opportunity was not a different kind of loss. Its profitability concerned the amount of the loss, rather than its legal character. The unusual market considerations in The Achilleas and the exceptional contracts in Victoria Laundry did not govern the facts: paras [81]–[89] and [164]–[179].

4. The judge correctly treated the Nomura award as dependent on a third party’s hypothetical action. Wellesley had to prove on the balance of probabilities that it would have opened a US office. It then had to establish a real and substantial chance that Nomura would have awarded it some work. Once that chance was established, its percentage value formed part of the quantification of damages. The judge was entitled to assess the prospect at 60%, and there was no basis for appellate interference: paras [98]–[126].

5. A solicitor must exercise care concerning information supplied to a client where it is or may be important to the course the client is contemplating. Having advised Wellesley to negotiate with the investor, Withers should have corrected the erroneous impression that the investor had introduced the disputed clause. Longmore LJ disagreed with any broader post-completion duty to investigate earlier negligence, but agreed that the erroneous impression should have been corrected: paras [133]–[136] and [189]–[197].

6. That additional negligence directly contributed to the deterioration of the commercial relationship and the resulting dispute. The allowance for diverted management time was therefore increased from one month to four months: paras [140]–[143].

1. Court of Appeal (Civil Division): In [2015] EWCA Civ 1146, allowed Wellesley’s appeal in part, increased the diverted-time award from one month to four months, and otherwise dismissed both parties’ appeals.
2. High Court, Chancery Division: In [2014] EWHC 556 (Ch), Nugee J found Withers negligent in drafting the partnership agreement and awarded Wellesley £1,612,313, but rejected the alleged further negligence on 3 February 2009.