Background
In the English case of Wellesley Partners v Withers LLP [2015] EWCA Civ. 1146 an executive search consultancy firm, M Wellesley Partners LLP ("Wellesley") wanted to boost its capital. To do so, it decided to admit a number of new partners and instructed a solicitors firm, Withers LLP, to draft a limited liability partnership agreement ("Agreement")to allow the admission of those new partners.
One of the new partners was to be Addax Bank BSC ("Addax") which was to make a capital contribution to Wellesley of £2.5million. It was made clear by Wellesley that the Agreement should be drafted so that Addax would have an option to withdraw 50% of that contribution after 42 months of the Agreement being entered into. However, in error, the Agreement was drafted by Withers so as to allow Addax to withdraw its £1.25 million within 41 months of the Agreement being entered into. Addax withdrew its investment after only 12 months. Not only was this far sooner than Wellesley expected, but meant it was no longer able to bank roll its planned expansion into the US and therefore suffered substantial loss.
Litigation
Wellesley sued Withers for negligence and breach of contract for failing to carry out Wellesley's instructions. These claims are very often run concurrently so this was not unusual. However, in law the negligence test is seen as wider and more generous compared to the contractual test.
Withers argued that the claim for loss of profit in the US was too remote and not within the "reasonable contemplation" of the parties. At first instance the judge disagreed, and ruled that Wellesley could recover these losses based on negligence (a test of "reasonably foreseeable").
On appeal, the judges reversed this decision and found that the correct test was "breach of contract". However, on the particular facts of this case, it didn't affect the amount of damages recoverable. The judges ruled that Withers had assumed responsibility for the US losses.
This decision is important in clarifying this area of law and will no doubt be examined with interest by the Scottish Courts where similar circumstances arise. It is entirely possible that applying the more restrictive contractual test could limit damages recovered by a claimant. Contracting parties should bear this judgment in mind when negotiating the terms on which they are entering an agreement in order to adequately manage their expectations as to recoverability or limitation of loss.
Disclaimer
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