The Court of Appeal has made an additional finding of negligence against leading London law firm Withers over its drafting of an LLP agreement and increased the £1.6m in damages awarded in the High Court by a further £375,000.
The court allowed an appeal by its client, executive search company Wellesley Partners (WP), against an aspect of its negligence claim that was not upheld last year by Mr Justice Nugee.
In 2008 Withers acted for WP over the admission of a number of new partners to its LLP, including a Bahraini bank called Addax Bank, which was to invest about £2.5m to acquire a 25% interest in the partnership.
This required a new LLP agreement. It was agreed that Addax should have an option to withdraw half its capital contribution, which WP had instructed should only be exercisable after 42 months, but Withers had redrafted the agreement to allow it at any time within the first 41 months. Addax exercised the option after 12 months.
Nugee J ruled that the solicitor involved “must have either misunderstood the instruction [of WP’s principal owner Rupert Channing], or noted it down wrong, or when he came to redraft misremembered what he had been instructed”.
This finding was not appealed, but WP appealed Nugee J’s rejection of another allegation of negligence, while the quantum of damages was appealed by both sides.
The extra negligence allegation related to the advice given, or not given, on 3 February 2009 at the moment when Addax first intimated that it was thinking of exercising the option.
Speaking to Mr Channing, the solicitor “said something to the effect that Addax presumably must have made the change”, and Mr Channing did not ask him to follow it up. Nugee J ruled that, when the solicitor discovered that Addax was not responsible for drafting the change, he was under no duty to tell WP.
WP argued that this uncorrected information led to a breakdown of trust between WP and Addax
Floyd LJ held that while it was right to say WP had not asked for advice as to the genesis of the alteration, “a solicitor must take care not only in the provision of advice which he is asked to give, but in relation to information which he provides to the client which is or may be important to the client”.
He continued: “I consider that Withers did have reason to believe that the information could be of relevance to the course of action which WP was contemplating.
“Withers had expressly advised WP to seek to negotiate directly with Addax on the exercise of the option under clause 25.2 and it was clearly of importance that WP should not do so on an incorrect basis. It was entirely foreseeable in the light of the exchanges on 3 February that Mr Channing would immediately accuse Addax of introducing the clause.
“That being so, I have difficulty in seeing why [the solicitor] should not have corrected the statement when, later in the day, he discovered that it was erroneous…
“Unpleasant as it might have seemed for [the solicitor] to tell Mr Channing that he believed that the clause had been inserted on Mr Channing’s instructions, it remained his duty to tell him.”
As to damages, the judge said this negligence of 3 February was “a direct cause of a souring of the relationship between Mr Channing and Addax”, which increased the time Mr Channing spent on dealing with the dispute. “Doing the best I can I would substitute for the judge’s award of the equivalent of one month [of his time, a sum of £125,000] an award of the equivalent of four months.”
Mr Justice Roth agreed, while Lord Justice Longmore said the case “raises the not entirely easy question whether a solicitor, after a transaction had closed and, when later some question arises as to it, should take steps to discover his earlier negligence”.
He disagreed with Floyd LJ to the extent that he did not believe Withers was under a duty to discover how the clause had come to be drafted in the way it was in the absence of a request from its client. “It was not obvious on 3 February that the genesis (as opposed to the existence) of the clause was going to be of any great materiality.”
However, he said that once the solicitor had appreciated what had happened, “he ought to have disabused Mr Channing of the view that Addax were responsible… Mr Channing, if he had appreciated that it was not Addax who had introduced the clause, would have adopted a much less confrontational approach in his negotiations with Addax”.
He agreed with Floyd LJ’s increase to four months. “It must have been extremely time consuming (as well as very frustrating) for Mr Channing (and thus WP) to discover that he had become embroiled in an entirely unnecessary dispute with Addax as a result of his own solicitors’ negligence.
“Some of that time would have been saved if Withers had at least disabused him of the impression they had created that the relevant clause had been added at Addax’s insistence.”
The appeals over quantum were rejected after lengthy consideration of the principles around the remoteness of damage where a claimant has concurrent causes of action for pecuniary loss in tort and in contract.
In a statement, Withers said: “We take our responsibilities to our clients very seriously and take the utmost care in recording clients’ instructions. However, we respect the court’s judgment in this case and regret that on this occasion we fell short of our high standards.”