Wellesley Partners LLP v Withers LLP

Facts

Wellesley Partners LLP, an executive search firm, instructed Withers LLP to draft an amended LLP agreement admitting an investor member. Its instructions were that the investor should be able to withdraw capital only after a period of 42 months, but Withers drafted the option so that it could be exercised at any time within the first 41 months. The investor withdrew capital early, and Wellesley claimed losses, including profits it said it would have earned from expanding its business with a particular banking client.

History

Nugee J found Withers liable for negligent drafting and awarded damages including for loss of the chance of profits; Withers appealed.

Issue

Where a solicitor is liable both in contract and in the tort of negligence, which test of remoteness applies: the contractual test in Hadley v Baxendale and The Heron II, or the tortious test of reasonable foreseeability in The Wagon Mound; and whether the losses claimed were too remote.

Held

Where liability is concurrent in contract and tort, the contractual test of remoteness applies. Applying it, the type of loss claimed was within the reasonable contemplation of the parties and was not too remote.

Ratio

• Where a claimant has concurrent claims in contract and in tort for the same loss arising from the defendant's assumption of responsibility under a contract, recoverable loss is limited to loss of a type within the reasonable contemplation of the parties at the time of contracting; the claimant cannot escape the contractual remoteness rule by suing in tort.

The judgments

Key reasoning

• The contractual test is narrower than the tortious test because contracting parties can allocate risk and disclose special circumstances when they contract; that rationale applies equally where the duty in tort arises from the same contractual relationship.
• Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 allows a claimant with concurrent claims to choose the more advantageous cause of action, but that choice was not meant to let the claimant evade the remoteness limits inherent in the contractual bargain.
• The relevant question under the contractual test is whether the type of loss, here lost profits from the development of the business, was within the parties' reasonable contemplation; consistently with H Parsons (Livestock) Ltd v Uttley Ingham & Co Ltd [1978] QB 791, it need not have been contemplated in its precise form or amount.

Where it fits in the module

Under Remoteness, Wellesley shows the boundary between the Wagon Mound foreseeability test and the stricter contemplation test from Hadley v Baxendale and The Heron II. It raises the question whether the difference between the tests should depend on the cause of action or on the nature of the relationship and the parties' opportunity to allocate risk. It is also a useful contrast with The Achilleas and its assumption of responsibility approach to remoteness in contract.

Criticisms

• Applying the contractual test turns on the existence of a contract, so a claimant owed an identical duty without a contract may recover more, producing inconsistency between similarly placed claimants.
• The decision weakens the claimant's freedom, recognised in Henderson v Merrett, to choose the more favourable regime for concurrent claims.
• Treating type of loss rather than extent as decisive makes the contractual test less restrictive in practice, blurring the distinction it purports to maintain.
• The rationale of risk allocation at the time of contracting fits commercial bargains better than professional retainers, where the client may have little practical opportunity to negotiate.