PNBA

Case Note: Wellesley Partners LLP v Withers LLP

Wellesley Partners LLP v Withers LLP

Court of Appeal (Civil Division)

11 November 2015

[2015] EWCA Civ 1146

Subject: Contract – Tort – Voluntary assumption of responsibility – Concurrent duties – Remoteness – What remoteness test applicable to tortious duties owed concurrently with contractual duties – Scope of duty – Application of remoteness test – Limitation

Summary

The Court of Appeal has recently confirmed that where concurrent duties are owed in contract and tort the remoteness test which applies to both duties is the contractual test (“reasonable contemplation”) rather than the tortious one (“reasonable foreseeability”). Thus, a more restrictive remoteness test applies to a tortious duty which is owed concurrently to a contractual one than to a stand-alone tortious duty.

Abstract

The Facts

Wellesley v Withers concerned a professional negligence claim against Withers LLP (“Withers”) for the negligent drafting of a partnership (LLP) agreement between Wellesley Partners LLP (“Wellesley”) and its new investor. Wellesley Partners was an executive headhunting firm specialising in investment banking, which was co-founded by Mr Channing (described by Floyd LJ as a “star in his particular firmament”).

The central allegation of negligence was that Mr Channing had given instructions to Withers to give the new investor an option to withdraw half its capital contribution after 42 months, whereas the LLP agreement made that option exercisable at any time within the first 41 months.

Wellesley’s case on quantum was that due to the withdrawal of the investor’s capital, it was unable to finance the expansion of its business to New York. One of the opportunities Wellesley claimed to have lost was Nomura’s planned ‘US build-out’, through Wellesley. This opportunity had arisen through Mr Channing’s connections, and was a very valuable one compared to the other opportunities alleged to have been lost.

The Decision

Floyd LJ (which whom both Longmore LJ and Roth J agreed (at [186] and [157] respectively) gave the lead judgment. On the main issue of the remoteness of the Nomura loss, Floyd LJ concluded (at [80]) that:

I am persuaded that where, as in the present case … contractual and tortious duties to take care in carrying out instructions exist side by side, the test for recoverability of damage for economic loss should be the same, and should be the contractual one”.

Applying the ‘contractual’ “reasonable contemplation” test, the Nomura loss was not too remote (at [83], per Floyd LJ). Although the Nomura contract (i) was especially lucrative and (ii) could be distinguished from the other contracts allegedly lost because it arose through Mr Channing’s connections, any distinction with those contracts was one of degree rather than kind (at [86]; to similar effect, Longmore LJ at [188] and Roth J at [179]).

The Reasons

The reasons given by their Lordships were three-fold. First, in concurrent liability cases the “foundation” of both the contractual and tortious duties is the same: voluntary assumption of responsibility. It logically follows that the extent of the damage for which a Defendant is liable should be determined on the same basis in relation to both (at [157], per Roth J).

Second, the rationale for the narrower remoteness test in contract is that the parties have the opportunity to draw special circumstances to one another’s attention at the time the contract is formed. The same is true, however, in relation to the tortious duty when concurrent duties are owed, “particularly given that the tortious duty arises out of the same assumption of responsibility as exists under the contract” (at [80], per Floyd LJ).

Third, all three of their Lordships drew attention to the ‘assimilation’ of the scope of duty questions in contract and tort which had occurred in The Achilleas [2009] 1 AC 61 and SAAMCO [1997] AC 191.

Comment

This decision follows near unanimous academic support for the suggestion which was adopted by the Court of Appeal: see, for example, Burrows and Peel, Commercial Remedies, at 35; McGregor on Damages (19th edn), at [20-009]; and Peel, Treitel on Contract (14th edn), at [20-112].

Wellesley v Withers is also consistent with a number of previous cases in which the contractual remoteness rules appeared also to have been applied to tortious duties in concurrent liability cases. These included Brown v KMR Services [1995] 4 All ER 598 (a Lloyds’ litigation case), in which the Court of Appeal applied the Hadley v Baxendale test to a claim which had also been pleaded in tort. Another example was Rubenstein v HSBC [2012] EWCA Civ 1184, in which the Claimant invested prior to the collapse of Lehman Brothers in a bond which the Defendant bank had wrongly told him was as safe as an account deposit. Rix LJ appeared to apply only the contractual remoteness test, notwithstanding that there was also a concurrent claim in negligence. In the High Court, HHJ McKenna in Obsession and Hair Day Spa v Hi-Lite Electrical Ltd. [2010] EWHC 2193 had (albeit obiter) adopted the same approach.

A number of questions, however, remain following the decision. First, what is now the remoteness test when a duty based on voluntary assumption of responsibility is established only in tort (for example where services are rendered gratuitously)? The first and second reasons given by the Court of Appeal would seem to suggest that the ‘contractual’ limit (i.e. “reasonable contemplation”) would apply. Roth J specifically left this issue open, but “incline[d] to the view” that the Hadley v Baxendale rules would apply, at least where the relationship between the parties was “equivalent to contract” (at [163]).

Second, what is the remoteness test where two Defendants owe concurrent tortious duties, but only one has a contract with the Claimant? Again, Roth J’s tentative opinion was that the ‘contractual’ limits would apply to both (at least where the Hedley Byrne duties owed were “equivalent to contract”; also at [163]).

Third, how does this decision fit with the orthodox view that different limitation rules apply to the contractual and tortious elements of concurrent claims? Longmore LJ dealt expressly with this issue (at [187]), concluding that “[l]imitation is a separate matter but rules relating to the measure of damages and remoteness have to be consistent with one another”. His Lordship did not explain why this was; McGregor has, however, squared the circle by arguing that “the exclusion of the tort remedy on remoteness grounds is geared to what risks the contracting parties have undertaken, a consideration which has no application to the availability of limitation periods” (at [22-009]).

Although the Court of Appeal was clear on the position as to limitation, it will be interesting to see how the case law unfolds in relation to stand-alone Hedley Byrne duties, and multiple tortfeasors. What should now be clear to practitioners, however, is that in concurrent liability cases there is generally no longer any remoteness advantage in pleading an alternative duty in tort.

Joshua Folkard

4 New Square