The Court of Appeal has increased damages payable to a top banking headhunter who successfully sued an international firm for negligence.
Wellesley Partners LLP, jointly founded by industry ‘star’ Rupert Channing, had been awarded damages against Withers LLP after a mistake in a contract drawn up with a private equity investor.
The backer from Bahrain had made a $5m investment in return for a 25% interest in the Wellesley partnership, with an option to withdraw half the contribution within the first 41 months of the agreement.
But Channing said he had given instructions that the option should be exercisable only after 42 months of the LLP agreement.
In the event, the investor exercised its option 12 months into the agreement, and Wellesley argued that the lost capital prevented it from expanding its operation into New York.
The timing was particularly relevant as Channing had established contacts with the Lehman Brothers bank, which was bought by Japanese firm Nomura, which had £6m to spend on expanding its US operation.
Wellesley said it missed out on potentially lucrative work and, while engaged in a legal battle with the original investor, lost 18 months’ worth of Channing’s time – valued at £125,000 per month.
In March 2014, Nugee J awarded Wellesley £1.6m, based on 15% of the profits derivable from the Nomura mandate, one month of Channing’s time and £430,000 for loss of profits in the London office due to inability to expand.
At a two-day hearing earlier this year, both parties appealed the decision: Wellesley asked for greater damages and more grounds for negligence, while Withers argued for reduced damages.
Wellesley said Withers was negligent not to tell Channing there had been a drafting error in the contract when concerns were first raised, and that the firm was under a duty to advise Wellesley to take alternative advice. Both arguments were rejected by Nugee in the first judgment.
In the Court of Appeal, Lord Justice Floyd (pictured) said Withers was given express instructions to prevent the investor pulling its finance within 41 months.
Floyd said there was ‘nothing unfair or unreasonable or inconsistent’ with the purpose of the duty in holding that the unavailability of capital should be the responsibility of the law firm.
He added the fact that the scale of the losses was unforeseeable did not make them too ‘remote’.
‘All that remained on the issue of causation was for [Wellesley] to establish whether there was a real and substantial chance that Nomura would have awarded some part of the mandates.
‘It did so. That was the beginning and end of its case on causation.’
The judge concluded that Withers was negligent in not telling Channing about the origin of the change in the contract. Despite Withers arguing that Wellesley was ‘fortunate’ to receive any damages at all over Channing's lost time, Floyd awarded a further £375,000 to compensate for the loss of an extra three months’ time.