Few people think that life as a professional – be it an agent, architect, engineer or humble solicitor – is easy. But, in Wellesley Partners LLP v Withers LLP [2015] EWCA Civ 1146, the Court of Appeal might have made life slightly less tricky for those of us trying to earn an honest crust while exercising (what we hope is) the appropriate duty of skill and care.
One project but two duties
Wellesley involved a recruitment consultancy suing its solicitors for the negligent drafting of a limited liability partnership agreement. It is of importance to the property industry because it deals with an issue in most, if not all, professional appointments: when a professional enters into a contract with a client, they also owe their client a duty of care in the tort of negligence.
The existence of these concurrent duties has created a number of jurisprudential headaches over the years because claims in contract and tort, although similar, are subject to a number of different legal rules. Most importantly, the time available for a claimant to commence proceedings, and the damages they can recover as a result of any wrongdoing, are different in contract and tort.
The courts still struggle with the consequences of these differences in claims arising out of concurrent duties. Famously, it was not until the landmark decision of the House of Lords in Henderson and others v Merrett Syndicates Ltd and others [1994] UKHL 5 that we had a definitive answer to the question of what happened if the limitation period for one type of claim (in Henderson, it was the claim for breach of contract) had expired but there was still time validly to commence proceedings for the other. Henderson confirmed that the two causes of action were separate, and it was still possible to bring one when the other was out of time.
Remoteness of damage
The most significant element of the decision in Wellesley deals with a linked, but separate, point. There was no limitation issue as the claimant had commenced proceedings for both breach of contract and negligence within time. However, this led to a different question: should the damages recoverable by the claimant be assessed in contract or in tort?
This was particularly relevant because part of the loss which Wellesley was claiming arose out of a lost opportunity to open an office in New York and win mandates from Nomura, the investment bank. The court had to decide whether those losses were too remote in contract and/or tort.
The tests for remoteness of damage in both causes of action are different. To over-simplify things slightly, the test for breach of contract is whether the damages flow directly from the breach or, alternatively, were in the parties’ reasonable contemplation as being a type of loss that might be suffered when they entered into the contract. In tort, the test is whether the damages were reasonably foreseeable as likely to happen as a result of the tortious act. Floyd LJ, who gave the leading judgment in the Court of Appeal, explained why the difference was important (relying on the judgment of Lord Hope in Transfield Shipping Inc v Mercator Shipping Inc [2008] UKHL 48):
“It appears to be accepted that the ‘reasonable contemplation’ test in contract is more restrictive than the ‘reasonable foreseeability’ test in tort.”
In other words, where there are concurrent causes of action for breach of contract and in negligence, a claimant would want to have the benefit of the more generous foreseeability test in tort in order to maximise its damages recovery.
Which remoteness test applied?
At first instance ([2014] EWHC 556 (Ch)), Nugee J, despite wanting to reach a different conclusion, felt he was bound by previous authority to hold that the claimant was entitled to rely on the tortious test. He awarded over £1m in damages for the loss of profits arising from the failure to open a New York office and win work from Nomura. The judge also confirmed (in what is an obiter comment) that he would have found these damages to be too remote to be recoverable for breach of contract.
The Court of Appeal unanimously reversed Nugee J’s key finding, holding that, where concurrent causes of action in contract and tort exist, it is the contractual test which applies. As Floyd LJ explained:
“Whilst the two causes of action are independent… it is… significant that the tortious liability arises because one party has assumed a responsibility towards another… under a contract. It would be anomalous… if the party pursuing the remedy in tort in these circumstances were able to assert that the other party had assumed a responsibility for a wider range of damage than he would be taken to have assumed under the contract.”
This turned out to be a somewhat Pyrrhic victory for Withers because the Court of Appeal also held that the loss of profit in the US was within the parties’ reasonable contemplation, so the amount of Nugee J’s damages award was upheld, albeit by way of contract rather than tort.
Consequences
The decision is complicated, and this note has concentrated the key point for property and construction professionals going forward. Although, on the facts, the Court of Appeal’s decision did not help Withers, it should prove a boon to professionals looking to argue a remoteness of damage defence when being sued concurrently in contract and tort.
Key points
- The Court of Appeal has decided that the contractual test for remoteness of damage – not the tortious one – applies in cases of concurrent liability
- This is good news for property professionals since the contractual test is a more onerous one for claimants to overcome
Stuart Pemble is a partner at Mills & Reeve LLP
