How far is too far? Wellesley's impact on remoteness of damage in professional liability

A look at the impact of the Wellesley judgment on recoverable losses where a professional is liable concurrently in contract and in tort, focusing on Timothy Wright v Lewis Silkin LLP.

18 January 2017

Timothy Wright v Lewis Silkin LLP is a helpful illustration of the practical application of the 2015 decision in Wellesley Partners v Withers LLP.

Wellesley heralded a significant change in the assessment of remoteness of damage in professional liability cases. Professionals may owe duties in contract, tort, or both, and, depending on which duties are under scrutiny, the test to determine the losses for which a professional may be liable differs. In Wellesley, the Court of Appeal held that, where concurrent duties in contract and tort are owed, the contractual test for remoteness – and not the less stringent tortious test – should apply.

The Court of Appeal's judgment in Wright illustrates the impact of Wellesley. The key facts:

  • The claimant instructed the defendant solicitors to draw up heads of terms to reflect his proposed employment with an Indian company, including payment of £10m to him in the event of his dismissal.
  • The claimant wanted an exclusive jurisdiction clause ensuring that any litigation on the agreement would take place in England. The terms included provision that English law would apply, which the claimant incorrectly took to be an exclusive jurisdiction clause. In fact no such clause was included.
  • The claimant was subsequently dismissed and no severance payment was made. His claim for damages in 2009 was subject to a jurisdiction challenge by the Indian company. That challenge was dismissed in December 2010 and in July 2012 he obtained judgment against the company. However, between 2011 and 2012 the Indian company got into financial difficulties and the claimant was unable to enforce the judgment in India.
  • He brought negligence proceedings against the defendant.

At first instance, the court found:

  • The defendant's failure to advise about the inclusion of a jurisdiction clause was a breach of duty.
  • Had the contract contained a jurisdiction clause, the claimant's litigation would have proceeded more smoothly and he would have obtained judgment in 2011, with a 20% chance of recovering his severance payment.
  • The claimant was awarded £2m (being 20% of the severance payment) plus £40,000 in respect of his additional litigation costs in dealing with the jurisdiction challenge.

The defendant appealed. By the time the case was heard by the Court of Appeal, the Wellesley judgment had been made, clarifying the appropriate test where – as here – a defendant owed duties in contract and tort.

The Court of Appeal agreed that the defendant had breached its duties and that the claimant had lost a 20% chance of recovering its judgment debt. However, applying the contractual test for remoteness (following Wellesley), the loss of that chance was too remote to be recoverable. That loss was not a result of the absence of an exclusive jurisdiction clause. It was caused by the financial difficulties experienced by the Indian company after 2011 which were, at the time of the defendant's advice, not contemplated by either party. The claimant's award of £2 million was therefore set aside. However, his £40,000 additional costs in dealing with the jurisdiction challenge would have been avoided had the contract been properly drafted, and therefore remained recoverable.

The decision demonstrates Wellesley's practical effect. Applying the contractual test for remoteness of damage can make recovery of losses more difficult and highlights the importance of obtaining realistic legal advice at an early stage.

Wellesley is one of a number of recent and pending decisions which have a significant impact in professional liability cases. Watch this space for a Burges Salmon digest on developments in professional negligence in the last 12 months.

Should you wish to discuss any issues arising in this article further, please speak to Andrew Burnette, Caroline Brown, or your usual Burges Salmon contact.

Key contact

Andrew-Burnette---PGP_3989

Andrew Burnette Partner

  • Dispute Resolution
  • Professional Negligence
  • Banking Disputes

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