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High Court orders Withers to pay £1.6m over professional negligence claim

Leading private client firm Withers has this week been ordered by the High Court to pay £1.6m in damages after the court upheld a professional negligence claim alleging the misdrafting of a limited liability partnership agreement.

Atkin Chambers’ Fiona Parkin QC and Mischa Balen (instructed by Enyo Law) represented the claimant while Hailsham Chambers’ Michael Pooles QC and 2 Temple Garden’s Charles Dougherty QC (instructed by RPC) acted on behalf of the defendant.

Heard over a nine-day trial in October 2013, the dispute arose after Withers acted for executive search company Wellesley Partners (WP) in 2008 over the admission of a number of new partners into the partnership. This included Bahraini bank Addax Bank, which was to make a significant capital contribution (about £2.5m) and acquire a 25% interest in the partnership.

This subsequently required the drafting of a new LLP agreement, which was completed on 14 May 2008. It was agreed between WP’s founder Rupert Channing and Addax that the latter should have an option to withdraw half its capital contribution. The LLP agreement allowed Addax to exercise that option at any time during the first 41 months of the agreement.

However WP argued that its instructions to Withers were that Addax’s option should only kick-in after 42 months (as an earlier draft had provided) and that Withers altered this provision without any instructions to do so. Withers’ defence was that it made those changes on Channing’s instructions.

Parkin QC (acting for the claimant) asked Mr Justice Nugee to consider Wither’s failure to make a relevant attendance note but he rejected the argument, ruling: ‘I do not accept that as a general principle. It is of course good practice to make attendance notes, precisely because the absence of them makes it more difficult to establish what instructions and advice were given, but I do not accept that the absence of an attendance note in some way counts against the solicitor in forming a view as to where the truth lies.’

In relying on what happened based on telephone call records between Channing and Withers, Justice Nugee further held that the lawyer involved must have either misunderstood the instruction or noted it down wrong or misremembered when it came to redrafting the clause agreement.

He went on to dismiss three other claims of negligence against the firm. The damages awarded were broken down for US loss of profits (£1,057,290); London loss of profits (£430,023) and ‘diversion of Mr Channing’s time’ (£125,000). He added that he was not in a position to rule on costs and this should be referred to a costs judge if the parties are unable to agree.

A statement issued by Withers today (13 March) said: ‘We respect the judgment of Mr Justice Nugee. We are pleased that he dismissed three of the four claims against us and, in relation to the fourth claim, acknowledged the uncertainty as to what instructions our client had given us. The amount of damages awarded is one fifth of the amount claimed, and we believe our former client could have avoided incurring large costs had he accepted our settlement offer.’