Withers is set to launch an appeal after being ordered to pay £1.6m in damages by the High Court.
Mr Justice Nugee upheld one of four professional negligence claims against the firm, holding that an associate was ruled to have “misremembered what he had been instructed” or “misunderstood an instruction” when drafting an LLP agreement.
Withers was forced to hand over the money to former client Wellesley Partners (WP) after Nugee J ruled the firm had caused the company £1.5m in losses by misdrafting the agreement.
Both parties have pledged to mount a cross appeal in the Court of Appeal (CoA).
Atkin Chambers’ Fiona Parkin QC and Mischa Bale, instructed by Enyo Law partner Simon Twigden, trumped the Withers team, composed of Hailsham Chambers’ Michael Pooles QC and 2 Temple Gardens’ Charles Dougherty QC.
Pooles and Dougherty were instructed by RPC partner Paul Castellani and lawyer Caroline Shiffner.
The spat began when WP accused long-standing advisors Withers of misdrafting its LLP agreement in 2008, causing it hefty company losses.
The executive head hunter had wanted to expand into the Middle East and India and had made an agreement with Bahraini bank Addax Bank BSC to inject £2.5m into the firm in return for a 25 per cent stake in the partnership.
That required a new LLP contract, which was drawn up the same year. The final draft allowed Addax the option to withdraw half of its capital contribution at any time during the first 41 months.
However WP argued that it had told Withers that Addax’s option should only kick in after 42 months, which was expressed in an earlier draft. The business alleged that Withers had altered the provision without permission.
The final 41 month agreement fundamentally undermined the purpose of Addax’s capital injection to raise capital and give the company a working capital cushion to enable it to expand, according to co-founder Rupert Channing.
In order to achieve that, Addax’s capital would have to stay in the business for at least 3.5 years but the final agreement enabled Addax to demand its money back at any time in the first 41 months with 20 days notice.
Channing categorically denied giving the 41 month instruction and referred to a phone call on 17 April 2008 with associate Jamie Cuffe, who had been instructed to take on the deal. Cuffe did not remember the phone conversation but alleged that the would not have made the changes without being told to do so.
Nugee J said: “First, there must have been some discussion of clause 25.2 during the call. Nobody suggests that Mr Cuffe would have taken it into his head to amend clause 25.2 on his own initiative.”
He added: “I find that Mr Cuffe must have either misunderstood the instruction, or noted it down wrong, or when he came to redraft clause 25.2 misremembered what he had been instructed.
“On the balance of probabilities that Mr Cuffe made the change to clause 25.2 without instructions to do so, and that this head of the claim is established,” he said.
WP had also said Addax should not have been entitled to be repaid in dollars as the firm operated in sterling, opening them up to currency risk. The company also blamed Withers for not advising or warning it that even if Addax withdrew half it its capital contribution, it would still retain a majority share in the firm.
However Nugee J dismissed the three other claims of negligence against the firm. Damages were awarded of £1,057,290 for US loss of profits, £430,023 for London loss of profits and £125,000 for ‘diversion of Mr Channing’s time’.
The legal line-up:
For the claimant Wellesley Partners LLP
Atkin Chambers’ Fiona Parkin QC and Mischa Balen instructed by Enyo Law partner Simon Twigden and associate Charlie Morris
For the defendant Withers LLP
Hailsham Chambers’ Michael Pooles QC and 2 Temple Gardens’ Charles Dougherty QC instructed by Reynolds Porter Chamberlain partner Caroline Shiffner