A mistake in drafting a contract has cost a leading London law firm nearly £2 million.  The initial damages awarded to a top banking head-hunter were increased by £375,000 after a Court of Appeal hearing.  The case highlights the importance of seeking clarification when a client’s instructions are unclear.  It also shows the potential cost of a claim where a mistake directly impacts a client’s future trading prospects.

Head-hunter, Wellesley Partners LLP, had reached an agreement with a private equity backer to invest $5m in the firm in return for a 25{0a6a65c996ed4169444354e707b897cdb00dbefc1d0429e8febb9bf11027ba53} interest.  It instructed Withers LLP to draw up a contact providing the investor with the option to withdraw half its contribution after three and a half years.  Instead, Withers included a clause which allowed the investor to make the withdrawal provided it was within three and a half years.

The investor exercised its option after 12 months, following the global banking crisis.  Wellesley claimed that that the loss of capital meant it was unable to open a New York office and missed out on a highly lucrative contract with Japanese bank, Nomura.  Wellesley sued Withers for negligence in drafting the agreement.

The judge, Mr Justice Nugee, awarded Wellesley £1.6 million in damages for loss of profits from the Nomura mandate, for loss of profits in its London office and for the loss of one month of a senior executive’s time in bringing the case.  The judge concluded that Withers had misunderstood or wrongly noted down the client’s instructions. He ruled that where instructions are unclear, there is a duty to obtain clarification.

Both parties appealed the decision.  At appeal Lord Justice Floyd awarded Wellesley an additional £375,000 for an extra three months of lost senior executive’s time.

Drafting mistakes can cost law firms millions in negligence claims, particularly where the error impacts the client’s future earnings potential,” said James Page, Director – Head of Client Servicing, Brunel Professional Risks.  “That is why we provide risk management services to our clients, to ensure that they have processes in place to protect them against the risk of mistakes and other losses.  The moral of the story in this case is to check, check and check again if anything is unclear in a client’s instructions.”

A report on the original case has been published by lawyers Bond Dickinson and Clyde & Co.  The result of the appeal has been reported by the Law Society Gazette and Cripps Professional Negligence Blog.