Wellesley Partners LLP v Withers LLP
| Jurisdiction | England & Wales |
| Judge | Mr Justice Nugee |
| Judgment Date | 11 March 2014 |
| Neutral Citation | [2014] EWHC 556 (Ch) |
| Docket Number | Case No: HC11CO3611 |
| Court | Chancery Division |
| Date | 11 March 2014 |
[2014] EWHC 556 (Ch)
Mr Justice Nugee
Case No: HC11CO3611
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
The Rolls Building
7 Rolls Buildings
Fetter Lane,
London, EC4A 1NL
Miss Fiona Parkin QC & Mr Mischa Balen (instructed by Enyo Law LLP) for the Claimant
Mr Michael Pooles QC & Mr Charles Dougherty QC (instructed by Reynolds Porter Chamberlain LLP) for the Defendant
Hearing dates: 9, 10, 11, 14, 15, 16, 17, 18 and 21 October 2013
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic
Introduction
This is the hearing of an action claiming damages for professional negligence against a firm of solicitors for misdrafting a limited liability partnership ( "LLP") agreement.
The Claimant, Wellesley Partners LLP ( "WP") was incorporated in May 2004. Its business is, or was when it was active, that of an executive search consultancy, or headhunter, particularly in the investment banking sector. It was formed by Mr Rupert Channing and Mr Christian Brun, but by the time of the events with which this action is concerned was almost wholly owned by Mr Channing.
The Defendant, Withers LLP ( "Withers"), is a well-known firm of solicitors.
In 2008 Withers acted for WP in connection with the admission of a number of new partners into the partnership, including in particular Addax Bank BSC (c) ( "Addax"), a Bahraini bank, which was to make a significant capital contribution (about £2.5m or US$5m) and acquire a 25% interest in the partnership. This required the drafting of a new LLP agreement. The new agreement was completed on 14 May 2008. It was agreed between Mr Channing and Addax that Addax should have an option to withdraw half its capital contribution. As executed the LLP agreement gave Addax such an option, exercisable at any time within the first 41 months of the agreement. Addax exercised that option in May 2009.
This was very unwelcome to Mr Channing, and caused a number of problems for him and WP. In this action WP's case is that Mr Channing's instructions to Withers were that Addax's option should only be exercisable after 42 months (as an earlier draft had indeed provided) and that in the course of drafting the agreement Withers altered this to an option exercisable during the first 41 months without any instructions to do so. Withers' defence is that it made the change on Mr Channing's instructions.
WP makes two other complaints about the drafting of the LLP agreement: (i) that on exercise of the option, Addax were entitled to repayment in US dollars whereas WP operated in sterling, so this exposed WP to a currency risk; and (ii) that the LLP agreement made no express provision for how Addax's interest in the partnership should be redistributed if the option were exercised. WP also complains about the advice, or lack of it, given by Withers in February 2009 when Addax first intimated that it was thinking of exercising the option. This is only a brief summary of the complaints which are set out in more detail below.
With that introduction, I will set out the facts, but without at this stage seeking to resolve the more contentious issues of fact which are in dispute.
Facts
Mr Channing has worked in the executive search industry for many years. In 1992 or 1993 he set up a business called Charterhouse Search and in 1996 sold it to The Consulting Group. From June 2000 he worked at Heidrick & Struggles International Inc, one of the world's leading executive search firms. By early 2004 he had decided to set up a new specialist executive search firm which would be a "boutique" firm specialising in financial services. He persuaded Mr Brun, who also worked at Heidrick & Struggles, to join him, and in 2004 they left and set up WP together, each initially holding a 50% interest. The business was successful and in 2005 they decided to expand into Hong Kong. They therefore established a second business there using a limited company, Wellesley Partners Ltd ( "WPHK"). Mr Brun moved to Hong Kong with his family and headed up the business there. In due course he and Mr Channing decided to restructure their interests to reflect the fact that they had separate focuses, and by the time of the events in 2008 Mr Channing's interest in WPHK, and Mr Brun's interest in WP, had each been reduced to 5%. Mr Channing held the other 95% in WP.
In 2007 Mr Channing thought the time was right for a further expansion. He had in mind the Middle East (Bahrain or Dubai) and India. He was introduced to Addax, initially as a potential client as Addax was seeking to expand its investment banking operations. But Mr Yousef Al Essa, the Chief Executive Officer (or CEO) of Addax, raised the possibility of Addax itself investing in WP. This was attractive to Mr Channing as a means of financing his plans for expansion which at that stage involved the setting up of two new offices (one in the Middle East and one in India, each with two consultants), and the hiring of three new consultants in London. He calculated the amount he needed for this at about £2.5m, and thought the business was worth around £10m, so he was prepared to let Addax have a 25% interest in return for £2.5m. There is an issue which I will return to as to how this was to be structured. In January 2008 he flew to Bahrain and put this proposition to Mr Al Essa, who was very interested in it and asked for a written proposal.
At this stage Mr Channing decided to instruct solicitors, and specifically Withers. Withers had acted for him for a number of years, giving him employment law advice in connection with his entry and exit from various firms including Heidrick & Struggles; and he had used them to draft an LLP agreement between himself and Mr Brun when they set up WP in 2004.
On 10 January 2008 he therefore got Mr Scott Hudson (WP's internal accountant) to contact Mr Hugh Devlin of Withers, who had been involved in the drafting of the LLP agreement, saying that Mr Channing needed some changes to the agreement to accommodate external partners. Mr Devlin suggested getting one of his partners, Mr Ben Simpson, whom he described as "really expert in this area", to deal with it. Mr Simpson, who had been a partner of Withers since 2003, was in Withers' Corporate Department and did indeed have experience in LLPs: among other things he had taken part in drafting Withers' standard form LLP precedent.
Mr Devlin gave Mr Simpson a copy of WP's existing LLP agreement. On 14 January 2008 Mr Simpson spoke to Mr Channing on the telephone, who told him that he had identified external investors to take 30% of the LLP. Mr Simpson's attendance note of the call says "They would contribute 30% of the capital and have a 30% profit share". As well as Addax, Mr Channing had approached a number of individuals who were interested in acquiring small interests in WP. There were four of these, all of whom had had successful careers in the financial services industry, as follows:
(1) Mr Christian Meissner, then Head of European Investment Banking at Lehman Brothers ( "Lehman");
(2) Mr Ludovico del Balzo, then Global Head of Consumer Banking for Lehman;
(3) Mr Simon Roberts, who had a senior role in Bluecrest Capital (a hedge fund);
(4) Mr Harvinder Hungin who had previously been at Lazards, S G Hambros, Société Générale and Chelsfield.
Mr Channing regarded these individuals as being able to play the role of "ambassadors" for WP, and to provide valuable introductions, support and advice for the business.
Mr Simpson's note of the telephone call records Mr Channing as confirming that the advice to be given would be:
"Dealing with appropriate amendments to the LLP agreement;
LLP approval and subscription documentation for the new members…"
He also confirmed that Withers would not need to give tax advice.
On 15 January 2008 Mr Simpson e-mailed Mr Channing with some initial thoughts. He sent a copy to Mr Jamie Cuffe, who was a junior solicitor in his department and shared his office. Mr Cuffe had been admitted in November 2006, so he had then been admitted for about 14 months. Mr Simpson had worked with him on a number of other matters and considered that he would be competent to take instructions from Mr Channing and manage the amendment of the LLP agreement, subject to his (Mr Simpson's) supervision. Mr Cuffe told me, and I accept, that where he was the supervising partner Mr Simpson would not allow anything material to go out from Withers without his having signed off on it.
Later that day Mr Cuffe sent Mr Channing an e-mail with a list of minority protections which the investors would want to see enshrined in the LLP agreement, and a retainer letter from Mr Simpson. The retainer letter set out the scope of Withers' engagement as follows:
"I set out below the services which I believe we will be required to provide (based on the information you have given me):
1. reviewing the current LLP agreement;
2. advising on and drafting new provisions for the LLP agreement required by the investors such as pre-emption rights, veto rights and management provisions generally;
3. drafting a summary of the LLP agreement for the benefit of the investors; and
4. drafting deeds of adherence for the admission of new members to the LLP."
He continued:
"I propose that this matter will be handled by me and Jamie Cuffe…I will act as the partner primarily responsible for the overall supervision of this matter and will be your main point of contact."
On 16 January Mr Simpson e-mailed Mr Cuffe saying he had given him some initial comments and setting out areas where they needed to do further thinking, including:
"— what capital they...
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