Commercial Contracts: Damages Where There are Concurrent Causes of Action

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What is the correct approach to calculating damages where a breach of contract claim is accompanied by a claim for negligence? The expert commercial lawyers at top Bahamas law firm ParrisWhittaker have many years’ experience advising clients on commercial contract disputes.The UK’s Court of Appeal has given an important ruling on the recoverability of damages in a case where there were concurrent claims in professional negligence and breach of contract. It is not uncommon for a breach of contract to be linked to a breach of professional duty by one of the contractual parties. At issue in this case was the correct test to apply to quantify damages.

What is the correct approach to calculating damages where a breach of contract claim is accompanied by a claim for negligence? The expert commercial lawyers at top Bahamas law firm ParrisWhittaker have many years’ experience advising clients on commercial contract disputes.

The UK’s Court of Appeal has given an important ruling on the recoverability of damages in a case where there were concurrent claims in professional negligence and breach of contract.  It is not uncommon for a breach of contract to be linked to a breach of professional duty by one of the contractual parties.  At issue in this case was the correct test to apply to quantify damages.

What happened in this case?

A law firm was instructed to prepare a limited liability partnership agreement (LLPA) for the claimant LLP, into which its members were to inject capital.    A bank was to be one of the members and it was agreed that it would have the formal option to withdraw its investment after 42 months.  However, the option was incorrectly drafted – with 41 months inserted instead of 42 months.

The bank duly exercised the option and withdrew its investment after 41 months.  The result was that the LLP could not fund a business expansion into the US, or sign a potentially lucrative contract with another company (Normura) – and brought claims against the law firm for both negligence and breach of contract.

The claims were upheld – but the law firm argued that the relatively restrictive “contractual” test for remoteness should apply on the basis that the planned business expansion, and the prospect of another lucrative contract, was not within the parties’ reasonable contemplation.  The ‘contractual’ test requires that the type of damage which occurred must be within the contemplation of the parties as not unlikely to result from the breach.   The ‘tortious’ test is wider and includes that which is reasonably foreseeable.

The Court of Appeal said that where there was both a negligence claim and breach of contract claim – the contractual test should apply: the type of damage involved must be within the parties’ reasonable contemplation.  This is less generous because in some circumstances loss can be reasonably foreseeable – but may not fall within the reasonable contemplation of the parties.

What does this mean?

In some damages claims – where there is a concurrent claim in tort such as professional negligence – the more restrictive contractual test for the recoverability of damages could limit the amount the claiming party recovers.

How can we help?

If you are seeking damages against another contractual party and you have more than one type of claim in relation to a breach, seek expert legal advice as soon as possible: we will advise on how damages should be calculated.  And if you are facing a damages claim following an alleged breach of contract, we can help.  Contact the expert commercial lawyers at ParrisWhittaker now for strategic advice and representation.

^{1 M Wellesley Partners LLP v Withers LLP 2015 EWCA Civ 1146}