Solicitor’s negligence — Loss — Measure of damages — Defendant negligent in drafting of contractual documents — Claimant buying out minority shareholder — Whether cost of cure basis appropriate measure of claimant’s loss — Claim dismissed
The claimant company was controlled by A and used as a vehicle to purchase a football club. The defendant firm of solicitors acted on the claimant’s behalf in connection with the acquisition. The club was owned by a father and son (the vendors) but, in order to survive and prosper, it needed an injection of finance, which A agreed to provide.
The parties entered into a complicated deal but, essentially, the claimant and the vendors took 75% and 25% of the shares respectively in a new company (Leisure). A agreed to provide the funds and the documentation protected the vendors, as minority shareholders, by preventing their shareholding from being diluted without their consent or participation.
The claimant contended that the documentation gave the vendors too much protection and that once it had invested £60m in the club, it should have been free to take more shares so that if the vendors could not take or subscribe for shares proportionately, their shareholding would be diluted and most of their protection would disappear. However, the claimant said that, owing to the defendant’s negligence, it was not in a position to dilute the vendors, since the defendant had accidentally altered the drafting and had not pointed out the consequences.
By 2002, the claimant had invested more than £60m and A wanted to inject further funds and to sell the ground. He considered that the vendors were likely to be obstructive and took the view that the documentation, as drafted, entrenched their position. The claimant therefore bought them out for £7.75m and claimed the cost of doing so from the defendant on the basis that that was the cost of putting itself in the position in which it should have been from the outset (cost of cure).
The defendant accepted that the drafting had the effect alleged but contended that the relevant wording and effect had been included with the claimant’s knowledge and consent. It also disputed that it was liable for the damages claimed even if it had been negligent. The loss claimed was outside the scope of the duty, or too remote and had not been caused by the breach.
Held: The claim was dismissed.
The defendant had been negligent when drafting the documentation for the purchase of the club, as a result of which, a formal document did not include a provision that ought to have been included.
There was no reason, in principle, why the cost of cure method of assessment should not be applied in solicitors’ negligence cases. Although the usual rule applicable in assessing the measure of damages following negligent professional advice was diminution in value, this was not an invariable approach in claims against solicitors. Flexibility was required both in terms of the date of assessment and the measure to be applied in order to put the claimant in the same position as though it had not suffered the wrong of which it complained. Since the paramount objective of damages was to compensate the injured party, it would be surprising if any particular way of calculating loss was allowed in some types of cases but not in others, merely because of their categorisation: County Personnel (Employment Agency) Ltd v Alan R Pulver & Co [1986] 2 EGLR 246 and Ruxley Electronics & Construction Ltd v Forsyth [1996] AC 344 applied.
However, the claimant had failed to establish a cost of cure sufficiently clearly to enable the court to conclude that it was an appropriate measure of its loss in this case. This was not a typical case, such as that of a building contract, where one could relatively easily say that the cost of putting right an identifiable problem was a proper measure of the loss. Here, the sum of £7.75m was neither a reasonable nor proportionate amount to pay to cure the negligence and if, contrary to the court’s findings, it fell to be treated as the cost of cure, it was not a proper measure of the claimant’s loss.
Ian Croxford QC and Mark Cannon (instructed by Kendall Freeman) appeared for the claimant; Roger Stewart QC and Hugh Evans (instructed by Mayer, Brown Rowe & Maw LLP) appeared for the defendant.
Eileen O’Grady, barrister
