Fulham Leisure Holdings Ltd v Nicholson Graham & Jones (A Firm)

In a professional-negligence claim arising from transactional drafting, the claimant bears the burden throughout of proving, on the balance of probabilities, that the solicitor understood the agreed position and negligently failed to record it. That burden does not shift merely because the solicitor offers a plausible explanation for a deletion. The court must assess the whole evidence, including whether the alleged drafting act would be inexplicable for a careful and competent draftsman. It must not simply balance two extremely improbable theories and select the less improbable. Where the claimant cannot prove the alleged error, liability fails and any assessment of damages becomes unnecessary.

Fulham Leisure Holdings Limited instructed Nicholson Graham & Jones to document a joint venture for acquiring and developing Fulham Football Club. The dispute concerned whether Holdings could subscribe for further A Ordinary Shares after £60 million of finance had been provided, without the Muddymans’ consent, thereby diluting their B Ordinary Shares below 10% and removing their minority protections.

Mr Justice Mann found the solicitors liable for negligently deleting the relevant provision, but rejected the principal damages claim and awarded £6,750 for certain legal advice: [2006] EWHC 2017 (Ch). Holdings appealed on quantum. The solicitors cross-appealed on liability. The central issue was whether Holdings had proved that the deletion occurred without any change in the parties’ consensus or instructions.

Lord Justice Chadwick gave the leading judgment. Lord Justice Maurice Kay and Lord Justice Tuckey agreed.

1. Disposition. The cross-appeal was allowed. Paragraph 1 of the order made by Mr Justice Mann on 31 July 2006 was set aside. It was unnecessary to determine Holdings’ appeal on quantum because liability had not been established.
2. Burden of proof. Holdings bore the burden throughout of proving, on the balance of probabilities, that NGJ understood that Holdings was entitled to subscribe for A Ordinary Shares beyond £60 million without further consent and negligently failed to draft the agreement accordingly. The judge’s reference to NGJ having to establish the asserted explanation for the deletion wrongly reversed that burden.
3. Construction of the drafts. Clause 9.5, read with clause 10.1.1, did not itself avoid the need for consent under article 6(1)(a) to the issue of further A Ordinary Shares. Clause 10.1.2 in the fourth draft provided the deemed consent needed for finance beyond the second £30 million. Its deletion removed the right in issue.
4. Assessment of the evidence. The court accepted the primary findings that the earlier consensus gave Holdings that right and that it was possible, though not proved, that the parties later changed it. A careful and competent draftsman who understood that the consensus continued would have had no intelligible reason to delete clause 10.1.2. However, that inference did not relieve Holdings of proving that no change in consensus had occurred and that the deletion was negligent.
5. Improbable explanations. The court applied the approach stated by Lord Brandon in Rhesa Shipping Co S.A. v Edmunds [1985] 1 WLR 948. The court must not balance two theories which are both extremely improbable and select one merely because it appears less improbable. Holdings had not discharged its legal burden.

1. Court of Appeal (Civil Division) On 28 February 2008, allowed NGJ’s cross-appeal, set aside paragraph 1 of the order below and declined to address the quantum appeal.
2. High Court (Chancery Division) Mr Justice Mann’s order of 31 July 2006, reported at [2006] EWHC 2017 (Ch), found NGJ liable but awarded only £6,750. Holdings appealed on quantum and NGJ cross-appealed on liability.