Youlton v Charles Russell (a firm)

Solicitors advising on a transaction must exercise reasonable care and skill both in settling its terms and in ensuring that the transaction becomes binding. They need not guarantee that an agreement will never be challenged, but they must address an identifiable and real risk that authority, conflicts of interest, statutory formalities or defective drafting will undermine enforceability.

Where negligence causes a claimant to lose the opportunity to enforce valid contractual rights, damages may be assessed on a lost-chance basis. The court must compare the claimant’s actual position with the position that would probably have resulted had the agreements been valid and enforceable. Commercial difficulties affecting the counterparty may reduce the value of the lost opportunity, but do not automatically justify treating legally enforceable rights as worthless.

The claimant brought two related negligence claims against his former solicitors concerning advice and drafting connected with a pension scheme’s property interests. The claims concerned an apportionment agreement relating to refurbishment costs and a 2002 side letter providing for a lease variation, rent-review changes and a reversionary lease.

The underlying agreements were challenged by the company on grounds including lack of authority, undisclosed conflicts of interest, failure to comply with company-law requirements and uncertainty under the Law of Property (Miscellaneous Provisions) Act 1989. The claimant alleged that the solicitors’ failures caused the trustees to settle the underlying litigation on substantially less favourable terms. The court determined duty, limitation, breach, causation and loss.

1. Duty of care. The defendants owed duties of care both to the claimant personally and to the trustees. The retainer, instructions, payments and the claimant’s personal interest in the pension scheme established that the defendants were advising on the scheme-related agreements as well as on the claimant’s personal severance arrangements.
2. Limitation. The claims were not time-barred under section 14A of the Limitation Act 1980 where the relevant risk was first raised by the company’s correspondence in October 2006. The trustees’ claim based on the defective drafting of the 2002 side letter was, however, time-barred because the necessary knowledge had arisen by the date of counsel’s opinion in December 2005. The court permitted amendment of the First Action to plead the assigned trustees’ claim under section 35 of the Act and CPR 17.4 and 19.5.
3. Breach. The defendants should have ensured that the apportionment agreement was approved by the company’s board and obtained a copy of the resolution. They should also have ensured formal declarations and disclosures of interest under section 317 of the Companies Act 1985 and article 85 of Table A. The 2002 side letter was defectively drafted and should have been executed by a person with actual authority, or supported by a board resolution. These failures exposed the trustees to real, triable defences.
4. Causation and loss. Had the agreements been valid, the trustees would probably have enforced them or negotiated from a position of strength. The company’s financial difficulties were relevant but were not an overwhelming reason for accepting the settlement actually reached. Loss was assessed by reference to lost chances, including a 40% chance of achieving a rent review reflecting the West Wing and a 70% chance of recovering the value of the apportionment claim over time.
5. Disposition. The claimant was permitted to amend the First Action. Damages were to be assessed on the lost-chance basis identified in the judgment, with further submissions on calculation and costs.