Youlton v Charles Russell

The court found that Charles Russell (the solicitors) owed and breached duties of care to Professor Youlton and to the trustees of the Snell & Wilcox Pension Plan in relation to two documents: the Apportionment Agreement (24 August 2001) and the 2002 side letter (8 May 2002) concerning the Lease. The breaches included failures to ensure that proper company formalities (including board approval and statutory director disclosures under section 317 Companies Act) were obtained and to draft/advise so as to remove arguable uncertainties that became the basis of S&W's defences. The judge held that those defences (the "Want of Authority Defence" and, in relation to the 2002 side letter, the "Unenforceability Defence") were real, arguable and caused the trustees to settle on materially less favourable commercial terms at mediation than they would otherwise likely have obtained.

Key legal principles:

• Solicitors owe a duty to exercise reasonable care and skill in drafting and securing formalities for agreements affecting corporate clients and trustees.
• Where agents act for companies, issues of actual authority, ostensible authority and the rule in Turquand (and company disclosure rules under section 317/Article 85) are material to whether a company is bound.
• Limitation: section 14A Limitation Act 1980 requires sufficient knowledge to start limitation running; the court applied the Haward v Fawcetts principles on when knowledge is sufficient to trigger the three-year discovery period.
• Permission was given to amend the claim to pursue the trustees' assigned claims where that arose out of substantially the same facts.

Result: the defendant solicitors were found to have been negligent in the respects identified; the claimant was permitted to amend to assert assigned trustees' claims; damages were assessed on the basis of loss of a real chance to obtain a better outcome (quantum to be applied to the factual findings in the judgment).

The claimant, Professor David Youlton, brought related negligence actions alleging that Charles Russell (CR) negligently prepared or failed to secure formalities for (i) the Apportionment Agreement (24 August 2001) which appointed surveyors to apportion costs of works at Southleigh Park and (ii) the 2002 side letter (8 May 2002) providing for a lease variation and extension. The trustees of the Snell & Wilcox Pension Plan were the intended beneficiaries of the documents; Professor Youlton was both a trustee and a member.

Factual background:

• S&W used the Property under a lease from the trustees and substantial improvement works were carried out between 1995 and 2001, largely paid for by the trustees.
• CR advised Professor Youlton in 2001–2002 in connection with his severance and the documentation which resulted in the Apportionment Agreement and the 2002 side letter; CR acted for Professor Youlton and, later, for the trustees in related matters.
• S&W later contended that the 2002 side letter (and aspects of the Apportionment Agreement) were unenforceable or that those signing lacked authority, relying on statutory company disclosure/authority points and on alleged uncertainty.
• The trustees sued S&W; those disputes were mediated on 12–13 September 2007 and settled for substantially less than the trustees had originally claimed.

Procedural posture: first-instance trial in the Chancery Division. Professor Youlton pursued personal claims and, after an initial pleading issue, obtained an assignment of the trustees' claims and brought a second action; limitation and the permitted amendment/joinder of trustee claims were key issues.

Issues decided by the court:

1. Scope of CR's retainer and to whom duties were owed: the court held CR owed duties of care to Professor Youlton personally and to the trustees in relation to the Apportionment Agreement and the 2002 side letter given the facts and the way CR acted.
2. Limitation: applying the test in Haward v Fawcetts, the judge held that the trustees/claimant gained sufficient knowledge to start limitation running only when S&W first articulated the Want of Authority Defence (19 October 2006) in respect of the Apportionment Agreement; accordingly many of the claims were within time, but parts relying on the Unenforceability Defence in the later (second) action were time-barred. The court allowed amendment under section 35 Limitation Act 1980/CPR to permit pleading of the trustees' assigned claims.
3. Breach of duty: CR failed to ensure that board approval and director disclosures had been obtained or checked; they failed to advise adequately on company-law risks and to take steps (or to advise the trustees to take steps) that would have eliminated the real possibility of the authority/conflict/uncertainty defences that S&W later raised. The 2002 side letter was also found to have been defectively drafted so as to expose the trustees to a real argument of uncertainty.
4. Causation and loss: the court analysed whether the trustees would in any event have settled on the same terms because of S&W's financial position. The judge found S&W had real but not terminal financial difficulties; importantly, the trustees' advice on legal merits (including counsel's views) and the extended uncertainty caused by the challenged documents materially influenced the trustees' decision to settle. The court assessed loss on the basis of lost chances (eg the chance of obtaining a rent review that would treat the West Wing as rented and the chance of recovering more under the apportionment award) and refused the trustees' separate claim for an alleged lost property-sale opportunity.

Reasoning (concise): CR should have appreciated and guarded against the risk that documents signed by a chief executive or by a director who was also a trustee/shareholder could be challenged for lack of authority or for undeclared conflicting interests; they also should have ensured board resolutions or recorded disclosures where appropriate. Those failures made realistic defences available to S&W and materially increased litigation risk and costs. That risk, together with evidence adduced at mediation and the trustees' own commercial concerns, caused the trustees to accept a less advantageous settlement. The judge therefore found causation for at least some loss and quantified damages by reference to lost chances and what the trustees would likely have obtained absent the professional negligence.

First-instance trial: judgment for the claimant in part. The court held that Charles Russell owed duties to Professor Youlton and the trustees and breached those duties in relation to the Apportionment Agreement and the 2002 side letter (defective drafting and failures to ensure formalities and director disclosures). The court allowed amendment to plead assigned trustees' claims, found relevant limitation start dates under s.14A Limitation Act 1980, and assessed loss on the basis of lost chances caused by the availability of company-law and uncertainty defences which would not have existed but for CR's failures. The judge awarded damages on the basis explained in the judgment, subject to detailed computation and interest adjustments.