Cutlers Holdings Limited & Anor. v Shepherd and Wedderburn LLP

A solicitor must exercise the skill and care of a reasonably competent practitioner, including giving advice reasonably incidental to the retainer. Where contractual wording creates a significant risk that the client’s objectives may be frustrated, the solicitor should identify the risk, advise the client and, where reasonably feasible, propose corrective drafting. A solicitor who knows or ought to know of a significant risk of earlier negligence is in an own-interest conflict and must advise the client to obtain independent legal advice. Negligent failure to do so does not itself establish breach of fiduciary duty, which requires conscious or deliberate disloyalty. Causation depends on what the client would probably have done and, where relevant, the real and substantial chance of a different outcome.

The claimants brought proceedings against their former solicitors and two partners. They alleged negligent drafting of an investment and shareholders’ agreement and a stadium option, negligent advice concerning the exercise of a call option, and failure to advise about an own-interest conflict during subsequent litigation. The claims followed an earlier dispute concerning ownership of Sheffield United Football Club and the exercise of property options. The claimants also sought damages for alleged losses suffered by the parent company and pursued claims against individual partners.

The central issues were whether the solicitors had breached duties of skill and care or fiduciary duty, whether any breach caused loss, whether the parent company could recover, and whether the partners had assumed personal responsibility.

The claims failed. The court found several breaches of the solicitors’ duties, but no causative loss. The fiduciary-duty and partner claims also failed.

1. ISA drafting. The solicitors were negligent in failing to identify a lacuna in clause 9.1.12 arising from the interaction between the 75% threshold and permitted transfers under the Articles of Association. They should have warned of the significant risk that the property-reunification objective could be frustrated and proposed drafting to address it. The alleged risk arising from a direction to transfer shares to third parties under clause 11.9 was too spurious to require advice, and the obligation for SUFC to exercise the property options was already express.
2. Causation. Even with better drafting or advice, the Prince would probably have served a counternotice using the third-party direction device, and SUL would probably have proceeded in the same way. No loss was established.
3. Stadium Option. The solicitor was negligent in agreeing a permitted-use assumption without obtaining instructions, particularly because its valuation effect was outside her expertise. The breach caused no loss because SUL would probably have accepted the amendment.
4. Conflict. Once the clause’s effectiveness was materially challenged, there was a significant risk that the solicitors’ earlier drafting and advice had been negligent. They should have informed SUL of an own-interest conflict and advised it to obtain independent legal advice. They failed to do so. The omission was negligent but did not amount to fiduciary disloyalty because conscious or deliberate breach was not proved.
5. Other claims. The parent company’s claim did not arise and would in any event have been barred by reflective loss. The individual partners had not assumed personal responsibility. All claims were dismissed.