Law firm’s negligent advice to football club owner caused no loss

Bramall Lane: Firm was negligent in stadium option advice

A law firm advising on a dispute over the sale of Sheffield United FC was negligent, including in failing to advise that it had an own-client conflict, the High Court has ruled.

However, Mrs Justice Bacon held that the multiple errors by Anglo-Scottish firm Shepherd & Wedderburn (S&W) did not cause the claimants any loss because the course of the transaction and subsequent litigation would have been the same.

The firm acted for the club’s then owner, Kevin McCabe, on an initial investment and shareholders’ agreement (ISA) with HRH Prince Abdullah Bin Mosaad Bin Abdulaziz Al Saud in 2013.

It also drafted an option agreement relating to the club’s Bramall Lane stadium, which was one of several property option agreements which accompanied the ISA.

In 2017, the firm advised on the exercise of a call option under the ISA in respect of Prince Abdullah’s shareholding, which ultimately resulted in a ruling by Mr Justice Fancourt in 2019 that Sheffield United Ltd (SUL) – the corporate vehicle through which Mr McCabe owned the club – had to specifically perform its obligation to transfer its 50% stake in the club to Prince Abdullah’s company, UTB.

That was followed in 2020 by an arbitration which determined the price to be paid by UTB for the property assets, including the stadium.

Mr McCabe told the court that the day he received Fancourt J’s draft judgment was the worst day of his life, and that he had never in his business career had something go so badly wrong as losing ownership of the club to Prince Abdullah.

The ISA provided for various call options on each other’s shares and clause 9.1.12 aimed to ensure that ownership of the club and the properties would be reunited in the event UTB bought out SUL.

However, at the time the option was exercised by SUL in 2017 – under which the prince could either sell his shares or buy SUL’s – he was not able to raise the funds needed to purchase the properties.

His lawyers, Jones Day, came up with two ‘devices’ to allow him to buy the shares but not the properties, although ultimately both failed when scrutinised by Fancourt J.

Bacon J held that S&W was negligent in drafting the ISA by failing to identify the possibility of ‘Device 1’ and ensuring it could not be used, but not in failing to advise on the possible use of Device 2.

The negligence did not cause SUL any loss, she continued. Even though it was “very likely” that the prince would have agreed to amend the clause had he been asked in 2013, he would still have used, and indeed did use, Device 2. The litigation would have ensued anyway.

It followed that the firm was also negligent by failing to advise SUL in 2017 as to the risk that UTB might seek to use Device 1 to avoid exercising the property options.

But even if the firm had properly advised on this point, “SUL would most likely have made exactly the same decision”, Bacon J said.

The judge found S&W negligent too in agreeing to a last-minute change to the stadium option without taking instructions. The claimants argued that this change, dealing with valuation, depressed the purchase price for the stadium in the arbitration.

Bacon J recorded that, when the amended agreement was sent to the client, it was a clean copy that did not refer specifically to the change, saying only that the other side had made “small amends” which were “not material”.

The partner who had agreed the addition was an experienced property lawyer but she was not a property valuation expert, and working out the effect on the valuation of the stadium was “beyond the scope of her expertise”.

However, the judge said that, even if S&W had sought SUL’s instructions, it would “most likely” have accepted the amendment.

Once it became clear at the end of January 2018 that UTB considered that it could avoid exercising the property options pursuant to clause 9.1.12, S&W either knew or should have known there was “at least a significant risk” that its drafting of and advice given on the had been negligent.

The firm was therefore “clearly negligent” in failing to advise SUL that there was an own-interest conflict and that it should seek independent legal advice on the point, Bacon J said.

But it did not breach the firm’s fiduciary duties because this was not a deliberate decision by the then relationship partner and now managing partner Andrew Blain and litigation partner Philip Sewell.

The judge said: “Although it may seem extraordinary that their consideration of their duties was as superficial as it appears to have been, the way they sought to answer the questions put to them in cross-examination makes it entirely plausible, in my judgment, that despite knowing the risk that their drafting would turn out to have been defective, they simply convinced themselves that there was not a conflict.”

However, she concluded that the claimants had not shown the outcome of the litigation would have been any different if SUL had been advised by different solicitors. “S&W’s negligence therefore did not cause SUL any loss.”

In a statement, an S&W spokesman said: “We welcome the court’s decision that all of the claims against us failed. From the outset, our position was that these claims would not, and should not, succeed.

“While there are aspects of the judgement with which we disagree, we are pleased that the claims have been defeated.”

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