International firm Charles Russell Speechlys has been ordered to pay nearly £1.5m in damages after it lost a High Court negligence claim over advice to the founders of a communications company.
Paul Richards, 48, and Keith Purves, 57, sued their former solicitors over the 2014 sale of their stakes in IP Solutions as part of an investment deal with a private equity house – a deal the High Court last month heard ‘went quickly wrong’.
The pair each retained a 30% stake in a newly-incorporated company called IP Solutions Group, which acquired their company’s shares, but they were sacked for alleged breaches of duty just months after the sale and required to transfer their shareholdings for £1 as ‘bad leavers’.
Richards and Purves were found by the High Court in 2016 to have been wrongfully dismissed after they sued IP Solutions Group. However the judge in the case ruled that they were entitled only to a nominal sum for their shares due to a redemption premium provision (RPP) agreed as part of the sale.
They brought a negligence claim against Charles Russell Speechlys – which was instructed as Speechly Bircham, shortly before it merged with Charles Russell in 2014 – for failing to advise that the RPP would apply even if they were wrongfully dismissed.
Judge Jonathan Russen QC today ruled that the ‘significant risk’ that the RPP would impact on the value of Richards and Purves’ shares ‘went unspotted’ by the firm and awarded the claimants a combined total of £1.454m in damages.
The judge accepted that the risk ‘materialised through the alignment of a number of factors, none of which would have been regarded as likely’, but he held the firm ‘was in breach of duty in failing to identify that risk and to take steps with a view to eliminating it’.
‘The firm fell short of the standard of care required of a reasonably competent solicitor practising in the field of private equity transactions,’ the judge ruled.
‘It is one thing to say that it cannot reasonably have been expected to predict a future misalignment of the stars. It would be quite another to conclude that it would be imposing an unduly onerous and unwarranted duty of care upon a firm to say that it should have undertaken a cross-check upon the meaning and effect of a provision on which it had drafting input.’