An entrepreneur who claims that he missed out on a £4 million business opportunity due to a law firm’s negligence in drafting a company sale agreement has had fresh life breathed into his compensation claim by the Court of Appeal.
The man was the sole shareholder of a company (company A) that had developed an innovative range of products. His intention had been to sell the company but to retain control of intellectual property rights in those products, which would be transferred to company B, that he had established for that purpose.
After the sale, he had entered into negotiations with a multinational company with a view to licensing the latter to exploit the rights. However, the purchaser of the company subsequently argued that, on a true reading of the sale agreement, it owned the rights that had not been validly transferred to company B.
It was the man’s case that the emergence of that disagreement was rooted in the negligent drafting of the sale agreement. He argued that it had prompted the multinational to withdraw from negotiations and that he had consequently suffered a loss of opportunity that cost him in excess of £4 million.
However, his negligence claim against the firm that drafted the agreement was summarily dismissed by a judge on the basis that the purchaser's argument had been palpably bad and that the lost opportunity could not, as a matter of law, have been caused by any breach of duty on the firm’s part.
In upholding the man’s challenge to that ruling, the Court found that the judge had given inadequate reasons to support his conclusion. Although the firm had a strong case, it could not be said that the man’s claim stood no real prospect of success. The factual and legal issues raised by the case were also sufficiently complex to require a full trial of the action.