Slaughters under fire in RAC case

Slaughter and May is embroiled in a case before the Court of Appeal today (20 November) that could have far-reaching implications for company law.

The case concerns the Royal Automobile Club’s (RAC) £437m sale of its motoring services division in 1999 to Lex Services.

The case has been brought by former RAC members against the RAC and Lex. They are claiming that had they known about the sale, they would not have left the club and therefore would have been eligible for windfall payments.

Slaughter and May, acting for Lex, is also coming under fire for its involvement in the sell-off.

The former members allege that Slaughter and May was instructed by the RAC as early as 1996 to look at the possibility of selling the motoring division. They claim the directors should not have appointed the firm without their prior permission. They also claim that they were never told about the firm’s instruction.

The claimants skeleton arguments add: “Well before July 1998 (and certainly as early as 1996) the board/the committee expended the Company’s/the Club’s assets on legal and other fees incurred in furtherance of an ultra vires object.”

Slaughter and May denies that there is any conflict for it in acting on the case as well as being cited in the pleadings. It also claims that it was not instructed on the sale until 1998. It is understood that the only work it did in 1996 was to look at the structure of the club and to consider changing it to a more contemporary model.

Martin Hattrell, the partner who led the 1998 sell-off, is overseeing the litigation for Slaughter and May. He says: “There is an allegation that we were instructed to look at a sell-off in 1996. But it happens to be completely untrue.”

The case hinges on a 1902 precedent that directors have a duty to the company and not to the shareholders, who need only be informed when a deal is done.

Class Law partner Stephen Alexander is leading the claimant case. The original case was held in December 1999 but was dismissed by Mr Justice Neuberger because of the 1902 precedent.