Northampton have pledged to "vigorously defend" themselves against any legal action.
Wallaby cap Shepherd was due to join the Aviva Premiership club on a three-year deal earlier this month after spending seven years with the Western Force in Super Rugby.
However, Northampton pulled the plug on the 28-year-old's move to Franklin's Gardens on medical advice after discovering a problem with his left ankle. He has since joined Sale on a one-year contract.
Mark Fordham, Shepherd's agent, issued a statement saying the player was planning to take action against Saints.
Fordham said he was "appalled at the behaviour of Northampton in respect of the manner in which his client and family were treated".
But Northampton have released their own statement this evening, standing their ground.
The club announced: "Northampton Saints had been prepared to sign Shepherd, who when fit is a talented player, on a generous three-year contract. Once terms had been agreed, the club flew lead physiotherapist Matt Lee to Melbourne to conduct the player's medical.
"During this medical, material information about Shepherd's left ankle came to light, about which the club had not been aware during the contract negotiation process.
"The player's ankle joint was scanned and the results sent to one of the UK's leading ankle specialists.
"Relying on his expert opinion, the club concluded that it was unlikely that Shepherd would be able to contribute fully to the club's squad throughout the three-year term, and decided not to proceed with the contract.
"It should be noted that while Shepherd has subsequently signed for Sale, it has been widely reported that this is for one year and not three, with the Sharks' director of rugby Bryan Redpath commenting: 'We're hoping to get him fully fit'."
Northampton also insisted they kept Shepherd and his representatives fully informed of developments throughout the process.
The statement concluded: "Although the Northampton Saints management feel it necessary to make this statement to refute Mr Fordham's allegations, the club does not anticipate making any further comment until the matter has been concluded.
"The club will vigorously defend any legal proceedings which are served."
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