Johnson v Gore Wood & Company (A Firm)
 UKHL J1214-3
HOUSE OF LORDS
Lord Bingham of Cornhill
Lord Goff of Chieveley
Lord Cooke of Thorndon
Lord Hutton Lord Millett
OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT
IN THE CAUSE
There are two parties before the House. The first is Mr. Johnson, the plaintiff in the action, who appeals against a decision of the Court of Appeal dismissing the action as an abuse of the process of the court. The other is Gore Wood & Co., a firm of solicitors, who cross-appeal against a decision of the Court of Appeal, on a preliminary issue of law, that certain heads of damage pleaded by Mr. Johnson should not be struck out as irrecoverable. Both appeal and cross-appeal raise questions of legal principle which your Lordships£ House has not, in recent years, had occasion to consider.
Mr. Johnson is a business man who conducted his business affairs through a number of companies. One of his businesses was property development, which he carried on through a company, Westway Homes Limited (WWH), of which he was managing director and holder of all but two of the issued shares. For all practical purposes WWH was the corporate embodiment of Mr. Johnson.
Acting on behalf of WWH, Mr. Johnson instructed Gore Wood & Co. (GW), through a partner in the firm named Robert Wood, to act as solicitors for WWH in connection with a proposed purchase of land at Burlesdon in Hampshire from a Mr. Moores. WWH planned to develop the land, but the project was one of some complexity, since the title of Mr. Moores was to some extent doubtful and access to the land was dependent on acquisition of a strip of land owned by a third party. WWH had an option to purchase Mr. Moores£ land, and WWH instructed GW to serve a notice exercising this option.
Mr. Johnson contends that from early April 1987, even before GW was formally instructed to act as solicitor for WWH, Mr. Johnson engaged the firm, usually acting through Mr. Wood, to advise him personally and act on behalf of certain of his companies in addition to WWH, as a result of which GW and in particular Mr. Wood gained a detailed knowledge of his financial affairs and those of the companies concerned. He further contends that GW through Mr. Wood knew and intended that advice given to him in connection with any business matter would or might be acted upon by him in relation to the conduct of his business affairs generally, including his personal financial affairs. Since the present proceedings have not progressed beyond determination of the preliminary issues giving rise to this appeal and cross-appeal there has been no detailed investigation of the facts, some of which are in dispute between the parties. But GW accepts that from time to time the firm acted on behalf of Mr. Johnson personally and some of his companies other than WWH.
In February 1988 GW served notice exercising WWH's option on Mr. Moores£ solicitors. Mr. Moores and the solicitors acting for him asserted that the notice had not been validly served since it had not been served upon Mr. Moores personally. Having obtained the advice of counsel WWH instructed GW to issue proceedings against Mr. Moores for specific performance of the contract created by the exercise of the option. This was done in March 1988. An alternative claim was made against Mr. Moores£ solicitors alleging breach of warranty of authority. GW continued to act for WWH in those proceedings until the end of November 1989. The proceedings came on for trial in the Chancery Division in January 1990, when an order for specific performance was made against Mr. Moores and an inquiry into damages ordered. The alternative claim against Mr. Moores£ solicitors was dismissed. Mr. Moores had been legally aided from an early stage of the litigation and now, because of his mental condition, was acting through a guardian ad litem. He appealed against the judge's decision, but his appeal was dismissed by the Court of Appeal on 20 February 1991, although on different grounds.
For reasons outside the control of Mr. Johnson or WWH there was further delay before the land was conveyed to WWH. It was April 1992, more than four years after the exercise of the option, before the conveyance was completed. By this time WWH had suffered substantial loss because of the cost of the Chancery proceedings, the inability of WWH to recover damages and costs from Mr. Moores, who had no assets save for the balance of the purchase price of the Burlesdon land, the collapse of the property market and the high interest charges borne by WWH. On 8 January 1991 WWH started proceedings for professional negligence against GW. In those proceedings GW admitted that it owed WWH a duty to exercise reasonable care in connection with the exercise of the option, but denied that that duty had been broken or that the damages claimed were recoverable. WWH applied for summary judgment. This application succeeded at first instance but failed on appeal. WWH was now in serious financial difficulty.
WWH's action against GW came to trial before a deputy judge on 26 October 1992. The hearing was estimated to last 10-12 days. This estimate was greatly exceeded. In the sixth week of trial, the company's evidence on liability had been completed and Mr. Wood was in the course of giving evidence for GW when the action was compromised upon payment by GW to WWH of £1,480,000, which represented a very substantial proportion of the sum claimed by WWH, and costs in the agreed sum of £320,000.
Mr. Johnson claims that because he had retained GW to advise and act for him personally as well as for WWH, the firm owed him as well as WWH a duty of care in contract and tort in relation to the exercise of the option, the advice which Mr. Johnson contends was given to him personally as well as to WWH concerning the prospects of success in and the likely duration of the Chancery proceedings and the conduct of the Chancery proceedings. He claims that GW breached that duty and so caused him substantial loss. Whether GW owed Mr. Johnson personally such a duty and whether (if so) it breached that duty will be live issues in this action if it proceeds. But for purposes of the issues now before the House, GW accepts that the facts pleaded by Mr. Johnson are capable of supporting his case on these issues if established at trial.
Mr. Johnson did not initiate proceedings to enforce any personal claims against GW at the time when WWH began its action against the firm. In an affidavit sworn on 6 March 1998 he deposed to his reasons for not doing so at that stage. His reasons were:
1) that he was in no position to bring a personal claim against GW until he was granted full legal aid in October 1992, his previous certificate having been limited;
2) that advancing his personal claims would have substantially delayed the progress and ultimate resolution of WWH's action against GW, which would have led to WWH going into liquidation before the trial of its action;
3) that the financial resources of both Mr. Johnson and WWH had been exhausted by this litigation, said to have been caused by GW's negligence;
4) that joining the personal claim to WWH's claims would have led to an adjournment of the October 1992 trial date fixed for WWH's action;
5) that the more complicated nature of Mr. Johnson's personal claims would have had an adverse effect on the costly and time-consuming work required to prepare WWH's case for trial; and
6) that the time which Mr. Johnson could devote to the conduct of litigation was restricted by his need, from June 1991, to find new employment.
GW does not deny that these were the reasons which led Mr. Johnson not to proceed personally at that time, but does not accept that they provided valid or reasonable grounds for not doing so.
On 17 January 1991, well before WWH's action came to trial, solicitors representing that company notified the solicitors for GW that Mr. Johnson had a personal claim against the firm which he would pursue in due course. No details of the claim were given. On 6 December 1991 solicitors representing Mr. Johnson informed GW that he had received a Legal Aid certificate to take proceedings against the firm for damages for negligence. The letter, couched in general terms, contended that GW had owed a duty to Mr. Johnson personally as well as to WWH. While making no admission, GW's insurers in January 1992 invited Mr. Johnson's solicitors to give full details of the quantum of his personal claim. Mr. Johnson's solicitors replied in February 1992, outlining certain heads of claim and giving estimates in round figures of claims approaching £2 million. In October 1992, on the eve of trial of WWH's action against GW, Mr. Johnson's solicitors wrote to GW's solicitors, referring to his Legal Aid certificate and giving notice that his personal claim would be pursued whether the company's claim culminated in judgment or settlement. Since a substantial payment into court had been made on behalf of GW, Mr. Johnson and WWH expected a favourable outcome of the company's action. On 19 November 1992, when trial of the company's action against GW was well advanced, Mr. Pugh (a solicitor representing Mr. Johnson) spoke to Mrs. MacLennan (the solicitor representing GW) on the telephone and discussed Mr. Johnson's personal claim: Mr. Pugh said that it had been thought better to wait until the company's claim had been concluded before dealing with the personal claim; Mrs. MacLennan asked whether Mr. Pugh would object to an overall settlement of the company's claim and Mr. Johnson's personal claim; he said that he would have to take instructions but could not himself see any objections "provided the figures were all right." He gave her a rough idea of the heads of claim and the figures. Mr. Johnson...
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