Johnson v Gore Wood & Company (No 2)

JurisdictionEngland & Wales
JudgeLady Justice Arden,Lady Justice Hale,Lord Justice Potter
Judgment Date27 January 2004
Neutral Citation[2004] EWCA Civ 14,[2003] EWCA Civ 1728
CourtCourt of Appeal (Civil Division)
Docket NumberCase No: A2/2002/1643 QBENF A2/2002/2017 QBENF,Case No: A2/2002/1643 QBENFA2/2002/2017 QBENF
Date27 January 2004
Between:
William John Henry Johnson
Appellant
and
Gore Wood & Co
Respondents

[2003] EWCA Civ 1728

Before:

Lord Justice Potter

Lady Justice Hale and

Lady Justice Arden

Case No: A2/2002/1643 QBENF A2/2002/2017 QBENF

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF

Mr Justice Hart (sitting as an additional judge of the Queen's Bench Division)

JUSTICE, QUEEN'S BENCH DIVISION

Mr Roger Ter Haar QC and Mr Simon Howarth (instructed by Shoosmiths) for the Appellant

Mr Alan Steinfeld QC and Ms Elizabeth Ovey (instructed by Beachcroft Wansbroughs) for the Respondent

Lady Justice Arden

Introduction

1

This litigation is already familiar to many lawyers. An interim application to strike out the proceedings as an abuse of the process of the court failed in the House of Lords in a case which enunciated new principles on that subject and reflective loss, that is loss which a shareholder of a company may not claim because it represents loss which the company alone is entitled to recover: see Johnson v Gore Wood & Co [2002] 2 AC 1, to which I will refer as Johnson v Gore Wood (No.1). The case arises out of what is now accepted to have been professional negligence principally in the exercise of an option to acquire a development and in advice given to the appellant, Mr Johnson, by his solicitors, Gore Wood & Co ("Gore Wood") about the timing and prospects of litigation against a Mr Moores. Following that advice, Mr Johnson incurred liabilities and suffered other losses. Mr Johnson says that he was forced to incur yet further liabilities as time went on, heaping Pelion on Ossa. His net worth declined by about 80%. His total damages claim was over £4.3m. Following a five week trial, Hart J handed down judgment on 3 May 2002. The order of the court following this judgment, which was not pronounced until 17 July 2002, awarded Mr Johnson damages of only £88,791.16p, with interest of £81,182.32, making a total of £169,973.48. Mr Johnson now appeals, and Gore Wood cross-appeal. The individual issues on this appeal are listed at paragraph 89 below.

2

The major dispute on this appeal turns on whether the judge was in error in limiting Gore Wood's responsibility to some only of the consequences that ensued. The law in this area has recently been developed in cases such as South Australian Asset Management Corporation v York Montague [1997] 1 AC 197, referred to below as SAAMCO. In short, the key question on this appeal is the scope of Gore Wood's duty on the facts of this case in the sense of Gore Wood's responsibility for Mr Johnson's loss. To find the correct measure of Gore Wood's responsibility, the court must ask whether the loss claimed is the kind of loss in respect of which the duty was owed. That test may be easier to state than it is to apply, and where, as here, there was no agreement on this point, it involves an assessment of the primary facts. The facts of this case are complex as the events in issue occurred over several years and concern Mr Johnson's financial affairs in several disparate respects. I return to the applicable legal principles below.

3

Mr Johnson brought this action to seek compensation for losses which he alleged he had suffered as a result of negligent advice given by Gore Wood in connection with an option granted to a property development company, Westway Homes Ltd ("WWH"), of which Mr Johnson was the managing director and 99% shareholder. The option was over a development site and the option price was £175,000. WWH instructed Gore Wood to exercise the option on its behalf. The grantor of the option, a Mr Moores, challenged the exercise of the option on the grounds that the option notice had been served by Gore Wood on his solicitors, McCarrahers, and not himself. Gore Wood advised that WWH was in a "no-lose" situation, because WWH would be entitled to recover any losses from Mr Moores or McCarrahers or Gore Wood. Gore Wood also advised that the proceedings ("the Chancery action"), which were commenced in about March 1988, would be completed within six months or so. In other words, there would be an early resolution of the Chancery action. I refer below to these two items of advice collectively as the "6 month no-lose" advice. In fact the proceedings took about three years. WWH was successful against Mr Moores at trial and on appeal, but by that time the property had fallen in value. Thereafter WWH brought proceedings ("the Company action") against Gore Wood. These proceedings were compromised at trial on payment by Gore Wood of approximately £1.5m. and costs.

4

By this further action, Mr Johnson contends that, in addition to the losses sustained by WWH, he suffered personal and separately recoverable losses arising out of Gore Wood's negligent advice. Those losses may be summarised as follows:-

i) loss of investment in two ventures, Collector-Piece Videos ("CPV") and AdFocus Limited ("AdFocus");

ii) the cost of personal borrowings incurred by Mr Johnson, for the purpose of funding business ventures and meeting private expenditure;

iii) a personal overdraft due to National Westminster Bank plc ("NatWest");

iv) the diminution in value of a self-administered pension scheme of which Mr Johnson was a member and into which WWH would have made contributions; and

v) certain additional tax liabilities.

5

A major issue which the judge had to determine but which is not an issue on this appeal was whether Gore Wood owed a duty of care to Mr Johnson as well as to WWH. The judge rejected the argument that Mr Johnson had a general retainer with Gore Wood in respect of his business affairs. However, he held that Gore Wood owed such a duty of care in respect of the manner of the exercise of the option, the "6 month no lose" advice and the conduct of the Chancery action. The judge concluded that Gore Wood had been negligent in each of these respects. Breach of duty is not an issue on this appeal. However, I should make it clear as regards the "6 month no lose advice" that Gore Wood's advice that Mr Johnson would succeed against someone is not accepted to be negligent. What Mr Johnson was negligently led to believe was that he would make a full financial recovery either by obtaining an order for specific performance and an award of appropriate damages for delay against Mr Moores, or by an award of damages against McCarrahers for breach of warranty of authority, or by obtaining compensation from Gore Wood's insurers for defective exercise of the option. Moreover, he was given over-optimistic and negligent advice as to when all these claims would be resolved.

6

Having considered the question of law as to the scope of the duty owed by Gore Wood, causation, remoteness and mitigation, the judge ordered Gore Wood to pay to Mr Johnson sums (before interest) totalling £88,791.16, including:

i) £23,618 in respect of his lost investment in CPV;

ii) £36,820.53 for the costs arising between the date of inception and 31 December 1992 of personal borrowings incurred before July 1989;

iii) £9,621.63 in respect of bank interest and charges incurred on the NatWest overdraft between 1 December 1989 and 31 December 1992;

iv) £15,341 in respect of additional tax liabilities.

7

The judge also directed an enquiry as to the damages (if any) to which Mr Johnson was entitled in respect of his claim for loss of pension benefits.

8

Not all of the heads of damage in issue before the judge are in issue on this appeal and, in the brief outline which I have given above, I have not referred to various heads of damage which the judge rejected. I must now turn to examine in greater detail the facts surrounding the allegations in this action and the judge's findings.

The background

9

Mr Johnson first instructed Gore Wood in 1987. The option agreement which gave rise to these proceedings was executed on 20 October 1986. The development site to which it related ("the Sunnyfields site") was in part registered title and in part possessory title. In order to realise the development value, Mr Johnson had to acquire a "ransom strip" owned by Wimpey. He also had to obtain planning permission for the site. He obtained both the ransom strip and planning permission and instructed Gore Wood to serve a notice exercising the option. Gore Wood did this by two letters dated 15 February 1988 and 18 February 1988 respectively. There is some doubt whether the first document can properly be described as a document exercising the option but that does not matter for present purposes. As I have stated, these letters were sent to McCarrahers, Mr Moores' solicitors and not to Mr Moores personally. The value of the Sunnyfields site was some £600,000 as against an option price of only £175,000.

10

In the course of 1987, Mr Johnson had had discussions with Mr Robert Wood, a partner in Gore Wood, about his interests in video technology. Gore Wood were instructed to draft certain agreements in relation to a project which Mr Johnson had to sell video units in Spain. In the course of this Gore Wood were involved in a loan of £35,000 in February 1988 by a Mr Ridout to WWH. The interest rate was 24% per annum. Gore Wood also knew that Mr Johnson executed a guarantee to secure WWH's overdraft with NatWest, which was secured on WWH's property at Burlesdon, Hampshire. In January 1988, Mr Johnson personally borrowed £1,000 from a Mr Windust.

11

As soon as the option notice was served, McCarrahers rejected service. Gore Wood instructed counsel who advised that options were construed strictly and ordinarily required personal service, but that it was possible that, if McCarrahers had authority to receive the notice...

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