Johnson v Gore Wood & Company (A Firm)
| Jurisdiction | England & Wales |
| Judge | Lord Justice Ward |
| Judgment Date | 12 November 1998 |
| Judgment citation (vLex) | [1998] EWCA Civ J1112-16 |
| Docket Number | QBENI 98/0662/1 |
| Court | Court of Appeal (Civil Division) |
| Date | 12 November 1998 |
[1998] EWCA Civ J1112-16
Lord Justice Nourse
Lord Justice Ward And
Lord Justice Mantell
QBENI 98/0662/1
IN THE SUPREME COURT OF JUDICATURE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
(Mr Justice Pumfrey)
Royal Courts of Justice
Strand, London WC2
MR A STEINFELD QC and MISS E OVEY (instructed by Messrs Wansbroughs Willey Hargrave, London WC2) appeared on behalf of the Appellant Defendant.
MR R TER HAAR QC and MR S HOWARTH (instructed by Messrs Shoosmiths & Harrison, Fareham, Hants) appeared on behalf of the Respondent Plaintiff.
This is the judgment of the Court.
Mr William Johnson, the respondent, is an aggrieved former client of the appellants, Gore Wood & Co, a firm of solicitors. By writ issued on the 7th April 1993 Mr Johnson claimed damages in the region of £2m. for their allegedly careless conduct of his affairs. This is not the first time Mr Johnson has caused proceedings to be brought against his former solicitors. Two years earlier he had initiated a not dissimilar claim on behalf of a company he controlled, Westway Homes Ltd, and its claim was compromised on 1st December 1992 by payment without admission of liability of the sum of £1.8m. made in the knowledge that Mr Johnson was maintaining he had a personal claim which is the subject of these present proceedings.
This appeal raises three interesting and difficult questions. Listing them in the order in which they were considered in the court below, the issues are:-
1. whether the second "personal" proceedings should be struck out as an abuse of process;
2. whether the facts pleaded are capable of establishing any relevant duty owed by the solicitors to Mr Johnson personally; and,
3. whether any of the heads of damage claimed are irrecoverable company losses or whether they are capable of amounting to personal losses capable in law of being recoverable by Mr Johnson.
On 21st May 1998 Pumfrey J. answered each of those questions in the plaintiff's favour, thereby rejecting the defendants' attempt to strike the action out, and he gave consequential directions for the trial which is fixed for 11th January 1999 with a time estimate of eight weeks. The defendants now appeal against that order.
The background.
At the time when these events began to unfold in 1987, Mr Johnson was an entrepreneur with interests in a number of businesses. By the time he issued his writ he claimed his life was in ruins, his opportunities to acquire prosperity dashed, his reputation in tatters and his income reduced to Social Security benefits. It is on any view of the matter a sorry story. Like so many, Mr Johnson conducted his business affairs through companies which were wholly or substantially owned by him. In the case of Westway Homes Ltd (to which we will refer as "WWH" or, where the context permits, simply as "the company"), he held 998 out of 1000 issued shares, he was its managing director and guarantor of its liabilities and thus it has never been in dispute that this company was his alter ego. In April 1986, long before the appellants were retained, WWH had been given an option by a Mr Moores to purchase land for the construction of sheltered housing accommodation. The purpose of the option was to enable WWH to seek the necessary planning consents for the proposed development, to ensure satisfactory title could be obtained to a part of the site in Mr Moores' possession and to resolve the difficulties relating to access to the site over adjoining land. The option was for the purchase of the land for £175,000. The date for the exercise of the option was extended from July 1987 to January 1988 and finally to the 19th February 1988. The option was to be exercised by payment of a deposit of 10% of the price.
When the plaintiff first consulted Mr Wood of the defendant firm on 7th April 1987, the plaintiff's concerns were more directed towards a video jukebox venture to be conducted here and in Spain through three other companies, Videolencia Ltd, Collector Piece Video Ltd and Adfocus Ltd.
According to the pleadings in the action, which for the purpose of these preliminary issues, state what must be assumed to be the facts which the plaintiff will establish (though obviously much of this is challenged by the defendants), the plaintiff told the solicitors of his involvement in WWH, and its option. It was in fact not until September 1987 that the defendants were formally instructed to replace the solicitors who had then acted for WWH. By then this project was gaining momentum and the defendants became increasingly involved and became aware of how the plaintiff's personal assets were to be deployed in obtaining the necessary finance for a substantial building operation. Mr Wood thus became aware that the plaintiff was guaranteeing debts and borrowings of his company as it moved towards exercising the option. The solicitors were retained to act on the company's behalf in this connection. On 15th February 1988 the defendants wrote, not to Mr Moores direct, but to his solicitors, Messrs McCarrahers, to exercise the option, but they wrote subject to contract. No payment was enclosed with that letter. It was thought not to be an effective exercise of the option. Accordingly on 18th February the defendants wrote to McCarrahers giving them formal notice and enclosing the necessary deposit.
Mr Moores was clearly unhappy, no doubt feeling in those days when property prices were rocketing and every development promised the developer a fortune, that he was being inadequately recompensed for his land. He asserted that the option had not been validly exercised because notice had been given to his solicitors and not to him. The defendants were instructed to advise. On their advice WWH commenced proceedings in the Chancery Division not only against Mr Moores but also against McCarrahers, claiming against the former specific performance and damages for breach of contract and against the latter damages for breach of warranty of authority. The defendants were retained to act and did act as the solicitors for WWH in these proceedings and continued to do so until the end of November 1989. They gave the plaintiff their advice that these Chancery proceedings would be concluded within six months, an estimate now said to be carelessly optimistic. They also advised the plaintiff on a financial strategy for the company and for himself knowing that the plaintiff would have to fund the litigation, maintain the company and in that way so stretch his financial resources and ability to borrow money that he would be unable to invest in the video business which would suffer accordingly. All the eggs were being placed in the WWH basket carried on the back of the defendants' advice that victory in the Chancery proceedings would be certain and would be quick. In the event, there having been no attempt to avail of Order 14, the Chancery proceedings did not come to trial until January 1990 when His Honour Judge Blackett-Ord held that the option had been exercised not by the letter of 18th February 1988 but by the letter of 15th February 1988 and the communication of its contents by McCarrahers to the vendors. He made an order for specific performance of the option agreement, and for damages to be assessed but he dismissed the claim against McCarrahers and ordered WWH to pay their costs. The vendor appealed and so did WWH. The appeal was not decided until February 1991 when the vendor's appeal was dismissed, this court finding that the option had been exercised by the letter of 18th February 1988 in that McCarrahers had implicit actual authority to accept service of the exercise of the option. WWH's appeal against McCarrahers was dismissed with costs.
The delays in the Chancery litigation and the consequent delay in acquiring the land coincided with the collapse of the property market and it was the death knell for WWH's ambitious development plans. Financial disaster was the result. WWH sought redress from the defendants and a writ seeking damages for professional negligence was issued on 8th January 1991. The company's claim was, broadly speaking, for loss of profit of £755,000, reimbursement of additional costs occasioned by the delay amounting to £795,000, lost interest on profit in the sum of £375,000, reimbursement of Mr Johnson's director's salary of £141,000, bank interest and charges of £130,000 and "other interest and charges" of £300,000. After a short foray to the Court of Appeal to upset a judgment for damages to be assessed made under Order 14, the action came to trial with a time estimate of ten to twelve days. In fact it took a great deal more of the court's time. It was compromised on 2nd December 1992, six weeks into that hearing, by which time WWH's witnesses had given evidence and the responsible partner of the defendants was under cross-examination.
The material terms of the settlement included these:-
"1. (1) The defendants will pay the plaintiff the sum of £1,480,000 by way of damages and £320,000 in respect of the legal costs with no admission of liability, those sums being paid and accepted in full and final satisfaction of all claims of the plaintiff against the defendants and of the defendants against the plaintiff. …
2. The plaintiff undertakes that any liabilities of the plaintiff personally guaranteed by Mr W. J. H. Johnson will be discharged out of the sums received under paragraph 1…
3. Mr Johnson undertakes that the amount of any claim made by him personally in any action against the defendant in respect of any losses suffered by him by reason of...
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