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|Judgments - Johnson (A.P.) (Original Appellant and Cross-Respondent) v. Gore Wood & Co. (A Firm) (Original Respondents and Cross-Appellants)
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
(ORIGINAL APPELLANT AND CROSS-RESPONDENT)
GORE WOOD & CO. (A FIRM)
(ORIGINAL RESPONDENTS AND CROSS-APPELLANTS)
ON 14 DECEMBER 2000
LORD BINGHAM OF CORNHILL
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; and6)
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 instructed Mr. Pugh that he would not be adverse to an overall settlement provided it was reasonably satisfactory. Mrs. MacLennan indicated that GW (or its insurers) also were not adverse to an overall settlement if the figures could be agreed. On 1 December 1992 Mr. Pugh met Mrs. MacLennan at court to try to negotiate a settlement of his personal claim. His attendance note of this meeting read:
The settlement agreement made between WWH and GW on 2 December 1992 was signed by solicitors for both sides; the solicitors representing WWH also, for this purpose, represented Mr. Johnson.
By the settlement agreement GW agreed to pay the sums already mentioned with no admission of liability, in full and final satisfaction of all claims of WWH against GW and vice versa. The sum of £1 million which GW had paid into court was to be paid out to WWH's solicitors. WWH undertook that any of its liabilities personally guaranteed by Mr. Johnson would be discharged out of the sums received under the settlement agreement, the object plainly being to limit the quantum of any claim which Mr. Johnson might thereafter make personally. Clause 3 of the settlement agreement provided:
A confidentiality clause in the agreement contained an exception "In connection with any action which Mr. Johnson may bring against [GW]."
Mr. Johnson issued his writ in the present proceedings against GW on 7 April 1993. Over the next four-and-a-half years the parties pleaded and re-pleaded their respective cases. A payment into court was made by GW. Witness statements were exchanged. Mr. Johnson served his accountancy evidence. On 20 November 1997 the action was fixed for trial in January 1999. On 3 December 1997 GW's solicitors intimated, for the first time, that it intended to apply to strike out the action as an abuse of the process of the court. Notice was also given that GW would seek the determination of preliminary issues whether it had owed Mr. Johnson a duty of care and whether the damages which he claimed were in principle recoverable on the facts pleaded. On 25 February 1998 it was ordered that preliminary issues be tried, the second of which was:
In paragraph 6 of his re-amended statement of claim Mr. Johnson pleaded an implied term of his personal retainer of GW that it would exercise all due skill and care in execution of that retainer, and a like duty of care in tort. In paragraph 9 it was pleaded:
In paragraph 12 it was pleaded that GW had acted in breach of the terms pleaded in paragraphs 6 and 9 in connection with the exercise of WWH's option to purchase the Burlesdon land, and in paragraph 16 it was pleaded that between February 1988 and November 1989 GW had acted negligently or in breach of the implied terms of its retainer pleaded in paragraphs 6 and 9 in advising Mr. Johnson from time to time as to the likely duration and outcome of the earlier proceedings against Mr. Moores. The claims for damages made by Mr. Johnson in paragraphs 23 and 24 of his re-amended statement of claim are the subject of detailed consideration below.
The preliminary issues came for hearing at first instance before Pumfrey J. who, in a careful judgment delivered on 21 May 1998, resolved them in favour of Mr. Johnson. On the abuse issue he found that GW was estopped by convention from contending that the action was an abuse. Applying Amalgamated Investment & Property Co. Ltd. v. Texas Commerce International Bank Ltd.  Q.B. 84 he concluded:
He resolved the duty issue in favour of Mr. Johnson. He concluded that the heads of damage claimed by Mr. Johnson were not irrecoverable as a matter of law as damages for the breaches alleged by Mr. Johnson.
GW appealed. In a judgment of the court (Nourse, Ward and Mantell L.JJ.) given on 12 November 1998, the Court of Appeal agreed with the judge that on the facts pleaded a duty of care had arguably been owed by GW to Mr. Johnson. The Court of Appeal shared the judge's view on the difficulty of the damage issue but agreed with his conclusion that the pleaded heads of damage were arguably recoverable, save as to one head of damage which it would have struck out.
The Court of Appeal held, differing from the judge, that there had been no estoppel by convention. But it also held that there had been an abuse under the rule in Henderson v. Henderson (1843) 3 Hare 100. It said (at page 40 of the transcript of the judgment):
Abuse of process
The rule of law depends upon the existence and availability of courts and tribunals to which citizens may resort for the determination of differences between them which they cannot otherwise resolve. Litigants are not without scrupulous examination of all the circumstances to be denied the right to bring a genuine subject of litigation before the court (Yat Tung Investment Co. Ltd. v. Dao Heng Bank Ltd.  A.C. 581 at 590 per Lord Kilbrandon, giving the advice of the Judicial Committee; Brisbane City Council v. Attorney-General for Queensland  A.C. 411 at 425 per Lord Wilberforce, giving the advice of the Judicial Committee). This does not however mean that the court must hear in full and rule on the merits of any claim or defence which a party to litigation may choose to put forward. For there is, as Lord Diplock said at the outset of his speech in Hunter v. Chief Constable of the West Midlands Police  A.C. 529 at 536, an
One manifestation of this power was to be found in RSC Order 18 rule 19 which empowered the court, at any stage of the proceedings, to strike out any pleading which disclosed no reasonable cause of action or defence, or which was scandalous, frivolous or vexatious, or which was otherwise an abuse of the process of the court. A similar power is now to be found in rule 3.4 of Part 3 of the Civil Procedure Rules.
GW contends that Mr Johnson has abused the process of the court by bringing an action against it in his own name and for his own benefit when such an action could and should have been brought, if at all, as part of or at the same time as the action brought against the firm by WWH. The allegations of negligence and breach of duty made against the firm by WWH in that action were, it is argued, essentially those upon which Mr. Johnson now relies. The oral and documentary evidence relating to each action is substantially the same. To litigate these matters in separate actions on different occasions is, GW contends, to duplicate the cost and use of court time involved, to prolong the time before the matter is finally resolved, to subject GW to avoidable harassment and to mount a collateral attack on the outcome of the earlier action, settled by GW on the basis that liability was not admitted.
This form of abuse of process has in recent years been taken to be that described by Sir James Wigram V.-C. in Henderson v. Henderson (1843) 3 Hare 100 at 114 where he said:
Thus the abuse in question need not involve the reopening of a matter already decided in proceedings between the same parties, as where a party is estopped in law from seeking to re-litigate a cause of action or an issue already decided in earlier proceedings, but (as Somervell L.J. put it in Greenhalgh v. Mallard  2 All E.R. 255 at 257) may cover
A series of cases, mostly in recent years, has explored this form of abuse. Reference need not be made to all of them. In the Yat Tung case abuse was found where a claimant who had unsuccessfully sued a bank on one ground brought a further action against the same bank and another party on a different ground shortly thereafter. Giving the advice of the Judicial Committee of the Privy Council, Lord Kilbrandon said at page 589:
In Brisbane City Council v. Attorney-General for Queensland, above, the Privy Council expressly endorsed Somervell L.J.'s reference to abuse of process and observed, at page 425:
In Hunter's case, above, in which Henderson v. Henderson was not cited, the plaintiff sought to challenge in civil proceedings a decision in a criminal case against which he had not appealed on the ground which he sought to raise in the civil proceedings. The proceedings were struck out.
In Vervaeke v. Smith  1 A.C. 145 the appellant, who had failed in English proceedings to annul her marriage, had succeeded in doing so in Belgium on different grounds and sought recognition in England of the Belgian decree. Lord Hailsham of St. Marylebone L.C. at page 157 described the rule in Henderson v. Henderson as "both a rule of public policy and an application of the law of res judicata" and said of it:
Ashmore v. British Coal Corporation  2 Q.B. 338 involved an attempt to reopen issues which had been decided adversely to the appellant's contentions in rulings which, although not formally binding on her, had been given in sample cases selected from a group of claims of which hers had been one. The Court of Appeal held that it was not in the interests of justice to allow her to pursue her claim. Reliance was placed on Bragg v. Oceanus Mutual Underwriting Association (Bermuda) Ltd.  2 Lloyds Rep. 132 in which Kerr L.J. at page 137 said:
In House of Spring Gardens Ltd. v. Waite  1 Q.B. 241 the plaintiffs sued three defendants in England to enforce a judgment which they had obtained against those defendants in Ireland. The defendants pleaded in defence that the Irish judgment had been obtained by fraud. That was a contention which two of the defendants, but not the third (a Mr. McLeod) had raised in Irish proceedings to set aside the judgment, but the allegation had been dismissed by Egan J. Summary judgment was given against the three defendants in England but Mr. McLeod appealed against that judgment. The Court of Appeal held that Mr. McLeod, like the other defendants, was estopped from mounting what was in effect a collateral challenge to the decision of Egan J. It also held that Mr. McLeod's defence was an abuse of process. At page 255 Stuart-Smith L.J. said:
Arnold v. National Westminster Bank Plc  2 A.C. 93 was a case of issue estoppel. Tenants invited the court to construe the terms of a rent review provision in the sub-underlease under which they held premises. The provision had been construed in a sense adverse to them in earlier proceedings before Walton J., but they had been unable to challenge his decision on appeal. Later cases threw doubt on his construction. The question was whether the rules governing issue estoppel were subject to exceptions which would permit the matter to be reopened. The House held that they were. At page 109 Lord Keith of Kinkel said:
In the passage referred to Lord Upjohn had said: