Johnson v Gore Wood & Co

Successive proceedings which raise a matter that could have been raised earlier are not necessarily an abuse of process. The court must make a broad, merits-based judgment, considering all the public and private interests and asking whether the later proceedings misuse its process. The burden lies on the party alleging abuse.

A shareholder cannot recover loss which merely reflects loss recoverable by the company. The shareholder may recover separate loss caused by breach of an independently owed duty, and loss resulting from injury to a company which itself has no cause of action. At the strike-out stage, reasonable doubt about whether loss is reflective must favour the claimant.

Damages for mental distress are generally unavailable for breach of a commercial contract. The established exceptions do not ordinarily extend to a solicitor’s commercial retainer.

Mr Johnson conducted property-development business through Westway Homes Ltd, which he controlled. The company retained Gore Wood & Co, solicitors, to exercise an option over development land. Following a disputed exercise of the option and lengthy litigation, the company sued the firm for professional negligence. That action was settled during trial for £1.48 million plus costs.

Mr Johnson had notified the firm that he intended to pursue a separate personal claim. The settlement expressly preserved other personal rights while limiting specified shareholder-related claims. He later sued in contract and tort, alleging that the firm had also owed duties to him personally.

Pumfrey J rejected the firm’s abuse objection and held that the pleaded losses were not legally irrecoverable. The Court of Appeal reversed the abuse ruling but substantially upheld the ruling on recoverability. Mr Johnson appealed on abuse of process, and the firm cross-appealed concerning reflective loss, mental distress and aggravated damages.

1. Appeal allowed. Lord Bingham delivered the leading speech on abuse of process, with which Lord Goff, Lord Cooke and Lord Hutton agreed. Lord Millett reached the same result. Successive proceedings are not abusive merely because a claim could have been advanced earlier. The court must make a broad, merits-based assessment of all the circumstances, balancing finality, economy and protection from harassment against the claimant’s right to pursue a genuine claim. The burden of establishing abuse rests on the party alleging it.

2. Mr Johnson and the company were sufficiently identified for the doctrine potentially to apply, despite their separate legal personalities. Nor did settlement, rather than judgment, prevent its application. Nevertheless, separate pursuit of the claims was reasonable. The company’s urgent and comparatively simple claim raised interests and issues distinct from Mr Johnson’s more complex personal claim. The settlement negotiations and agreement also proceeded on the basis that his personal claim remained open.

3. Lord Bingham considered the firm estopped by convention from asserting abuse. Lord Goff preferred an estoppel based on representation, promissory estoppel or acquiescence, linked by unconscionability. Lord Millett considered that the claim was not abusive in the first place, but held alternatively that the firm’s acquiescence and delay would preclude its objection.

4. On the cross-appeal, the House affirmed the reflective-loss principle. Where loss caused to a company is recoverable by it, a shareholder cannot recover diminution in share value, lost dividends or other payments which merely reflect depletion of the company’s assets. Where the company has no cause of action, or the shareholder suffers separate loss caused by breach of an independently owed duty, the shareholder may recover. At the strike-out stage, reasonable doubt must be resolved in favour of the claimant.

5. The claims concerning investments, personal borrowing, loss of shares, additional tax and enhancement of pension value could proceed. Claims for pension contributions which the company would have made, and the alternative enhancement of share value from retained funds, were reflective and were struck out.

6. Lord Bingham, Lord Goff, Lord Hutton and Lord Millett held that the claims for mental distress, anxiety and aggravated damages must be struck out. The commercial retainer fell within the general exclusion of contractual damages for mental distress, and the pleaded facts justified no aggravated award. Lord Cooke dissented concerning serious financial embarrassment and damaged family relationships, which he would have permitted to proceed, but agreed that mere injured feelings and aggravated damages were unavailable.

1. House of Lords: Allowed Mr Johnson’s appeal from the finding of abuse of process. Dismissed the firm’s cross-appeal subject to striking out specified reflective-loss claims and, by a majority, the claims for mental distress, anxiety and aggravated damages.
2. Court of Appeal: Held that the personal proceedings were an abuse under Henderson v Henderson, while holding most pleaded heads of loss arguably recoverable.
3. High Court: Pumfrey J held that the firm was estopped by convention from alleging abuse and that the pleaded heads of damage were not irrecoverable as a matter of law.