Johnson v Gore Wood & Co

The scope of a solicitor’s duty depends on the purpose of the advice, its content and the surrounding circumstances. The decisive question is whether the loss claimed is of the kind against which the solicitor undertook to protect the client. That purpose may be described generally; the adviser need not know the precise investment or its scale.

The unexpected size of a loss does not itself make the loss irrecoverable. A claimant may rely on continuing advice until it is corrected or the retainer ends. The claimant need take only reasonable steps to mitigate loss, assessed by reference to the practical options and evidence available.

Mr Johnson was the managing director and controlling shareholder of Westway Homes Ltd. Gore Wood & Co negligently exercised the company’s option over development land and advised Mr Johnson that the resulting litigation presented a short-term cash-flow problem which would be resolved within about six months, with financial recovery assured against one of the relevant parties.

After the litigation and related company claim lasted several years, Mr Johnson sought damages for personal investment losses, borrowing costs, pension losses and additional tax. Hart J awarded £88,791.16 before interest and directed an inquiry into the pension claim.

Mr Johnson appealed and Gore Wood cross-appealed. The central issue was whether the losses claimed were of a kind falling within the purpose and scope of Gore Wood’s duty.

1. Disposition. The appeal was allowed on the AdFocus investment, the costs of personal borrowings incurred before 1 December 1989, and mitigation. The cross-appeal was allowed on the pension claim. The remaining challenges were dismissed. Arden LJ gave the judgment, with which Hale and Potter LJJ agreed.

2. The governing inquiry was whether the loss claimed was of the kind in respect of which the defendant’s duty was owed. The same approach applied in contract and tort. Its application required a fact-sensitive examination of the purpose of the advice, its content and the surrounding circumstances: [1997] 1 AC 197 applied.

3. The purpose need not always be particularised to a specific transaction. Advice given for the general purpose of making investments may encompass investments whose identity and scale were unknown to the adviser. Conversely, a later purpose alien to the known purpose of the advice may fall outside the duty. The unexpected scale of a loss does not itself prevent recovery.

4. Gore Wood’s unusually confident advice converted a contingent asset into one on which Mr Johnson could be expected to borrow and invest. Gore Wood knew of his entrepreneurial activities, cash-flow difficulties and involvement in video technology. The AdFocus investment was a natural progression from CPV and fell within the duty. Mr Johnson would not have made it had competent advice been given. Recovery was limited to investment made before Gore Wood ceased acting.

5. Personal borrowing costs also fell within the duty. The assurances given to the bank in May and August 1989 renewed the original advice and entitled Mr Johnson reasonably to continue relying on it. Any concurrent reliance on a second firm did not displace reliance on Gore Wood. Costs attributable to borrowings incurred before 1 December 1989 were recoverable, but later borrowing was outside the retainer. The same date limited the recoverable personal overdraft.

6. The judge lacked an evidential basis for finding that the development site could have been sold within a reasonable time after settlement or that Mr Johnson should have selected and repaid the particular loans later held recoverable. The mitigation finding was therefore reversed.

7. The pension claim was confined to the difference, between 1989 and the company settlement in 1992, between the return obtainable by the company and that obtainable in the pension fund. That differential was negative, so no recoverable loss was proved. The additional tax caused by paying accumulated salary in one tax year remained recoverable.

1. Court of Appeal (Civil Division): By [2003] EWCA Civ 1728, unanimously allowed Mr Johnson’s appeal on the AdFocus investment, pre-1 December 1989 personal borrowing costs and mitigation; allowed Gore Wood’s cross-appeal on the pension claim; and dismissed the remaining challenges.
2. High Court, Queen’s Bench Division: Hart J awarded £88,791.16 before interest, together with interest, and directed an inquiry into the pension claim. No neutral or report citation is stated.