Facts
Mr Johnson was a director and majority shareholder in a number of companies, including Westway Homes Limited (referred to in the judgment as "WWH"). Gore Wood & Co were a firm of solicitors who acted for the companies and also occasionally for Mr Johnson in his personal capacity. In 1998 Gore Wood were acting for WWH and served notice under an option to acquire land from a third party upon the solicitors for that third party. The third party alleged that this was not proper service, and refused to convey the land. Legal proceedings ensued and ultimately WWH succeeded. However, because the third party was impecunious and funded by legal aid WWH was unable to recoup the full amount of its losses and legal costs. Accordingly, WWH issued proceedings against Gore Wood for professional negligence alleging, broadly, that their losses would have been averted entirely if Gore Wood had properly served the original notice on the third party instead of on the third party's solicitors.
Gore Wood ultimately settled those claims, and the settlement agreement included two provisions which were later to prove important. Firstly, it included a clause stating that any amount which Mr Johnson wished to subsequently claim against Gore Wood in his personal capacity would be limited to £250,000 excluding interest and costs. Secondly, the confidentiality clause contained an except which permitted the settlement agreement to be referred to in any action which Mr Johnson might bring against Gore Wood.
Mr Johnson then subsequently issued proceedings against Gore Wood in his personal name, and Gore Wood made applications to strike out some or all of the claims on the basis that (i) it was an abuse of process to seek to relitigate issues which had already been compromised in the settlement agreement, and (ii) some or all of the claims which Mr Johnson was making were for losses sustained by WWH, and his personal claims should be disallowed as reflective loss.
At first instance Mr Johnson succeeded as Pumfrey J in the High Court held that Gore Wood was estopped by convention from contending that the claims were an abuse of process as both parties had tacitly agreed that such claims could be brought when they entered into the settlement agreement. The Court of Appeal held that there was no estoppel by convention, and that the proceedings were an abuse under the rule in Henderson v Henderson (1843) 3 Hare 100. The Court of Appeal held that just one of Mr Johnson's claims should be struck out for reflective loss.
Judgment
The leading judgment was given by Lord Bingham, although all five Law Lords gave speeches of varying lengths.
Abuse of process
Their Lordships considered at some length previous decisions of the English courts in relation to abuse of process, and stressing that the courts strive to find a balance between proper administration of justice and avoiding defendants being vexed by duplicative litigation, and the need to ensure that persons with a proper claim were able to have those claims heard and determined. The court stressed that what was known as "the rule in Henderson v Henderson" had now actually evolved a very long way from the original judgment after which it was named. The rule against abuse of process was similar to rule relating to cause of action estoppel (or res judicata ) and issue estoppel, but they were not the same. However both were concerned with the same underlying public interest. The court was reluctant to set down hard and fast rules as to what would amount to abuse of process when claims which might conveniently have been brought at an earlier were only made at a later time. Courts need to be mindful not to confuse the fact that a litigant could have brought his claims at an earlier stage with the proposition that he should have done so. Only in the latter case would it be an abuse of process to subsequently litigate those claims.
In this case Mr Johnson had given a number of reasons why he did not pursue his personal claims at an earlier time, including impecuniosity, the availability of legal aid, and personal circumstances. The court indicated that impecuniosity was not normally a good ground, although in this case the impecuniosity was alleged to have been caused by the defendant. The court also noted that Mr Johnson had from a very early stage made clear his intention of bringing a personal claim separate from the claim of WWH. Taken as a whole their Lordships was satisfied that there was no abuse, although they declined to lay down a definitive test. Their Lordships felt that the courts should take a broad, merit-based approach to account for the public and private interests involved (including a citizen's right of access to the court). [2]
Estoppel by convention
The House of Lords felt that the point relating to estoppel by convention (i.e. that the parties had contemplated such further action might be brought in the earlier settlement agreement) was tied up in the issue of abuse of process. They noted that the litigation between Mr Johnson and Gore Wood had been ongoing for nearly four and half years before the defendant firm of solicitors sought to strike out the claims on this basis, which was reflective of the parties common understanding that those claims might be pursued, and during that time pleadings had been considerably advanced and they had even made a payment into court. Their Lordships determined that the key issues was whether (i) the settlement of WWH's action proceeded on the basis of an underlying assumption that Mr Johnson would be bringing further claims, and (ii) whether it would be unfair or unjust to now allow Gore Wood to go back on that assumption. Their Lordships held that both grounds were made out.
Reflective loss
In relation to the issue of reflective loss, Lord Bingham summarised the existing case law in three key propositions:
- Where a company suffers loss caused by a breach of duty owed to it, only the company may sue in respect of that loss. No action lies at the suit of a shareholder suing in that capacity and no other to make good a diminution in the value of the shareholder's shareholding where that merely reflects the loss suffered by the company.
- Where a company suffers loss but has no cause of action to sue to recover that loss, the shareholder in the company may sue in respect of it.
- Where a company suffers loss caused by a breach of duty to it, and a shareholder suffers a loss separate and distinct from that suffered by the company caused by breach of a duty independently owed to the shareholder, each may sue to recover the loss caused to it by breach of the duty owed to it but neither may recover loss caused to the other by breach of the duty owed to that other.
Applying these tests, the House of Lords held that one of Mr Johnson's claimed heads of loss should be struck-out (diminution in the value of his shareholding in WWH, and amounts which WWH would otherwise have paid into his pension), and the remaining claims were allowed to proceed (these included the cost of personal borrowing by Mr Johnson to fund his outgoings and those of his business, the value of shares lost when the bank foreclosed upon security which he provided, and additional tax liability). The court held that the claims for cost of borrowing would need to be scrutinised carefully at trial to ensure that they were not merely claims for lost dividends (which were not allowable) in disguise. The court also allowed a claim for losses on other investments which Mr Johnson made based upon advice from Gore Wood. The court also struck out claims for mental distress and aggravated damages on other grounds. The rule against reflective loss is justified by the need both to prevent double recovery and to provide protection for the company's creditors, who might be prejudiced if the shareholder's claim were to succeed. [3]
At common law, damages are a remedy in the form of a monetary award to be paid to a claimant as compensation for loss or injury. To warrant the award, the claimant must show that a breach of duty has caused foreseeable loss. To be recognised at law, the loss must involve damage to property, or mental or physical injury; pure economic loss is rarely recognised for the award of damages.
A lawsuit is a proceeding by one or more parties against one or more parties in a civil court of law. The archaic term "suit in law" is found in only a small number of laws still in effect today. The term "lawsuit" is used with respect to a civil action brought by a plaintiff who requests a legal remedy or equitable remedy from a court. The defendant is required to respond to the plaintiff's complaint or else risk default judgment. If the plaintiff is successful, judgment is entered in favor of the defendant. A variety of court orders may be issued in connection with or as part of the judgment to enforce a right, award damages or restitution, or impose a temporary or permanent injunction to prevent an act or compel an act. A declaratory judgment may be issued to prevent future legal disputes.
Collateral estoppel (CE), known in modern terminology as issue preclusion, is a common law estoppel doctrine that prevents a person from relitigating an issue. One summary is that, "once a court has decided an issue of fact or law necessary to its judgment, that decision ... preclude[s] relitigation of the issue in a suit on a different cause of action involving a party to the first case". The rationale behind issue preclusion is the prevention of legal harassment and the prevention of overuse or abuse of judicial resources.
Estoppel is a judicial device in common law legal systems whereby a court may prevent or "estop" a person from making assertions or from going back on his or her word; the person being sanctioned is "estopped". Estoppel may prevent someone from bringing a particular claim. Legal doctrines of estoppel are based in both common law and equity. It is also a concept in international law.
In English civil litigation, costs are the lawyers' fees and disbursements of the parties.
In law, a settlement is a resolution between disputing parties about a legal case, reached either before or after court action begins. A collective settlement is a settlement of multiple similar legal cases. The term also has other meanings in the context of law. Structured settlements provide for future periodic payments, instead of a one time cash payment.
Quantum meruit is a Latin phrase meaning "what one has earned". In the context of contract law, it means something along the lines of "reasonable value of services".
The Private Securities Litigation Reform Act of 1995, Pub. L. 104–67 (text)(PDF), 109 Stat. 737 ("PSLRA") implemented several substantive changes in the United States that have affected certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation, and awards fees and expenses.
In the English law of tort, professional negligence is a subset of the general rules on negligence to cover the situation in which the defendant has represented him or herself as having more than average skills and abilities. The usual rules rely on establishing that a duty of care is owed by the defendant to the claimant, and that the defendant is in breach of that duty. The standard test of breach is whether the defendant has matched the abilities of a reasonable person. But, by virtue of the services they offer and supply, professional people hold themselves out as having more than average abilities. This specialised set of rules determines the standards against which to measure the legal quality of the services actually delivered by those who claim to be among the best in their fields of expertise.
Misfeasance in public office is a cause of action in the civil courts of England and Wales and certain Commonwealth countries. It is an action against the holder of a public office, alleging in essence that the office-holder has misused or abused their power. The tort can be traced back to 1703 when Chief Justice Sir John Holt decided that a landowner could sue a police constable who deprived him of his right to vote. The tort was revived in 1985 when it was used so that French turkey producers could sue the Ministry of Agriculture over a dispute that harmed their sales.
Farley v Skinner [2001] UKHL 49 is an English contract law case, concerning the measure and availability of damages for distress.
Atlasview Ltd v Brightview Ltd[2004] EWHC 1056 (Ch) is a UK company law case, which concerns a claim for unfair prejudice and raised the question of barring a claim if attempted to recover for reflective loss. The case is a notable precedent because it makes clear that a nominee shareholder is also a legitimate petitioner for unfair prejudice.
In United Kingdom company law, reflective loss is the loss of individual shareholders that is inseparable from general loss of the company. The rule against recovery of reflective loss states that there should be no double recovery, so a shareholder can only bring a derivative action for losses of the company, and may not allege suffering a loss in a personal capacity for a personal right.
Where a company suffers loss caused by a breach of duty owed to it, only the company may sue in respect of that loss. No action lies at the suit of a shareholder suing in that capacity and no other to make good a diminution in the value of the shareholder's shareholding where that merely reflects the loss suffered by the company.
— Lord Bingham of Cornhill, Johnson v Gore Wood & Co [2002] 2 AC 1 at 19.
Ruxley Electronics and Construction Ltd v Forsyth [1995] UKHL 8 is an English contract law case, concerning the choice between an award of damages for the cost of curing a defect in a building contract or for awarding damages for loss of "amenity".
Jones v Kaney [2011] UKSC 13 is a 2011 decision of the Supreme Court of the United Kingdom on whether expert witnesses retained by a party in litigation can be sued for professional negligence in England and Wales, or whether they have the benefit of immunity from suit. The case involved a psychologist (Kaney) instructed as an expert witness in a personal injury claim, who was said to have negligently signed a statement of matters agreed with the expert instructed by the opposing side, in which she made a number of concessions that weakened the claim considerably. As a result, according to the injured claimant (Jones), he had to settle the claim for much less than he would have obtained had his expert not been careless. To succeed in the claim, he had to overturn an earlier Court of Appeal decision that had decided that preparation of a joint statement with the other side's expert was covered by immunity from suit. Kaney therefore succeeded in getting the claim struck out before trial on an application heard by Mr Justice Blake in the High Court of Justice. The judge issued a certificate allowing the claimant to "leapfrog" the Court of Appeal and go straight to the Supreme Court to appeal against his decision.
Percival v Wright [1902] 2 Ch 401 is a UK company law case concerning directors' duties, holding that directors only owe duties of loyalty to the company, and not to individual shareholders. This is now codified in the United Kingdom's Companies Act 2006, section 170.
Corporate litigation in the United Kingdom is that part of UK company law which gives investors the right to sue the directors of a company, or vindicate another wrong to the company, particularly where the board of directors does not wish to act itself.
Commonwealth v Verwayen, also known as the Voyager case, is a leading case involving estoppel in Australia. Bernard Verwayen sued the Australian government for damages caused by a collision between two ships of the Australian Navy. A representative of the Government initially indicated to Bernard Verwayen that the Government would not raise the statute of limitations as a defence to their negligence. In court however, the Government relied on this defence. While the decision of the High Court was split, a majority of judges found that the Government could not rely on this statement as a defence. Justices Toohey and Gaudron came to this conclusion on the basis that the Government had waived their right to rely on this defence. However, Justices Deane and Dawson came to this conclusion under the doctrine of estoppel, which provides that a defendant can not contradict a previous representation or promise made that has established an assumed state of legal affairs. This case is most frequently referred to in relation to its influence on the doctrine of estoppel.
Sevilleja v Marex Financial Ltd[2020] UKSC 31 is a judicial decision of the Supreme Court of the United Kingdom relating to company law and the rule against reflective loss.
Port of Melbourne Authority v Anshun Pty Ltd is a decision of the High Court of Australia.
