Practice and Procedure


PUBLISHED December 3, 2003

The Court of Appeal allowed an appeal and cross-appeal in part in proceedings by the appellant against his solicitors for professional negligence having considered the extent to which the scope of the solicitors' duty meant they were liable for the kinds of losses claimed.Appeal by the claimant ('J') from a judgment of Hart J in J's claim against his solicitors ('GW') for professional negligence. J brought his action seeking compensation for losses which he alleged he had suffered as a result of negligent advice given by GW in connection with an option granted to a property development company ('WWH') of which J was the managing director and 99 per cent shareholder. WWH instructed GW to exercise the option. The grantor of the option ('M') challenged the exercise of the option. WWH succeeded against M at trial and on appeal but the proceedings took three years and the property fell in value. GW had advised that WWH was in a "no-lose" situation because it would make a full financial recovery whether against M or against GW's insurers, and that the proceedings would take no more than six months. WWH brought proceedings against GW which were compromised at trial on payment by GW of approximately ?1.5 million and costs. By his further action J contended that in addition to the losses sustained by WWH he had suffered personal and separately recoverable losses arising out of GW's negligent advice. The losses were: (i) the loss of investment in two ventures ('CPV' and 'Adfocus'); (ii) the cost of personal borrowings incurred by J; (iii) interest on a personal overdraft owed to NatWest, (iv) the diminution in value of a self-administered pension scheme into which WWH would have made contributions, and; (v) certain additional tax liabilities. GW admitted negligence in respect of the exercise of the option and the "six month no lose" advice. The judge determined that J did not have a general retainer with GW in respect of his business affairs but that GW did owe a duty of care in respect of the manner of exercise of the option, the "six month no lose" advice and the conduct of the action against M. Having considered the scope of the duty owed by GW to J and issues of causation, remoteness and mitigation, the judge ordered GW to pay J damages in respect of his lost investment in CPV, the cost of personal borrowings and bank interest and charges on the overdraft and additional tax liabilities and he directed an inquiry as to damages in respect of the pension benefits claim. J appealed and GW cross-appealed. The main issue on appeal was the scope of GW's duty to J and whether GW was accordingly responsible for the losses claimed by J.HELD: (1) The judge was right, applying South Australia Asset Management Corporation v York Montague Ltd (1997) AC 191, to enquire whether the duty which GW owed was a duty in respect of the kind of losses of which J complained. To determine the scope of the duty the court had to examine carefully the purpose for which the advice was given and generally the surrounding circumstances. The final result turned on the facts. The judge was correct to seek to define the scope of the duty of care which GW owed. (2) The advice in respect of the action against M was extraordinary since it made no mention of the risks and uncertainty inherent in litigation. The action became therefore an asset on which, as GW knew, J might rely to raise money for investment or other purposes. The content of the advice and the financial implications which flowed from it were clearly relevant in determining the scope of the duty. (3) GW was not formally asked to advise on the wisdom of further investment beyond CPV during the currency of the litigation. But GW did give advice to J on several business matters in quick succession knowing that he was an entrepreneur who made his living by making investments. (4) The judge held that the duty owed to J personally was in his capacity as a shareholder in WWH and guarantor of its liabilities. Once it was accepted that the personal retainer extended to J in his capacity as guarantor and bearing in mind that J was effectively the sole shareholder of WWH comparatively little knowledge was required on the part of GW of the losses which might accrue to J from WWH. (5) The judge was wrong to hold that GW was liable for J's loss in CPV but not in Adfocus, on the basis that GW knew much more about CPV. J was entitled to recover his lost investment in Adfocus but only in so far as that investment was made prior to GW ceasing to act on 1 December 1989. (6) The judge was right that GW could not be rendered liable for any increase in J's NatWest overdraft after a cut-off date of 1 December 1989. (7) J was entitled as part of his damages to recover the costs of his personal borrowings incurred prior to 1 December 1989 and the judge was wrong to hold that the costs of personal borrowing were recoverable up to July 1989 but not beyond. (8) J had not failed to mitigate his losses by failing to sell the development site in 1992 and the judge was wrong to find that he had failed to mitigate. (9) It was within the scope of GW's duty of care to protect J against loss of pension contributions from WWH, but no recoverable loss was demonstrated on the evidence. (10) GW had sufficient knowledge of the terms of J's service agreement to bring the claim for additional tax liabilities within the scope of the duty to J.Appeal and cross-appeal allowed in part.

[2003] EWCA Civ 1728