Solicitors compromising action by company for negligence in connection with land transaction – Plaintiff effectively sole owner of company – Whether plaintiff entitled to sue for personal losses caused by the same events
The plaintiff held 998 out of 1,000 shares in a housebuilding company, which in 1991 commenced proceedings (the company action) for professional negligence against the defendant firm of solicitors, alleging failure to advise on and implement an option to purchase certain land and subsequent dilatory prosecution of litigation against the vendor and others. In 1992, by a settlement agreement to which the plaintiff was also a party, the company action was compromised on terms that the defendant, while not admitting liability, would pay £1.8m to the company in satisfaction of its claim. By clause 3 of the agreement the plaintiff undertook, without limiting any other rights against the defendant, to limit any claim he would make personally in respect of losses sustained as a shareholder to £250,000.
In 1993 the plaintiff commenced his own proceedings (the personal action). These repeated the earlier allegations and claimed, inter alia, that the resulting difficulties experienced by the company had deprived the plaintiff of the financial resources he was expecting to apply to his other business interests, thus causing personal losses over and above those sustained by the company. The defendant applied to have the action struck out on the grounds that, in raising issues which should have been litigated in the company action, it amounted to an abuse of process. The court also considered, by way of preliminary issue: (a) whether the conduct complained of was capable of constituting a breach of duty owed by the defendant to the plaintiff; and (b) whether recovery of the alleged losses was precluded by rules of company law.
Held Judgment for the plaintiff on all issues.
1. To amount to an abuse of process, the action had to fall within the doctrine of Henderson v Henderson (1843) 3 Hare 100 which, as recently considered in MCC Proceeds Inc v Lehman Brothers International unreported January 19 1988, clearly applied not only to points actually decided (res judicata) but also to matters which should have been litigated in the earlier proceedings. Since the relevant abuse was relitigation of the same subject matter, there was no objection in principle to applying the doctrine against persons who were not parties to the earlier proceedings or to proceedings which had been compromised. However, having regard particularly to the terms of the settlement, there was a common assumption that the personal claim would be made. A complaint of abuse of process would accordingly be unconscionable.
2. Since the defendant had continually acted both for the company and for the plaintiff in regard to his business affairs generally, the possibility of a contractual duty arising out of a dual retainer could not be excluded without a full trial: cf Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204. Similarly, a full trial might alternatively reveal such an intertwining of the plaintiff’s personal and business affairs as to make an exception to the general rule that a solicitor’s duty of care is owed solely to the client: see Ross v Caunters [1980] Ch 297, as considered in White v Jones [1995] 2 AC 207.
3. If the losses complained of had been sustained solely by reason of the plaintiff’s shareholding, his claim would be barred by rules against double recovery: see, for example, Prudential Assurance (supra) and Stein v Blake [1998] 1 All ER 724. However, only a full trial could establish whether that was the case: cf Barings plc (in administration) v Coopers & Lybrand [1997] 1 BCLC 427 and Gerber Garment Technology v Lectra Systems Ltd [1997] RPC 443.
Roger ter Haar QC and Simon Howarth (instructed by Manches & Co) appeared for the plaintiff; Alan Steinfeld QC and Elizabeth Ovey (instructed by Wansbroughs Willey Hargrave) appeared for the defendant.
