Case No: A2/2002/1643 QBENF
A2/2002/2017 QBENF
Neutral Citation Number: [2003] EWCA Civ 1728
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF 
JUSTICE,  QUEEN’S BENCH DIVISION
Mr Justice Hart (sitting as an additional judge of the 
Queen’s Bench Division)
Royal Courts of Justice
Strand, 
London, WC2A 2LL

Wednesday 3 December 2003
Before :

LORD JUSTICE POTTER
LADY JUSTICE HALE
and 
LADY JUSTICE ARDEN

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Between :

	William John Henry Johnson	Appellant	
	- and -		
	Gore Wood & Co	Respondents	

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(Transcript of the Handed Down Judgment of
Smith Bernal Wordwave Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040,  Fax No:  020 7831 8838
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Mr Roger Ter Haar QC and Mr Simon Howarth  (instructed by Shoosmiths) for the Appellant
Mr Alan Steinfeld QC and Ms Elizabeth Ovey (instructed by Beachcroft Wansbroughs) for the Respondent

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Judgment
Lady Justice Arden  : 

Introduction
1.	This litigation is already familiar to many lawyers.  An interim application to strike out the proceedings as an abuse of the process of the court failed in the House of Lords in a case which enunciated new principles on that subject and reflective loss, that is loss which a shareholder of a company may not claim because it represents loss which the company alone is entitled to recover:  see Johnson v Gore Wood & Co [2002] 2 AC 1, to which I will refer as Johnson v Gore Wood (No.1).  The case arises out of what is now accepted to have been professional negligence principally in the exercise of an option to acquire a development and in advice given to the appellant, Mr Johnson, by his solicitors, Gore Wood & Co (“Gore Wood”) about the timing and prospects of litigation against a Mr Moores.  Following that advice, Mr Johnson incurred liabilities and suffered other losses.  Mr Johnson says that he was forced to incur yet further liabilities as time went on, heaping Pelion on Ossa.  His net worth declined by about 80%.  His total damages claim was over £4.3m.  Following a five week trial, Hart J handed down judgment on 3 May 2002.  The order of the court following this judgment, which was not pronounced until 17 July 2002, awarded Mr Johnson damages of only £88,791.16p, with interest of £81,182.32, making a total of £169,973.48.   Mr Johnson now appeals, and Gore Wood cross-appeal.  The individual issues on this appeal are listed at paragraph 89 below.
2.	The major dispute on this appeal turns on whether the judge was in error in limiting Gore Wood’s responsibility to some only of the consequences that ensued.  The law in this area has recently been developed in cases such as South Australian Asset Management Corporation v York Montague [1997] 1 AC 197, referred to below as SAAMCO.  In short, the key question on this appeal is the scope of Gore Wood’s duty on the facts of this case in the sense of Gore Wood’s responsibility for Mr Johnson’s loss.  To find the correct measure of Gore Wood’s responsibility, the court must ask whether the loss claimed is the kind of loss in respect of which the duty was owed.  That test may be easier to state than it is to apply, and where, as here, there was no agreement on this point, it involves an assessment of the primary facts.  The facts of this case are complex as the events in issue occurred over several years and concern Mr Johnson’s financial affairs in several disparate respects.  I return to the applicable legal principles below.
3.	Mr Johnson brought this action to seek compensation for losses which he alleged he had suffered as a result of negligent advice given by Gore Wood in connection with an option granted to a property development company, Westway Homes Ltd (“WWH”), of which Mr Johnson was the managing director and 99% shareholder.  The option was over a development site and the option price was £175,000.  WWH instructed Gore Wood to exercise the option on its behalf.  The grantor of the option, a Mr Moores, challenged the exercise of the option on the grounds that the option notice had been served by Gore Wood on his solicitors, McCarrahers, and not himself.  Gore Wood advised that WWH was in a “no-lose” situation, because WWH would be entitled to recover any losses from Mr Moores or McCarrahers or Gore Wood.  Gore Wood also advised that the proceedings (“the Chancery action”), which were commenced in about March 1988, would be completed within six months or so.  In other words, there would be an early resolution of the Chancery action.  I refer below to these two items of advice collectively as the “6 month no-lose” advice.  In fact the proceedings took about three years.  WWH was successful against Mr Moores at trial and on appeal, but by that time the property had fallen in value.  Thereafter WWH brought proceedings (“the Company action”) against Gore Wood.  These proceedings were compromised at trial on payment by Gore Wood of approximately £1.5m. and costs.  
4.	By this further action, Mr Johnson contends that, in addition to the losses sustained by WWH, he suffered personal and separately recoverable losses arising out of Gore Wood’s negligent advice.  Those losses may be summarised as follows:-
i)	loss of investment in two ventures, Collector-Piece Videos (“CPV”) and AdFocus Limited (“AdFocus”);
ii)	the cost of personal borrowings incurred by Mr Johnson, for the purpose of funding business ventures and meeting private expenditure;
iii)	a personal overdraft due to National Westminster Bank plc (“NatWest”);
iv)	the diminution in value of a self-administered pension scheme of which Mr Johnson was a member and into which WWH would have made contributions; and
v)	certain additional tax liabilities.
5.	A major issue which the judge had to determine but which is not an issue on this appeal was whether Gore Wood owed a duty of care to Mr Johnson as well as to WWH.  The judge rejected the argument that Mr Johnson had a general retainer with Gore Wood in respect of his business affairs.  However, he held that Gore Wood owed such a duty of care in respect of the manner of the exercise of the option, the “6 month no lose” advice and the conduct of the Chancery action.  The judge concluded that Gore Wood had been negligent in each of these respects.  Breach of duty is not an issue on this appeal.  However, I should make it clear as regards the “6 month no lose advice” that Gore Wood’s advice that Mr Johnson would succeed against someone is not accepted to be negligent.  What Mr Johnson was negligently led to believe was that he would make a full financial recovery either by obtaining an order for specific performance and an award of appropriate damages for delay against Mr Moores, or by an award of damages against McCarrahers for breach of warranty of authority, or by obtaining compensation from Gore Wood’s insurers for defective exercise of the option.  Moreover, he was given over-optimistic and negligent advice as to when all these claims would be resolved.
6.	Having considered the question of law as to the scope of the duty owed by Gore Wood, causation, remoteness and mitigation, the judge ordered Gore Wood to pay to Mr Johnson sums (before interest) totalling £88,791.16, including:
i)	£23,618 in respect of his lost investment in CPV;
ii)	£36,820.53 for the costs arising between the date of inception and 31 December 1992 of personal borrowings incurred before July 1989;
iii)	£9,621.63 in respect of bank interest and charges incurred on the NatWest overdraft between 1 December 1989 and 31 December 1992;
iv)	£15,341 in respect of additional tax liabilities.
7.	The judge also directed an enquiry as to the damages (if any) to which Mr Johnson was entitled in respect of his claim for loss of pension benefits.
8.	Not all of the heads of damage in issue before the judge are in issue on this appeal and, in the brief outline which I have given above, I have not referred to various heads of damage which the judge rejected.  I must now turn to examine in greater detail the facts surrounding the allegations in this action and the judge’s findings.
The background 
9.	Mr Johnson first instructed Gore Wood in 1987.  The option agreement which gave rise to these proceedings was executed on 20 October 1986.  The development site to which it related (“the Sunnyfields site”) was in part registered title and in part possessory title.  In order to realise the development value, Mr Johnson had to acquire a “ransom strip” owned by Wimpey.  He also had to obtain planning permission for the site.  He obtained both the ransom strip and planning permission and instructed Gore Wood to serve a notice exercising the option.  Gore Wood did this by two letters dated 15 February 1988 and 18 February 1988 respectively.  There is some doubt whether the first document can properly be described as a document exercising the option but that does not matter for present purposes.  As I have stated, these letters were sent to McCarrahers, Mr Moores’ solicitors and not to Mr Moores personally.  The value of the Sunnyfields site was some £600,000 as against an option price of only £175,000.
10.	In the course of 1987, Mr Johnson had had discussions with Mr Robert Wood, a partner in Gore Wood, about his interests in video technology.  Gore Wood were instructed to draft certain agreements in relation to a project which Mr Johnson had to sell video units in Spain.  In the course of this Gore Wood were involved in a loan of £35,000 in February 1988 by a Mr Ridout to WWH.  The interest rate was 24% per annum.  Gore Wood also knew that Mr Johnson executed a guarantee to secure WWH’s overdraft with NatWest, which was secured on WWH’s property at Burlesdon, Hampshire.  In January 1988, Mr Johnson personally borrowed £1,000 from a Mr Windust.
11.	As soon as the option notice was served, McCarrahers rejected service.  Gore Wood instructed counsel who advised that options were construed strictly and ordinarily required personal service, but that it was possible that, if McCarrahers had authority to receive the notice and the notice was, in fact, duly passed on to Mr Moores, the exercise of the option would be held to be valid.  In his opinion dated 10 March 1988, counsel advised that, because of the apparent negligence of Gore Wood in relation to the exercise of the option, there was a conflict of interest between Gore Wood and Mr Johnson, and that Mr Johnson accordingly should take independent advice.  As a result, Paris Smith & Randall, solicitors, were instructed to advise WWH, via Mr Johnson, on a  potential claim against Gore Wood.  
12.	On 10 March 1988 Gore Wood gave the crucial “6 months no lose” advice to Mr Johnson.  They orally advised that WWH was in a “no-lose” situation.  The Sunnyfields site was now valued at approximately £600,000.  If the proceedings succeeded, the development profit would be realised.  If the claim against Mr Moores did not succeed, there was a claim against McCarrahers for breach of warranty of authority and against Gore Wood for defective exercise of the option.  Gore Wood also advised that the Chancery action would come on for trial within six months or so.   The judge was satisfied that:-
“when Mr Johnson left the meeting on 10 March he had been advised in terms which reassured him that, from a business point of view, what WWH faced was in the nature of a temporary cash flow problem, and that the period during which WWH was likely to face that problem was of the order of six months.”
13.	Gore Wood also advised that there was a respectable argument for including in WWH’s claim against Mr Moores its daily running costs, including directors’ salaries.  Mr Wood thus became aware of the importance to Mr Johnson of the salary which WWH paid him.  This was previously £12,000 per annum, but in the costings for the development of the Sunnyfields site, it had been increased to £36,000 per annum (judgment, paragraph 30).  Thus for the six month period the sum would be £18,000.  The Chancery action against Mr Moores and McCarrahers was issued on 11 March 1988.
14.	The judge summarised his findings on the “6 month no lose” advice and Gore Wood’s advice on the damages recoverable in the Chancery action as follows:-
“In summary, on this issue I think that the evidence establishes that Mr Johnson was advised on 10 March 1988 that WWH was in a “no lose situation”, that there was a respectable argument which would probably, but could not be guaranteed to, succeed for including in its costs of delay claim its daily running costs (including director’s salaries), and that the matter would come on for trial within six months or so if there was no earlier settlement.  It also establishes that Mr Johnson had indicated to Mr Wood the importance to him of the salary element in the claim in the context of his other business interests.  In the context of the relatively short time-scale envisaged it is important not to overstate the significance at the time of the last item.  The salary claim being envisaged would have been for a gross sum of £18,000 only a fraction of which would have been perceived as relevant to other business interests of Mr Johnson as opposed to his need to defray normal living expenses.  The larger prize was the development profit (put in at £700,000) which would be achieved either by winning against [Mr] Moores and completing the development, or short of that recovered against McCarrahers or [Gore Wood].” (judgment, paragraph 40).”
15.	By agreement, Gore Wood acted for Mr Johnson in the Chancery action and they did so on the basis that no costs would be charged to Mr Johnson and that he would be responsible only for the disbursements.  This gave Mr Johnson a considerable cash flow advantage.  In his evidence, Mr Wood accepted that, before Paris Smith & Randall had become involved, he gave advice to Mr Johnson that, once judgment was obtained against Mr Moores, the question of sorting out any liability for damages against McCarrahers or Gore Wood would be a relatively rapid matter, because:
 “either he got the money from Mr Moores by deduction from £175,000 [the option price] or … the indemnity insurers for the solicitors, the Solicitors’ Indemnity Fund, would not want to argue whether it was McCarrahers or Gore Wood who were liable;  they would just step in and make up the shortfall.”
16.	Mr Wood accepted in evidence that, although he did not know precisely what Mr Johnson’s other business commitments were, he knew that it was a consequence of the Chancery action that he (Mr Johnson) would have to consider the impact of the litigation on his other businesses.  He also accepted that he knew enough about Mr Johnson’s financial affairs to know that he was the sort of man who was investing tens of thousands, not hundreds of thousands, in projects.  He also accepted that “it was entirely foreseeable … that there were business decisions that he might make where he might choose or not choose to invest sums of the order of £20,000 depending on what he could understand to be his overall financial position in the light of the” Chancery action.  In re-examination, however, he made it clear that if Mr Johnson had told him that, on the basis of his advice as to the duration of the Chancery action, he was going to invest in his video juke box business and that it was absolutely essential that the matter should be resolved within six months for that purpose, Mr Wood would have taken the far more cautious attitude that “anything he didn’t need to do he should wait until the outcome of the case”.
17.	Mr Wood further accepted that it was foreseeable that Mr Johnson would need to consider the advice given to him in relation to the prospects of the Chancery action in ordering his other financial affairs, including in relation to some investments he might make and that, apart from his property interests, the other major business interest which Mr Wood knew Mr Johnson had was his interest in the video juke box business.  Mr Wood knew Mr Johnson had taken out short term loans in his own name and that of the company and that he had had to sell properties because of the litigation.  
18.	On 11 March 1988, Mr Johnson had a meeting with Mr Wood to discuss an agreement between a company called Colour Leisure Ltd (“CL”), and his own company, CPV.  The judge found that in the course of this meeting Mr Wood gave Mr Johnson an assurance that the six month time estimate for the resolution of the Chancery action could be relied on.  That advice was relevant to the question of incorporating a break clause in the agreement under discussion, which had not been included in the draft.  Since in the end such a clause was negotiated, no loss in fact arose from this failure on the part of Mr Wood as a result of the advice.
19.	In March and April 1988, Mr Johnson borrowed £700 and £792.50 respectively from Mrs Johnson, his mother, and Mr Windust for his personal use.  In May 1988 Mr Johnson borrowed £10,000 out of a total loan of £25,000 from Mr Bullivant charged on property of his known as St. Peter’s Court.  Mr Wood was instructed to draw up the charge.  This too was a personal loan.  Mr Johnson repaid this loan in August 1988.
20.	A crucial letter which Mr Johnson wrote to Mr Wood on 9 May 1988 contained the following passage:-
“Whilst you cheerfully remind me that situations like this are character building, and I’m sure they are, the last eleven weeks have been extremely hard going.  I do not complain for me but I do complain for my family.  In restructuring my finances I have had to-
1.  Instruct agents to sell two investment properties which I had always previously treated as pensions.
2.  Arrange an expensive short-term loan secured against these properties until they are sold.
3.  Attempt to secure an offer of a re-mortgage on 86 Chalk Hill so as to take out the NatWest, who you will recall were in place as a bridging facility until PLT came in upon completion, and to introduce much needed working capital for Westway Homes Ltd., and to keep alive other projects to which I was previously committed.  Other projects with potential have reluctantly had to be shelved.
4.  Sell my Wife’s car – not as funny as it may sound to some.
It is to my credit that during the last eleven weeks I have kept all the balls in the air …
…
Lord knows Moores didn’t need any encouragement in his attempt to thwart the Agreement and everybody regrets that he was presented with real bullets to fire back at us.  I know these things happen and you have told me that I am in ‘a no-lose situation’ and, indeed, that Gore Wood themselves are in the firing line … ”
21.	About this time, Mr Johnson became interested in the business of AdFocus.  Mr Wood knew in general terms about AdFocus.  It was originally set up to acquire the video juke boxes CPV had in Spain.  Mr Wood knew that AdFocus had become involved and that the juke box business had “drifted into the UK”.  In fact, the real business of AdFocus was not the sale of video juke boxes.  Its business was the provision of solid state videographics advertising units for point of sale advertising.  The video unit would display an advertisement and otherwise could be used as a video juke box.
22.	Gore Wood were never formally instructed in relation to the AdFocus project.  It is possible that a colleague of Mr Wood in the firm was asked by Mr Johnson to proof read and approve a heads of agreement between CL and AdFocus which Mr Johnson had drafted.  Mr Wood was professionally concerned with a dispute over the intellectual property for an earlier version of the equipment which AdFocus provided.  He did not, however, have any business plan for AdFocus or know its overall strategy.
23.	In June 1988, Mr Wood sent Mr Johnson a deed of guarantee regarding Creative Video Technology Limited (“CVT”) (a company associated with CL) and accepted instructions for the sale of one of Mr Johnson’s properties.  At about this time Gore Wood were informed by McCarrahers that Mr Moores had obtained legal aid.  This indicated that Mr Moores would not be good for any damages over and above the amount of damages that could be set off against the option price of £175,000 (and to the extent that there were no charges over the option land which required to be discharged).  In July 1988, Mr Johnson sent Mr Wood the original of a consultancy agreement between CL and Mr Johnson.  A few days later, Mr Wood sent Mr Johnson a loan agreement which recorded a loan from Mr Johnson to Mr Candy, a partner in AdFocus, of £11,000.  
24.	In August 1988, the loan raised from Mr Bullivant was repaid.  In November 1988, Mr Johnson borrowed from Mr Burden the sum of £9,699.54 to fund AdFocus (via CPV).  In January 1989, Mr Johnson borrowed a further £1,850 from his mother for the same purpose.  In February 1989, Mr Ridout lent Mr Johnson £20,000 of which £11,875.55 went to WWH and £8,124.44 was for Mr Johnson’s personal use.  These monies obtained from Mr Ridout were distributed by Mr Wood on Mr Johnson’s instructions. 
25.	At the end of October 1988, Mr Johnson asked Gore Wood whether the trial would take place before Christmas 1988 and was told that the trial would take place on or before February 1989.  In fact, the earliest date when trial could be expected to take place was May 1989, but the judge found that Mr Johnson was not told this (judgment, paragraph 47).
26.	At some point subsequent to November 1988 Mr Wood advised Mr Johnson that his claim for damages against Mr Moores should be limited to those borrowings, whether by himself or WWH, which could be demonstrated to have been applied for the benefit of WWH (judgment, paragraph 48).
27.	In January 1989 Mr Johnson pressed for a further report on the litigation and was told that a trial date could not be obtained until certain procedural steps had been completed.  In February 1989, (almost a year after the commencement of the Chancery action), counsel for WWH advised that there should be an application to split the trial of liability from that of damages in the Chancery action so as to get an earlier date.  The necessary order was obtained in February 1989.  The revised trial date was then late 1989 so that the “6 month” element of the advice started to be reasonably accurate as from June 1989.  Mr Johnson realised that the order for a split trial meant that damages would be assessed from a later date from about May 1989.  
28.	In about March 1989, Paris Smith & Randall gave Mr Johnson advice, which the judge termed “eccentric”, that if the action against Mr Moores succeeded but Mr Moores was unable to pay the damages, Mr Moores would have his own claim for damages against his solicitors, McCarrahers, and Mr Johnson would be entitled to the benefit of any judgment in that respect.  The judge does not explain why he thought the advice eccentric, but the reasons are obvious.  The mere fact that Mr Moore was insolvent and had (on this hypothesis) lost his challenge to the exercise of the option did not mean that his solicitors had been negligent and if they had been negligent it did not follow that WWH would be entitled to the benefit of any such claim.  Counsel dissented from the “eccentric” advice.  Accordingly, in March 1989, Mr Johnson wrote to Mr Wood that he had discussed with Paris Smith & Randall counsel’s view that Gore Wood’s earlier “eccentric” advice referred to above was erroneous.  Paris Smith & Randall did not agree with counsel’s view and Mr Johnson asked Mr Wood for his opinion.  Mr Wood advised Mr Johnson that Paris Smith & Randall’s view was correct (judgment, paragraph 50).
29.	The delay in bringing the matter to trial resulted in WWH having cash flow problems.  In March 1989, Gore Wood wrote the following comfort letter to NatWest on behalf of WWH and Mr Johnson:-
“It has been our view and that view has been supported by Counsel, that Westway Homes Limited have a litigation action which must eventually be successful.
At the very worst, a compensatory payment for loss of profit would be achieved through the courts.
Our client has therefore a temporary cash flow problem and we are writing this letter to you to urge the Bank to consider sympathetically our client’s request for additional support from the bank.
…
On a conservative estimate, the company’s claim would be in the region of £500,000.”
30.	On 11 April 1989 there was a meeting between Mr Wood, Mr Johnson and representatives of NatWest of which Mr Stiling, NatWest made the following record:-
“… the claim is against Moores and McCarrahers first and then if that fails will be against Gore Wood, although their opinion is that they have acted correctly.  The solicitors’ funds will eventually pay …”
31.	There was a further meeting with NatWest on 4 May 1989.  In his attendance note, Mr Stiling recorded:-
“It is hoped that they can have the Hearing before the long recess which starts on the 1 August to end September, although pessimistically it could go on into October.  I questioned whether, if liability was given in favour of Westways, … there could be an appeal but I was assured in Gore Wood’s view there was virtually no likelihood of this, bearing in mind that if Moores was found liable he would have to put in place the completion of the sale of the land within one month and if McCarrahers were, well obviously then the indemnity fund would pay up …
…
if [WWH] went into liquidation it was Rob Wood’s opinion that the liquidator would prosecute the claim as, in his view, it was ‘blue chip’ …”
32.	On 17 May 1989, Mr Wood wrote again to NatWest a letter which he accepted reflected the advice he was then giving to Mr Johnson.  It was in the following terms:-
“The Company has been advised by Gore Wood that it has good prospects of success in its action against both Mr Moores and McCarrahers, and this view is supported by Counsel.
It is Counsel’s view that the case against McCarrahers for damages for breach of authority is also good should Mr Moores be able to successfully demonstrate to the Court that he had not given McCarrahers authority to exchange Option Agreements.
Of course the Company has also its ultimate action should Counsel’s opinion be wrong in its remedies against Gore Wood …
The Company has also been advised both by Gore Wood and Counsel that the prospects of an Appeal by any party to this action are unlikely.
…
It is inconceivable that the Company will not have a successful action against one of the parties to this action and the essential difficulty for the Company has been in bringing the matter to trial …
		…
The Bank has received previous indications from Gore Wood as to the value of the damages claim and they are likely to be approximately 1.2 million pounds [sic] and even allowing for argument as to interpretation as to the basis of this calculation, it would be realistic to assume that the claim would still not be reduced to less than £700,000.  This sum would comfortably redeem all of the current borrowings of the Company from both the Bank and individual lenders who have provided unsecured loans on the strength of the Company’s case …
We hope that in the particular circumstances of this case, the Bank will feel able to continue to support the company, but in particular, John Johnson and his family until this matter is successfully concluded before the courts.”
33.	This letter was copied to Mr Johnson.  There was no mention of the risk of Mr Moores not being able to pay any damages awarded against him, or of any alteration in the property market.
34.	At the end of April 1989, CPV’s assets were sold.  In June 1989, Mr Windust lent a further £2,000 to Mr Johnson for investment in AdFocus.  That brought the total sum borrowed from Mr Windust to £3,792.50.  At the outset no interest was agreed, but subsequently Mr Johnson and Mr Windust orally agreed a rate, which the judge found, having heard both Mr Johnson and Mr Windust give evidence, was 24% per annum compounded yearly. 
35.	I have not set out all the steps in the litigation taken by Gore Wood.  The judge held that the latest date by which trial on liability and quantum should have been heard was the end of June 1989.  He went on to hold that personal loans incurred after July 1989 were not to be laid at the door of Gore Wood and I must go into his reasons for that conclusion in more detail below.
36.	In July 1989, Mr Windust acted as a surety for borrowings which Mr Johnson obtained from Barclays Bank plc (“Barclays”) in order to make a further loan to AdFocus.  Mr Windust executed a charge over his own home to support this guarantee.  Mr Johnson later executed a counter indemnity in favour of Mr Windust in respect of this loan.
37.	On 12 July 1989, Mr Johnson made the following note of his discussions with Mr Wood for the purpose of obtaining advice from Paris Smith & Randall:-
“Rob Wood has posed the question:  What is JJ and PS&R doing to ensure our position against Gore Wood & Co – somebody should be nailing the fund right now.  At the moment we have assumed that [Gore Wood’s] fund will back theirs (Rob assures me that whilst they will hold up their hands: at the same time under the terms of their insurance they cannot admit liability).  Rob feels you/we are relying on his confidence when you/me shouldn’t be.  Rob is suggesting you contact the fund to ask them what we can talk about to prevent us taking legal action against their client, [Gore Wood] i.e. Third Party Notice – make [Gore Wood] the third defendant. – Third Party Proceedings either off the record or on the record.
If on the record, what would the risk of procedural delays be – at present our court papers are working their way through to the top of the pile at Chancery Division – if we add a third defendant would they automatically be pulled out and would we have to start again.
What does off the record mean – some understanding or separate procedures between [Gore Wood’s] fund and ourselves.
What Rob feels is essential, in the circumstances, is that there is a cast iron arrangement for WWH on the day.
We shouldn’t go through that court door without being in a position to get a judgment against one of the three ...”
38.	On 8 August 1989, in connection with Mr and Mrs Johnson’s request for a further facility of £10,000 each, Gore Wood wrote to NatWest again giving the following assurance:-
“At the time of writing, we are not aware of any new circumstances which would cause us to review our opinion as to the ultimate outcome of the case as a whole.  Nor are we aware of any circumstances since the last date of our letter which would encourage or increase the risks of an aggrieved party seeking to appeal the court’s decision.”
39.	In August 1989, Gore Wood acted for WWH in connection with the execution by it of a legal charge over property in Burlesdon, Hampshire, to secure the loan of £35,000 made to it by Mr Ridout.  On 24 August 1989 Mr Johnson sent Gore Wood a deed of indemnity as executed by him in favour of Mr Windust to cover the liability which Mr Windust had undertaken in favour of Barclays.  On 6 October 1989, Mr Maynard lent £2,000 to Mr Johnson for investment in AdFocus, which was subsequently treated as lent under the Jellicoe facility negotiated in December 1989 (see paragraph 43 below).
40.	Following counsel’s advice on 12 October 1989 that Gore Wood should be joined as defendants in the Chancery action, there were discussions between Paris Smith & Randall, Gore Wood and Willey Hargrave (the solicitors instructed to act on behalf of Gore Wood’s professional indemnity insurers from October 1988) on the question whether it was necessary for Mr Johnson or WWH to commence separate proceedings against Gore Wood or to join Gore Wood as a defendant in the Chancery action even at that late stage.  Willey Hargrave accepted that Mr Johnson would not have to commence separate proceedings against Gore Wood if the trial resulted in a judgment being given in Mr Johnson’s favour against Mr Moores or McCarrahers.  By letter dated 2 November 1989, Willey Hargrave gave an assurance in these terms:-
“For your assistance, our clients are prepared to make the following statement.  It is their present intention to be bound by the outcome of the litigation which your clients bring against Moores and McCarrahers.  That is to say, they will not require your clients to commence further litigation to establish as against our clients, whether the Option Notice was effective and enforceable as a result of service upon Messrs McCarrahers.  Thereafter, your clients will be obliged to set out a proper claim in the usual way.  If the costs wasted in the present proceedings properly form a head of damage in any claim against our clients, then it would be the policy of our clients to deal with such legitimate head of claim as expeditiously as possible …”
41.	On the basis of the assurance, Gore Wood continued to act for WWH in the Chancery action.  For the reasons I have explained, this conferred a cash flow advantage on WWH.  However, on 30 November 1989 or thereabouts, Gore Wood decided that they could no longer act for Mr Johnson, and they thereupon ceased to act for him in the Chancery action.
42.	Shortly before the commencement of the trial of the Chancery action on 15 January 1990 Mr Johnson was advised by counsel and Paris Smith & Randall that the “eccentric” advice was wrong.  On that footing Mr Johnson realised that if WWH succeeded against Mr Moores, the result could be financially catastrophic as the Sunnyfields site had now fallen in value and Mr Moores was not worth powder and shot.
43.	In December 1989, Mr Johnson negotiated a facility of £40,000 from Jellicoe Holdings Ltd (“Jellicoe”) with interest at the rate of 66.66% per annum with a minimum interest payment of £5,000.  (This high rate of interest was not in the event the highest which Mr Johnson agreed to pay).  The security for this facility was the deposit of £40,000 nominal convertible loan notes issued by WWH.  On December 1989, Mr Johnson drew down £26,000 of this, of which £12,500 went to WWH and £13,500 to himself.  He invested £6,000 in AdFocus.  The total drawdown was £36,000 with an additional £4,000 facility fee.
44.	On 15 January 1990 the trial of the Chancery action began, and it lasted three days.  In court on the opening day there was an exchange of notes between Mr Johnson and Mr Wood in the following terms:-
“JJ  If I defeat Moores I have discovered I am … broke.  I don’t after 2 years want this.
RW  Why?
JJ  You and Paris, Smith and Randall have always advised me that if we defeat 1st Def. and awarded damages, any shortfall would come by way of an indemnity (Moores) against McCarrahers.
RW  There should be a claim against McC for the shortfall due to their wrongful advice to Moores not to accept exercise was valid.
JJ  I have been told that doesn’t get me home.  J.E.K. [Mr Kitcatt of McCarrahers] was only attempting to protect the interests of his client by bringing to his attention that the exercise was possibly bad – it was then up to the client whether to take such advice or not.
RW  I consider that arguable.”
45.	On 18 January 1990, judgment was given in favour of WWH.  Contrary to the earlier advice given to Mr Johnson, on 19 January 1990 Mr Moores appealed.  On 2 and 29 March 1990, Mr Johnson borrowed a further £5,000 on each occasion.  On 4 April 1990, Mrs Johnson lent £2,000 to Mr Johnson for investment in AdFocus, which was repaid on 13 October 1990.  On 3 May 1990 she lent a further £2,000 for Mr Johnson’s personal use.  On 25 May 1990, Mr Maynard lent £2,500 to Mr Johnson of which £1,000 went to Mr Johnson personally and £1,500 to AdFocus.  On 6 June 1990 Mrs Johnson lent £850 again for AdFocus.  This was repaid on 2 February 1993.  In July 1990, Mr Johnson borrowed £40,000 from Messrs Bloom and Stebbings for funding AdFocus at the extraordinary rate of 100% interest per annum.  This was repaid out of the proceeds of the settlement of the Company action.  On 25 September 1990, Mr Johnson borrowed £3,500 from Mr Maynard again for the purpose of AdFocus.
46.	In September 1990, Mr Johnson surrendered a 12.5% interest in the share capital of WWH to RJP Properties.  This was one of the heads of claim in the present action but is not an issue on the appeal.  In October 1990, Mrs Johnson made a further loan of £1,000 and Mr Maynard lent £3,650, in each case for the purposes of AdFocus.
47.	In January 1991, WWH commenced the Company action against Gore Wood.
48.	On 20 February 1991, the Court of Appeal gave judgment in the Chancery action (see:  Westway Homes Ltd v Moores (1991) 63 P&CR 480).  This was in favour of WWH as against Mr Moores only.  WWH was ordered to pay the costs of McCarrahers.  
49.	On 19 April 1991, WWH obtained summary judgment against Gore Wood in the Company action but on 12 June 1991 the Court of Appeal allowed Gore Wood’s appeal against the judgment and gave leave to defend.  On 31 July 1992, Mrs Johnson lent to Mr Johnson a further £1,000 for the purposes of AdFocus.  He repaid this on 5 March 1993.
50.	On 26 October 1992, the trial of the Company action started.  It was listed for fifteen days and settled after twenty-seven days upon payment by Gore Wood to WWH of £1.48m. and costs in the agreed sum of £320,000.  This was some eighteen months after WWH had obtained a summary judgment against Gore Wood which Gore Wood had successfully appealed.  On 2 December 1992, a settlement agreement (“the settlement agreement”) was executed containing the following terms:-
“2. The Plaintiff [sic] undertakes that any liabilities of the Plaintiffs personally guaranteed by Mr W J H Johnson will be discharged out of the sums received under paragraph 1 (disregarding the part of the interest to be remitted under paragraph 1(5) above).
3.  Mr Johnson undertakes that the amount of any claim made by him personally in any action against the Defendant in respect of any losses suffered by him by reason of loss of income, dividends or capital distribution in respect of his position as a shareholder of the Plaintiffs will not exceed £250,000 not including interest accruing in respect of any period after the date of this agreement nor costs.  This undertaking does not limit any other of Mr Johnson’s rights against the Defendants.”
51.	In April 1993, these proceedings were commenced.
The judgment below
52.	The judge gave a meticulous and lengthy judgment, containing many detailed findings of fact.  I need only summarise those parts of the judgment which are material for the purposes of this appeal and which are not covered by the summary of the evidence set out above.  On some of the minor issues, I have dealt with the judge’s findings under the respective issues on this appeal later in this judgment.
53.	Gore Wood, at the very last moment, admitted negligence in respect of the exercise of the option.  It was also accepted that Gore Wood gave incorrect advice that the Chancery action was bound to succeed and would last about six months (the “6 month no-lose” advice).  While the advice that WWH was bound to succeed was not negligent, the advice that the Chancery action would last about six months was negligent and wrong and remained so on a rolling basis until about the middle of 1989.  Gore Wood then estimated that the case would come on for trial in about six months, which it would have done but for a last minute adjournment sought by Mr Moores’ representatives on the ground of Mr Moores’ incapacity.
54.	The principal issues of law, therefore, were the scope of Gore Wood’s duty and the measure of damage.  The judge considered the law on the scope of the duty after he had made findings of fact, and accordingly I will summarise first the relevant findings of fact made by the judge.
55.	At an early point in his judgment the judge noted that the major loss incurred by Mr Johnson was in respect of personal borrowings incurred by him following the exercise of the option.  The judge gave a useful description of the claim made in respect of these borrowings in the following terms:-
“The claim now made in respect of the personal indebtedness is the most astonishing feature of the case.  Mr Steinfeld for GW described it as “large almost to the point of being grotesque”.  Mr Ter Haar, for Mr Johnson, acknowledged it at one point as being “crazily high”.  The almost ludicrous nature of the liability being asserted can be illustrated by the fact that the claim itself is based on borrowings made by Mr Johnson of sums totalling approximately £130,000.  The claim is (subject to minor qualification) only in respect of the cost of the borrowing.  By 30 April 1993 that was a cumulative cost roughly equivalent to the amount of capital outstanding (i.e. some £120 – 130,000).  The amount claimed had, however, grown to some £1.2m. as at 30 September 1998, had risen to some £2.7m. by the end of June 2001 and to some £3.4m. by 28 February 2002.” (judgment, paragraph 13).”
56.	In relation to AdFocus and the personal borrowings, the judge accepted Mr Wood’s evidence that:-
“he was not consulted in any meaningful sense by Mr Johnson in relation to the personal borrowings (page 220 of his first witness statement and paragraph 10 of his supplemental witness statement) and that he had very little awareness of the AdFocus project (ibid, para.222 and para.21 of his supplemental witness statement), that while he was often informed by Mr Johnson in general terms of his business dealings he did not concern himself with their detail except where relevant to a specific task on which he was engaged (paragraphs 6 and 16 of his supplemental witness statement), that his general awareness of the personal borrowings arose in the context of preparing the quantum claim in the Chancery action (para.7, ibid).” (judgment, paragraph 20).
57.	The judge accepted as a fair description of the position the following evidence in Mr Wood’s supplemental witness statement:-
“It was Mr Johnson who decided upon such matters and it was not for me as his solicitor to tell him what to do.  I can see now that some of my comments at the time about the timing of the litigation (detailed elsewhere) might have mistakenly given Mr Johnson confidence in taking on short term debts, whether personal or corporate, but I did not endorse such borrowing or suggest to him that he should incur it.  That was a business decision only he could make.”  (judgment, paragraph 20).
58.	The judge found that by March 1988 Mr Johnson had made clear to Gore Wood the importance to him of his salary from WWH which he needed for business projects and normal living expenses.  This amounted to £18,000 in the period in question, being half the annual salary to which he would be entitled once the development started.
59.	The judge also held that the view which Gore Wood had expressed to NatWest in May 1989 that an appeal in the Chancery action was unlikely was one which could be legitimately held (judgment, paragraph 57).
60.	In paragraph 83 of his judgment, the judge concluded that, having regard to the fact that to Gore Wood’s knowledge Mr Johnson had personally guaranteed the debts of WWH to NatWest and Royal Bank of Scotland plc, and the repayment of Mr Ridout’s loan (which no doubt would be affected by WWH’s inability to realise the Sunnyfields site), Gore Wood owed a duty to Mr Johnson separate from that owed to WWH and co-existing with it.  The duty was to exercise care in the exercise of the option and in the conduct of the Chancery action and in the giving of advice regarding the duration and outcome of those proceedings.  The duty arose from a personal retainer with Mr Johnson.  However, the judge emphasised that such conclusion did not answer the question as to the scope of the retainer “in the sense of identifying against what kinds of personal loss it was [Gore Wood’s] duty to protect Mr Johnson”.
61.	At paragraph 90 of his judgment, the judge recorded an admission which Mr Johnson made at the outset of his cross-examination “that except in relation to the pension fund claim, all the … losses [claimed by Mr Johnson] stemmed from decisions which he made to invest in CPV and AdFocus”.  Accordingly, the judge held that the central questions were 
“(1)  whether the duty of care owed by [Gore Wood] to Mr Johnson extended to a duty to protect Mr Johnson in making the borrowing and investment decisions which he did make and
(2)  if so, whether those decisions were in fact made in reliance on advice given by [Gore Wood].”
62.	The judge held that to answer those questions he needed to examine the history of the investments and borrowings and make findings as to the extent of Gore Wood’s knowledge of them. 
63.	The judge then considered Mr Johnson’s interest in video technology.  He held in relation to CPV that Mr Johnson’s decision to invest in this business was “motivated not so much by the advice which [Gore Wood] gave in March 1988 as by the fact that he had become morally and emotionally committed to the project much earlier in the year, and had done so in the confident expectation that, once the option was exercised, he would be a relatively much wealthier man and able to pursue that interest from a question of strength”.  He found that Mr Wood’s advice about the duration of the proceedings “gave him [Mr Johnson] no reason to back away from the project.”  The judge found that the project had to be at first reduced and then abandoned altogether “(a) because it did not take off as expected and (b) because the AdFocus project appeared to be potentially more exciting, more lucrative, and therefore more deserving of the limited finance he [Mr Johnson] felt able to commit …” (judgment, paragraph 105).
64.	The judge turned to consider the investment in AdFocus.  The business of this company was “a solid state video graphics advertising control unit, which had been manufactured by an associated company of CL, known as CVT Limited” (judgment, paragraph 106).  The judge had already found in paragraph 20 of his judgment (above) that Mr Wood had a general awareness of the AdFocus project but that he was not asked to advise on whether Mr Johnson should invest in it.  Gore Wood’s involvement was on the periphery of the AdFocus project.  It was “possible” that a Mr Rees of Gore Wood had been asked to proof read draft heads of agreement between AdFocus and CL which Mr Johnson had drawn up but the final contract was drawn up by Paris Smith & Randall.  Gore Wood were also involved in litigation with ex-employees of CVT concerned with the intellectual property ultimately acquired by AdFocus.  Gore Wood were also instructed in relation to the documentation recording Mr Johnson’s loan of £11,000 to Mr Candy, a partner in AdFocus, in July 1988.  The judge traced the history of Mr Johnson’s investment in AdFocus in some detail (judgment, paragraphs 106 to 117).  The original version of the unit did not result in profitable business.  A mark 2 version was produced and the best contract obtained was with a Spanish company, Publicien.  As at August 1989 this contract was expected to produce a profit of £100,000 over two years.  A certain number of units were delivered but there were severe technological problems which were compounded as a result of AdFocus’ straitened financial position and inability to pay the wages of the staff who were needed to resolve these problems.  In the end AdFocus went into liquidation.
65.	The judge noted that Mr Johnson claimed not that with the Sunnyfields site he could have provided AdFocus with the requisite finance, but rather that the investment in AdFocus would not have been undertaken but for advice as to the duration and outcome of the Chancery action (judgment, paragraph 117).  The judge also noted that in the middle of 1989, Mr Johnson was presenting AdFocus as a potential source of funds for WWH and not vice versa.  He found that Mr Johnson never in terms requested Gore Wood for advice as to whether he should make investments.  “The highest it can be put is that the series of decisions which he took, were in a general sense, foreseeable as the kind of actions he might take” (judgment, paragraph 118).  Ultimately, having considered the authorities on the scope of the duty of care, the judge concluded that, unlike Mr Johnson’s earlier investment in CPV which he held was recoverable, the lost investment in AdFocus was not recoverable from Gore Wood, though personal borrowings up to the amount of his lost salary from WWH were (to the extent WWH did not itself borrow monies on this account) within the scope of the duty of care even if used to fund AdFocus (see below).
66.	The judge then turned to consider Mr Johnson’s personal borrowings following the exercise of the option including the loans by Mr Windust, Mrs Johnson, Mr Bullivant, Mr Burden, Mr Maynard, Jellicoe and Messrs Bloom & Stebbings referred to above:-
“The borrowings in respect of which claims are made in this action date from 18 January 1988 to 12 January 1993.  In general terms Mr Johnson’s thesis in relation to each relevant loan is either (i) that his inability to repay it was due to [Gore Wood’s] negligence or (ii) that he would not have incurred it except in the belief that he would be able to repay it from the proceeds of the Chancery action which he was negligently encouraged by [Gore Wood] to believe would have an early resolution or (iii) that the effect of earlier borrowing (and business decisions) made in reliance on that encouragement was such as to force him into yet further borrowing which he found himself unable to repay .” (judgment, paragraph 119).
67.	Mr Johnson had expected that he would receive a salary of £36,000 from WWH.  He would thus have funds to invest in other projects.  As it was, WWH was unable to pay that salary.  Mr Johnson, therefore, borrowed monies in lieu which, for a time at least, did not in fact exceed the gross amount of his post-option exercise salary due from WWH, i.e. £36,000 per annum.  Mr Johnson did not lend the money to WWH so it could pay him a salary but rather he treated the loans as personal loans made directly to him.  Accordingly no PAYE or national insurance was paid, as it would have been paid if remuneration had been paid to Mr Johnson.  There were a large number of these loans, as noted above.  Having made extensive findings of fact on these personal borrowings, the judge turned to consider the additional liabilities incurred as a result of Mr Johnson’s salary being paid after the settlement agreement in a single tax year.  Mr Wood was not asked to advise on this matter.  The judge held that, in so far as Mr Johnson’s claim was based on WWH’s own failure properly to account for tax, it could not be laid at Gore Wood’s door.  On the other hand, the claim in respect of additional higher rate tax payable as a result of WWH’s inability to spread the remuneration over earlier years was a claim which was the direct result of WWH’s non-receipt of the development profit at the time when it should have been received.  The judge held that this latter claim succeeded (judgment, paragraph 192).
68.	The judge next dealt with a factual issue as to whether, if the option had been exercised unequivocally, a substantial sum would have been paid into WWH’s pension scheme for the benefit of Mr Johnson.  There was no direct evidence from Mr Johnson on this point, although his accountant gave evidence that he would have advised Mr Johnson to cause this payment to be made.  Moreover, Mr Johnson’s claim in respect of his pension fund presupposed that he would have taken this course.  Counsel for Gore Wood had not cross-examined him on the point.  The judge considered that, if Mr Johnson had been asked about the point, he would have confirmed that he would have caused the payment to be made.  The judge held that there was sufficient evidence from which he could draw the inference that Mr Johnson would have caused this payment to be made (judgment, paragraph 196).
69.	At paragraph 198 of his judgment, the judge turned to consider the scope of the duty owed by Gore Wood in the sense given above.  The judge cited SAAMCO at pages 211 to 213 where Lord Hoffmann said:-
“A plaintiff who sues for breach of a duty imposed by the law (whether in contract or tort or under statute) must do more than prove that the defendant has failed to comply.  He must show that the duty was owed to him and that it was a duty in respect of the kind of loss which he has suffered.  Both of these requirements are illustrated by Caparo Industries plc v Dickman [1990] 2 A.C. 605.  The auditors’ failure to use reasonable care in auditing the company’s statutory accounts was a breach of their duty of care.  But they were not liable to an outside take-over bidder because the duty was not owed to him.  Nor were they liable to shareholders who had bought more shares in reliance on the accounts because, although they were owed a duty of care, it was in their capacity as members of the company and not in the capacity (which they shared with everyone else) of potential buyers of its shares.  Accordingly, the duty which they were owed was not in respect of loss which they might suffer by buying its shares.  As Lord Bridge of Harwich said at p.627:
‘It is never sufficient to ask simply whether A owes B a duty of care.  It is always necessary to determine the scope of the duty by reference to the kind of damage from which A must take care to save B harmless.’”
70.	The judge then considered the terms of the contract between Mr Johnson and Gore Wood.  There was no contractual documentation recording any retainer by Mr Johnson personally of Gore Wood.  The judge held that the existence of a contract of retainer was to be inferred, but that it would be limited to a duty to Mr Johnson personally to protect the interest of WWH (judgment, paragraph 200).  He continued:-  
“On that analysis the duty owed to him personally was a duty owed to him in his capacity as a shareholder of WWH and as an actual or potential guarantor of its liabilities.  To extend the duty so as to expose the defendant to liability to losses incurred by the claimant in other capacities requires additional circumstances from which either it can be inferred that the duty was owed in respect of those capacities or it can be said, under conventional rules of remoteness, that those losses were in the contemplation of the parties as likely to result from the breach (i.e. the second limb of the rule in Hadley v Baxendale (1854) 9 Ex 341).” (judgment, paragraph 200).
71.	The judge then observed that:
“In relation to the duty to advise, the position in relation to the scope of the duty is the same whether one views it as arising out of the contract or as a matter of tort law” (judgment, paragraph 201).
72.	 He then set out extracts from the judgments of the House of Lords in Caparo Industries v Dickman [1990] 2 AC 605:-
“The salient feature of all these cases is that the defendant giving advice or information was fully aware of the nature of the transaction which the plaintiff had in contemplation, knew that the advice or information would be communicated to him directly or indirectly and knew that it was very likely that the plaintiff would rely on that advice or information in deciding whether or not to engage in the transaction in contemplation.  In these circumstances the defendant could clearly be expected, subject always to the effect of any disclaimer of responsibility, specifically to anticipate that the plaintiff would rely on the advice or information given by the defendant for the very purpose for which he did in the event rely on it.  So also the plaintiff, subject again to the effect of any disclaimer, would in that situation reasonably suppose that he was entitled to rely on the advice or information communicated to him for the very purpose for which he required it.” (per Lord Bridge at pp 620-1).
“… the necessary relationship between the maker of a statement or giver of advice (“the adviser”) and the recipient who acts in reliance upon it (“the advisee”) may typically be held to exist where (1) the advice is required for a purpose, whether particularly specified or generally described, which is made known, either actually or inferentially, to the adviser at the time when the advice is given; (2) the adviser knows, either actually or inferentially, that his advice will be communicated to the advisee, either specifically or as a member of an ascertainable class, in order that it should be used by the advisee for that purpose; (3) it is known either actually or inferentially, that the advice so communicated is likely to be acted upon by the advisee for that purpose without independent inquiry, and (4) it is so acted upon by the advisee to his detriment.” (per Lord. Oliver at p.638).
“I do not think that such a relationship should be found to exist unless, at least, the maker of the statement was, or ought to have been, aware that his advice or information would in fact be made available to and be relied on by a particular person or class of persons for the purposes of a particular transaction or type of transaction.  I would especially emphasise that to my mind it does not seem reasonable to attribute an assumption of responsibility unless the maker of the statement ought in all the circumstances, both in preparing himself for what he said and in saying it, to have directed his mind, and to have been able to direct his mind, to some particular and specific purpose for which he was aware that his advice or information would be relied on.” (per the dissenting judgment of Richmond P in Scott Group v McFarlane cited in Lord Oliver’s speech at p.644 and approved at p.650).
“My Lords, in each of these cases where a duty of care has been held to exist, the statement in question has, to the knowledge of its maker, been made available to the plaintiff for a particular purpose upon which he has relied.” (per Lord Jauncey at p.658).
“… reliance, even if probable, thereby establishing proximity, does not establish a duty of care of unlimited scope.  Regard must be had to the transaction or transactions for the purpose of which the statement was made.  It is loss arising from such transaction or transactions rather than “any loss” to which the duty of care extends.” (ibid. p.661).
73.	The judge noted that mere foreseeability of reliance on advice is not the touchstone of the existence of a duty of care.  In this connection, the judge referred to the following passages from the decision of this court in Galoo v Bright Grahame Murray [1994] 1 WLR 1360.
“… an accountant and auditor of a company may owe a duty of care to a take-over bidder if he approves a statement which confirms the accuracy of accounts which he has previously audited or which contains a forecast of future profits, when he has expressly been informed that the bidder will rely on the accounts and forecast for the purpose of deciding whether to make an increased bid, and intends that the bidder should so rely.” (per Glidewell LJ at p.1381).
“Mere foreseeability that a potential bidder may rely on the audited accounts does not impose on the auditor a duty of care to the bidder, but if the auditor is expressly made aware that a particular identified bidder will rely on the audited accounts or other statements approved by the auditor, and intends that the bidder should so rely, the auditor will be under a duty of care to the bidder for the breach of which he may be liable.” (ibid p.1382).
“It is tempting to distinguish between the Caparo case [1990] 2 A.C. 605 and the Morgan Crucible case [1991] Ch.295 on the basis that in the latter, though not the former case, the identity of a particular purchaser of shares in the company was known to the defendants when they represented that the company’s accounts which they had prepared were fair and true.  This excludes individual members of the body of existing shareholders to whom the statutory accounts are published (the Caparo case), whilst including an identified take-over bidder, as in the Morgan Crucible case.  But there could be intervening situations, for example, where an existing shareholder is known to be a potential purchaser of more shares, with a view to acquiring the whole or a majority of the shares.  The identification test would not provide the answer in such a case.  No duty of care would be owed to such a person, in my judgment, on those facts alone, because the third of the four propositions listed by Lord Oliver in the Caparo case [1990] 2 A.C. 605, 638D, already quoted by Glidewell LJ, as it was by Slade LJ in the Morgan Crucible case [1991] Ch.295, 318, would not be satisfied: ‘(3) it is known either actually or inferentially, that the advice so communicated is likely to be acted upon by the advisee for that purpose without independent inquiry,’ and, vitally, it could not be said that the auditors in such a case ‘intended that they should act’ upon it, for that purpose”: per Slade LJ in the Morgan Crucible case [1991] Ch.295, 320A (per Evans LJ at 1388).” 
74.	Having considered the authorities, the judge held that “it was necessary to consider with some care what exactly was known to (and expected of) Mr Wood (or other relevant personnel within [Gore Wood]) at each stage when the negligent advice was alleged to have been given.” (judgment, paragraph 202).  In relation to CPV, the judge held there was no evidence that Mr Wood knew anything very specific about the finance for CPV save that he was told by Mr Johnson that he needed his projected salary from WWH in connection with that business, that he encouraged Mr Johnson to believe that there were reasonable prospects of making an early recovery from Mr Moores or McCarrahers and that he knew that Mr Johnson was relying on his forecast as to the timing of the Chancery action in not negotiating a break clause in the CPV supply agreement (judgment, paragraph 202).  In the circumstances, it could not be said that Mr Wood knew when he gave his advice that Mr Johnson would rely on his advice when borrowing money to invest in CPV or AdFocus (judgment, paragraph 203).  The judge held that in relation to CPV Mr Wood knew that Mr Johnson was going to place reliance on his advice in relation to the break clause under consideration in connection with the agreement with CL.  However, no loss flowed from the fact that Mr Johnson did not stipulate for a break clause as it was conceded by CL later (judgment, paragraph 203).
75.	However, as regards AdFocus and the personal borrowings, the judge further held as follows:-
“203. … So far as AdFocus was concerned, there is no evidence that Gore Wood had any special knowledge of Mr Johnson’s hopes and plans.  Indeed, the investment in AdFocus in the early period was of a very modest nature …  It seems to me that the highest it can be put is that Mr Wood knew that his advice was likely to be relied on by Mr Johnson in organising the finances of WWH in the interim so as to procure the payment by WWH to Mr Johnson of the salary to which he was going to receive.  That would necessarily, to Mr Wood’s knowledge, involve WWH in borrowing to achieve that end.  However, it might also mean that, to the extent that WWH did not, or could not, borrow for that purpose Mr Johnson might himself personally borrow monies to replace the missing salary.
204.  This expectation would have been confirmed by what GW learned of Mr Johnson’s financial situation during the remainder of 1988.  The picture presented to them would have been of WWH and/or Mr Johnson entering into a number of short term borrowing arrangements: Bullivant (£25,000) in May 1988 repayable on sale of the St Peter’s Court flats; Burden (£15,000) in July 1988; Burden (£20,000) in November 1988.  None of these loans can have caused GW any surprise in the light of the discussion which had taken place on 10 March 1988.
205.  So far as concerns GW’s potential liability in respect of this borrowing, it does not seem to me to matter whether or not GW knew how the money was being spent, or whether it was being spent in a sensible manner.  What they would have known was that the loans were being taken out in the expectation that they could be repaid within a relatively short period out of  the proceeds either of the development finance which would become available if specific performance was ordered or out of a damages claim which was certain to succeed if specific performance was not available.” (italics added).
76.	Accordingly the judge held that while this expectation as to the duration and outcome of the Chancery action held good, and to the extent that Mr Johnson could prove that he would not have borrowed money but for the incorrect advice and subject to questions of mitigation, he was in principle entitled to recover in respect of the borrowing costs incurred in relation to loans (judgment, paragraph 206).
77.	The judge then drew attention to a number of changes affecting those expectations in 1989.  First, it had become clear that the advice as to the duration of the Chancery action had been incorrect.  Mr Johnson would, therefore, have appreciated the essential fragility of such forecasts.  Moreover, the decision had been taken to split the trial on liability from the trial on damages.  That would postpone the receipt of damages if a specific performance action failed.  Moreover, in February 1989, Mr Johnson was disabused of his earlier impression that he could borrow money against his salary for purposes other than those of WWH and recover it in a specific performance action (judgment, paragraph 206).  Up to this date Mr Johnson was entitled to assume that the trial and a conclusion of the Chancery action was possible within a six month time scale (judgment, paragraph 207).
78.	The judge considered that Mr Johnson should be able to recover the cost of borrowing from Mr Windust £2,000 in June 1989.  He found that Mr Johnson must have been working on the basis that it would be repaid, either out of available development finance or out of the alternative damages claims in respect of that profit against McCarrahers and Gore Wood.  “By this time the [Gore Wood] advice as to the trial timetable had begun at last to be accurate”.  Gore Wood had not advised that the alternative claim against McCarrahers would be resolved speedily, nor were they advising on the claim against themselves.  The judge noted that there had been no waiver of privilege attaching to the advice given by Paris Smith & Randall.  However, he made no finding that, as from the moment Paris Smith & Randall were instructed, Mr Johnson relied on their advice rather than that of Mr Wood, save in regard to the claim against Gore Wood.  He continued:- 
“On the other hand, nothing had yet been said by Mr Wood to still the expectation that Mr Johnson reasonably had, as a result of the earlier advice, that the conclusion of the liability trial would in practice produce a relatively early financial result.” (judgment, paragraph 209).
79.	The judge contrasted the loan of £2,000 by Mr Windust in June 1989 with the loan of £2,000 which Mr Maynard made on 6 October 1989.  By this time the circumstances had changed.  It had become apparent that the decline in the property market meant that the possibility of achieving a profit from the development if specific performance was ordered had disappeared.  To the extent that he was relying on the litigation to produce monies out of which Mr Maynard’s loan could have been repaid, Mr Johnson had to be relying on the loss of profit element in a damages claim against either McCarrahers or Gore Wood.  Further, he knew that there was a risk that the Chancery action would leave him no better off since he was being advised that Gore Wood should themselves be joined as defendants.  Indeed the judge thought there was a good reason to think the justification for the loan was not the expectation of the early receipt of damages in the Chancery action but the expectation of bringing off a lucrative contract which he thought that AdFocus had secured with Publicien.  The judge held that “it was the temptation of concluding that contract which cause him to persuade Mr Windust to mortgage his home in support of an AdFocus bank facility in June 1989.” (judgment, paragraph 210).  While the judge appears to have accepted that Mr Johnson caused AdFocus to enter into the Publicien contract in reliance on the “6 month no lose” advice, Mr Johnson did not have advice from Gore Wood as to the timing of the receipt of damages (judgment, paragraph 213).
80.	The judge concluded that liability for borrowing costs in connection with the loans made after July 1989 onwards could not be laid at Gore Wood’s door simply on the basis of the “6 month no-lose” advice given at the outset.  That liability could only be placed at Gore Wood’s door if subsequent loans were forced on Mr Johnson by pressure of early events caused by Gore Wood’s negligence (judgment, paragraph 211). 
81.	As to this, the judge held that the only rational basis for believing that WWH would make an early recovery of damages out of which personal borrowings after July 1989 could be repaid “lay in the supposition that [the Chancery action] would be settled by the insurers of either McCarrahers or Gore Wood.  In relation to both possibilities, Mr Johnson was relying on Paris Smith & Randall” (judgment, paragraph 214).  It was not reasonable for Mr Johnson by late 1989 to rely on Mr Wood’s advice in March 1989 about the possibility of recovering damages from McCarrahers (“the eccentric advice”).  Mr Johnson knew that the advice was controversial as his counsel had expressed a contrary view.  Further, in so far as those damages consisted of the costs of delay, they would ex hypothesi not be available to meet this lending and, by the autumn of 1989, it must have been obvious to Mr Johnson with the depression in the property market that the loss of development profit claim would itself be controversial.  Moreover, Mr Johnson knew that he was being advised that, unless Gore Wood were joined as a defendant in the proceedings, WWH might be exposed by Gore Wood’s insurers to an unacceptable and potentially terminal cash flow problem.  Gore Wood had thus ceased to act for him.  Furthermore the Publicien contract was ultimately not expected to be profitable.  It was proposed to enter into a loss making contract with Publicien to keep the door open to the possibility of greater things in the future.  The judge held that the recoverability of that kind of loss against Gore Wood was “quite simply untenable” (judgment, paragraph 214).
82.	The judge held that his conclusion was reinforced by the fact that in the year to April 1990, drawings from WWH (£28,630) were roughly equal to his projected net salary.  Accordingly, additional borrowings in that period covered expenditure which his salary would not have permitted (judgment, paragraph, 215).
83.	In the event, therefore, the judge concluded that, in relation to Mr Johnson’s personal borrowings, there was a cut-off point in the middle of 1989 beyond which borrowing costs could not fairly be said to be Gore Wood’s liability.  “These costs were incurred for a purpose (investment in AdFocus) which was outside the scope of [Gore Wood’s] retainer and in circumstances in which Mr Johnson could not reasonably have supposed, relying solely on [Gore Wood’s] advice that the conclusion of the Chancery action would lead to a speedy payment of damages from which the loan could be repaid.  It cannot be said that the loans were in any sense “forced on” Mr Johnson as a result of earlier decisions or commitments made by him as a result of [Gore Wood’s] negligence.” (judgment, paragraph 216).
84.	The judge did not apply the cut-off in respect of the costs of borrowing in relation to Mr Johnson’s personal overdraft from NatWest.  He found that this overdraft was incurred for personal expenditure.  Gore Wood was involved on behalf of Mr Johnson with negotiations for increased facilities of £10,000 for each of Mr and Mrs Johnson in August 1989.  Thus, they recognised that Mr Johnson’s need to borrow from the bank was a foreseeable consequence for their own shortcomings, both in the exercise of the option and in bringing the proceedings to an early conclusion.  The judge concluded that:
“Having supported the application to the bank, it does not lie in their mouth now to say that the consequent use by Mr Johnson of the facilities should really be seen as having relied simply on the basis of [Paris Smith and Randall’s] advice as to the prospects of success of the damages claim against [Gore Wood] themselves.” (judgment, paragraph 218).
85.	Accordingly, the judge awarded Mr Johnson damages in the amount of the borrowing costs attributable to Mr Johnson’s personal overdraft with NatWest in the period after 18 February 1988 and prior to 1 December 1989, with bank charges and interest incurred thereafter on the amount of the overdraft not exceeding £18,217.87, being the amount of the overdraft at the date on which Gore Wood’s retainer was terminated.
86.	The judge then turned to causation.  He held that Mr Johnson would not have incurred the costs of the personal borrowings or embarked on the CPV venture if proper advice had been given (judgment, paragraphs 220 and 221).
87.	Next the judge considered whether Mr Johnson was in breach of his duty to mitigate his loss in respect of the personal borrowings or bank interest charges.  He calculated that the former claim amounted to some £53,000 and the latter to some £8,000.  The judge concluded that these sums could have been repaid out of the assets available to Mr Johnson after the settlement of the Company action.  The creditors entitled to these obligations would have been prepared to enter into a moratorium or compromise.  The interest payable on these borrowings was some 24% as opposed to current base rates of about 6%.  Mr Johnson argued that he was not bound to sell the Sunnyfields site while there remained a reasonable prospect of being able to obtain a fresh planning permission.  The judge, however, held that he was not entitled to take this course (judgment, paragraph 232).
88.	The final point in the judge’s judgment which I need to mention at this stage is the judge’s conclusion on the pension claim by Mr Johnson.  Mr Johnson claimed that, if Gore Wood had exercised the option with due care, serving the notice of exercise on Mr Moores, the Sunnyfields site would have been developed and sufficient development profit realised to enable WWH to make a contribution to Mr Johnson’s pension policy.  Mr Johnson claimed the loss resulting from the company’s failure to make this contribution.  Gore Wood argued that the loss was too remote, alternatively, that it constituted reflective loss and that accordingly only WWH could recover it.  The judge rejected the argument on remoteness and held that, since Gore Wood owed a duty of care to Mr Johnson in his capacity as the effective owner of WWH, the pension claim was within the scope of the duty.  The judge further held that while the principle of no reflective loss prevented Mr Johnson from recovering the amount of the contribution that WWH would have made to his pension policy, he could still recover the enhancement in value of the pension fund and this was not reflective loss.  However, the judge held that this enhancement was the difference between the amount of interest that would have been earned on this sum by WWH and that which would have been earned if the money had been paid into Mr Johnson’s pension policy where it would have been earned tax free.  The judge reached his conclusions on the no reflective loss principle on the basis of the decision of the House of Lords in Johnson v Gore Wood (No.1).  Mr Johnson was only entitled to the differential in the rate of interest since WWH would have been entitled to claim interest on the principal sum as against Gore Wood in the Company action.  The fact that WWH settled the action and obtained less than the sum of £300,000 did not mean that Mr Johnson could recover the difference between the amount claimed and the amount recovered.  Moreover, since WWH was to be deemed to have made the recovery at the date of the settlement, any interest differential to which Mr Johnson was entitled would cease at the date of the settlement agreement.  On this basis, the judge directed an inquiry as to the amount of Mr Johnson’s loss.  The judge noted that there was no suggestion that Gore Wood should have advised Mr Johnson on action to avoid the reflective loss rule.
Issues on this appeal
89.	The issues on this appeal and the respondents’ cross-appeal are:-
i)	was the judge right in his conclusion that Gore Wood’s duty did not extend to Mr Johnson’s investment in AdFocus?  
The sum claimed under this head is £82,256 exclusive of statutory interest.
ii)	was the judge’s conclusion in respect of the cut-off date of 1 December 1989 for Mr Johnson’s personal overdraft from NatWest correct?  
The sum claimed here is £135,406.24 exclusive of statutory interest.
iii)	was the judge right in his conclusion that Gore Wood were not responsible for the costs of Mr Johnson’s personal borrowings after July 1989?  
The sum claimed under this head is in excess of £4.5m., on the basis of interest at the contractual rate down to February 2002 or earlier repayment.  This figure includes the amount awarded by the judge under this head at trial, the borrowing costs of the amounts used to fund CPV and AdFocus and the costs of a loan made by Mr Windust before the “6 months no lose” advice was given which was, therefore, not incurred in reliance on the negligent advice.
iv)	was the judge right to conclude that in pursuance of his duty to mitigate Mr Johnson could and should have procured the sale of the Sunnyfields site in December 1992?  
          The amount at issue here has not been quantified.
v)	were the judge’s conclusions on Mr Johnson’s pension claim correct?  
Mr Johnson’s original claim was £480,000 under this head but he now seeks an enquiry if he succeeds on his appeal.
vi)	was the judge correct in the way he dealt with the additional tax liabilities which Mr Johnson incurred on his remuneration from WWH?  
The sum in issue here is £15,341 exclusive of interest.  
vii)    was the judge entitled to find that the Jellicoe loan had been repaid?  
The issue here is whether the borrowing cost of part of this loan is recoverable.  At trial Mr Johnson claimed that he was entitled to recover the sum of £2m. as interest on that part of the Jellicoe loan (£23,500) which was applied for his personal benefit. Gore Woods case is that part of the loan was repaid in September 1992.
viii)    was the judge entitled to find that compound interest was payable on the loans from Mr Windust?  
The amount in issue here is the difference between simple and compound interest.
ix)     was the judge entitled to find that Mrs Johnson’s loans carried 	interest at 24% per annum?  
Mr Johnson claims some £53,000 under this head.
90.	I will examine the principles relating to the scope of the duty and then take each of these issues in turn.
The principles relating to the scope of the duty of care
91.	As I have said above, the key issue on this appeal is the scope of the duty owed by Gore Wood to Mr Johnson on the facts of this case.  Starting with Caparo v Dickman, the courts have moved away from characterising questions as to the measure of damages for the tort of negligence as questions of causation and remoteness.  The path that once led in that direction now leads in a new direction.  The courts now analyse such questions by enquiring whether the duty which the tortfeasor owed was a duty in respect of the kind of loss of which the victim complains.  Duty is no longer determined in abstraction from the consequences or vice-versa.  The same test applies whether the duty of care is contractual or tortious.  To determine the scope of the duty the court must examine carefully the purpose for which advice was being given and generally the surrounding circumstances.  The determination of the scope of the duty thus involves an intensely fact-sensitive exercise.    The final result turns on the facts, and it is likely to be only the general principles rather than the solution in any individual case that are of assistance in later cases.
92.	I am thus in general agreement with the judge’s conclusions of law which I have summarised above.  The essential proposition of law is to be found in the judge’s citation from SAAMCO set out at paragraph 69 above, to which there can usefully be added the next two sentences of the speech of Lord Hoffmann, with whom all the other members of the House agreed:-
“In the present case, there is no dispute that the duty was owed to the lenders.  The real question in this case is the kind of loss in respect of which the duty was owed.”
93.	On this appeal, Mr Ter Haar cited a number of additional authorities, including Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528, Koufos v Czarnikow Ltd (The Heron II) [1969] 1 AC 350, Brown v KMR Services Ltd  [1995] 2 Lloyd’s Rep 513, Wroth v Tyler [1973] 2 WLR 405, Compania Financiera “Soleada” S.A. v Hamoor Tank Corporation Inc. (The Borag) [1981] 1 WLR 274 and Hedley Byrne & Co Ltd v Heller and Partners [1964] AC 465.  With no disrespect to Counsel, I do not consider it necessary to go through all these authorities.  The Brown case, however, usefully demonstrates that it is the kind of loss, and not its size, that matters.  In that case an underwriting member of Lloyd’s sued his member’s agent for the negligent selection of syndicates, of which an excessive number had a high risk profile.  This Court rejected the argument that those losses were too remote by virtue of their scale.  This decision preceded SAAMCO; it is not, therefore, as such an authority on the scope of the duty of care, but the principle which both Brown and Wroth v Taylor illustrate, namely that the fact that the scale of the loss was unexpected does not of itself mean that the loss is irrecoverable, must equally apply under the scope of duty approach.
94.	Mr Alan Steinfeld QC, for the respondents, sought to narrow the scope of the duty by contending that, as a matter of law, the advice had to be sought for the specific purpose giving rise to the claimed loss and that purpose had to be made known to the adviser.  Mr Steinfeld relied on certain passages in Caparo as supporting this submission, in particular a passage in the speech of Lord Bridge at page 624 where he agrees with the reasoning of Richmond P in Scott Group Ltd v McFarlane [1978] 1 NZLR 553.  Richmond P emphasised the need for the maker of the statement to be able to direct his mind “to some particular and specific purpose of which he was aware”.  I can readily accept that some purposes can be so alien to the purposes actually known to the adviser as to be outside the scope of the duty.  If a solicitor is asked to advise on a transaction to achieve purpose A, and he gives negligent advice, it would be likely to be outside the scope of his duty if the loss suffered by the client in fact resulted from purpose B, which emerged later (perhaps through a change of circumstances) and was thus not made known to him.  However, if the advice which a solicitor gives is for the general purpose of making investments, it cannot matter that the solicitor does not know what those investments are or the scale of the proposed investment.  The court has to ask simply whether the loss that occurred was “the kind of loss in respect of which the duty was owed” (see per Lord Hoffmann in SAAMCO, quoted above).  The court must, therefore, ask for what purpose the advice was given.  In some cases, depending on the facts, it will be sufficient that the purpose can be generally described.  The statements in Caparo on which Mr Steinfeld relies have to be read in the context of the issue in that case, which was whether purchasers in the market of a company’s shares and existing shareholders wanting to buy more shares could rely on the audit report attached to the annual accounts.  By statute the audit report is required to be prepared so that it can be placed with the accounts before the company in general meeting.  There was no issue in Caparo as to the degree of specificity required to be attached to this purpose.  The purpose was to be deduced from the statutory framework for audit reports, which is silent with respect to purchasers of shares in the market.
95.	Accordingly, in my judgment, the judge was correct to seek to define the scope of the duty of care which Gore Wood owed.  As Lord Bridge said in Caparo v Dickman at page 627, “[i]t is never sufficient to ask whether A owes B a duty of care.  It is always necessary to determine the scope of the duty by reference to the kind of damage from which A must take care to save B harmless”.  Ultimately, that decision turns on the court’s principled assessment of the primary facts, and thus this court is in largely the same position as the judge on this issue.  I have set out the facts in some detail, as the judge did in much greater detail in his careful, clear and comprehensive judgment.  His judgment discloses a heroic attempt to separate Pelion from Ossa and to draw a line on a principled basis between Mr Johnson’s massive losses and the responsibility that could fairly be visited on Gore Wood.  It is important to note, however, that the judge specifically rejected Gore Wood’s suggestion at trial that most of the loss was caused by “inherent defects in [Mr Johnson’s] character” (judgment, paragraph 18).  The judgment does not contain any relevant suggestion that Mr Johnson’s actions on the strength of the “6 month no lose” advice were not actions which he could reasonably take, save as regards personal borrowings incurred after 31 July 1989.
96.	It would at this point be appropriate to focus on the extraordinary nature of the advice.  Advice about litigation (such as this was) is normally given in cautious terms, even where a client is reasonably likely to win, for example, “You have a good chance of success but success cannot be guaranteed” or “The case may take a year to come on for trial and even if you win the other side may appeal”.  In this case, all such caution was thrown to the wind.  No mention was made of the risks and uncertainties in the Chancery action, such as those arising from Mr Moores’ financial position or the effects of delay in bringing the Chancery action to trial.  The consequence in financial terms was that what ought to have been a discounted contingent asset for Mr Johnson was converted into an asset from which virtually no discount for delay or for uncertainties in realisation had to be made.  The Chancery action became, therefore, an asset on which (as Gore Wood knew) he might rely to raise money for investment or other purposes.  The content of the advice and the financial implications that flow from it are clearly relevant considerations in determining the scope of the duty.  
97.	The strongest point, in my judgment, to be made in Mr Wood’s favour is that he was not formally asked to advise on the wisdom of further investment beyond CPV during the currency of the litigation.  But the documentary and other evidence shows that Gore Wood gave advice to Mr Johnson on several business matters in quick succession.  They knew that he was an entrepreneur and that he made his living by making investments which were obviously risky but which entailed a commercial assessment of the business risk.  When these points are borne in mind, the imperfect and incomplete knowledge which Mr Wood had of AdFocus and his general rather than specific awareness of his personal borrowings become factors of much less importance.
98.	The analogy may be taken of a case where an auditor negligently gives an unqualified audit report on company accounts.  Caparo establishes that in giving his report an auditor owes a duty to the shareholders in general meeting in respect of decisions made in reliance on those accounts.  If an auditor signs an unqualified report when he ought not to have done so because the company’s profits were overstated, and the board then places before the company in general meeting a directors’ remuneration report with the accounts which seeks shareholders’ approval to the award of generous share options to the directors, it would be no defence for the auditors, in response to a claim to recover the wasted costs of that report, to say that while they knew from the provisions made in the accounts that the company would make a distribution out of the profits shown by the accounts, they did not know about the share option scheme when they signed their report.  The scope of their duty of care as auditors must in principle encompass anything which the company in general meeting could, having regard to the statutory scheme for annual accounts and audit, be expected to do on the strength of those unqualified accounts.
99.	At paragraph 200 of his judgment, the judge held that the personal retainer which he had found at paragraph 83 of his judgment did not entail a duty to Mr Johnson other than a duty to protect the interest of WWH.  On that analysis, the duty owed to him personally “was a duty owed to him in his capacity as a shareholder in WWH and as the actual or potential guarantor of its liabilities”.  This distinction was no doubt derived from Caparo.  In the judge’s judgment, to extend the duty beyond this would require additional circumstances from which a wider scope of duty could be inferred, or from which it could be said, under conventional rules of remoteness, that those losses were in the contemplation of the parties as likely to result from the breach (that is, under the second limb of the rule in Hadley v Baxendale).  At paragraph 235 of his judgment, the judge, noting that loss of the development profit was within the first limb of the rule in Hadley v Baxendale as loss likely to flow naturally from the breach of duty, went on to hold that:-
“given WWH’s role as effectively Mr Johnson’s alter ego, any foreseeable damage suffered by him personally as a result of WWH’s loss of that profit (e.g. loss of dividends, diminution in the value of his shares, loss of salary or inability to pay into the pension scheme) seems to me to flow just as naturally and obviously from the breach” (judgment, paragraph 235).”
100.	The judge went on to hold that Mr Johnson could recover damages for loss suffered other than in his capacity as a shareholder, including his investment in CPV, personal borrowings, additional tax liabilities and the loss of a contribution into his pension fund.  For my own part, I prefer the view, in contradistinction to applying the first limb of the rule in Hadley v Baxendale, that once it is accepted that the personal retainer extended to Mr Johnson in his capacity as a guarantor, and once it is recalled that Mr Johnson was effectively the sole shareholder of WWH, comparatively little knowledge of the losses or gains which would accrue to Mr Johnson from WWH in some other capacity is required.  The difference in a case such as this between a shareholder and a director, or between a shareholder as a shareholder of the client company and as shareholder of another company in the same ownership, can be vanishingly small.
101.	I now turn to the individual issues arising on this appeal.
(i) Investment in AdFocus
102.	For the appellant, Mr Ter Haar QC places emphasis on paragraphs 220 to 222 of the judgment where the judge dealt with the question of causation and the terms of the CPV investment:
“220.  Having identified the borrowing costs in respect of which [Gore Wood] might be liable in principle, it remains to consider whether it has been proved that Mr Johnson would not have incurred them but for the relevant negligence on the part of [Gore Wood].  As to this, I am satisfied that Mr Johnson would not have incurred the costs of these borrowings but for the advice he had received to the effect that his problems could be regarded as a short term cash flow problem.  So far as the personal borrowings were concerned I do not think that he would indeed have been in a position to have borrowed the relevant sums from either Mr Windust, Mrs Johnson, Mr Burden or Mr Ridout had he not felt able to assure them of what he perceived as being the very temporary nature of his needs.
221.	That conclusion also leads me to think that he would not in fact have embarked on the CPV venture had careful advice been given.  I have already noted that Mr Johnson’s evidence was equivocal as to whether or not he would have caused CPV to enter into the CL contract had proper advice been given.  What I think can be said, however, is that to the extent that his investment in CPV depended on his borrowing the money to do so at high rates of interest it would not have been made.
222.	The personal borrowings which he incurred in the relevant period in fact total some £24,166.48, roughly equivalent to the net £23,618 cash investment made by him in CPV.  I hold that Mr Johnson is entitled to recover his investment in CPV, which I calculate as the £23,618 claimed together with the amount (£4,922) for which he is liable to Hunt & Co in respect of his guarantee.  I exclude from the amount of the CPV investment the £8,885 contributed by way of consultancy fees.  I am not satisfied that these fees would have been earned by Mr Johnson independently of CPV having entered into the CL contract.”
103.	Mr Ter Haar QC submits that there can be no proper basis for distinguishing between Mr Johnson’s investment in AdFocus and his investment in CPV.  The technology was not significantly different, the parties were effectively the same and Gore Wood had been involved in the very same technology which AdFocus was intended to develop and on which Gore Wood had been instructed.  Mr Wood knew that Mr Johnson was investing in the video technology business.  The judge should not have concentrated on the 10 March meeting but should have looked at the continuum.  There was a continuing duty to advise and where appropriate to qualify the advice.  Mr Wood knew and accepted that his advice was needed by Mr Johnson in order for Mr Johnson to order WWH’s affairs and his personal affairs.  Although the evidence does not go so far as to show that this was stated for the purpose of seeking advice, Mr Ter Haar submits that there was no real distinction between CPV and AdFocus as Mr Wood could foresee that Mr Johnson would rely on his advice for making investments and organising his finances.  It was obvious to Mr Wood that Mr Johnson was not a rich man;  all the more so was this apparent from his previous borrowings.  Mr Ter Haar submits that Mr Wood progressively knew about AdFocus and in addition that he knew about Mr Johnson’s interest in CPV and about the consultancy agreements.  Mr Johnson’s letter of 9 May 1988 (see paragraph 20 above) told Mr Wood that his affairs were interlocked and he made it clear to Mr Wood that he needed accurate information for the purpose of furthering his business interests generally.
104.	The losses claimed under this head include the loss of investment (£81,664.98) funded by borrowings for the benefit of AdFocus.  Mr Ter Haar submits that Mr Johnson’s borrowings to further his investment in AdFocus were clearly a foreseeable consequence of Gore Wood’s advice as to timing and prospects of success being wrong.    
105.	For the respondents, Mr Alan Steinfeld QC submits first that matters changed with the fall in the property market.  That should have alerted Mr Johnson to the potential exhaustion of the “buffer” of £175,000, viz the price payable by WWH to Mr Moores, against which any damages payable by Mr Moores could be set if Mr Moores was insolvent.  Second, Gore Wood were only involved to the extent of proof-reading the consultancy agreement.  Third, the judge was entitled to come to the conclusions that he did.  The business of AdFocus failed because of a series of technological problems and the problem with Publicien.  
106.	As to the first point, Mr Steinfeld submits that in March 1988 it was unnecessary to consider the possibility of the buffer being exhausted or any fall in the property market because on the figures then available, Mr Johnson stood to obtain a property worth £600,000 as a result of the enforcement of the option.  If he lost, he was bound to be awarded damages either against McCarrahers for breach of warranty of authority or against Gore Wood.   On the latter claim, Mr Johnson had the advice of Paris Smith & Randall and was not entitled to rely on Gore Wood for advice as to timing of the receipt of the claim against his firm.  Moreover, Paris Smith & Randall were heavily involved in the AdFocus investment.  Mr Steinfeld distinguishes the decision of this court in Dean v Allin & Watts [2001] PNLR 921 on the ground that the claimant in that case was not advised to obtain independent advice and so could continue to rely on the firm of solicitors who was acting for him in the transaction as opposed to the firm from whom he obtained a second opinion.
107.	It was only at the beginning of 1989 that it became clear that things had changed.  By this time the amount of the claim against Mr Moores had increased and there were signs that the property market was beginning to falter.  It had collapsed by January 1990 when the action came on for trial.  In that context, it became appropriate to consider what would happen if the buffer was not sufficient and at that point that Paris Smith & Randall focused on the claim against McCarrahers.  Mr Johnson accepted that the property market went down in the second half of 1989.  It was also apparent from the exchange of notes in court on 15 January 1990 that he appreciated that the market had gone down.
108.	As to the second point, Mr Steinfeld submits that the involvement of Gore Wood was limited to proof reading the agreement on a “no obvious error” basis.  It did not need in-depth knowledge.  It told Gore Wood nothing about the business.  Nor did the dispute about intellectual property regarding AdFocus give Gore Wood any knowledge about the business plans or prospects for the business of AdFocus.  
109.	As to the third point, the judge in his judgment traced the history of Mr Johnson’s investment in AdFocus.  (I have summarised this above).  Its business was different from that of CPV.  CPV was involved in the production of a finite number of machines with a resale value.  Mr Johnson’s letter of 29 March 1988 to the Royal Bank of Scotland plc represented Mr Johnson’s thinking: not much investment was required for CPV.  CPV ceased business in about March 1989.   By contrast, the investment in AdFocus was on a large scale and open-ended.  
Conclusions on the investment in AdFocus
110.	The judge’s conclusion was that CPV fell within the scope of the duty of care but AdFocus did not.  There is no challenge to the first part of his conclusion.  The basis of the judge’s distinction was effectively that Mr Wood had much more knowledge about CPV than he had about AdFocus.  He did not know the extent to which AdFocus would require finance and investment.  The loss incurred by investment in AdFocus was much larger than that incurred by investing in CPV and the judge may have been concerned by this factor.
111.	I have come to the conclusion that the judge’s distinction between CPV and AdFocus draws too fine a line between the cost of the investment in CPV and that in AdFocus.
112.	It is indisputable that, as a result of the knowledge which he acquired regarding CPV, Mr Wood knew that his “6 month no lose” advice was needed and would be relied on to enable Mr Johnson to organise his finances and make investments.  In any event, Mr Wood clearly had the duty to correct the advice if it became materially inaccurate at any time during Gore Wood’s retainer.  Mr Johnson was an active business man reliant on positive cash flow and he was experiencing acute cash flow problems as a result of the Chancery action.  While there are clearly differences between the investment which Mr Johnson made in CPV and that which he made in AdFocus and between Mr Wood’s involvement in both matters, from the perspective of a person giving legal advice as to the duration and prospects of success in pending proceedings these differences seems to me not to be critical.  In my judgment, once the judge reached a conclusion that Mr Wood had sufficient notice of the purpose to which his advice was to be applied in relation to CPV and knew that there was another similar project which would inevitably require funding, it followed that the investment in AdFocus was also within the scope of that duty.  It is not unusual for solicitors to give advice which has commercial implications of this nature.  Moreover, the investment in AdFocus was a natural progression from the investment in CPV and was the sort of investment which Mr Wood must have expected Mr Johnson to make.  
113.	In the year to 30 April 1989 Mr Johnson’s investment in AdFocus was out of borrowings to replace his lost salary from WWH.  The judge considered that Mr Wood should have anticipated such borrowings (see paragraph 203 of his judgment set out above).  The security for the claim to recover the cost of these borrowings from Mr Moores was the option price  (referred to in argument as the “buffer” of £175,000) and, to the extent that that was exceeded, Mr Johnson’s claim against McCarrahers.  His investment in AdFocus did not, therefore, depend on the property market and the value of the Sunnyfields site.  Mr Steinfeld’s submission that the fall in the property in 1989 caused Mr Johnson’s loss must therefore be rejected.  In the following year, Mr Johnson made drawings from WWH equal to his salary.  The question whether borrowings in that period were within the scope of the duty arises also in relation to personal borrowings below, and I deal with it there.
114.	The judge did not make a finding as to whether Mr Johnson would have made the investment in AdFocus if Gore Wood had given him competent advice as to the duration and prospects of the Chancery action.  He made a finding to that effect in relation to the earlier investment in CPV.  There is nothing in the judge’s factual findings to suggest that if he had concluded that the investment in AdFocus was within the scope of the duty of care, he would nonetheless have found that Mr Johnson failed on the causation point.  The finding in paragraph 210 of the judgment that the justification for Mr Maynard’s loan was the prospect of a profit from AdFocus rather than the expectation of damages in the Chancery action does not diminish Mr Johnson’s case on causation because, whatever the motivation for the loan, Mr Johnson’s case was that he would not have exposed himself to the liability on this loan without the “6 months no lose” advice.   Having regard to the fact that Gore Wood adhered to their advice throughout and the judge was content to find that Mr Johnson relied on their advice when borrowing money on overdraft from NatWest, I consider the court should find that Mr Johnson would not have made his investment in AdFocus if Gore Wood had given competent advice as to the duration and prospects of the Chancery action.
115.	I would, therefore, allow the appeal on issue (i).  Mr Johnson is entitled to recover his lost investment in AdFocus, but only in so far as that investment was made prior to Gore Wood ceasing to act, together with interest pursuant to statute.  
(ii) Cut-off date for Mr Johnson’s personal overdraft from NatWest
116.	This head of claim concerns the cut-off date for the personal overdraft with NatWest.  The judge chose the date of 1 December 1989 for this purpose, which coincides with the termination of Gore Wood’s retainer.  He held:-
“218. It seems to me that [Gore Wood’s] involvement on behalf of Mr Johnson with these negotiations with NatWest is entirely consistent with a recognition by them that Mr Johnson’s need to borrow from the Bank was a foreseeable consequence of their own shortcomings both in the exercise of the option itself and in bringing the proceedings to an earlier conclusion.  Having supported the application to the bank it does not lie in their mouth now to say that the consequent use by Mr Johnson of the facility should really be seen as having relied simply on the basis of [Paris Smith & Randall’s] claim against [Gore Wood] themselves.
219. By the time of termination of [Gore Wood’s] retainer the personal NatWest overdraft had risen to some £18,217.81.  Recognising that an element of broad brush is here being applied, it seems to me fair to charge [Gore Wood] with the bank charges and interest actually suffered by Mr Johnson attributable to the period after 18 February 1988 and prior to 1 December 1989, and with the bank charges and interest thereafter incurred in relation to his overdraft with NatWest (but not in relation to any amount in excess of £18,217.87 for the time being outstanding).”
117.	Gore Wood does not challenge this date, but Mr Johnson contends that there should be no cut-off in this regard.  Mr Johnson continued to borrow.  There was no suggestion that he was living extravagantly.
Conclusions on the cut-off date for bank interest and charges
118.	In my judgment, Gore Wood cannot be rendered liable for any increase in the overdraft after this date in excess of the amount at which it stood on that date (other than in relation to interest).  Gore Wood had ceased to act.  Mr Johnson could no longer rely on their advice.  It has not been shown that, if he required further funds for personal expenditure, he could not have obtained these by seeking employment rather than relying on his overdraft.  I would dismiss the appeal on this point.
(iii)  Personal Borrowings
119.	As explained above, the judge held that personal borrowings by Mr Johnson were recoverable up to July 1989 but not beyond.  There were significant personal borrowings after this date both for personal expenditure and to fund loans to AdFocus.  (There is accordingly an overlap between the costs of the borrowing claimed under issue (i) and the personal borrowings here claimed).  On this appeal, Mr Johnson contends that the judge was wrong to apply this cut-off and submits there should be no cut-off.  Mr Ter Haar submits that nothing changed in the period from July 1989 to the date when Gore Wood ceased to act for him (1 December 1989).  The cut-off date, therefore, has no logic.  After June 1989 Mr Johnson found himself in a position where he had no option but to raise further borrowings at very high rates of interest because of the position in which he had been placed.  (I have referred to this above as heaping Pelion on Ossa).  He was still relying on the advice that trial would take place within six months or so and that the financial consequences of the litigation would be sorted out relatively rapidly thereafter.  The fact that there was a relatively small amount of borrowings (approximately £10,000 in the first quarter of 1989) is irrelevant.  It was the capital receipt expected in the Chancery action that mattered to Mr Johnson.  Mr Johnson borrowed money to fund AdFocus, and he reasonably expected to repay these loans out of the proceeds of the Chancery action.
120.	Mr Ter Haar submits that with respect to the duration and outcome of the Chancery action Mr Johnson was not relying on the advice of Paris Smith & Randall.  If he did place any reliance on both Gore Wood and Paris Smith & Randall, that does not justify the conclusion in law that he was not relying also on Gore Wood.  They had been his favoured advisers hitherto and Paris Smith & Randall did not correct Gore Wood’s advice.  Further, Gore Wood effectively confirmed their advice in their assurances to NatWest in May 1989 after Paris Smith & Randall came on the scene.  Although there was some uncertainty in the property market, the profit had not disappeared.  Moreover, Mr Johnson told Mr Wood in about July 1988 that he was instructing Paris Smith & Randall simply to deal with one matter, namely to act on behalf of AdFocus solely in connection with the formalisation of the agreement with CL.  The fact that he was giving that firm instructions on a wider range of matters would not have been known to Mr Wood.  By the time the Maynard loan was taken out on 6 October 1989, the question of the joinder of Gore Wood in the Chancery action was under discussion, but Mr Wood felt it would not be difficult to obtain an assurance from their insurers which would enable them to continue to act for Mr Johnson.
121.	The judge erred in placing little significance on the letter of 9 May 1988 and the information gained by Gore Wood as to private loans.  That letter demonstrated that the Chancery action had had a catastrophic effect on Mr Johnson’s position.  He had had to borrow at high rates to fund other business interests in video technology.  In late 1988 he had borrowed money from Mr Bullivant and Mr Burden.  Mr Wood knew, or ought to have known, more about these loans than the respondents suggest.  Mr Wood knew that they were both personal and business loans because of the distribution of the proceeds of the loans.  Any ambiguity came to an end when Mr Wood was given details of all the loans but advised that some could not be laid at the door of Mr Moores.  He knew that some of the loans were not for the purposes of WWH.  If he thought Mr Johnson was receiving a salary, Mr Wood was put on notice that there were private loans for other purposes.  The judge was correct at paragraphs 204 to 206 of his judgment.  
122.	The judge held that Mr Johnson did not rely on advice which Mr Wood gave in respect of the claim against Gore Wood or McCarrahers.  As to this, Mr Ter Haar points to the letter which Gore Wood’s letter to NatWest dated 17 May 1989 stating that it was inconceivable that WWH would not succeed against one of the parties.  His advice must, therefore, have covered the claims against both McCarrahers and Gore Wood.  Moreover, Mr Wood accepted that he had given that advice before Paris, Smith & Randall were brought in.  Accordingly, Mr Ter Haar submits that the judge’s finding that Mr Johnson had relied on the advice of Paris Smith & Randall as regards his claim against Gore Wood in late 1989 was against the weight of the evidence given by both parties and so cannot stand.
123.	A further point made by the respondents and adopted by the judge, is that by 1989 the advice given by Gore Wood as to the time to elapse before trial of the Chancery action was accurate.  Mr Ter Haar in effect submits that this is a circular point.  There would inevitably be a point in time when trial of the Chancery action was only 6 months away.  In any event, the critical question for Mr Johnson was when he would receive the damages, and an order had been made splitting the trial of liability from that of damages.
124.	A further point relied on by the respondents is that Mr Johnson had become aware during 1989 that the property market had collapsed.  As I have already explained, Mr Johnson’s alternative claims against McCarrahers and Gore Wood protected him in this respect.  Gore Wood did not correct the “eccentric” advice described above.  Accordingly, it did not matter whether the market had collapsed.  
125.	The thrust of the appellant’s case is that up to 30 November 1989 the primary person to whom Mr Johnson looked for advice was always Mr Wood.  Mr Johnson’s evidence was that he continued to rely on Mr Wood’s advice about the ability to succeed against one of the parties right up to the end of 1989, and the judge did not reject that evidence.  The uncertainty of a judgment against Gore Wood never surfaced as a problem until then.  Gore Wood could have been added as a third party if the insurers had failed to come up with the requisite confirmation.  WWH had a cash crisis.  For that reason it had to borrow from NatWest.  By the time the Jellicoe loans were taken out, any doubt about the position regarding Gore Wood had gone.  The assurance from the underwriters was received on the 2 November 1989.  The reality was that the loan from Mr Maynard was taken out on the basis of the advice given by Mr Wood.
126.	In the circumstances, in Mr Ter Haar’s submission, the right cut-off date was not earlier than 1 December 1989.  Mr Wood accepted in his evidence that at the end of 1989 he knew that Mr Johnson was relying on the proceeds of the Chancery action to repay loans.  
127.	Mr Steinfeld submits that all personal borrowings should be outside the scope of the duty in so far as they relate to AdFocus and that accordingly the cut off should be no later than the end of April 1989.  He submits that the judge fell into error in his final sentence of paragraph 203 of the judgment when he said that the position in which WWH was placed as a result of the litigation might also mean that “to the extent that WWH did not, or could not, borrow for that purpose, Mr Johnson might himself personally borrow monies to replace the missing salary.”  It is not enough to say that it was merely foreseeable that Mr Johnson would make personal borrowings.  In any event, Mr Johnson relied on the advice he received from Paris Smith & Randall.  The question was what was known to the parties when the contract was made, not when the advice was given.
128.	Mr Steinfeld submits that Mr Wood could not foresee that loans would be taken out by Mr Johnson when as a result of a faltering property market there was no certainty that development finance would be available.  He submits that it cannot have been within the scope of Gore Wood’s duty to protect Mr Johnson against the cost of personal borrowings even if it could be said that Mr Wood could foresee that Mr Johnson might order his personal finances on the basis of his advice.  Mr Steinfeld also relies on the response given by Mr Wood in re-examination that if he had been specifically asked to give advice about the personal borrowings on the basis of his “6 months no lose” advice, he would have advised caution.
129.	Mr Steinfeld submits that Mr Johnson’s letter of 9 May 1988 showed that there was an inter-relationship between the litigation and Mr Johnson’s personal finances but it did not demonstrate that in making a decision Mr Johnson had relied on Mr Wood’s advice.  The important point was that he did not put Mr Wood on notice of reliance.  Indeed, he submits that the letter points in the opposite direction.
130.	Mr Steinfeld submits that it must have been apparent to Mr Johnson that Mr Wood was not advising on the strength of the claim against Gore Wood itself.  Even though Mr Johnson did not waive privilege with respect to the advice that he had received from Paris Smith & Randall, it was a reasonable inference that Paris Smith & Randall had advised that there would be a claim against Gore Wood if the Chancery action failed and that settlement would not take that long.
131.	Mr Steinfeld points out that Mr Johnson won the Chancery action against Mr Moores, but victory did not assure the availability of the money because the market had sufficiently declined by the time of the trial to make the feasibility of developing Sunnyfields site impossible.  Mr Steinfeld submits that the “eccentric” advice was not referred to in the assurance given to NatWest.  There was no advice given that the claim against Gore Wood would be speedily exploited.
132.	Mr Steinfeld submits that there was no evidence that Gore Wood gave any advice on the claim against Gore Wood.  By 13 September 1989, it was apparent that Paris, Smith & Randall were advising on what would happen if the litigation succeeded.  This is apparent from the correspondence which they were having with Gore Wood’s insurers.  
133.	So long as the debate with those insurers continued, the position was that the Chancery action might not result in a speedy resolution because the action might fail against Mr Moores and McCarrahers, leaving the possibility that Gore Wood might not speedily settle the claim or refuse to accept the findings in the action against Mr Moores.  This, submits Mr Steinfeld, is indicative of a lack of reliance.  It also shows that Mr Johnson was going to take out loans irrespective of success in the Chancery action.
134.	So far as Mr Windust was concerned, Mr Johnson persuaded him to execute a mortgage dated 28 June 1989 over his own house to secure the guarantee which he had given to Barclays in support of a facility of £20,000 to AdFocus, but this was not on the basis of Mr Wood’s advice.  It was on the basis of Mr Johnson’s belief that the contract with AdFocus would yield significant profits shortly.
135.	As respects the personal overdraft with NatWest, the judge adopted a broad brush approach.  It was understandable and correct that any further borrowings could not logically be made on the basis of any advice by Gore Wood. 
136.	Mr Steinfeld emphasises that the arrangements between Mr Johnson and WWH for the advance of monies or payment of salary were never known to Mr Wood.  All he knew was that Mr Johnson was keen that WWH should pay a salary at the rate that he would have received from WWH after commencement of the development of the Sunnyfields site. One of his reasons was that he would be able to apply a part of that salary to other business interests and those interests included CPV.  That was all.  Mr Wood contemplated that Mr Johnson might have to borrow to pay his salary.  Some would have been a recoverable head of damage in the Chancery action against Mr Moores or against McCarrahers.  That would be a claim by WWH.  If WWH had to borrow from Mr Johnson, Mr Johnson would be entitled to claim against WWH and WWH could bring a claim.  However, so far as personal borrowings were concerned, these were not particularly in the contemplation of Mr Wood at the time that he gave advice.
Conclusions on the costs of personal borrowing
137.	The judge found that Gore Wood was aware in general terms of the personal borrowing which Mr Johnson made (judgment, paragraph 20).  Indeed, in February 1989 Gore Wood advised that the costs of personal borrowings, as opposed to WWH’s costs of borrowing, were not recoverable as a separate head of damage in the Chancery action.  Gore Wood knew or should have known that Mr Johnson might raise personal borrowings to replace his lost salary (judgment, paragraph 203).  In addition, they knew that loans were being taken out in the expectation that they could be repaid within a relatively short period out of the development finance or out of the damages claim (judgment, paragraph 205).  In these circumstances, I consider that the costs of personal borrowings (which were for AdFocus and personal use) fell within the scope of Gore Wood’s duty.  This is so even if Gore Wood did not know the extent of them, provided that the borrowings were made before February 1989 or were within the claims for loss of profit that could be made in the Chancery action.  I, therefore, reject the respondents’ argument that no such costs fell within the scope of Gore Wood’s duty of care.  
138.	The judge drew a line at 31 July 1989 on the basis that the events thereafter made it unreasonable for Mr Johnson to continue to believe that he could recover the cost of his personal borrowings after that date.  The issue is, therefore, whether Mr Johnson acted unreasonably in relying on the advice of Gore Wood after July 1989.
139.	It is clear from the judge’s findings in paragraph 216 of his judgment that the personal borrowings were not solely for AdFocus.  The judge also found that Mr Johnson relied on the “6 month no lose” advice when he made these loans up to July 1989 (judgment, paragraph 220).  There is no finding by the judge as to reliance after that date.  Subject, however, to the point made about Mr Johnson’s reliance on Paris Smith & Randall, and the question of the unreasonableness of his reliance, the weight of the evidence supports the conclusion that Mr Johnson relied on the “6 month no lose” advice thereafter up to the date when Gore Wood ceased to act.  Indeed, in his evidence Mr Wood accepted that he was Mr Johnson’s first port of call from June 1988 until late 1989.
140.	The judge’s essential conclusion was that the “6 month no lose” advice had lost its potency after July 1989.  I have summarised his judgment on this point already.  There are many strands in the argument:  the effect of the collapse of the property in the autumn of 1989;  the fact that the splitting of the trial of liability from quantum in the Chancery action  threw doubt on the advice;  the fact that the timing element of the advice could be seen to be clearly wrong;  the fact that efforts being made to join Gore Wood as a party threw doubt on the “no lose” element of the advice;  the fact that his borrowings now exceeded the salary to which he was entitled from WWH so that he was relying on the loss of profit damages which he would only be able to recover from McCarrahers or Gore Wood;  the fact that an element of the personal borrowings was to fund AdFocus, which purpose the judge considered to be outside the scope of the duty of care;  his finding that Mr Wood was not in any sense forced to take on these borrowings;  the fact that the Publicien contract was a “loss leader” (my term) and so on.  The judge held that Mr Johnson should have pulled all these strands together and come to the conclusion that the “6 month no lose” advice could not be relied on.
141.	There is obviously force in the argument that Mr Johnson should have been sceptical about the original advice Gore Wood gave him on the duration and prospects of the Chancery action by the summer of 1989.  But to the extent that the fire of that original advice had died down by then, by August 1989 the embers were fanned alive again by the assurances which Gore Wood gave to NatWest on Mr Wood’s behalf.  The advice given in Gore Wood’s letter of 17 May 1989 stated in terms that Mr Johnson would recover a minimum of £700,000 from one of the parties.  This letter was copied to Mr Johnson.  It surely entitled him to believe that he could prudently borrow against these anticipated damages.  Moreover, the advice was repeated on 8 August 1989 when Gore Wood confirmed their advice to NatWest as of that date.  While there is no finding that Mr Johnson actually received a copy of this letter before December 1989, it is inconsistent with any notion that Gore Wood’s optimism had in any way waned or that their advice had in fact lost its potency.  Moreover, Gore Wood never withdrew their concurrence with the “eccentric” advice and thus Mr Johnson continued to be advised by them that he had a cast-iron case against either Mr Moores or McCarrahers.   The judge did not consider the assurances given to NatWest in the context of the personal borrowings.  In my judgment, these assurances were expressed in general terms and accordingly their relevance is not to be restricted to issue (ii).
142.	The “eccentric” advice has a crucial part to play in Mr Johnson’s case from the summer of 1989, when the property market first flattened out and then declined.  It, therefore, becomes essential to establish whether Mr Johnson was relying on Paris Smith & Randall rather than Gore Wood in relation to the alternative claim against McCarrahers.  At paragraph 209 of his judgment, the judge held that Mr Johnson relied on Paris Smith & Randall’s advice in so far as he was relying on the fact that Gore Wood’s insurers would speedily settle the claim against Gore Wood.  At paragraph 214 of his judgment, the judge held: 
“The only rational basis by this stage for believing that WWH would make an early recovery of damages lay in the supposition that it would be settled by the insurers of McCarrahers or [Gore Wood].  In relation to both possibilities Mr Johnson was relying on Paris Smith & Randall.”
In fact there was no evidence as to what advice Paris Smith & Randall gave as legal professional privilege was claimed.  Mr Wood had advised at the outset that the question of sorting out any liability for damages between McCarrahers or Gore Wood would be a relatively rapid matter (judgment, paragraph 220). Gore Wood continued to advise Mr Johnson on the duration and prospects of the Chancery action and to act for him in the action.  Moreover, Gore Wood accept that in their letter of 8 August 1989 to NatWest they expressed an opinion as to the merits of the claim against themselves as well as those against Mr Moores and McCarrahers.  The assurance to NatWest in May 1989 in terms extended to the claim against themselves.  The judge does not refer to these matters.  Had he done so, in my judgment, he would have come to the conclusion that there was a rational basis on which Mr Johnson could rely on Mr Wood for advice on the claim against McCarrahers, including advice on the timing of the receipt of damages.  There was little evidence that Paris Smith & Randall advised on this matter.  If Mr Johnson placed any reliance on Paris Smith & Randall as well, this did not preclude reliance on Gore Wood’s advice.  The former’s advice was simply a “second” opinion.  The fact that counsel advised that Gore Wood should be joined as parties to the Chancery action did no more than disclose a defect in the position which was capable of being solved (as it was).  In those circumstances, I do not consider that the judge’s conclusion that, as respects the timing of the receipt of damages in the Chancery action, Mr Johnson could only have relied on the advice of Paris Smith & Randall can stand.  In my view, the judge should have concluded that Mr Johnson relied on the advice of Gore Wood as to the timing of the receipt of damages up to the time when Gore Wood ceased to act.  A clear example of his reliance is contained in what he wrote in the notes exchanged in court in January 1990 (set out above).  
143.	I accept the appellant’s submission that it is no answer that Gore Wood’s advice that the proceedings would last six months became correct at a point six months before the date ultimately fixed for trial.  Of course, that was bound to happen at some stage.  However, the six month estimate related to the whole of the action, not just the last few months.  
144.	On the basis of a cut-off date of 1 December 1989, no separate issue arises under this head as to the loan made by Mr Maynard on 6 October 1989.  So far as Mr Windust’s guarantee and legal charge in support of the Barclays’ facility for AdFocus is concerned, Mr Johnson executed a counter-indemnity in favour of Mr Windust in August 1989.  In funding AdFocus in this and other ways, Mr Johnson relied not simply on his own belief as to the prospects for AdFocus but also on the amounts which he expected to receive from the Company action, and in my judgment the judge should have found that he acted reasonably in doing so.   
145.	In the circumstances, I consider that Mr Johnson is entitled to recover as part of his damages the costs (whenever incurred) of his personal borrowings which were incurred prior to 1 December 1989.  Gore Wood contend that the chain of causation was broken by Mr Johnson taking on other loans, making it impossible to repay the borrowings incurred before 1 December 1989, but this conclusion is not open to us on the facts as found by the judge.  However, I do not accept that Mr Johnson is entitled to recover the costs of further personal borrowings after 1 December 1989 since Gore Wood were no longer advising him and the judge on the facts rejected the idea that any loans after 1 July 1989 were “forced on” Mr Johnson as a result of earlier commitments or decisions made by him as a result of Gore Wood’s negligent advice.  It has not been demonstrated that the judge’s conclusion would have been any different if he had been looking at the position at 1 December 1989.  On that basis, I would allow the appeal on this issue and dismiss the cross-appeal.
 (iv)  Failure to mitigate
146.	I have summarised the judge’s findings above.  In effect, he found that the Sunnyfields site should have been sold at the time of the compromise of the Company action so that the personal borrowings of Mr Johnson could be repaid.
147.	The appellant appeals against this finding.  Mr Ter Haar submits that there was no evidence of how long it would take to sell the Sunnyfields site and as the property market had fallen it would undoubtedly have taken a long time.   Mr Johnson was advised to apply for planning permission as the existing permission was only for sheltered housing for which he was advised the market had dropped.  In any event the net proceeds after costs of sale and tax would not discharge all the debts of Mr Johnson and to pay some and not others would amount to preference.  There was moreover no guarantee that his creditors would agree to this.  It would involve, for instance, telling Mr Maynard that his loan was irrecoverable.  It was also asking too much to require of Mr Johnson that he identify in advance those loans which the judge would find in a future trial to have been those in respect of whose borrowing costs he was entitled to make recovery from Gore Wood.
148.	The respondents submit that Mr Johnson should have sold the land and repaid his personal borrowings, the cost of which he is entitled to recover from Gore Wood under the judge’s order.  The respondents submit that Mr Johnson should not have spent further monies in applying for planning permission.  They submit that Gore Wood’s duty was only to protect Mr Johnson against losses until compensation was received and that accordingly the losses after that date were outside the scope of the duty.
Conclusions on Mr Johnson’s duty to mitigate
149.	There is force in the argument that Mr Johnson should have taken steps to reduce his liability for the very high interest rates payable on his personal borrowings.  On the other hand, a party is only bound to take reasonable steps to mitigate his loss.  In my judgment, Mr Ter Haar’s submissions are unanswerable on this point.  Strikingly, there is no evidence that WWH could have sold the Sunnyfields site within a reasonable timescale following the settlement agreement.  Mr Johnson certainly could not have repaid all his personal borrowings out of the net proceeds of sale of the Sunnyfields site, and accordingly in my judgment the judge was not entitled to conclude that he should somehow have identified and repaid those loans which in due course could be shown to have incurred costs which were recoverable from Gore Wood.  Mr Johnson demonstrated his willingness to reduce his personal borrowings where it was reasonable to do so by repaying his borrowings from Messrs Bloom and Stebbings.
150.	There is no finding that Mr Johnson could have mitigated his loss at some later date.
(v)  Mr Johnson’s pension claim
151.	Mr Johnson had a self-administered pension fund with WWH.  Because of the negligent advice about the duration and outcome of the Chancery action, WWH was unable to make a payment of £300,000  into that fund for the benefit of Mr Johnson.  Under the principle of no reflective loss, where both a company and a shareholder have claims for breach of duty against the same tortfeasor arising out of the same transaction the shareholder can only claim damages for loss which is additional to that capable of being claimed by the company Johnson v Gore Wood (No.1).   Where the principle applies, the company’s claim for its loss will always trump that of the shareholder (Day v Cook [2002] 1 BCLC 1).  Mr Johnson’s claim against Gore Wood for damages for loss of the payment of £300,000 into his pension fund is one of the situations where the principle of reflective loss applies.  Accordingly, only WWH may recover the contribution of £300,000.  This is common ground.
152.	Mr Steinfeld raises a factual issue.  He submits that there was no evidence that, if the option had been properly exercised and there was a successful development with a substantial profit, Mr Johnson would have made a payment into his self-administered pension fund of £300,000, assuming that that was the maximum sum which could be paid in in a fiscally advantageous manner.  Mr Steinfeld submits that this point was always in issue
153.	Mr Ter Haar submits that, if there was any doubt about this point, the matter should be remitted to the judge dealing with the enquiry which the judge ordered in respect of the pension claim.
154.	The other issues raised in relation to the pension fund are issues of law.  Mr Steinfeld submits that any loss flowing from the inability of WWH to make a pension fund contribution over and above the contribution itself is too remote.  He submits that it follows from Johnson v Gore Wood (No.1) that Mr Johnson cannot now claim either the contribution or any interest on it.  Lord Millett dealt with the question of interest in the following passage of his speech, but the point was not considered by the other members of the House:-
“Mr Johnson claims that, but for its lack of funds resulting from the firm’s failure to exercise the option properly, the company would have continued to make contributions to Mr Johnson’s pension scheme.  For the reasons I have endeavoured to state, Mr Johnson cannot recover the amount of the contributions which the company would have made if it had had the necessary funds;  this merely reflects the company’s loss and is included in its own claim.  Nor can Mr Johnson claim interest in respect of the lost contributions for the same reason.  But Mr Johnson’s claim in respect of the enhancement of his pension is a different matter.  The problem here is one of remoteness of damage, not reflective loss, for the loss (or strictly the net loss) is one which the company could not have sustained itself.   Had Mr Johnson carried on business in his own name instead of through the medium of the company, then (subject only to the question of remoteness) he would have been entitled to recover a sum representing the lost increase in the value of his pension after giving credit for the amount saved in respect of the contributions and interest.  Such loss is separate and distinct from the loss suffered by the company, and while Mr Johnson’s claim to recover it faces obvious difficulties it should not be struck out at this stage.  But if he does establish his claim, he will have to give credit for the contributions which would have been required, whether by the company (reflective loss) or by himself (which he has saved), together with interest thereon.”  ([2002] 2 AC 1, 67 to 68).
155.	It is clear that the payment could have been made when the Company action was settled.  Accordingly, the maximum period of growth which Mr Johnson lost was the three year period from 1989 to 1992.  Mr Steinfeld’s first submission was that the maximum loss in that period was the difference between interest at the rate at which it would have been earned (gross) in Mr Johnson’s fund and the rate of interest to which the company was entitled net of tax.  He later submitted that no account should be taken of WWH’s liability to tax since that was a domestic matter for WWH so far as Gore Wood were concerned.  On the evidence as to interest rates, the amount of the loss for which Mr Johnson could recover was nil.  There was no evidence that there would have been any enhancement greater than the addition of interest.
156.	Mr Ter Haar’s response is that WWH would not be entitled to interest since the plan was that this sum of £300,000 should be allocated to Mr Johnson’s pension fund.  
Conclusions on Mr Johnson’s pension claim
157.	The factual issue.  I have set out above the salient points of the evidence on the basis of which the judge was prepared to infer that Mr Johnson would have caused a payment to be made into his pension fund.  Mr Johnson’s accountant’s evidence was unchallenged.  Moreover, it is clear from the litigation as a whole that Mr Johnson’s case was that he would have procured WWH to make a payment into his pension fund.  In my judgment, there was sufficient material from which the inference could be made, despite the fact that, through an error on the part of counsel for Mr Johnson, Mr Johnson’s own evidence did not cover this point.
158.	Entitlement to interest.  As to the scope of the duty owed by Gore Wood, Mr Wood knew enough about Mr Johnson’s personal affairs to know that he was reliant on WWH for his livelihood.  In particular he knew that Mr Johnson had a service agreement with WWH.  Companies frequently make pension contributions for their executive directors, and in the circumstances it is, in my judgment, within the scope of Gore Wood’s duty of care to protect Mr Johnson against loss of pension contributions.  It was unnecessary for the judge to go this far as he held that this loss was within the first limb of the rule in Hadley v Baxendale (judgment, paragraph 235).
159.	The next question is whether the pension claim is reduced or excluded by the principle of no reflective loss.  I have already summarised the principle.  The authorities were usefully analysed by Lord Bingham in Johnson v Gore Wood (No.1) at pages 36 to 37:-
“[The] authorities support the following propositions. (1) 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.  A claim will not lie by a shareholder to make good a loss which would be made good if the company’s assets were replenished through action against the party responsible for the loss, even if the company, acting through its constitutional organs, has declined or failed to make good that loss.  So much is clear from Prudential Assurance Co Ltd v Newman Industries Ltd (No.2) [1982] Ch.204 particularly at pp 222–223, Heron International Ltd v Lord Grade, particularly at 261– 262, Fischer (George) (GB) Ltd v Multi-Construction Ltd, particularly at pp 266 and 270–271, the Gerber  case and Stein v Blake, particularly at pp 726–729.  (2) Where a company suffers a loss but has no cause of action to sue to recover that loss, the shareholder in the company may sue in respect of it (if the shareholder has a cause of action to sue to do so), even though the loss is a diminution in the value of the shareholding.  This is supported by Lee v Sheard [1956] 1 QB 192 at pp 195– 196, George Fischer and Gerber.  (3) 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.  I take this to be the effect of Lee v Sheard at pp 195–196, Heron International, particular at p262, R.P. Howard,  particularly at p123, Gerber and Stein v Blake esp. at 726.  I do not think the observations of Leggatt LJ in Barings  at p435B and of the Court of Appeal of New Zealand in Christensen v Scott at pp 280, lines 25–35, can be reconciled with this statement of principle.”
160.	From this passage it appears that the no reflective loss principle is one that applies to claims by shareholders.  Applying this principle, the House of Lords struck out Mr Johnson’s claim to damages in an amount equal to the contributions that WWH would (but for Gore Wood’s negligence) have paid into his pension fund, but held that he had an arguable claim for the loss of the enhancement of those contributions in his fund.
161.	A difficulty with Mr Ter Haar’s argument that Mr Johnson is entitled to the whole of the interest that would have been earned on the contributions of £300,000 that should have been paid into his pension plan is that a tortfeasor (such as Gore Wood) is not concerned with internal plans of the person wronged as to how he would use the money of which he was, in fact, deprived.  Accordingly the tortfeasor cannot take advantage of them so as to resist a potential claim for interest.  I read the extract from Lord Millett’s speech set out above as supporting this conclusion.  On the findings in this action WWH would have had a claim for loss of the development profit due to negligent conduct of the Chancery action and thus in effect to the recovery of the sums it would have paid in to Mr Johnson’s pension fund.  It would also have been entitled to statutory interest on these sums. 
162.	Pausing there, the point made in the last paragraph would not of itself be an insuperable obstacle to the pension claim (as now put), were it not for the no reflective loss principle, since Gore Wood owed a separate duty of care to Mr Johnson.  On the face of it, the no reflective loss principle does not apply because Mr Johnson brings the claim in his capacity as an executive director.  It would be an odd principle of law that a director who has (say) one share cannot sue for an independent tort, but that a director who has no shares (or perhaps a director who has disposed of his shares) can do so.  However, in Johnson v Gore Wood (No.1) the House of Lords proceeded on the basis that the claim to the loss of the enhancement in the pension fund was not objectionable as a claim by a shareholder under the principle of no reflective loss.  This must be because the pension claim results from the breach of duty by Gore Wood to WWH:  it is this factor which brings the claim, apparently made as executive director, within the no reflective loss principle.  But, if this is the rationale, then the no reflective loss principle must also apply to similar claims by non-shareholders.  Only Lord Millett dealt with this point, and he seems to have had it in mind that the no reflective loss principle could apply to non-shareholder claims (see page 67b).  This result would indeed be conducive to creditor protection and minority shareholder protection, and it gives those two objectives priority.  However, this Court has held that the no reflective loss principle does not apply to a claim against a tortfeasor who prevents the company from pursuing the claim reflected by the shareholder’s claim: Giles v Rhind [2003] 1 BCLC 1.  On this basis, the need for creditor and shareholder protection is not always an absolute consideration and can be displaced.  Other difficulties with the no reflective loss principle have appeared in other decisions of this court:  see Walker v Stones [2000] 4 All ER 412; Shaker v Al-Bedrawi [2003] 2 WLR 922 and Day v Cook [2003] 1 BCLC 1.  It is to be hoped that the current will o’ the wisp character of the no reflective loss principle will be clarified before long.  Certainly, however, it is not open to us to say that the principle is confined to the lost value of shares or lost distributions to members.  Mr Ter Haar’s argument that the whole of the enhancement claim is a personal loss and outside the no reflective loss principle by virtue of category (3) in Lord Bingham’s formulation must therefore be rejected.
163.	The ambit of the no reflective loss principle does not fall for decision in this case for two reasons.  First, it is common ground that the principle applies to the pension claim (and, albeit implicitly, that it does not apply to the claim for additional tax liabilities).  Second, even if the pension claim were outside the principle because it is not brought by Mr Johnson as a shareholder, Mr Johnson would still only be entitled to the loss caused by the inability of WWH to make the contributions between 1989 and 1992 (when the Company action was settled).  This is because the loss to him was one of timing only: when the Company action was settled WWH was in theory in a position to make the contributions it had previously determined to make, plus interest for late payment.  The fact that WWH did not make full recovery is not relevant because the chain of causation is broken by the compromise of WWH’s claim against Gore Wood on terms which prevented it from making the contributions of £300,000 into his pension fund in 1992: see generally Johnson v Gore Wood (No.1) at page 66d to e per Lord Millett, approving the dictum of Hobhouse LJ in Gerber Garment Technology Inc v Lectra Systems Ltd [1997] RPC 443, 471.  Again, the only loss by way of loss of enhancement is the differential in that period between the rate of interest that WWH could have obtained and the rate of interest which the contributions could have earned if they had been paid into his pension fund.  On the evidence, that differential is a negative figure.  Under the no reflective loss principle, Mr Johnson’s claim is limited to that period for the same reason of causation.
 (vi)  Additional tax liabilities
164.	The respondents cross-appeal against the judge’s finding that they were liable for £15,000 in respect of the tax liability which Mr Johnson incurred as a result of being voted his salary for the period 1989 to 1992 in a single tax year.
165.	Mr Steinfeld submits that, apart from this loss being foreseeable, the whole basis of the discussion between Mr Wood and Mr Johnson was that salary would continue to be payable.  It was, therefore, contemplated that salary would be voted but not paid so that tax would not have to be paid on a cumulative salary in a single year.  
166.	Mr Ter Haar submits that the judge was right.  WWH could not pay the salary.  If remuneration had been voted but not paid, PAYE and national insurance would have to have been paid.  WWH could not meet such a claim.
Conclusions on the additional tax liabilities
167.	In my judgment, Mr Ter Haar is correct in his submissions on this point.  WWH had no option but to pay the salary in a single year, because of its  lack of funds as a result of the way in which Gore Wood exercised the option.  Mr Johnson is entitled to recover damages from Gore Wood in an amount equal to his own additional tax liabilities.  I consider that Gore Wood had sufficient knowledge of the terms of Mr Johnson’s service agreement to bring the claim within the scope of their duty to Mr Johnson.
168.	The respondents suggest that Mr Johnson’s salary was unreasonable in amount, and therefore outside the scope of Gore Wood’s duty, but the judge made no finding on this.  If the amount was paid to Mr Johnson in breach of trust, the tax would still have been payable because the payment of salary had not been avoided.
(vii)  The Jellicoe loan
169.	In view of my answer to issue (iii), this issue does not arise, but I will deal with it as it has been fully argued.
170.	I have referred above to the facility which Mr Johnson negotiated from Jellicoe in December 1989.  In late 1990, an assignment of the debt of £40,000 owed by WWH under the convertible loan notes was prepared which, as subsequently amended and executed, assigned to Mrs Maynard the sum of £36,000 and interest lent to Mr Johnson and waived all entitlement to the conversion rights.  Two arrangement fees of £4,000 were charged to WWH, not Mr Johnson in July 1990 and March 1991.  The issue was, therefore, whether this loan was the obligation of WWH or of Mr Johnson.  Only if it was the latter could it be claimed in the present proceedings.  The confusion was compounded by the fact that, when £40,000 was paid to Mrs Maynard following settlement of the Company action in December 1992, the form of receipt which she produced constituted a receipt in full satisfaction of monies lent to WWH or applied for its benefit.  By December 1992, £74,850.25 was due under the facility in respect of principal and interest.  This sum was paid to Mrs Maynard.
171.	Mr Johnson’s case at trial was that he was still under a personal liability to Mrs Maynard.  It would have been a breach of the settlement agreement for WWH to have repaid a personal obligation of Mr Johnson’s out of the settlement monies.  The judge heard evidence from the Maynards and Mr Johnson on this.  He noted that Mr and Mrs Maynard “insisted that the figure of £40,000 was pure co-incidence, but they had no way of knowing how such which had been lent by Jellicoe had, in fact, been used by Mr Johnson” (judgment, paragraph 155).  The judge rejected Mr Johnson’s case on this point.  He held:-
“156. If the Maynards’ account is correct the discharge given by Mrs Maynard for the £40,000 was deceptive, the most likely victim of the deception (should a question ever be raised) being the Inland Revenue.  I prefer not to think that that is the explanation of Mrs Maynard’s letter.  The route by which she was entitled to represent herself as a creditor of WWH and able to give it a discharge for the £40,000 plus interest was as an assignee of Jellicoe in respect of its lending on the footing that that lending had been to WWH rather than as an informal assignee from Mr Maynard or J A Maynard Ltd.
157. Whether I am right or wrong about that, the doubts which the evidence throws up as to her rights mean that any action now brought by her personally against Mr Johnson in respect of the Jellicoe lending would (if he were to resist it) be fraught with difficulty.”
172.	Mr Ter Haar took the court through the documents to show that the discharge which was obtained from Jellicoe in the sum of £40,000 was in fact a discharge for that amount as a result of the personal request of the Maynards and being the shareholders of Jellicoe.  That request was that the personal monies borrowed by Mr Johnson should be repaid by him in the sum of £40,000 plus interest of about £8,000, the former amount to be paid to Mrs Maynard and the latter amount to be paid to Mr Maynard, and it was merely coincidental that that sum of £40,000 also represented the principal amount lent to WWH.  Mr Ter Haar submits that the judge heard the evidence of Mr and Mrs Maynard and that of Mr Johnson.  He found that Mr Maynard was an honest, though not a satisfactory, witness.  He did not find that Mrs Maynard was not an honest witness.  Accordingly, as they were both honest witnesses, the judge ought to have accepted their evidence that it was the loan to WWH not the personal loan that Mr Johnson discharged.  He further points out that, although the judge thought there might have been some question of avoiding tax by stipulating for the amounts to be repaid in the proportions mentioned above, in fact tax on the interest element had been deducted  by Mr Johnson’s then solicitors. 
173.	Mrs Maynard’s evidence was that she and Mr Maynard agreed between them that she would receive £40,000 plus interest to put money in her bank account for the benefit of her home in Spain.  Her evidence was also that these payments did not discharge the whole of the payment due from Mr Johnson and his company and that they only discharged the loans to WWH.  Mr Ter Haar submits that the judge did not correctly analyse the evidence.
174.	Mr Steinfeld for his part submits that there was a single borrower, namely WWH.  It was the company which issued loan notes to secure the borrowing.  Mrs Maynard was treated as a creditor of WWH and she executed her release in favour of the company.  He also points out that there is no evidence as to how interest was calculated.  On its face, there was a complete receipt of sums due from the company.  The judge was, therefore, right to hold on the facts that the Jellicoe loan assigned to Mrs Maynard was settled out of the proceeds of the Company action.
Conclusions on the Jellicoe loan
175.	I consider that the appeal on this point must fail.  There were factors which supported Mr Johnson’s account, such as the fact that the loan notes of WWH appear to have been issued by way of collateral security, but there were factors going the other way.  The judge had to weigh these matters up.  The judge came to his conclusions having heard the evidence.  His conclusions cannot be said to be against the weight of the evidence.  The judge was not bound to accept Mrs Maynard’s evidence in every respect.  He was entitled to conclude that, though she might have been an honest witness, she was mistaken in her recollection.
 (viii)  Interest on the loans by Mr Windust
176.	There is an issue as to whether the interest which Mr Windust had agreed was compound or simple, and if so whether it was to be compounded monthly, as the judge held, or annually.  The judge dealt with the matter quite briefly in his judgment:-
“There had initially been no discussion of a rate of interest, but when seeking the later loans Mr Windust told me that Mr Johnson had suggested the rate and that it should run from 18 January 1988.  Although Mr Windust gave evidence at one point that simple interest was payable, he also told me that he envisaged by this that unpaid interest would be added to capital for the purposes of the interest calculation.  It was not clear whether this had been his understanding at the time or whether it was something which had subsequently been explained to him by Mr Johnson.  What was clear was that each of the loans had been made against Mr Johnson’s assurance that the money to repay them would be available in a matter of months either (in the case of the first loan) when the land deal was settled or (in the case of the others) at the conclusion of [the Chancery action].” (judgment, paragraph 120).
Conclusions on the interest on the loans by Mr Windust
177.	In my judgment, this was a question of fact for the judge.  Mr Steinfeld has not shown that the judge’s conclusion was against the weight of the evidence.  The evidence summarised by the judge accurately records answers which Mr Windust gave when giving evidence.  The judge was entitled to find that interest should be compounded with monthly rests because the original loan carried interest at 2 per cent per month.  The arrangements between Mr Johnson and Mr Windust were very informal and accordingly the judge was entitled to conclude that the agreement for monthly rests applied to the later loans also.
(ix)  Interest on the loans by Mrs Johnson
178.	As explained above, Mrs Johnson, Mr Johnson’s mother, made various loans to the company and Mr Johnson agreed to pay interest on those loans at the rate at which he paid it to other creditors.  Mr Johnson’s evidence was that he had tried to find money at a lower rate but could not do so.  This was the best that he could find in the circumstances at the time. 
179.	The judge again dealt with this matter quite briefly.  He found that there was an agreement between Mr Johnson and Mrs Johnson, that the interest rate should be 24%.  
Conclusions on the interest payable on the loans by Mrs Johnson
180.	In my judgment, the judge, having heard the witnesses, was entitled to make this finding.  Mr Steinfeld does not contend that Mr Johnson should not have agreed that rate of interest because he was under a duty to mitigate his losses.  Mr Johnson was clearly having difficulty raising money and the rate of interest which he agreed was no higher than that which he would have had to have paid to a third party.  The duty to mitigate did not require Mr Johnson to take advantage of his mother.
Disposition of the appeal
181.	In summary, I would answer issues (i) to (ix) (see paragraph 89 above) as follows:-
(i)   No.   
(ii)   Yes.  
(iii)   No. In my judgment, the correct cut-off date was     1 December 1989.
		(iv)   No.  
(v)	  No.  No recoverable loss is shown.
(vi)   Yes.
(vii)   Yes.  
(viii)  Yes.
(ix)   Yes.
182.	Thus, taking the issues as set out above and for the reasons and to the extent set out above, I would allow the appeal on issues (i), (iii) and (iv) and the cross-appeal on issue (v).  I would dismiss the appeal on issues (ii), (v) and (vii) and dismiss the cross-appeal on issues (vi), (viii) and (ix).  On that basis it should be possible for counsel to produce a draft minute of order.  Consequential issues as to interest or other matters should be referred to Hart J, if not agreed.
Lady Justice Hale:
183.	I agree.
Lord Justice Potter:
184.	I also agree.
Order: Consequential matters adjourned to a later date.
(Order does not form part of the approved judgment)