In November 1998, the Court of Appeal in Johnson v Gore Wood & Co struck out as an abuse of process, under the rule in Henderson v Henderson, an action that had begun more than five years earlier and was eight weeks from trial. The court held that Johnson should have brought his action at the same time as Johnson's company brought its claim against the same defendant (The Lawyer, 18 January 1999).
The House of Lords has now unanimously reversed this decision. It held that the Court of Appeal had adopted far too mechanical an approach and had given little or no weight to the considerations that had led to Johnson's actions.
The House of Lords also held that it was unconscionable for the defendant to have raised the issue at such a late stage and in circumstances where the settlement terms in Johnson's company's action had expressly contemplated Johnson bringing his personal action at a later date.
The Court of Appeal's decision in Johnson was itself at odds with a decision of the Court of Appeal a few months later in Bradford & Bingley Building Society v Seddon (featuring two of the Lord Justices from the Johnson case), where the Court of Appeal refused to strike out a claim on the grounds of abuse in the absence of exceptional factors categorising it as such.
Both Johnson and Seddon were the culmination in a line of recent cases in which Henderson v Henderson had been applied to strike out claims. In Johnson, the House of Lords has clarified that the approach in such cases should be a broad one, and that it should take into account all the public and private individual interests and all the facts involved. The crucial question was whether a party was misusing or abusing the process of the court. Mere relitigation is not sufficient.
Coupled with the right to a fair trial embodied in the Human Rights Act 2000, Johnson is likely to lead to a reduction in the number of claims being struck out on the Henderson v Henderson basis. The court will act only where there has clearly been an abuse that was not excused or justified by special circumstances.
One further significant aspect of the decision in Johnson arose out of the defendant's cross-appeal. That raised the issue of whether Johnson's damages were merely reflective of his company losses, for which the company had received compensation in previous proceedings against the same defendant. The House of Lords sought to reconcile a number of conflicting decisions affecting whether a shareholder has a personal right of action arising out of their loss or whether that right belongs to the company, so that only the company can sue. This is a common position with many owner-controlled businesses, particularly where the company may have gone out of business as a result of the defendant's negligence, and it is therefore not in a position to sue. The shareholders then seek to claim in respect of their personal loss.
The House of Lords has said that if the loss to the shareholder is separate and distinct to that suffered by the company, and is caused by a breach of duty independently owed to the shareholders, each might sue to recover the loss caused to it, but neither might recover loss caused to the other by breach of the obligation owed to the other.
Therefore, the diminution in value of a shareholder's shareholding arising out of a breach of duty to the company is not a loss that is recoverable by the shareholder personally. In each case, the question has to be asked: to whom is the duty owed? If there is no separate duty owed to the shareholder, then there can be no claim.
Richard Cook is a partner in Shoosmiths and acted for Johnson in his appeal