How to lose a meritorious case

This article is concerned with abuse of process of the Henderson v Henderson (1843) variety. This is the fifth variety of res judicata identified by Lord Sumption in Virgin Atlantic Airways v Zodiac Seats UK Limited [2014] AC 160. It is the principle that ‘a litigant should in general bring forward all his claims in one proceeding rather than successively’ (per Lord Justice Longmore in Dickinson v UK Acorn Finance Limited [2016] HLR 17).

Generally speaking, if a claim or a defence is an abuse of process within the Henderson principle, then that claim or defence should be struck out regardless of its merit. The only exception is if the claim or defence is ‘cast iron’, or otherwise suitable for summary judgment (see Stuart v Goldberg Linde [2008] 1 WLR 823).

Therefore, it is important for all litigants and their advisers to be aware of the scope of Henderson abuse. Otherwise a good claim may be lost, or a defence may become unsustainable.

Recently, we have seen several reported cases delineating the scope of Henderson abuse, and applying it. The topic is a wide one, and this article is intended to provide an overview.

The principles

In her judgment in Otkritie Capital International Limited v Threadneedle Asset Management Limited [2017] EWCA Civ 274, Lady Justice Arden summarised the principles on which the courts will strike out an action:

‘(i) Where A has brought an action against B, a later action against B or C may be struck out where the second action is an abuse of process.

(ii) A later action against B is much more likely to be held to be an abuse of process than a later action against C.

(iii) The burden of establishing abuse of process is on B or C or as the case may be.

(iv) It is wrong to hold that because a matter could have been raised in earlier proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive.

(v) The question in every case is whether, applying a broad merits based approach, A’s conduct is in all the circumstances an abuse of process.

(vi) The court will rarely find that the later action is an abuse of process unless the later action involves unjust harassment or oppression of B or C.’

It is therefore possible to categorise the cases as follows:

• First, where the first action was A v B, and the second action was A v B.

• Second, where the first action was A v B, and the second action was A v C.

As this citation emphasises: ‘A later action against B is much more likely to be held to be an abuse of process than a later action against C.’

The first category

A very recent example of the first category is Barnett-Waddington Trustees (1980) Limited v Royal Bank of Scotland PLC [2017] EWHC 834 (Ch). In that case, borrowers (A) had taken out a loan with a bank (B). When A contacted B, asking for a redemption figure, this was given. However, B contended that the small print in the loan agreement obliged A to pay B its costs of unwinding an interest rate swap (the swap cost). This cost was significant.

In the first action A sought a declaration (under CPR part 8) that it did not owe B the swap cost. In pre-action correspondence, in its evidence, and at trial before Mr Justice Warren, B defended the claim on the basis that the swap cost arose from an internal swap arrangement (a swap between two departments of B which were not different legal entities). The judge ruled in favour of A, saying that A was not liable to pay the swap cost.

After its success in the first case, A then wrote to B, seeking to redeem the loan. B responded contending that A owed the swap cost. However, now B relied on an external swap arrangement (a swap between B and a third party), which it said it had found after the first case.

A then began a second action, seeking orders permitting it to redeem its loan without paying the swap cost. When B sought to defend, raising the external swap, A sought summary judgment on the basis that B’s defence was an abuse.

Mr Justice Mann ruled in favour of A. In the course of his detailed judgment, Mann J ruled that:

• In ‘exercising reasonable diligence’ B should have found the external swap that it sought to rely upon at an earlier stage, and ought to have raised it within the first case. Even though no individual may have had knowledge of an external swap during the first proceedings, that did not assist B. As a matter of corporate knowledge, B did know or should be taken to have known of the swap. It would have been apparent to anyone who looked. What happened is that no one bothered to look. It was now too late to raise such a swap in the second action.

• B’s argument that it was not obliged to raise a defence of an external swap because A had framed the part 8 claim on the basis of an internal swap was unsuccessful. It was B which chose the ground by justifying the claims on the basis it did. An appropriate parallel was with a redemption action, in which the dispute was flushed out before an ‘accounts and inquiries’ stage, because B itself had defined the dispute.

• It would amount to harassment of A if A was now to face proceedings again, with B having a second go, having done belatedly what it should have done in the first place (see whether B had a potential external swap available to it).

• Although B contended that the external swap entitled it to over £4.7m, the judge was not satisfied that B’s claim was ‘cast iron’.

• B therefore lost the opportunity to pursue this claim.

The second category

Central to the second category of case are the Aldi guidelines, so named because they originated in Aldi Stores Limited v WSP Group PLC [2008] 1 WLR 748. The Court of Appeal has very recently emphasised that the Aldi guidelines are mandatory: in particular, in her judgment in Otkritie, Arden LJ stated: ‘If there is a view among commercial practitioners that the Aldi guidelines are subject to exceptions or optional, I would remind them that (following this decision) there will be at least five decisions of this Court when this Court has been asked to strike out proceedings because the Aldi guidelines have not been followed.’

So what are the Aldi guidelines? Essentially they involve case management. In Aldi, Lord Justice Thomas stated: ‘Parties are sometimes faced with the issue of wishing to pursue other proceedings whilst reserving a right in existing proceedings… [This] must be referred to the court seized of the proceedings. It is plainly not only in the interest of the parties, but also in the public interest and in the interest of the efficient use of court resources that this is done.’

In the simplest of terms, if A might have a claim against C, which is related to its claim against B, then A should raise this claim at an early stage in the life of the A v B claim. Directions can then be given as to what should be done about A’s claim against C. The possibilities include involving C directly in the A v B case, or postponing the A v C case.

If the Aldi guidelines are breached, then the court hearing A v C will not necessarily strike out that case, but may do so. In Otkritie, Mr Justice Knowles did not dismiss the A v C case, although he did order A to pay most of C’s costs of C’s unsuccessful application to strike out A’s case. The Court of Appeal upheld both the refusal to strike out, and the costs order. The Court of Appeal emphasised that the decision not to strike out was a ‘broad merits-based judgment’. The decision as to costs was an exercise of discretion.

Conclusion

The lessons to learn in this regard are:

• If A is suing B then both A and B should exercise all reasonable diligence to pursue the available claims and defences. A failure to do so may render the subsequent deployment of those claims or defences an abuse.

• If A is suing B and realises, or ought to realise, that it may have a related claim against C, then A should raise this at an early stage in the life of A v B, and seek judicial guidance as to what to do. A failure to seek such guidance may render the subsequent claim of A v C an abuse.

Mark Warwick QC and Justina Stewart are barristers at Selborne Chambers

@SelborneTweets selbornechambers.co.uk