Practice and procedure – Abuse of process – Breach of duty – Appellant advancing successful defence of misrepresentation to claim by respondent bank to enforce guarantee – Court refusing permission to amend particular to add allegation of breach of duty by respondent – Court nonetheless making findings of fact relevant to that issue and concluding that no duty owed – Whether appellant entitled to bring fresh proceedings alleging breach of duty – Proceedings struck out as abuse of process – Appeal dismissed
In 2000, a company of which the appellant was a director and major shareholder took out a loan of £500,000 with the respondent bank. Security for the loan was provided in the form of a standby letter of credit (SLOC) given by another bank for a limited period to December 2000. The SLOC was extended several times but ultimately lapsed in March 2001. Attempts to renew the SLOC were unsuccessful, which left the company’s liabilities to the respondent unsecured. In July 2001, the appellant executed a personal guarantee in favour of the respondent for the company’s outstanding liabilities of £425,000 under the loan agreement.
The company became insolvent and was liquidated in February 2005 without paying any further part of the debt. In response to a claim by the respondent to enforce the guarantee, the appellant raised a successful defence that the guarantee had been procured by misrepresentation. The deputy judge refused permission for an amendment to the appellant’s defence to further allege that the respondent’s failure to preserve the SLOC, or to call on it while it subsisted, was a breach a of duty owed to the company and that the appellant was entitled to sue in respect of that breach by reason of a deed of assignment executed by the company in 2004. However, at the appellant’s request, the deputy judge made certain findings on that issue and took the view that, while it was a mistake to allow the SLOC to lapse, the respondent owed no duty to the company or the appellant in that regard.
The appellant subsequently brought a claim against the respondent, alleging a breach of duty owed to the company and to the appellant himself with regard to the SLOC.
The respondent applied successfully to a master to strike out the appellant’s particulars of claim and that order was upheld by a judge on appeal. The judge held that the appellant’s particulars of claim advanced allegations of fact which were inconsistent with the findings made by the deputy judge in the earlier proceedings and that re-litigating those issues would be an abuse of process in the circumstances of the case: see [2010] EWHC 1659 (Ch).
The appellant appealed, contending that his claim was not abusive since any earlier findings of the deputy judge on the relevant matters had been unnecessary to his decision on the issues in the earlier proceedings. By a respondent’s notice, the respondent contended that the appellant’s claim was an abuse of process under the rule in Henderson v Henderson (1843) 3 Hare 100 since the claim which the appellant was now making could and should have been advanced in the earlier proceedings.
Held: The appeal was dismissed.
A second set of proceedings could be an abuse of process even where the claims put forward were not barred by either a cause of action estoppel or an issue estoppel as between the two parties to the action. The court had an inherent power to control its own process to prevent misuse of its procedure in a way which would be manifestly unfair to a party or would otherwise bring the administration of justice into disrepute among right-thinking people: Hunter v Chief Constable of the West Midlands Police [1982] AC 529. Since the circumstances in which an abuse of process were very wide, it was not appropriate to fix categories of case in which the court was under a duty to exercise its power. It was instead necessary to focus on the facts of the particular case to determine whether, in broad terms, the new proceedings could be characterised as unfair or as bringing the administration of justice into disrepute. In the instant case, that approach did not merely involve concentrating on the effect of the findings of fact made by the deputy judge in the earlier proceedings but also required the court to address the much wider question of whether, in all the circumstances, the case involved an abuse of process under the principle in Henderson v Henderson. That holistic approach was to be preferred over any artificial exercise of attempting to decide whether, in circumstances not giving rise to cause of action or issue estoppel, there was any requirement for some additional element or “special factor”, such as a collateral attack on a previous decision or dishonesty, before the new proceedings would amount to an abuse of process: Johnson v Gore Wood & Co [2002] 2 AC 1; [2000] PLSCS 292 and Virgin Atlantic Airways Ltd v Zodiac Seats UK Ltd [2013] UKSC 46; [2014] AC 160 applied.
Accordingly, the present case could not be resolved by merely asking whether an abuse of process would exist where the facts on which a claimant sought to bring a second claim were inconsistent with facts which had been found in earlier proceedings but which had not resolved an essential part of any cause of action or defence. It was necessary for the court to consider all relevant circumstances that might justify staying the proceedings as an abuse of process.
Applying that test, the judge had correctly held that the appellant’s claim was an abuse of process. It would have been open to the appellant to contend, as a defence to the earlier proceedings, that the respondent owed a duty of care to the company, and to the appellant personally, to ensure that the SCLOC did not lapse. Irrespective of any assignment from the company to the appellant, the appellant could have argued that the company had a counterclaim for damages which offset the amount owed to the appellant, with the result that the company owed nothing to the respondent and the appellant accordingly owed nothing under the guarantee. The respondent’s opposition to the appellant’s application to amend his particulars to allege that the respondent owed a duty to the company in relation to the SLOC, and the deputy judge’s refusal to allow such amendment, were not factors which would make it unfair to regard the appellant’s new proceedings as an abuse of process. It was relevant that the appellant had not appealed the deputy judge’s order on that issue, the issues regarding any duty owed to the company in relation to the SLOC had nonetheless been the subject of extensive evidence and submission at trial, and that the appellant had neither taken the opportunity to renew his application to amend in light of the matters canvassed at the trial nor at any point pleaded the existence of a duty owed to himself personally.
The appellant’s new proceedings put the respondent in the position of having to defend precisely the same factual allegations in relation to the letter of credit which had been made against it in the earlier proceedings. For all practical purposes, the respondent was facing re-litigation of the issue of whether a duty was owed in relation to the SLOC. Given the allegations of fault, responsibility and damage pleaded in the earlier proceedings, and the evidential findings which the appellant expressly invited the deputy judge to make, the issue as to what happened in relation to the SLOC could not be said to be material only to the setting of the context for the misrepresentation defence. The points relating to duties of care owed by the respondent to the company and/or the appellant, as to breach of any such duty, were points which, in all the circumstances, should have been taken in the proceedings before the deputy judge by way of defence.
Further, there was no “principle of mutuality” to prevent the appellant’s claim from being an abuse of process in circumstances where it would have been open to the respondent to challenge the deputy judge’s findings of fact if they had been adverse to its case. While mutuality might be a necessary component of issue estoppel, it was not a requirement of the doctrine of abuse of process: Michael Wilson & Partners Ltd v Sinclair [2012] EWHC 2560 (Comm) applied. The enquiry was a more general one as to whether, in the light of all of the circumstances, an attempt to re-litigate the deputy judge’s findings would be manifestly unfair and/or bring the administration of justice into disrepute. In the circumstances of the case, it was appropriate to strike out the appellant’s particulars of claim as an abuse of process pursuant to CPR Part 3.4(2)(b).
David Sears QC (acting pro bono) appeared for the appellant; Alan Gourgey QC and Laura Newton (instructed by Berwin Leighton Paisner LLP) appeared for the respondent.
Sally Dobson, barrister
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