Court of Appeal confirms second claim an abuse of process after first claim struck out for non-payment of security for costs

In a recent judgment, the Court of Appeal upheld a decision to strike out a claim as an abuse of the court’s process, where the claim repeated an earlier claim which had been struck out as a result of the claimant’s failure to provide security for costs pursuant to an unless order: Harbour Castle Limited v David Wilson Homes Limited [2019] EWCA Civ 505.

It was accepted that, if the claimant’s failure to provide security had been deliberate, this would justify a finding that the present action was an abuse of process. The appeal centred on whether the High Court had been entitled to find that the failure had been deliberate, in circumstances where it was accepted that the claimant did not itself have the means to pay security but was reliant on funds being provided by its owner.

The claimant argued that the Supreme Court’s judgment in Goldtrail Travel Limited (in liquidation) v Onur Air Taşimacilik AŞ [2017] UKSC 57 (considered here) meant that the question was not whether a third party (here the claimant’s owner) could pay the required sum, but whether the claimant itself could raise the funds. Ultimately, the Court of Appeal accepted that, as the claimant’s owner and directing mind could have provided the funds if he considered it in the company’s interests to do so, the High Court had been entitled to find that his refusal to do so amounted to a deliberate breach of the unless order by the claimant.

The judgment provides a helpful illustration of the application of the principles set out in Goldtrail, in particular where the third party that would be in a position to pay the required sum on the claimant’s behalf is also the claimant’s directing mind and will. The decision suggests that, in such circumstances, there may be little distinction between the claimant’s ability to raise the funds and the third party’s ability to do so.

Francesca Ruddy, an associate in our dispute resolution team, considers the decision further below. Continue reading

Supreme Court clarifies test for setting aside judgment for fraud

The Supreme Court has resolved uncertainty as to the test that must be met when seeking to set aside a judgment on the grounds that it was obtained by fraud. Overturning the Court of Appeal’s decision, it confirmed that there is no need to demonstrate that the evidence of fraud could not have been obtained with reasonable diligence at the time of the earlier trial: Takhar v Gracefield Developments Ltd [2019] UKSC 13.

The question of whether there is a “reasonable diligence” requirement in cases involving fraud had been the subject of conflicting authority in the lower courts in recent years. It reflects a tension between, on the one hand, the public policy in favour of the finality of litigation and, on the other, the desire to do justice in individual cases and not permit fraudsters to benefit from their misuse of the court system. The Supreme Court’s decision comes down in favour of the latter in this context, and to that extent can be seen as an illustration of the principle that “fraud unravels all”.

However, the court expressly left open the question of the approach to be adopted in a case where the fraud had been raised in the original trial, or where a deliberate decision had been taken not to investigate a suspected fraud or rely on a known fraud. While no final view was reached, the judgments indicate a tentative view that, in such situations, a court dealing with the application to set aside the judgment should have a discretion whether or not to grant the application.

The judgments do suggest a narrow view as to when any such qualifications might be triggered. The claimant in this case had sought (and been refused) permission from the trial judge to adduce evidence from a handwriting expert, which might be thought to indicate that she had suspected, and indeed raised, the issue of fraud to that extent. Lord Kerr however observed that, while the claimant suspected there may have been fraud, it was clear she did not make a conscious decision not to investigate it; to the contrary, she sought to do so but her application to adduce expert evidence was refused.

As a practical matter, however, litigants who suspect some element of fraud should not assume that they will necessarily be entitled to re-open the litigation at a later date simply by producing evidence of fraud. Certainly, the decision does not give carte blanche effectively to “park” fraud allegations, either for tactical reasons or in the hope that stronger evidence of the fraud might come to light after judgment. In most cases, parties will still be well advised to investigate their suspicions and raise any allegations within the proceedings if they wish to pursue them. Continue reading

Second action allowed to proceed where earlier action struck out for breach of unless order

In a recent decision, the High Court has considered the proper approach to be taken in a second action where a previous action bringing the same claim has been struck out for failure to comply with an unless order: Davies v Carillion Energy Services Ltd [2017] EWHC 3206 (QB).

In summary, where the first action was struck out as an abuse of process, or the conduct of the first action was otherwise inexcusable, the second action will be struck out as an abuse save in “very unusual circumstances”. Where the first action was struck out for a single failure to comply with an unless order, the claimant will not necessarily be debarred from pursuing a second action, even if the claimant failed to apply for relief from sanctions in the first action – though that may be relevant in considering whether the conduct of the first action was inexcusable.

Each case will turn on its facts. In this case, the court’s decision appears to have been influenced by some doubt regarding the basis on which the first action was struck out and the fact that the claimant was a litigant in person. Although the court accepted that being a litigant in person did not excuse failures to comply with the CPR or court orders, it was appropriate to make some allowance for lack of familiarity with the detailed rules, in this case relating to pleading. Continue reading

Court of Appeal clarifies test for setting aside judgment for fraud

The Court of Appeal has clarified the test that must be met when seeking to set aside a judgment on the grounds that it was obtained by fraud: Takhar v Gracefield Developments Ltd and others [2017] EWCA Civ 147.

The decision confirms that the court must be satisfied that evidence of the fraud was not available to the innocent party at the time of trial and could not with reasonable diligence have been uncovered then.

This resolves the uncertainty that had arisen from conflicting lower court authority as to whether the "reasonable diligence" requirement extends to cases involving fraud or whether fraud cases were excepted from the rule on the basis that "fraud unravels all". It confirms that, in this context, the public policy in favour of finality of litigation takes precedence over the desire to do justice in individual cases to the extent that they conflict – at Court of Appeal level at least. While this may operate harshly against innocent parties in some cases, there remains scope for a court to exercise its judgment as to what the standard of "reasonable diligence" requires in any particular case.

As a practical matter, parties to litigation who suspect some element of fraud should be aware of the limitations on re-opening litigation, and should ensure that they take all reasonable steps to investigate their suspicions and raise any such allegations within the proceedings if they wish to pursue them.

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Court of Appeal decision underlines need for caution in settling with one or more (but not all) potential defendants

The Court of Appeal has upheld a decision striking out a misrepresentation claim on the basis that (i) the cause of action against the present defendants had been released as a result of a previous settlement with others who were jointly liable; and (ii) in any event the claim was an abuse of process: Gladman Commercial Properties v Fisher Hargreaves Proctor and others [2013] EWCA Civ 1466.

The decision has a number of practical implications where a claimant brings proceedings or concludes a settlement against one or more of a number of potential defendants:

  • If the claimant wants to ensure that it does not lose the right to pursue related proceedings, the issue should be referred to the court in the first action so that the judge can consider the appropriate course in case management terms. Otherwise there is the risk that the second action may be held to be an abuse of process.
  • Any settlement needs to be carefully structured to ensure that claims against the other potential defendants are not unintentionally released. Continue reading

Power to strike out exaggerated claim will rarely be exercised

The Supreme Court has ruled that the court has power to strike out a dishonestly exaggerated claim as an abuse of process at any stage of the proceedings, even where it has already determined that the claimant is in principle entitled to damages in an ascertained sum: Fairclough Homes Ltd v Summers [2012] UKSC 26. In doing so, it has overturned previous Court of Appeal authority to the effect that a person could not be deprived of a judgment for damages to which he was otherwise entitled on the ground that the claim had been exaggerated.

However, the court went on to say that the power should only be exercised in very exceptional circumstances. This conclusion will be disappointing to liability insurers, who pressed the appeal on the basis that fraudulent claims are rife and should in principle be struck out as an abuse of process. In light of the Supreme Court’s decision, the possibility of striking out a genuine claim on the basis that it has been exaggerated is likely to be largely theoretical.

Defendants who wish to protect their position in respect of what they believe is an exaggerated claim should make a well-judged offer to settle, either under Part 36 of the Civil Procedure Rules (bearing in mind that if such an offer is accepted the claimant will be entitled to costs) or as a “without prejudice save as to costs” offer outside of Part 36 (in which case there is flexibility to make the offer on different terms regarding costs).

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Abuse of the court process for issuing a Claim Form

A recent decision of the High Court has clarified the circumstances in which the issue of a Claim Form will constitute an abuse of the court process: Nomura International plc v Granada Group Limited and others [2007] EWHC 642 (Comm). In addition the case has affirmed that the only proper sanction for such an abuse is striking out of the claim.

The practical implications of this case for claimants are:

  • To avoid the risk of strike out, it is prudent to expend some time and money in investigating potential claims in advance of issuing a Claim Form, particularly when limitation periods are close to expiry;
  • Where claims are being considered as a consequence of third party claims, serious thought should be given to whether it is necessary and/or economic to bring direct claims or whether a claim by way of contribution will suffice; and
  • Whilst it is tempting to seek to defer being embroiled in litigation, defendants should be cautious of entering into lengthy standstill arrangements with claimants where they are not able to agree back to back standstills with all parties against whom they may have direct claims. Continue reading