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||Neutral Citation Number:  EWHC 2302 (Ch)
||Case No: HC11C00069
IN THE HIGH COURT OF JUSTICE
||Royal Courts of Justice
Strand, London, WC2A 2LL
||14 September 2011
B e f o r e :
THE HON MR JUSTICE ARNOLD
Antony Radevsky (instructed by Pemberton Greenish LLP) for the Claimant
Stephen Jourdan QC (instructed by Maples Teesdale LLP) for the Defendant
Hearing date: 26 July 2011
HTML VERSION OF JUDGMENT
Crown Copyright ©
MR JUSTICE ARNOLD :
- This is an application by the Defendant ("Friends Provident") to strike out this claim pursuant to CPR r. 3.4(2)(b) and/or (c) on the grounds that there has been a failure to comply with a rule, namely CPR r. 38.7, and/or that it is an abuse of the court's procedure. On 16 February 2009 the Claimant ("Westbrook DSq") discontinued a previous claim against Friends Provident. Friends Provident's primary contention is that the present claim arises out of substantially the same facts as the previous claim, and accordingly Westbrook DSq required the permission of the court to bring the claim. It is common ground that Westbrook DSq did not obtain such permission before bringing the present claim. Westbrook DSq contends that it does not require permission, but in the alternative it seeks permission now. Friends Provident says that no such permission should be granted. Friends Provident's secondary contention is that the claim is any event an abuse of process applying the principles originating with Henderson v Henderson (1843) 3 Hare 100 which were reviewed by the House of Lords in Johnson v Gore Wood & Co  2 AC 1.
The Leasehold Reform, Housing and Urban Development Act 1993
- The previous claim was, and the present claim is, a claim for collective enfranchisement under Chapter I of Part I of the Leasehold Reform, Housing Development Act 1993 ("the Act"). Section 1 of the Act confers a right "on qualifying tenants of flats contained in premises to which this Chapter applies on the relevant date" to have the freehold of those premises acquired by a nominee purchaser at a price determined in accordance with the Act. Section 1(8) defines "the relevant date" as the date on which notice of the claim is given under section 13. Where the right to collective enfranchisement is available, section 2 enables qualifying tenants to acquire intermediate leasehold interests as well.
- Section 3(1) provides that the Act applies to premises if:
"(a) they consist of a self-contained building or part of a building;
(b) they contain two or more flats held by qualifying tenants; and
(c) the total number of flats held by such tenants is not less than two-thirds of the total number of flats contained in the premises."
This is subject to section 4, which excludes certain types of premises.
- Section 5(1) provides that a person is a qualifying tenant of a flat if he is a tenant under a long lease. This includes a lease granted for more than 21 years (section 7(1)(a)).
- Section 5(5) and (6) are provisions which are clearly intended to prevent the right to collective enfranchisement being exercised by owners of three or more leases, including groups of companies. These provide:
"(5) Where apart from this subsection—
(a) a person would be regarded for the purposes of this Chapter as being (or as being among those constituting) the qualifying tenant of a flat contained in any particular premises consisting of the whole or part of a building, but
(b) that person would also be regarded for those purposes as being (or as being among those constituting) the qualifying tenant of each of two or more other flats contained in those premises,
then, whether that person is tenant of the flats referred to in paragraphs (a) and (b) under a single lease or otherwise, there shall be taken for those purposes to be no qualifying tenant of any of those flats.
(6) For the purposes of subsection (5) in its application to a body corporate any flat let to an associated company (whether alone or jointly with any other person or persons) shall be treated as if it were so let to that body; and for this purpose 'associated company' means another body corporate which is (within the meaning of section 1159 of the Companies Act 2006) that body's holding company, a subsidiary of that body or another subsidiary of that body's holding company."
Prior to 1 October 2009 subsection (6) referred to section 736 of the Companies Act 1985. It is not suggested that there is any material difference for present purposes between that provision and section 1159 of the Companies Act 2006.
- A claim to exercise the right to collective enfranchisement is made by the giving of notice of the claim under section 13 of the Act. This is referred to as "the initial notice". The date of the initial notice, i.e. the relevant date, is an important date for two reasons. First, whether or not a valid claim is made has to be judged as at the relevant date. Secondly, the price to be paid for the property is assessed as at the relevant date, which is the valuation date at which the market value of the property is to be assessed (Schedule 6, paragraph 3(1)).
- Section 13(3) sets out seven mandatory items of information which the initial notice must contain. These include (b) a statement of the grounds on which it is claimed that the specified premises are premises to which the Act applies, (f) the name of the nominee purchaser and (g) the date by which the reversioner (who is normally the freeholder: section 9(1)) must respond to the initial notice by giving a counter-notice under section 21. Section 13(8), (9) and (11) provide:
"(8) Where any premises have been specified in a notice under this section, no subsequent notice which specifies the whole or part of those premises may be given under this section so long as the earlier notice continues in force.
(9) Where any premises have been specified in a notice under this section and—
(a) that notice has been withdrawn, or is deemed to have been withdrawn, under or by virtue of any provision of this Chapter or under section 74(3), or
(b) in response to that notice, an order has been applied for and obtained under section 23(1),
no subsequent notice which specifies the whole or part of those premises may be given under this section within the period of twelve months beginning with the date of the withdrawal or deemed withdrawal of the earlier notice or with the time when the order under section 23(1) becomes final (as the case may be).
(11) Where a notice is given in accordance with this section, then for the purposes of this Chapter the notice continues in force as from the relevant date—
(a) until a binding contract is entered into in pursuance of the notice, or an order is made under section 24(4)(a) or (b) or 25(6)(a) or (b) providing for the vesting of interests in the nominee purchaser;
(b) if the notice is withdrawn or deemed to have been withdrawn under or by virtue of any provision of this Chapter or under section 74(3), until the date of the withdrawal or deemed withdrawal, or
(c) until such other time as the notice ceases to have effect by virtue of any provision of this Chapter."
- Section 14(1)(a) provides that, in relation to any claim to exercise the right to collective enfranchisement, the participating tenants are "in relation to the relevant date, the qualifying tenants by whom the initial notice is given". Each of the participating tenants must sign the initial notice (section 99(5)(a)).
- Once an initial notice has been served, the Act sets out a procedural timetable. The reversioner may within 21 days give the nominee purchaser notice requiring him, in the case of any person by whom the initial notice was given, to deduce the title of that person to the lease by virtue of which it is claimed that he is a qualifying tenant (section 20(1)).
- The reversioner must serve a counter-notice under section 21 of the Act within the time specified in the initial notice, which must be at least two months after the relevant date. Section 21(2) provides:
"The counter-notice must comply with one of the following requirements, namely—
(a) state that the reversioner admits that the participating tenants were on the relevant date entitled to exercise the right to collective enfranchisement in relation to the specified premises;
(b) state that, for such reasons as are specified in the counter-notice, the reversioner does not admit that the participating tenants were so entitled;
(c) contain such a statement as is mentioned in paragraph (a) or (b) above but state that an application for an order under subsection (1) of section 23 is to be made by such appropriate landlord (within the meaning of that section) as is specified in the counter-notice, on the grounds that he intends to redevelop the whole or a substantial part of the specified premises."
- What happens thereafter depends on which type of counter-notice is served. If the right of the participating tenants to collective enfranchisement is not admitted, the nominee purchaser must apply to the court under section 22 to establish the right. If a landlord resists collective enfranchisement on the ground of redevelopment, he may apply for declaration under section 23. If the right to collective enfranchisement is admitted, but the terms of acquisition are not agreed within two months, either the nominee purchaser or the reversioner may apply to a leasehold valuation tribunal ("LVT") under section 24 to determine the disputed terms, and in particular the purchase price. If no counter-notice is served, the nominee purchaser may apply to the court under section 25 of the Act for an order determining the terms of acquisition in accordance with the initial notice. Different time limits are applicable to the different types of proceeding.
- Section 22, which is headed "Proceedings relating to validity of initial notice", provides:
(a) the reversioner in respect of the specified premises has given the nominee purchaser a counter-notice under section 21 which (whether it complies with the requirement set out in subsection (2)(b) or (c) of that section) contains such a statement as is mentioned in subsection (2)(b) of that section, but
(b) the court is satisfied, on an application made by the nominee purchaser, that the participating tenants were on the relevant date entitled to exercise the right to collective enfranchisement in relation to the specified premises,
the court shall by order make a declaration to that effect.
(2) Any application for an order under subsection (1) must be made not later than the end of the period of two months beginning with the date of the giving of the counter-notice to the nominee purchaser.
(3) If on any such application the court makes an order under subsection (1), then (subject to subsection (4)) the court shall make an order—
(a) declaring that the reversioner's counter-notice shall be of no effect, and
(b) requiring the reversioner to give a further counter-notice to the nominee purchaser by such date as is specified in the order.
(4) Subsection (3) shall not apply if—
(a) the counter-notice complies with the requirement set out in section 21(2)(c), and
(i) an application for an order under section 23(1) is pending, or
(ii) the period specified in section 23(3) as the period for the making of such an application has not expired.
(5) Subsections (3) to (5) of section 21 shall apply to any further counter-notice required to be given by the reversioner under subsection (3) above as if it were a counter-notice under that section complying with the requirement set out in subsection (2)(a) of that section.
(6) If an application by the nominee purchaser for an order under subsection (1) is dismissed by the court, the initial notice shall cease to have effect at the time when the order dismissing the application becomes final."
- Section 28(1) provides that, at any time before a binding contract is entered into pursuant to the initial notice, the participating tenants may withdraw that notice by a notice of withdrawal. Section 28(4), (6) and (7) provide:
"(4) Where a notice of withdrawal is given by the participating tenants under subsection (1)—
(a) those persons, and
(b) (subject to subsection (5)) every other person who is not a participating tenant for the time being but has at any time been such a tenant,
shall be liable—
(i) to the reversioner, and
(ii) to every other relevant landlord,
for all relevant costs incurred by him in pursuance of the initial notice down to the time when the notice of withdrawal or a copy of it is given to him in accordance with subsection (2) or (3).
(6) Where any liability for costs arises under subsection (4)—
(a) it shall be a joint and several liability of the persons concerned; and
(b) the nominee purchaser shall not be liable for any costs under section 33.
(7) In subsection (4) 'relevant costs', in relation to the reversioner or any other relevant landlord, means costs for which the nominee purchaser would (apart from subsection (6)) be liable to that person under section 33."
- Section 29(1) provides that, where section 22(1)(a) applies, and either no application is made within the specified period or an application is made but subsequently withdrawn, the initial notice is deemed to have been withdrawn. Section 29(6) provides:
"Where the initial notice is deemed to have been withdrawn at any time by virtue of any provision of this Chapter, subsections (4) and (5) of section 28 shall apply for the purposes of this section in like manner as they apply where a notice of withdrawal is given under that section, but as if the reference in subsection (4) of that section to the time when a notice or copy is given as there mentioned were a reference to the time when the initial notice is so deemed to have been withdrawn."
- Section 33 provides that the nominee purchaser shall be liable to pay the reasonable costs incurred by the reversioner and any other relevant landlord of taking various steps in consequence of the service of the initial notice.
- Friends Provident is the freehold owner of Dolphin Square, a group of buildings on a large site in Pimlico in which there are 1,223 flats, as well as leisure facilities. There is a headlease and an underlease of the whole of the property, both expiring in June 2034. In January 2006 Tannenberg Ltd acquired the headlease and Westbrook DSq acquired the underlease. At the time of acquisition both Tannenberg and Westbrook DSq were subsidiaries of WB Dolphin Square LLC ("WB LLC"), which in turn was a subsidiary of funds managed by Westbrook Partners. The acquisition was funded by Westbrook Partners and by a secured loan facility from Barclays Bank plc.
- In April 2007 a structure ("the Structure") was put into place for the purposes of refinancing the debt to Barclays Bank by a new secured loan from Wachovia Bank NA ("Wachovia") and enabling a claim to collective enfranchisement to be made. The following description of the Structure is based on that contained in a skeleton argument prepared by counsel then acting for Westbrook DSq for a hearing on 21 January 2009 (as to which, see below):
i) Westbrook DSq granted 1,223 underleases with the benefit of the occupational tenancies which existed at the time of grant. The underleases were granted at premiums totalling £248m.
ii) The underleases were granted to 612 Jersey companies called Westbrook Dolphin Square Residential 1 Ltd - Westbrook Dolphin Square Residential 612 Ltd (referred to by Friends Provident as special purpose vehicles or SPVs), each of which bar one took two underleases and one of which took a single underlease.
iii) The SPVs borrowed £248 million from Wachovia to pay the premiums.
iv) There are two classes of issued shares in each of the SPVs, voting and non-voting. Westbrook DSq owns all of the non-voting shares and 50% of the voting shares. The other 50% of the voting shares is held by Dolphin Square Holdings Ltd ("Holdings"), the issued share capital of which is in turn owned by the trustees ("the Trustees") of the Dolphin Square Discretionary Trust ("the Trust"). The Trust is a Jersey discretionary trust created by WB LLC for the benefit of WB LLC and its subsidiaries.
- It is not suggested by Westbrook DSq that the Structure has changed in any material respect since April 2007.
The previous claim
- On 24 September 2007 the SPVs served an initial notice under section 13 of the Act on Friends Provident naming Westbrook DSq as the nominee purchaser. The price that was proposed to be paid to Friends Provident for the freehold was £97.8 million. Paragraph 8 of the notice said that the names of the qualifying tenants, and the addresses of their flats, were set out in a schedule to the notice. The schedule identifies each of the SPVs, the flat(s) of which it holds an underlease, the date of the underlease (16 April 2007 in each case), the term of the lease (25 March 2007 - 19 June 2034 in each case) and the title number. The initial notice was signed "as a Deed on behalf of" each of the SPVs by Geraldine Bailey "being a person who in accordance with the laws of [Jersey] is acting under the authority of the company".
- On 2 October 2007 Friends Provident served a notice under section 20(1) of the Act and sought further information. Some information was provided by Westbrook DSq in correspondence.
- On 27 November 2007 Friends Provident served a counter-notice. This did not admit that the SPVs were, on the relevant date, entitled to exercise the right to collective enfranchisement in relation to Dolphin Square, because Friends Provident did not admit that there was, on the relevant date, a qualifying tenant of any of the specified premises. Particulars of that reason were given in the attached schedule. The schedule disputed that the Structure had been effective to make the SPVs qualifying tenants of the flats on a number of grounds.
- On 21 December 2007 Westbrook DSq issued a claim in the Central London County Court seeking declarations under section 22 of the Act that the SPVs were entitled to exercise the right of collective enfranchisement in relation to Dolphin Square and that the counter-notice dated 27 November 2007 was of no effect and an order that Friends Provident give a further counter-notice. In its Particulars of Claim, Westbrook DSq pleaded its case in relation to each of the grounds relied on by Friends Provident in the schedule to the counter-notice.
- The parties agreed that, in view of the value of Dolphin Square and the difficulty of the points of law in dispute, the claim should be transferred to the High Court, and on 22 February 2008 Deputy District Judge Glasner ordered the claim to be transferred.
- Following the service by Friends Provident of its Defence, the Particulars of Claim was amended and the Defence was amended and then re-amended. On 1 May 2008 Westbrook DSq provided further information about the Structure, in response to a request served by Friends Provident.
- On 9 May 2008 there was a case management conference before Master Teverson, who gave directions for trial.
- On 19 June 2008 Lewison J heard an application by Friends Provident for a speedy trial, and ordered that the trial of the claim be heard on 12 January 2009 or as soon thereafter as possible without considering the convenience of counsel.
- On 21 January 2009 Blackburne J heard an application in relation to a number of interim matters. After the hearing, there was a dispute about two aspects of what he had ordered, which was dealt with by written submissions. He made a number of orders in relation to the claim, including an order that Westbrook DSq was to serve on Friends Provident a copy of the valuation supplied to Wachovia no later than four working days before the start of the trial.
- On 5 February 2009 Westbrook DSq served a request for further information about the Defence, and on 11 February 2009 Friends Provident answered it.
- On 13 February 2009 there was a pre-trial review. A minute of order was drafted, but the order was never drawn up.
- At 17:23 on 16 February 2009 Westbrook DSq served a notice of discontinuance of the whole claim. The notice was served under cover of a letter from Westbrook DSq's solicitors stating that the reason for the discontinuance was that "in the light of the significant fall in capital values since that date, it is no longer commercially appropriate to seek to determine a price as at [24 September 2007]". The letter went on to point out that, by virtue of section 29(1)(b) of the Act, the effect of discontinuance of the proceedings was that the initial notice was deemed withdrawn. The letter concluded by stating that "our client will in due course be taking the further steps under the Act that are available to it in order to acquire the building on more favourable terms".
- Because the claim was discontinued on the fifth working day before the trial, Westbrook DSq did not have to comply with Blackburne J's order of 21 January 2009 requiring it to disclose to Friends Provident a copy of the valuation supplied to Wachovia no later than four working days before the start of the trial.
- On 23 February 2009 Friends Provident's solicitors replied to Westbrook DSq's solicitors' letter of 16 February 2009. The letter stated that Friends Provident did not accept that the sole ground for the discontinuance was the fall in the property market, which had been obvious for some time, and asserted that the real reason was that Westbrook DSq had realised that Friends Provident would not concede the claim and that there was a very real risk that Westbrook DSq would not prevail. The letter went on to say that Friends Provident's solicitors presumed that the last sentence of the letter dated 16 February 2009 meant that Westbrook DSq would be seeking to serve another section 13 notice and/or section 42 notices. In relation to the former possibility, the letter stated:
".. you should note that (assuming the current structure is still in place when the notice is served) the same issues will arise and a counter notice will be served by our client relying on substantially the same facts and matters. In the circumstances, your clients will clearly need the permission of the court pursuant to CPR r. 38.7 to commence another claim against our client and our client will strenuously oppose any application for permission at least on the basis that the matters could and should have been disposed of in the proceedings that your client has chosen to discontinue."
- In consequence of the discontinuance, Friends Provident was entitled to be paid its costs, assessed on the standard basis. Its actual costs were in excess of £770,000. Its recoverable costs were agreed and paid by Westbrook DSq in the sum of £470,000. Furthermore, the individuals responsible for managing Dolphin Square for Friends Provident had to devote time and effort to providing instructions to the lawyers in relation to the litigation, for which no compensation was payable.
The issues in the previous claim
- By the time of the discontinuance, the issues in the previous Claim were as follows:
i) Was the initial notice validly signed by the SPVs?
ii) Were the underleases to the SPVs genuine leases?
iii) Were each of the SPVs no more than a corporate name, and therefore a mere façade?
iv) Under the Trust Deed, did DSq LLC and its subsidiaries have power collectively at any time to extinguish the trust created by the Trust Deed and to require the Trustees to transfer the trust property to DSq LLC and its subsidiaries?
v) Were the terms on which the shares in Holdings were held by the Trustees under the Trust Deed such that, for the purposes of section 736 of the Companies Act 1985, DSq LLC held a majority of the voting rights in Holdings and/or held a majority of the voting rights in each of the SPVs, so that DSq LLC was the "holding company" of Holdings and of each SPV?
vi) Whether or not it was the intention of Parliament to allow the exercise of the right of collective enfranchisement by entities such as the SPVs, which were created and granted the underleases for the sole purpose of seeking to avoid the effects of section 5(5) of the Act and whether or not on the true construction of the Act, the SPVs were qualifying tenants?
- Issue (i) turned on the way in which the initial notice had been signed. The remaining issues turned on the facts concerning the establishment of the Structure and the legal consequences of those facts.
The present claim
- On 30 April 2010 the SPVs served a new initial notice on Friends Provident. This was identical to the first initial notice except that: (i) the date was different; (ii) the proposed price was different (£111.66 million rather than £97.8 million); and (iii) the notice was signed in a different way, being executed by each SPV as a deed by the affixing of its common seal in the presence of a director and a person authorised by European Secretarial Services Ltd to attest the fixing of the common seal on its behalf as secretary.
- On 6 July 2010 Friends Provident served a counter-notice. This did not admit that the SPVs were, on the relevant date, entitled to exercise the right to collective enfranchisement in relation to Dolphin Square, because Friends Provident did not admit that there was, on the relevant date, a qualifying tenant of any of the flats. Particulars of that reason were given in the attached schedule. The first paragraph of the schedule stated:
"The Reversioner does not admit that there was, on the Relevant Date, a qualifying tenant of any of the Flats for the reasons which were set out in the Reversioner's Re-Amended Defence in the 2007 Proceedings, as amplified by the Further Information served by the Reversioner on 11 February 2009. Those reasons are summarised in the paragraphs below. Each of those paragraphs is relied on further or in the alternative."
- Paragraphs 2-8 were similar to, but enlarged upon, the corresponding paragraphs of the schedule to Friends Provident's previous counter-notice. They summarised Friends Provident's case in relation to issues (ii) to (vi) listed in paragraph 34 above.
- On 19 August 2010, Westbrook DSq issued the present claim in the Central London County Court. The claim form is identical to the claim form in the previous claim save that (i) it refers to Friends Provident's counter-notice dated 6 July 2010 and (ii) it seeks permission to make the claim under CPR r. 38.7 "if, which is denied, such permission is required". In its Particulars of Claim, Westbrook DSq pleaded its case in relation to each of the grounds relied on by Friends Provident in the schedule to the counter-notice in similar terms to its Particulars of Claim in the previous claim.
- On 16 September 2010 Friends Provident applied for orders transferring the claim to the High Court, striking out the claim and seeking ancillary directions and an extension of time for serving the defence. On 16 December 2010, Her Honour Judge Marshall QC by consent ordered the claim to be transferred. On 22 March 2011 Master Moncaster gave directions by consent for the hearing of the application to strike out the claim, and extended time for service of the Defence until 28 days after the determination of the application to strike out the claim.
The issues in the present claim
- Although Friends Provident has not yet served a Defence, it is plain that, if it were to do so, it would plead the matters set out in paragraphs 2-8 of the schedule to its counter-notice dated 6 July 2010. Thus it is clear that the issues in the present claim are the same as issues (ii)-(vi) in the previous claim. Issue (i) does not arise because of the difference in the manner in which the initial notice was signed.
CPR r. 38.7
- CPR r. 38.7 provides:
"A claimant who discontinues a claim needs the permission of the court to make another claim against the same defendant if–
(a) he discontinued the claim after the defendant filed a defence; and
(b) the other claim arises out of facts which are the same or substantially the same as those relating to the discontinued claim."
- Surprisingly, neither counsel was able to find any authority on the application of r. 38.7. The commentary on r.38.7 in note 38.7.1 in Civil Procedure (2011 edition) states:
"As a matter of common sense a claimant who has brought and then abandoned a claim ought not, as a general rule, to be allowed to start another claim arising out of the same facts.
A claimant who wishes to do so is first required to seek permission. The court is likely to give permission, for example, where the claimant was misled or tricked by the defendant, where important new evidence has come to light or where there has been a retrospective change in the law (e.g. a House of Lords case overruling a Court of Appeal decision which had led the claimant to discontinue). All these examples are, of course, exceptional cases and assume that the limitation period has still not expired.
Under the former practice of former RSC Ord.21, r.3 where leave to discontinue was required, the court would often impose terms as a condition of granting leave including a term that no new action be brought. Such an order is no longer required as r.38.7 puts the onus on the claimant to seek permission before making another claim against the same defendant arising out of the same facts.
The rule is silent as to how the claimant seeks permission. Therefore the general rules in Pt 23 apply. The application should be on notice with evidence."
- Before the CPR came into force, RSC O. 21 r. 2 provided that, except where an interim payment had been ordered, a plaintiff could discontinue an action without leave no later than 14 days after service of the defence on him. After that, discontinuance required the leave of the court under O. 21 r .3, which could be refused, or given on such terms as to costs, the bringing of a subsequent action or otherwise as the court thought just. In Hess v Labouchere (1898) 14 TLR 350, it was said by A. L. Smith LJ that "Generally, in allowing a plaintiff to discontinue his action, the court would consider whether they should not make it a condition that he should not be at liberty to bring another action," although in that case, the defendant asked that no such condition be imposed. In my experience, such a condition was frequently imposed, particularly where the plaintiff discontinued only shortly before trial.
- Counsel for Friends Provident submitted, and I accept, that the principles identified by the maxims nemo debet bis vexari pro una et eadem causa (no-one should be vexed twice in respect of one and the same cause) and interest reipublicae ut sit finis litium (it is in the public interest that there be an end to litigation) should inform the court's approach to CPR r. 38.7. In my judgment it follows that there is an analogy between the principles to be applied to an application under r. 38.7 and those applied by the courts under CPR r. 3.4(2)(b) with respect to Henderson v Henderson abuse of process. The main difference I perceive is that under r. 38.7 the onus lies upon the applicant to show that it should be given permission to bring the new claim, whereas under r. 3.4(2)(b) the onus lies upon the defendant to show that the new claim is an abuse of process.
Henderson v Henderson abuse of process
- Although Henderson v Henderson itself was a case of cause of action estoppel, Sir James Wigram V-C's dicta subsequently gave rise to a wider rule preventing re-litigation in circumstances not amounting to strict res judicata. This wider rule has come to be regarded as a manifestation of the court's power to prevent an abuse of its own process. The authorities on this wider rule were reviewed by Lord Bingham of Cornhill in Johnson v Gore Wood. Lord Bingham concluded at page 3l A-F:
"But Henderson v Henderson abuse of process, as now understood, although separate and distinct from cause of action estoppel and issue estoppel, has much in common with them. The underlying public interest is the same: that there should be finality in litigation and that a party should not be twice vexed in the same matter. This public interest is reinforced by the current emphasis on efficiency and economy in the conduct of litigation, in the interests of the parties and the public as a whole. The bringing of a claim or the raising of a defence in later proceedings may, without more, amount to abuse if the court is satisfied (the onus being on the party alleging abuse) that the claim or defence should have been raised in the earlier proceedings if it was to be raised at all. I would not accept that it is necessary, before abuse may be found, to identify any additional element such as a collateral attack on a previous decision or some dishonesty, but where those elements are present the later proceedings will be much more obviously abusive, and there will rarely be a finding of abuse unless the later proceeding involves what the court regards as unjust harassment of a party. It is, however, 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. That is to adopt too dogmatic an approach to what should in my opinion be a broad, merits-based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focusing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before. As one cannot comprehensively list all possible forms of abuse, so one cannot formulate any hard and fast rule to determine whether, on given facts, abuse is to be found or not. Thus while I would accept that lack of funds would not ordinarily excuse a failure to raise in earlier proceedings an issue which could and should have been raised then, I would not regard it as necessarily irrelevant, particularly if it appears that the lack of funds has been caused by the party against whom it is sought to claim. While the result may often be the same, it is in my view preferable to ask whether in all the circumstances a party's conduct is an abuse than to ask whether the conduct is an abuse and then, if it is, to ask whether the abuse is excused or justified by special circumstances. Properly applied, and whatever the legitimacy of its descent, the rule has in my view a valuable part to play in protecting the interests of justice."
Does the present claim arise out of the substantially the same facts as the previous claim?
- Counsel for Friends Provident submitted that the present claim arose of substantially the same facts as the previous claim, whereas counsel for Westbrook DSq submitted that it did not. In my judgment counsel for Friends Provident is correct. Counsel for Westbrook DSq argued that the previous claim arose out of the initial notice dated 24 September 2007 and the counter-notice dated 27 November 2007, whereas the present claim arose out of the initial notice dated 30 April 2010 and the counter-notice dated 6 July 2010. I do not accept that argument. Those documents were the essential procedural preliminaries to the respective claims, but they did not constitute the principal facts out of which the claims arose.
- The principal facts out of which the previous claim arose were the facts alleged by Westbrook DSq in its initial notice and Amended Particulars of Claim, and in particular the facts relied upon by Westbrook DSq in support of its contention that, as result of the Structure, each of the SPVs was a qualifying tenant of the specified premises at the relevant date, and hence entitled to exercise the right of collective enfranchisement. Friends Provident disputed that contention on grounds which gave rise to issues (ii)-(vi) identified in paragraph 34 above. The principal facts out of which the present claim arises are the facts alleged by Westbrook DSq in its initial notice and Particulars of Claim, and in particular the facts relied upon by Westbrook DSq in support of its contention that, as result of the Structure, each of the SPVs was a qualifying tenant of the specified premises at the relevant date, and hence entitled to exercise the right of collective enfranchisement. Friends Provident disputes that contention on the same grounds as before, giving rise to the same issues.
- It is true that, by virtue of the different initial notices, the relevant dates for the purposes of the two claims are different. But, as I have noted above, it is not suggested that there was any material change to the Structure between those two dates. Accordingly, the difference in date makes no difference to the facts which are relevant to the question of whether each of the SPVs was a qualifying tenant of the specified premises at the relevant date, and hence entitled to exercise the right of collective enfranchisement. Nor does it make any difference to the legal arguments advanced by the parties on the basis of those facts. (As discussed above, the replacement of section 736 of the Companies Act 1985 by section 1159 of the Companies Act 2006 makes no difference. In addition, Friends Provident now relies upon the Human Rights Act 1998 in support of its arguments, but that is merely a small refinement to its legal position.)
- It is also true that the difference in the relevant dates would be material to the issue of valuation if the SPVs successfully established their right to collective enfranchisement. But that issue did not arise in the previous claim, nor does it arise in the present claim. It would only arise following the service of a further counter-notice by Friends Provident under section 22(3) of the Act after the court set aside the existing counter-notice. Furthermore, in that event, the issue of valuation would be determined in fresh proceedings before the LVT.
- It is also true that there is a factual difference between the two claims with regard to the manner in which the initial notices were signed. It is for this reason that issue (i) arose in the previous claim, but does not arise in the present claim. In my view this is a minor difference between the two claims. The major issues between the parties were and are those concerning the Structure.
Should permission be given to bring the present claim?
- Counsel for Friends Provident submitted that Westbrook DSq should have obtained permission prior to issuing the present claim, but made it clear that he did not rely upon this upon its own as a reason why permission should be refused. In my judgment it was acceptable for Westbrook DSq to proceed in the manner in which it did given that it had an arguable case that r. 38.7 did not apply.
- Counsel for Westbrook DSq submitted that Westbrook DSq should be given permission to bring the present claim. His argument was based on two main propositions. The first was that the possibility of successive claims was an inherent feature of the statutory scheme under the Act. The second was that Westbrook DSq had a legitimate reason for bringing successive claims as nominee purchaser for the SPVs, namely the difference in the relevant dates, which was significant with regard to valuation.
- In support of the first proposition he relied upon the decision of the Court of Appeal in Special Effects Ltd v L'Oréal SA  EWCA Civ 1,  ETMR 51, which I drew to the parties' attention. In that case, L'Oréal had unsuccessfully opposed Special Effects' application to register a trade mark. Special Effects subsequently sued L'Oréal for infringement of the trade mark, and L'Oréal counterclaimed for a declaration of invalidity on similar grounds to those which it had relied on in the opposition proceedings. Sir Andrew Morritt C held that L'Oréal was barred from doing so by cause of action estoppel alternatively issue estoppel. The Court of Appeal allowed L'Oréal's appeal against his decision. It also rejected Special Effects' argument, raised by way of a respondents' notice, that, if there was no cause of action estoppel or issue estoppel, the counterclaims was an abuse of process on the Henderson v Henderson basis. It is sufficient for present purposes to refer to what Lloyd LJ, giving the judgment of the Court, said at  (emphasis added):
"Given the nature of opposition proceedings as being, essentially, preliminary (so as not to lead to a final decision, as discussed above) and given the manner in which they are generally conducted, as they were in the present case, and applying Lord Bingham's tests in the circumstances of this case, it seems to us that it would be wrong to regard it as an abuse of process for L'Oreal to seek to raise by way of counterclaim the grounds of invalidity on which it relied in the opposition proceedings, or to rely on the prior use which it had alleged in the opposition (and would rely on in support of the claim as regards invalidity) also as the basis of a passing off claim. If, as we have concluded, the legislation does not preclude the same party from seeking a declaration of invalidity, having failed in an opposition, it seems to us that the circumstances would need to be unusual to justify holding that a party who did take advantage of the second opportunity provided by the legislation is abusing the process of the court. We were told that sometimes opposition proceedings are conducted in a manner similar to that of High Court litigation, with Counsel representing the parties and with disclosure and cross-examination. We could imagine the possibility that, if issues had been fought in that way in the Registry on an opposition, it might then be properly regarded as an abuse to fight the same issues again in court."
Counsel for Westbrook DSq particularly relied on the sentence I have italicised.
- It is common ground that the Act expressly permits a person claiming to be entitled to exercise a right to collective enfranchisement to serve successive initial notices. The effect of section 13(9)(a) is that, where a first initial notice has either been withdrawn pursuant to section 28 or is deemed to have been withdrawn pursuant to section 29, the same person can serve a second initial notice after an interval of at least 12 months.
- I accept that, to that extent, the Act allows for the making of successive claims. I do not accept, however, that the Act contemplates the making of successive claims to be entitled to exercise the right to collective enfranchisement, that is to say, successive claims by a person to be a qualifying tenant of the premises in question, in the absence of some material change in the facts relied upon in support of that claim. As counsel for Friends Provident pointed out, it is open to persons in the position of the SPVs to obtain judgment under section 22 establishing their entitlement to the exercise the right to collective enfranchisement, but then, if concerned by a fall in the value of the property market since the date of their initial notice, to withdraw that initial notice under section 28. They can then serve a fresh initial notice 12 months later, and a properly advised reversioner will serve a counter-notice under section 21(2)(a) leading to valuation proceedings under section 24. Even if the reversioner were misguided enough to serve a counter-notice under section 21(2)(b), the tenants would be able to obtain summary judgment under section 22 since their entitlement to exercise the right would be res judicata.
- Turning to counsel for Westbrook DSq's second proposition, Westbrook DSq has adduced unchallenged evidence before me that its reason for discontinuing the first claim was that it no longer considered it commercially viable to pursue that claim because the first initial notice had been served on 24 September 2007, near the top of the property market, which had fallen subsequently. I accept that that constitutes a perfectly legitimate reason for withdrawing the first initial notice and serving a second one at least twelve months later. I do not accept that it constitutes a legitimate reason for discontinuing the previous claim by Westbrook DSq that the SPVs were entitled to exercise the right to collective enfranchisement because they were qualifying tenants, and then bringing a further claim to the same effect.
- Counsel for Westbrook DSq argued that, if the first initial notice had been withdrawn by Westbrook DSq, the remaining issues in the previous claim would have been academic. In my judgment there are two answers to this. First, I do not agree that they would have been academic in circumstances where Westbrook DSq was still insisting upon the entitlement of the SPVs to exercise the right of collective enfranchisement. The second and more fundamental answer is that Westbrook DSq could have pursued the previous claim to judgment, and then, assuming it was successful, withdrawn the initial notice after it had obtained a judgment in its favour establishing the entitlement of the SPVs to exercise the right of collective enfranchisement. I did not understand counsel for Westbrook DSq to dispute that, if Westbrook DSq had been unsuccessful, then it would have been barred from making a further claim based on a further initial notice by issue estoppel even if not cause of action estoppel.
- In my judgment Westbrook DSq has not shown that it should be given permission to bring the present claim. On the contrary, I consider that the present claim amounts to an abuse of process. I recognise, of course, that it is strong thing to prevent a party from obtaining the court's determination of what is accepted to be a reasonably arguable claim. But Westbrook DSq had a full opportunity to obtain the court's determination in the previous proceedings. By bringing the previous claim Westbrook DSq caused both Friends Provident and the courts to expend time and resources to deal with that claim. It chose to discontinue that claim shortly before trial. In my view it both could and should have pursued that claim to trial to establish the entitlement of SPVs to exercise the right of collective enfranchisement if it wished to maintain that entitlement. Its legitimate desire to establish a new relevant date for valuation purposes does not justify forcing both Friends Provident and the courts to expend further time and resources re-litigating that question a second time. That would expose Friends Provident to a further period of uncertainty and further irrecoverable costs and divert scarce court resources from other users of the system.
Is the present claim an abuse of process?
- In view of my conclusion on r. 38.7, it is not necessary to consider this ground of application separately. My reasons for refusing permission also lead to the conclusion that the claim should be struck out as an abuse of process.
- For the reasons given above, the present claim is struck out.
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