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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Ward (Liquidator of Brady Property Developments Ltd) v Hutt & Ors [2018] EWHC 77 (Ch) (24 January 2018) URL: https://www.bailii.org/ew/cases/EWHC/Ch/2018/77.html Cite as: [2018] WLR 1789, [2018] WLR(D) 51, [2018] 1 WLR 1789, [2018] BPIR 512, [2018] EWHC 77 (Ch) |
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CHANCERY DIVISION
BRISTOLDISTRICT REGISTRY
2 Redcliff Street, Bristol, BS1 6GR |
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B e f o r e :
(Sitting as a Judge of the High Court)
____________________
Barry John Ward (acting as liquidator of Brady Property Developments Ltd) |
Applicant |
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- and - |
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(1) Nicholas Hutt (2) David Loughlin (3) John O'Boyle |
Respondents |
____________________
Stuart Cutting (instructed by Moore & Tibbits Solicitors) for the Applicant
Hearing date: 11 January 2018
____________________
Crown Copyright ©
HHJ Paul Matthews :
Introduction
The present claim
The application to strike out
The original claim
The trial and the discontinuance
"The second flat was sold post year end for £92,000 and 15 Garnet Street was also sold post year end £170,000."
The issue of the new claim
Ground 1: CPR, r 38.7
"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".
"Same defendant"
Same or substantially same facts
"48. Both applications relate to the use by the first and second respondents of the proceeds of sale of 15 Garnet Street and 92 The Nursery. Within the original application, the applicant failed to properly investigate the circumstances surrounding the use of the sale funds from the 2 properties before commencing his application. As a result, it appears the applicant was not aware, or entirely failed to take into account, the fact that HLM Properties received the proceeds of sale of 15 Garnet Street, when he made the original application. However, he certainly was aware of this fact at the latest when he had served on him the second witness statement of Nicholas Hutt dated 14 June 2016.
49. Indeed, the second witness statement of Barry Ward dated 30 July 2016, at paragraph 23, acknowledged the fact that his originally pleaded claim was now incorrect. To repeat my paragraph 20 above, paragraph 23 of Mr Ward's second witness statement states 'I originally believed the sale proceeds of 15 Garnet Street were used to repay money owed to the respondents by Brady. Now it seems that the sale proceeds were used to repay money Brady allegedly owed to HLM (although I have seen no evidence of this). As explained in the respondent's own evidence, the sale proceeds of £160,000 for 15 Garnet Street (an asset of Brady) were transferred to HLM in their entirety purely because the respondents were trying to preserve their own liabilities to RBS in respect of HLM. This was carried out at a time when the respondents knew that money was owed to Mr O'Boyle as a creditor of Brady. Accordingly the respondents failed to ensure that creditors were paid pari passu and accordingly were actually misfeasant in transferring the sale proceeds of 15 Garnet Street to HLM. In view of this new information that has come to light from the respondent's evidence, I will be adjusting the case advanced against them accordingly'.
50. It is therefore clear at the time he made this statement, over 9 months before trial, that Mr Ward had knowledge that funds to the sum of £160,000 were paid by the company to HLM in June 2011 and if it is correct such payment constituted a preference, then this should have been obvious to the applicant at that time.
51. The original application of course included a claim against Mr Hutt and Mr Laughlin that payments had been made to them by the company which amounted to preferences. These claims were withdrawn by the applicant on or around 20 July 2016.
52. At that time, the applicant was fully aware of the full factual position, the reasons why the 2 properties were sold by the company, and why the funds were paid to HLM Properties. When the applicant withdrew his claim that payments made to Mr Hart and Mr Laughlin were preferences, he could easily have applied at that time to have amended his claim to include the payments made to HLM, without prejudicing any party, or the trial date. However, he failed to do so and it is far too late for him to attempt to do anything about that now as permitting that enables him to vex the respondents in respect of matters that all occurred years ago."
Is the new claim a nullity?
"Where there has been an error of procedure such as a failure to comply with a rule or practice direction –
(a) the error does not invalidate any step taken in the proceedings unless the court so orders; and
(b) the court may make an order to remedy the error."
On the face of it, therefore, wherever a provision of the CPR requires permission to be obtained before taking a step, a failure to obtain permission does not of itself invalidate that step. In shorthand, it is an irregularity rather than a nullity.
"65. … that the failure to obtain permission does invalidate steps thereafter taken but that the court does have jurisdiction retrospectively to validate the same."
"60. In my judgment there is indeed an analogy between the re-introduction of a claim previously abandoned in the same proceedings and the making of a fresh claim after discontinuance of a similar claim based on the same or substantially the same facts, as is controlled by Part 38.7. Both types of conduct, unless closely controlled by the court, tend to undermine the public interest in finality in litigation. But Part 38.7 imposes that control not in terms by the requirement to show special circumstances, but rather by the requirement that such fresh proceedings may only be brought with the Court's permission. In that respect they equate the bringing of fresh proceedings with the re-introduction of an abandoned claim by amendment, since amendment itself requires the court's permission. Beyond that, it seems to me that the rule leaves it to the court to decide whether to grant or refuse permission having regard, as I have said, to the public interest in finality.
61. It is true that the Notes to the current edition of the White Book use the phrase 'exceptional circumstances' as characteristic of the sort of explanation likely to be required in an application for permission under Part 38.7, but it is dangerous in my view to erect that as a test imposed by the rules, not least because of its inherent uncertainty. To that limited extent the judge may have mis-described the ambit of the court's discretion to give such permission. The real question for the judge was whether, having abandoned the de facto directorship claim in the light of Jean Angela's Defence (in which the other defendants precisely concurred) a sufficient explanation was offered for its re-introduction to overcome the court's natural disinclination to permit a party to re-introduce a claim which it had after careful consideration decided to abandon."
"34. If there had been a material change of circumstances since the Manx law claims were discontinued and the claims were shown now to have a real prospect of success, then there would in principle be a basis for seeking the permission of the court to amend the particulars of claim again in order to put the Manx law claims back in. I think it plain, however, that there has not been a material change of circumstances and that at the present time there are no reasonable grounds for making the Manx law claims; nor do those claims have a real prospect of success."
"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 (eg a Supreme Court case overruling a Court of Appeal decision which had led the claimant to discontinue). All these examples are, of course, unusual cases and assume that the limitation period has still not expired."
"The court may allow an amendment whose effect will be to add or substitute a new claim, but only if the new claim arises out of the same facts or substantially the same facts as a claim in respect of which the party applying for permission has already claimed a remedy in the proceedings."
Ground 2: Henderson v Henderson
"17. Res judicata is a portmanteau term which is used to describe a number of different legal principles with different juridical origins. As with other such expressions, the label tends to distract attention from the contents of the bottle. The first principle is that once a cause of action has been held to exist or not to exist, that outcome may not be challenged by either party in subsequent proceedings. This is 'cause of action estoppel'. It is properly described as a form of estoppel precluding a party from challenging the same cause of action in subsequent proceedings. Secondly, there is the principle, which is not easily described as a species of estoppel, that where the claimant succeeded in the first action and does not challenge the outcome, he may not bring a second action on the same cause of action, for example to recover further damages: see Conquer v Boot [1928] 2 KB 336. Third, there is the doctrine of merger, which treats a cause of action as extinguished once judgment has been given upon it, and the claimant's sole right as being a right upon the judgment. Although this produces the same effect as the second principle, it is in reality a substantive rule about the legal effect of an English judgment, which is regarded as 'of a higher nature' and therefore as superseding the underlying cause of action: see King v Hoare (1844) 13 M & W 494, 504 (Parke B). At common law, it did not apply to foreign judgments, although every other principle of res judicata does. However, a corresponding rule has applied by statute to foreign judgments since 1982: see Civil Jurisdiction and Judgments Act 1982, section 34. Fourth, there is the principle that even where the cause of action is not the same in the later action as it was in the earlier one, some issue which is necessarily common to both was decided on the earlier occasion and is binding on the parties: Duchess of Kingston's Case (1776) 20 St Tr 355. 'Issue estoppel' was the expression devised to describe this principle by Higgins J in Hoysted v Federal Commissioner of Taxation(1921) 29 CLR 537, 561 and adopted by Diplock LJ in Thoday v Thoday [1964] P 181, 197-198. Fifth, there is the principle first formulated by Wigram V-C in Henderson v Henderson(1843) 3 Hare 100, 115, which precludes a party from raising in subsequent proceedings matters which were not, but could and should have been raised in the earlier ones. Finally, there is the more general procedural rule against abusive proceedings, which may be regarded as the policy underlying all of the above principles with the possible exception of the doctrine of merger.
18. It is only in relatively recent times that the courts have endeavoured to impose some coherent scheme on these disparate areas of law. The starting point is the statement of principle of Wigram V-C in Henderson v Henderson (1843) 3 Hare 100, 115. This was an action by the former business partner of a deceased for an account of sums due to him by the estate. There had previously been similar proceedings between the same parties in Newfoundland in which an account had been ordered and taken, and judgment given for sums found due to the estate. The personal representative and the next of kin applied for an injunction to restrain the proceedings, raising what would now be called cause of action estoppel. The issue was whether the partner could reopen the matter in England by proving transactions not before the Newfoundland court when it took its own account. The Vice-Chancellor said:
'In trying this question I believe I state the rule of the Court correctly when I say that, where a given matter becomes the subject of litigation in, and of adjudication by, a Court of competent jurisdiction, the Court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case. The plea of res judicata applies, except in special cases, not only to points upon which the Court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time... Now, undoubtedly the whole of the case made by this bill might have been adjudicated upon in the suit in Newfoundland, for it was of the very substance of the case there, and prima facie, therefore, the whole is settled. The question then is whether the special circumstances appearing upon the face of this bill are sufficient to take the case out of the operation of the general rule.'
[ … ]
20. The implications of the principle stated in Henderson v Henderson were more fully examined by the House of Lords in Arnold v National Westminster Bank plc [1991] 2 AC 93. The question at issue in that case was whether in operating a rent review clause under a lease, the tenants were bound by the construction given to the very same clause by Walton J in earlier litigation between the same parties over the previous rent review. The Court of Appeal had subsequently, in other cases, cast doubt on Walton J's construction, and the House approached the matter on the footing that the law (or perhaps, strictly speaking, the perception of the law) had changed since the earlier litigation. Lord Keith of Kinkel began his analysis by restating the classic distinction between cause of action estoppel and issue estoppel:
'Cause of action estoppel arises where the cause of action in the later proceedings is identical to that in the earlier proceedings, the latter having been between the same parties or their privies and having involved the same subject matter. In such a case the bar is absolute in relation to all points decided unless fraud or collusion is alleged, such as to justify setting aside the earlier judgment. The discovery of new factual matter which could not have been found out by reasonable diligence for use in the earlier proceedings does not, according to the law of England, permit the latter to be re-opened. (104D-E)
Issue estoppel may arise where a particular issue forming a necessary ingredient in a cause of action has been litigated and decided and in subsequent proceedings between the same parties involving a different cause of action to which the same issue is relevant one of the parties seeks to re-open that issue.' (105E)
The case before the committee was treated as one of issue estoppel, because the cause of action was concerned with a different rent review from the one considered by Walton J. But it is important to appreciate that the critical distinction in Arnold was not between issue estoppel and cause of action estoppel, but between a case where the relevant point had been considered and decided in the earlier occasion and a case where it had not been considered and decided but arguably should have been. The tenant in Arnold had not failed to bring his whole case forward before Walton J. On the contrary, he had argued the very point which he now wished to reopen and had lost. It was not therefore a Henderson v Henderson case. The real issue was whether the flexibility in the doctrine of res judicata which was implicit in Wigram V-C's statement extended to an attempt to reopen the very same point in materially altered circumstances. Lord Keith of Kinkel, with whom the rest of the Committee agreed, held that it did.
21. Lord Keith first considered the principle stated by Wigram V-C that res judicata extended to 'every point which properly belonged to the subject of litigation and which the parties exercising reasonable diligence might have brought forward at the time.' He regarded this principle as applying to both cause of action estoppel and issue estoppel. Cause of action estoppel, as he had pointed out, was 'absolute in relation to all points decided unless fraud or collusion is alleged'. But in relation to points not decided in the earlier litigation, Henderson v Henderson opened up
'the possibility that cause of action estoppel may not apply in its full rigour where the earlier decision did not in terms decide, because they were not raised, points which might have been vital to the existence or non-existence of a cause of action' (105B).
He considered that in a case where the earlier decision had decided the relevant point, the result differed as between cause of action estoppel and issue estoppel:
'There is room for the view that the underlying principles upon which estoppel is based, public policy and justice, have greater force in cause of action estoppel, the subject matter of the two proceedings being identical, than they do in issue estoppel, where the subject matter is different.' (108G-H)
The relevant difference between the two was that in the case of cause of action estoppel it was in principle possible to challenge the previous decision as to the existence or non-existence of the cause of action by taking a new point which could not reasonably have been taken on the earlier occasion; whereas in the case of issue estoppel it was in principle possible to challenge the previous decision on the relevant issue not just by taking a new point which could not reasonably have been taken on the earlier occasion but to reargue in materially altered circumstances an old point which had previously been rejected. He formulated the latter exception at 109B as follows:
'In my opinion your Lordships should affirm it to be the law that there may be an exception to issue estoppel in the special circumstance that there has become available to a party further material relevant to the correct determination of a point involved in the earlier proceedings, whether or not that point was specifically raised and decided, being material which could not by reasonable diligence have been adduced in those proceedings. One of the purposes of estoppel being to work justice between the parties, it is open to courts to recognise that in special circumstances inflexible application of it may have the opposite result.'
This enabled the House to conclude that the rejection of Walton J's construction of the rent review clause in the subsequent case-law was a materially altered circumstance which warranted rearguing the very point that he had rejected.
22. Arnold is accordingly authority for the following propositions:
(1) Cause of action estoppel is absolute in relation to all points which had to be and were decided in order to establish the existence or non-existence of a cause of action.
(2) Cause of action estoppel also bars the raising in subsequent proceedings of points essential to the existence or non-existence of a cause of action which were not decided because they were not raised in the earlier proceedings, if they could with reasonable diligence and should in all the circumstances have been raised.
(3) Except in special circumstances where this would cause injustice, issue estoppel bars the raising in subsequent proceedings of points which (i) were not raised in the earlier proceedings or (ii) were raised but unsuccessfully. If the relevant point was not raised, the bar will usually be absolute if it could with reasonable diligence and should in all the circumstances have been raised.
23. It was submitted to us on behalf of Virgin that recent case-law has re-categorised the principle in Henderson v Henderson so as to treat it as being concerned with abuse of process and to take it out of the domain of res judicata altogether. In these circumstances, it is said, the basis on which Lord Keith qualified the absolute character of res judicata in Arnold v National Westminster Bank by reference to that principle is no longer available, and his conclusions can no longer be said to represent the law.
24. I do not accept this. The principle in Henderson v Henderson has always been thought to be directed against the abuse of process involved in seeking to raise in subsequent litigation points which could and should have been raised before. There was nothing controversial or new about this notion when it was expressed by Lord Kilbrandon in Yat Tung. The point has been taken up in a large number of subsequent decisions, but for present purposes it is enough to refer to the most important of them, Johnson v Gore-Wood & Co [2002] 2 AC 1, in which the House of Lords considered their effect. This appeal arose out of an application to strike out proceedings on the ground that the plaintiff's claim should have been made in an earlier action on the same subject-matter brought by a company under his control. Lord Bingham took up the earlier suggestion of Lord Hailsham of St. Marylebone LC in Vervaeke v Smith [1983] 1 AC 145, 157 that that the principle in Henderson v Henderson was 'both a rule of public policy and an application of the law of res judicata'. He expressed his own view of the relationship between the two at p 31 as follows:
'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.'
The rest of the Committee, apart from Lord Millett, agreed in terms with Lord Bingham's speech on this issue. Lord Millett agreed in substance in a concurring speech. He dealt with the relationship between res judicata and the Henderson v Henderson principle at pp 58H-59B as follows:
'Later decisions have doubted the correctness of treating the principle as an application of the doctrine of res judicata, while describing it as an extension of the doctrine or analogous to it. In Barrow v Bankside Members Agency Ltd [1996] 1 WLR 257, Sir Thomas Bingham MR explained that it is not based on the doctrine in a narrow sense, nor on the strict doctrines of issue or cause of action estoppel. As May LJ observed in Manson v Vooght [1999] BPIR 376, 387, it is not concerned with cases where a court has decided the matter, but rather cases where the court has not decided the matter. But these various defences are all designed to serve the same purpose: to bring finality to litigation and avoid the oppression of subjecting a defendant unnecessarily to successive actions. While the exact relationship between the principle expounded by Sir James Wigram V-C and the defences of res judicata and cause of action and issue estoppel may be obscure, I am inclined to regard it as primarily an ancillary and salutary principle necessary to protect the integrity of those defences and prevent them from being deliberately or inadvertently circumvented'."
Ground 3: Abuse of process
"looking to simply line his pockets because he is 'doubly out-of-pocket' [in the phrase of counsel for the first and second respondents]. Firstly, insurance covers the applicant's liability for the respondents' costs of the original claim. Secondly, the applicant seeking [sic] to fulfil his statutory duties as liquidator."
He goes on to say that
"the fact that the preference payment will be 'repaid by the three individuals in their roles as partners of HLM Properties, only to be repaid to them' as asserted by Mr Shipp (see paragraph 68 of his first statement) is not and should not be the paramount consideration of the court."
Conclusion on strike out
Summary judgment
"69. If the claimant succeeds in this action and is awarded a small amount of damages, it can perhaps be said that he will have achieved vindication for the damage done to his reputation in this country, but both the damage and the vindication will be minimal. The cost of the exercise will have been out of all proportion to what has been achieved. The game will not merely not have been worth the candle, it will not have been worth the wick.
70. … It would be an abuse of process to continue to commit the resources of the English court, including substantial judge and possibly jury time, to an action where so little is now seen to be at stake. …"
Conclusion