Otkritie Capital International Ltd and Another (Respondents/Appellants) v Threadneedle Asset Management Ltd and Another
| Jurisdiction | England & Wales |
| Judge | Lady Justice Arden,Lord Justice Henderson,Sir Christopher Clarke |
| Judgment Date | 12 April 2017 |
| Neutral Citation | [2017] EWCA Civ 274 |
| Docket Number | Case No: A3/2015/3646 & A3/2015/3750 |
| Court | Court of Appeal (Civil Division) |
| Date | 12 April 2017 |
[2017] EWCA Civ 274
Lady Justice Arden
Lord Justice Henderson
Sir Christopher Clarke
Case No: A3/2015/3646 & A3/2015/3750
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM
High Court, Queen's Bench Division, Commercial Court
Mr Justice Knowles
Royal Courts of Justice
Strand, London, WC2A 2LL
Ali Malek QC and Michael Lazarus (instructed by Brown Rudnick LLP) for the Appellants/Respondents (Threadneedle)
Nathan Pillow QC and Anton Dudnikov (instructed by Steptoe & Johnson UK LLP) for the Respondents/Appellants (Otkritie)
Hearing dates: 24–25 January 2017
The principal appeal before us is brought by the appellants (together "Threadneedle") against the refusal by Knowles J on 7 August 2015 to strike out as an abuse of the process of the court these proceedings, which are brought against it by the respondents (collectively "Otkritie"). The subsidiary appeal is brought by Otkritie against the judge's order for costs.
The application to the judge was that the proceedings should be struck out because Otkritie failed to join Threadneedle in previous proceedings ("Action 1"). It brought Action 1 successfully against a number of individuals, including an employee of Threadneedle, but not Threadneedle itself. It now seeks to make Threadneedle liable on the basis of vicarious liability in the current proceedings ("Action 2"). In breach of guidelines (called on these appeals "the Aldi guidelines") laid down by this Court in Aldi Stores Ltd v WSP Group plc [2008] 1 WLR 748, Otkritie never sought management directions from the judge in Action 1 about the most just and cost-effective way of establishing liability on the part of Threadneedle if it was right in its contentions against the individuals.
The Aldi guidelines require a party to seek directions from the court in Action 1 about the possibility that Action 2 may be brought in respect of the same facts against another person, who may not have been a party to Action 1. Action 1 was complex, took 46 days to try before Eder J and culminated in February 2014 in a judgment against a number of defendants, including Mr Gersamia, for over $150m, of which over $100m remains unpaid (including interest and costs).
The court clearly has power to strike out an action for an abuse of its process. This is not an exercise of discretion, where there may be a range of appropriate outcomes, but the exercise of a power, after evaluation of all the circumstances, and there can only be one right answer ( Aldi). The decision of the court from which the appeal is brought is an evaluation of a number of factors and this Court will not set aside that evaluation unless the judge has taken into account immaterial considerations, left out of account material considerations, erred in principle, reached a perverse conclusion or is plainly wrong: see Stuart v Goldberg Linde [2008] 1 WLR 823.
The Aldi guidelines are to be found in a passage in the judgment of Thomas LJ in the Aldi case. They are expressed in imperative terms. They require that the court in Action 1 will, at the very least, be able to express a view as to the proper use of court resources and that that court might be able to devise a means of determining the issues concerning the party who the claimant does not propose to join in Action 1("the non-joined party"). The Aldi guidelines end with the warning that there can be "no excuse" for not raising the question of non-joinder with the judge in Action 1.
The relevant passage from Aldi, with which Wall and Longmore LJJ agreed, reads:
[30] Parties are sometimes faced with the issue of wishing to pursue other proceedings whilst reserving a right in existing proceedings. Often, no problem arises; in this case, Aldi, WSP and Aspinwall each in truth knew at one time or another between August 2003 and the settlement of the original action in January 2004 that there was a potential problem, but it was never raised with the court. I have already expressed the view that it should have been. The court would, at the very least, have been able to express its view as to the proper use of its resources and on the efficient and economical conduct of the litigation. It may have seen if a way could have been found to determine the issues applicable to Aldi in a manner proportionate to the size of Aldi's claim and without the very large expenditure that would have been necessary if Aldi had to participate in the trial of the actions. It may be that the court would have said that it was for Aldi to elect whether it wished to pursue its claim in the proceedings, but if it did not, that would be the end of the matter. It might have enquired whether the action against excess underwriters could have been expedited. Whatever might have happened in this case is a matter of speculation.
[31] However, for the future, if a similar issue arises in complex commercial multi-party litigation, it must be referred to the court seized of the proceedings. It is plainly not only in the interest of the parties, but also in the public interest and in the interest of the efficient use of court resources that this is done. There can be no excuse for failure to do so in the future.
In this case, the Aldi guidelines had not been followed, but the judge found that it was likely that, if they had been followed, the court would not have required Threadneedle to be joined as a party to Action 1 ("the Hypothetical Scenario"). The judge took the view that in all the circumstances it was not appropriate to strike out Action 2. One of the points which Threadneedle makes is that the judge should not have inquired into the Hypothetical Scenario and came to the wrong conclusion in any event.
Threadneedle's detailed contentions and my detailed reasons are set out below. In summary, in my judgment, notwithstanding the concluding words of the passage I have cited from the judgment of Thomas LJ, the Aldi guidelines do not, as Threadneedle submits, mandate striking out. The judge had to come to a broad merits-based judgment as to whether it was unfair and oppressive to Threadneedle to pursue these proceedings. The judge had to consider all the circumstances of the case, including the seriousness of the non-compliance with the Aldi guidelines. In considering the seriousness of the non-compliance, the judge had to consider the Hypothetical Scenario. The judge weighed the circumstances correctly and was right to decline to strike out Action 2. He was also entitled to make his costs order because it reflected his view of Otkritie's conduct in particular in not complying with the Aldi guidelines.
Otkritie started its action against individuals involved in the scheme by which it was duped to purchase investments at a vastly inflated price. It obtained freezing orders against them. The judge gives more details of the scheme, but it is not necessary for me to do so. In March 2012, it added Mr Gersamia as a defendant to Action 1. He had been employed by Threadneedle at the time of the fraud on Otkritie. The judge found that Otkritie would have appreciated then that it might have a claim against Mr Gersamia's employer at that date. At no time, however, did Otkritie take any steps to join Threadneedle to Action 1 or to seek management directions from the judge to whom the action was assigned.
There was a case management conference in July 2012. Walker J was then dealing with the case and he took the view that it was important for Action 1 to proceed speedily to trial because of the effect of the freezing orders on the individual defendants' lives. Hamblen J repeated this message when the matter came before him in November 2012.
Knowles J directed himself, following the speech of Lord Bingham in Johnson v Gore Wood & Co [2002] AC 1, that a claim should be struck out as an abuse of process only if, on a broad merits-based judgment taking account of both the private and the public interests involved and all the circumstances, it was clear that Otkritie was misusing or abusing the process of the court by raising an issue which could have been raised before. The judge also cited a number of other authorities.
In particular, in Henley v Bloom [2010] 1 WLR 1770, Lord Neuberger MR held that a claim was not an abuse of process simply because it could have been brought in an earlier action, because that would violate the right of access to a court guaranteed by Article 6 of the European Convention on Human Rights.
Threadneedle urged the judge to hold that an effect of Aldi was that a party no longer had a right to bring two sets of proceedings if he wished to do so.
The judge took the view that, where a party had not complied with the Aldi guidelines and the court was asked whether this was an abuse of process, the court ought to go on to consider, as best it could, what would have happened if management directions had been sought. He considered that there should be a high threshold for concluding that non-compliance with the Aldi guidelines was an abuse of process.
The judge weighed up a large number of matters. He held that compliance with the Aldi guidelines was a matter of public interest since it affected the ability of others to access the court. Non-compliance deprived the court of the ability to protect the public interest.
The facts found in Action 1 would not be binding on Threadneedle in Action 2. Threadneedle wished to challenge certain findings of Eder J in Action 1. There was a risk of inconsistent findings, but that...
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