Abuse of process in the absence of res judicata or issue estoppel

12 January, 2021

On 11 January 2021 the Court of Appeal (Henderson, Flaux and Coulson LJJ) handed down judgment in PricewaterhouseCoopers LLP v BTI 2014 LLC, which considers the law on abuse of process in cases where there is no res judicata or issue estoppel.

The claim brought by BTI against PwC is for damages for negligence in respect of its audits of the 2007 and 2008 annual accounts of a company then known as Arjo Wiggins Appleton Ltd or “AWA” and in connection with the payment by AWA of dividends to its parent, Sequana SA, of €443 million in December 2008 and €135 million in May 2009.

In earlier proceedings (“the Sequana claim”) BTI, as assignee of AWA, had sued Sequana and the directors of AWA, claiming the recovery of the dividends.  That claim was heard by Rose J (as she then was) in a trial lasting 32 days in 2016. In her judgment ([2016] EWHC 1686 (Ch)), Rose J dismissed the claim. She held among other things that the accounts relied upon by the directors of AWA for payment of the dividends were proper accounts for the purposes of Part 23 of the Companies Act 2006 and that, accordingly, the dividends could not be recovered from Sequana and the directors. BAT Industries, BTI’s parent, also brought a claim against Sequana under s.423 of the Insolvency Act 1986 (“the s.423 claim). That claim succeeded in relation to the May 2009 dividend. However, Sequana then entered into an insolvency process and none of Sequana’s liability to BAT has been paid.

The Sequana claim was issued by AWA on 9 May 2014. On 30 September 2014 BTI took an assignment of AWA’s claims. The claim form against PwC was issued in October 2014 due to concerns about limitation, but not served until February 2015. In the meantime, an order was made for the Sequana claim and the section 423 claim to be tried together and a trial date of February 2016 was fixed.

In May 2015, BTI wrote to PwC stating their intention to make an application to have the PwC claim tried together with the Sequana claim and the section 423 claim, emphasising the level of overlap between the claims and that if the claims were to be tried separately there would be a risk of inconsistent judgments. Particulars of Claim were then served on PwC and BTI subsequently issued an application to have all the claims heard at the same time. The evidence in support gave examples of the overlap in the issues arising in the various claims, pointing out that a central question in both the Sequana claim and the PwC claim was whether AWA’s 2007 and 2008 accounts had been properly prepared. It referred to the risk of inconsistent findings and ultimately inconsistent judgments of the court. It was accepted that if a joint trial were ordered the existing trial date in the Sequana claim and the s.423 claim would have to be vacated.

Sequana and the directors opposed the joint trial application on the basis that the trial date was “set in stone”. PwC said that it intended to apply to strike it out or for summary judgment, so that it would be premature to make an order for a joint trial. The day before the applications were due to be heard, BTI reached agreement with Sequana and the directors that their trial would not be adjourned and on other matters. PwC was notified of the compromise and told that BTI would therefore not be pursuing the joint trial application against PwC. At the hearing, Mann J made a consent order which dismissed the application for a joint trial, gave directions in relation to the strike-out application and extended time for service of PwC’s Defence until after the decision on the strike-out application.

BTI and PwC subsequently agreed that PwC’s strike-out application and all further proceedings should be stayed until after judgment in the Sequana claim and the s.423 claim. The stay was later extended until resolution of appeals in those proceedings.

Following the judgment of the Court of Appeal in those claims on 6 February 2019, PwC applied to strike out the PwC claim or for reverse summary judgment on four grounds, including that:

  1. The allegations made in the PwC proceedings involved relitigation of issues already determined by Rose J in the Sequana claim and involved a collateral attack on her judgment, relying on the decisions of the Court of Appeal in Laing v Taylor Walton [2007] EWCA Civ 1146; [2008] PNLR 11 and of Hamblen J (as he then was) in Art & Antiques Ltd v Richards [2013] EWHC 3361 (Comm); [2014] PNLR 10; and
  2. The PwC claim or parts of it had no real prospect of success because there could be no material evidence that would leave to a different outcome to that before Rose J or establish that any breach of duty by PwC caused the directors to act as they did.

Fancourt J dismissed PwC’s application but granted permission to appeal on those two grounds.

The Court of Appeal dismissed PwC’s appeal.

Abuse of process

The Court held as follows.

  1. Where the parties to the second proceedings are not the same as those to the first proceedings, no question arises of the application of the doctrines of issue estoppel or res judicata, so that the parties are not bound in the second proceedings by the findings in the first. However, there may still be an abuse of process where the parties to the second proceedings are not the same as those in the first. But the mere fact that the second proceedings involve the relitigation of issues decided or a challenge to findings made by the judge in the first proceedings does not without more amount to an abuse of process.
  2. The circumstances in which such a collateral attack will be an abuse were clearly stated by Sir Andrew Morritt V-C in Secretary of State for Trade and Industry v Bairstow [2003] EWCA Civ 321; [2004] Ch 1 at [38(d)]: “If the parties to the later civil proceedings were not parties to or privies of those who were parties to the earlier proceedings then it will only be an abuse of the process of the court to challenge the factual findings and conclusions of the judge or jury in the earlier action if (i) it would be manifestly unfair to a party to the later proceedings that the same issues should be relitigated or (ii) to permit such relitigation would bring the administration of justice into disrepute.”
  3. Further, where the parties to the second proceedings are not the same as the parties to the first proceedings, the authorities are clear that it will only be in a very rare or exceptional case that the court will find that the second proceedings are an abuse of process.
  4. There was no question of the first limb of the Bairstow test applying, since PwC was not a party to the proceedings before Rose J, so that it could not be said that relitigation of the same issues would be manifestly unfair to PwC or that it would vex or harass PwC for the issues to be relitigated.
  5. Accordingly, there would only be an abuse of process in relitigating issues decided by Rose J if to do so would bring the administration of justice into disrepute. The concept of bringing the administration of justice into disrepute encompasses situations where “the purpose of the attempt to have [the issue] retried is not the genuine purpose of obtaining the relief sought in the second action, but some collateral purpose” (per Sir David Cairns in Bragg v Oceanus [1982] 2 Lloyd’s Rep 132 at 139) and “the use of litigation for an improper purpose” (per Lord Hobhouse in Arthur Hall [2002] 1 AC 615 at 751) or “misuse of the litigational process” (Lord Hobhouse in In re Norris [2001] 1 WLR 1388at [26]).
  6. Although the PwC claim involved to a considerable extent relitigation of issues decided by Rose J, it did not bring the administration of justice into disrepute and was not an abuse of process. That was principally because of the procedural and case management history of the two sets of proceedings and the attempts by BTI to procure the agreement of both sets of defendants to a joint trial. The fact that BTI had made clear its intention, if necessary, to pursue the second proceedings against PwC, and PwC then agreed to the consent order dismissing the joint trial application and the consent order staying the second proceedings pending the determination of the first proceedings, was completely inconsistent with any suggestion that the subsequent pursuit of the second proceedings was an abuse of process. If, as PwC now contended, it would be an abuse for BTI to seek inconsistent findings in a second trial, it would have been incumbent on PwC to raise that point before Mann J.

Application for summary judgment

The Court held as follows.

  1. Rose J’s findings in the Sequana claim were neither binding on the parties to the present proceedings nor admissible in evidence in the PwC claim. It could not be said that a second judge would inevitably reach the same conclusion as she did.
  2. PwC’s argument also proceeded on an assumption that the factual and expert evidence would be the same as before Rose J, which was wrong. There was likely to be fresh evidence not before Rose J which may cast a different light on the issues decided by Rose J, including: (i) on new points not considered by Rose J; (ii) different expert evidence; (iii) disclosure of PwC audit files and papers; and (iv) PwC witnesses involved in the audits would inevitably have to give evidence at the second trial and be cross-examined.
  3. BTI had demonstrated that the entire pleaded case was sufficiently arguable to go forward to trial. There was a plainly arguable case on reliance and causation.

Ciaran Keller, led by Andrew Thompson QC, instructed by Kevin Lloyd and Richard Lawton of Debevoise & Plimpton LLP, acted for the Respondent.

The judgment is available here.