SECOND ACTION NOT STRUCK OUT AS AN ABUSE OF PROCESS: CLAIM IN DECEIT CAN CONTINUE AFTER CLAIM IN NEGLIGENCE FAILED: THE CLAIMANT NEED NOT HAVE GAMBLED ON FRAUD CLAIM FIRST TIME AROUND

In Playboy Club London Ltd v Banca Nazionale Del Lavoro Spa [2018] EWCA Civ 2025 the Court of Appeal overturned a ruling that an action in deceit was an abuse of process. The claimant’s action in negligence failed because there was no duty of care.  A second action, framed in deceit, was allowed to continue.  The issues were different and the claimant had only found out information during the course of the negligence trial.

“The courts will not lightly shut out a party from pursuing a genuine claim, unless abuse of process can clearly be made out: “It will be a rare case where the litigation of an issue which has not previously been decided between the same parties or their privies will amount to an abuse of process …”: 

THE CASE

The claimant had brought an action for negligence against the defendant following receipt of a credit reference.  The claim in negligence failed because, the Supreme Court held, the defendant did not owe a duty of care.

THE SECOND CLAIM IN DECEIT

The claimant brought a second action in deceit.

THE ISSUES

This second action was struck out at first-instance. The claimant appealed to the Court of Appeal.

  1. BNL contends that the Club could and should have brought the deceit claim at the same time as the negligence claim. Both claims could then have proceeded to a single trial at which all the issues between the parties would be determined. BNL says it is an abuse of process for the Club to have held back its claim in deceit as it did, and now to seek to have it determined after it has lost the negligence claim.
  2. The Club accepts that a claim in deceit in relation to the credit reference could properly have been included in the action by which the negligence claim was brought. However, it submits that on the material available in advance of the trial in that action it would have been a speculative and weak claim in deceit (albeit one which could properly have been advanced) and, given the particular responsibility on counsel and a party in relation to pleading fraud, it cannot be said that it was incumbent on the Club to include a deceit claim in that action. After trial commenced in that action, significant new evidence has become available to the Club which has materially strengthened its case in deceit. The Club maintains that it is, therefore, no abuse of process for it to have commenced a separate action against BNL in relation to the deceit claim.

THE JUDGMENT IN THE COURT OF APPEAL

The Court of Appeal overturned the order striking out the claim as an abuse of process. Information had come to light in the course of the trial for negligence which gave ground to a claim in deceit. The two issues were very different.

    1. A claim in deceit does not depend upon a finding that a duty of care was owed. The rules of causation and remoteness of loss are different in certain respects which are arguably relevant to the possibility of the Club obtaining relief pursuant to the deceit claim even though it has lost on its negligence claim. For the purposes of this appeal BNL accepts all this, and does not contend that the fact that the Club has failed in its negligence claim has the consequence that the deceit claim must fail also. Rather, BNL’s case is that it is an abuse of process for the Club to bring its deceit claim after pursuing its negligence claim through to trial, because the Club could and should have instituted its deceit claim before the trial of the negligence claim.
    2. Mr Salzedo for the Club accepts that the Club could have instituted the deceit claim before trial of the negligence claim, in the sense that counsel for the Club could properly have pleaded such a case without violation of any of the professional standards applicable in respect of advancing a plea of fraud. In other words, there were sufficient oddities and questionable features in relation to what had happened regarding the giving of the reference (including as pleaded in para. 13 of BNL’s Defence) that it would have been professionally proper for counsel for the Club to plead that an inference should be drawn that Ms Guidetti had indeed signed the reference and had done so knowing that it was false or reckless as to whether it was true or false. However, Mr Salzedo’s submission is that HHJ Bird was wrong to say that the claim in deceit should have been instituted before the trial of the negligence claim. A claim in deceit based on the material available before trial would have been speculative and relatively weak, particularly in light of the positive indications from BNL that it would say at trial that Ms Guidetti’s signature on the reference was forged. It cannot be said that it was incumbent on the Club to plead a case in deceit before the trial of the negligence claim. The Club was entitled to be cautious and to prefer to take care not to over-state its case. The information obtained from Mr Turlon’s cross-examination about the reason for Ms Guidetti’s dismissal and in relation to the Les Ambassadeurs incident was not available prior to the trial of the negligence claim and is highly material to the deceit claim which the Club now wishes to pursue. It cannot be said that it is an abuse of process for the Club now to pursue that deceit claim, based as it is to a material degree on those new items of evidence.
    3. The parties are agreed that the relevant principles are those set out by the House of Lords in Johnson v Gore-Wood & Co. Ltd [2002] 1 AC 1, in particular at 30-31 per Lord Bingham of Cornhill in the following well-known passage:
“It may very well be, as has been convincingly argued (Watt, “The Danger and Deceit of the Rule in Henderson v Henderson: A new approach to successive civil actions arising from the same factual matter” (2000) 19 CLJ 287), that what is now taken to be the rule in Henderson v Henderson [(1843) 3 Hare 100] has diverged from the ruling which Wigram V-C made, which was addressed to res judicata. 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.”
  1. In my judgment, and with respect to HHJ Bird, he was wrong to strike out the Club’s deceit claim. It is not an abuse of process for the Club to institute and pursue that claim after the trial of the negligence claim.
  2. Although a deceit claim could have been introduced by the Club alongside the negligence claim before the trial of that claim, it cannot properly be said that such a deceit claim should have been so introduced – i.e. on pain of losing any later opportunity to plead a case in deceit, no matter what further evidence pertaining to fraud might emerge. The pleading of fraud or deceit is a serious step, with significance and reputational ramifications going well beyond the pleading of a claim in negligence. Courts regard it as improper, and can react very adversely, where speculative claims in fraud are bandied about by a party to litigation without a solid foundation in the evidence. A party risks the loss of its fund of goodwill and confidence on the part of the court if it makes an allegation of fraud which the court regards as unjustified, and this may affect the court’s reaction to other parts of its case. Moreover, as Birss J observed in Property Alliance Group v Royal Bank of Scotland [2015] EWHC 3272 (Ch) at [40], allegations of fraud “can cause a major increase in the cost, complexity and temperature of an action.” For these reasons parties are well-advised, and indeed enjoined according to usual pleading principles, to be reticent before pleading fraud or deceit. Although the Club could have pleaded deceit before trial of the negligence claim, in my view it behaved reasonably and entirely properly in deciding not to do so on the speculative and inferential basis which would have been necessary at that stage.
  3. Contrary to the view of the judge, I consider that the new evidence derived from Mr Turlon’s cross-examination at trial and regarding the Les Ambassadeurs incident is highly material to the deceit claim which the Club now wishes to pursue. I also think that the judge gave inappropriate weight to BNL’s statement in response 8 of its CPR Part 18 response, that it was not advancing a positive case that Ms Guidetti’s signature on the reference was a forgery. Further, I think the judge was in error in saying that following disclosure in the negligence action the Club was aware of facts which “were not consistent with honesty” ([34]).
  4. As regards BNL’s position leading up to and throughout the trial, I have set out in some detail above how, notwithstanding response 8 notwithstanding response 8, BNL did in substance maintain a positive case that Ms Guidetti’s signature on the reference was forged. The Club was entitled to assess what position it should adopt on the question of whether to plead deceit in the light of this.
  5. The potential reputational consequences for a bank of a pleading of fraud against it are particularly serious, since trust in a bank is such an important foundation for its business. Banks are expected to take care to ensure that their staff are honest, and it is a serious matter not just for the bank employee but for the employing bank for a party to assert a formal claim in legal proceedings that a bank employee has been dishonest. On the material the Club had available to it before trial, it was entitled to think long and hard about whether to allege fraud on the part of Ms Guidetti, and to conclude that it would not be prudent or appropriate to do so. The same oddities and questionable features in relation to the reference which BNL now says should have led the Club to plead a claim in deceit by inference were being relied upon by BNL up to and throughout the trial to support its case that the true inference was that Ms Guidetti’s signature on the reference was not genuine. They did not ineluctably point to an inference of fraud. They were matters which were capable of being consistent with honesty on the part of Ms Guidetti: if she had not signed the reference, she had not been dishonest.
  6. The evidence of Mr Turlon in cross-examination about the reason for Ms Guidetti’s dismissal by BNL and the evidence about the Les Ambassadeurs incident is strongly supportive of the Club’s present deceit claim in a way which the material available before the trial of the negligence claim was not. The judge was dismissive of the evidence of the Les Ambassadeurs incident because the Club had intimated in correspondence that it was going to plead a claim in deceit before that evidence became available. But in my view the judge should have assessed whether the deceit claim as pleaded was an abuse of process, and therefore should have attached significant weight to the evidence about the Les Ambassadeurs incident. In any event, the evidence of Mr Turlon in cross-examination was itself highly material and the judge should have given it much greater weight than he did. It indicated that Ms Guidetti was prepared to lie to her employer when challenged about the genuineness of her signature on official bank documents, to deny that it was hers. She had acted dishonestly. She could not be presumed to be an honest bank employee. As HHJ Mackie QC observed in his judgment at [26], once this was known little or no weight could be attached to Ms Guidetti’s protestation in an email in relation to the present case that her signature on the reference was forged. Moreover, the distinct possibility or even probability that she had lied about that is capable of lending support to the Club’s present case in deceit that she had lied to the Club in signing the reference, in that this seems to indicate that she had this motive for seeking to mislead others about her involvement.
  7. In assessing whether it is an abuse of process for the Club to institute and maintain its deceit claim after the trial of the negligence claim, I consider it is important that the new evidence from Mr Turlon and in relation to the Les Ambassadeurs incident came into the Club’s hands after the material time, i.e. after the commencement of that trial. This is not a case in which a party has deliberately decided for tactical reasons to keep material up its sleeve in relation to a deceit claim until after it sees what happens with its negligence claim, and then institutes later proceedings in deceit relying on material which was already available to it at the earlier stage. To proceed in that way might well be an abuse of process: see Johnson v Gore-Wood at p. 31B per Lord Bingham, quoted above; and Stuart v Goldberg Linde [2008] EWCA Civ 2[2008] 1 WLR 823, [77] (Sedley LJ) and [79] (Sir Anthony Clarke MR). But in this case, the fair inference is that the Club has proceeded to bring the deceit claim by reason of new evidence becoming available which is highly material and strongly supportive of that claim.
  8. I say this is the fair inference, because the Club has not waived legal professional privilege in respect of the legal advice it received before and after the trial of the negligence claim. The Club is not obliged to waive privilege and it is appropriate to determine the strike out application by BNL on the basis of such inferences as can fairly be drawn from the objective and known facts of the case regarding the Club’s conduct.
  9. The Club was entitled to treat the new evidence as a decisive matter which justified it in bringing its deceit claim after the trial of the negligence claim. The new evidence means that the Club is in a much stronger position to allege deceit on the part of Ms Guidetti, acting for BNL, than it was in prior to that trial.
  10. The burden is on BNL as defendant to identify reasons why bringing the second claim is manifestly unfair: Michael Wilson & Partners v Sinclair [2017] EWCA Civ 3[2017] 1 WLR 2646, at [100] per Simon LJ (with whom the other members of the court agreed). The courts will not lightly shut out a party from pursuing a genuine claim, unless abuse of process can clearly be made out: Stuart v Goldberg Linde [2008] EWCA Civ 2[2008] 1 WLR 823, at [65] per Lloyd LJ. “It will be a rare case where the litigation of an issue which has not previously been decided between the same parties or their privies will amount to an abuse of process …”: Michael Wilson & Partners at [48(5)] per Simon LJ.
  11. In this case, there is no manifest unfairness to BNL in allowing the Club to proceed with the deceit claim. On the contrary, in my opinion, in the circumstances of this case it would be unfair to the Club to treat it as being precluded from bringing its present deceit claim based on the significant new material, not available to it previously. It is in accordance with the overriding objective set out in CPR Part 1 that the Club should be permitted to proceed with its deceit claim.
  12. The issue of whether there was deceit by Ms Guidetti, acting for BNL, is plainly distinct from the issue of whether BNL was negligent: see e.g. Paragon Finance Plc v D.B. Thakerar & Co. [1999] 1 All ER 400 at 418f-h, where Millett LJ makes the point that in English law there is an important distinction between cases of fraud and dishonesty, on the one hand, and of negligence and incompetence, on the other. The issue of whether there was deceit by Ms Guidetti has not previously been decided between the parties and it is just and appropriate that the Club should be allowed to proceed to take its case on that issue to trial. In my opinion, it cannot be said that the Club’s conduct in bringing its deceit claim amounts to “unjust harassment” of BNL, to use Lord Bingham’s phrase in Johnson v Gore-Wood, quoted above.
  13. For the reasons I have given, in my judgment the Club is not abuse”