England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
LIVERPOOL DISTRICT REGISTRY
HIS HONOUR JUDGE WAKSMAN Q.C.

		Royal Courts of Justice Strand, London, WC2A 2LL
		11/06/2009

Mr Justice Mann :

Introduction

1. This is an appeal from a decision of HH Judge Waksman QC sitting in the Liverpool District Registry of the Chancery Division and dated 13^th October 2008. It raises the question of the extent to which it is an abuse of the process for a claimant to commence proceedings without having the relevant cause of action vested in him, and whether it would be right to allow him to amend his pleadings to plead a subsequent assignment of that cause of action when that assignment took place outside the relevant limitation period.

The facts

2. The facts are within a narrow compass, and most relevant facts were agreed at the hearing before the judge below and before us. They are as follows.
3. At the beginning of 2001 Mr Pickthall had a substantial shareholding in a company called The Phone People Plc ("the company") which operated a number of retail mobile phone outlets. He agreed to sell his interest, and on 6^th February 2001 entered into a written sale agreement. He instructed solicitors to act for him. Those solicitors were the first defendant ("Hill Dickinson"), and the partner acting was the second defendant. It is unnecessary to distinguish between those defendants for the purposes of this appeal. The details of the agreement do not matter either. It is sufficient to note that the consideration, which was about £2.7m in aggregate, was payable in various ways, including by way of the discharge of various loans on which Mr Pickthall was liable.
4. One month later, on 6^th March, the company petitioned for an administration order on the grounds that it could not pay its debts, and an order was made on 15^th or 19^th March. Within a very short time the administrators had commenced proceedings against Mr Pickthall, attacking various assignments of warranties made by the company to Mr Pickthall, the discharge of loans and other asset transfers. Those proceedings ended with a judgment against Mr Pickthall for some £642,000 odd plus interest. According to the judgment of HH Judge Waksman, he was apparently found to have been in breach of fiduciary duty, guilty of unlawful financial assistance and to have participated in transactions at an undervalue, all as a result of the sale agreement and its associated transactions.
5. On 6^th October 2001 Mr Pickthall was adjudicated bankrupt on his own petition. He would normally have been discharged in October 2004, but apparently the discharge was postponed because of his withdrawals from undisclosed bank accounts. His discharge came on 22^nd August 2006.
6. In April 2006 his trustee in bankruptcy had achieved his own discharge and the Official Receiver had become the legal owner of the residual assets in the bankruptcy, if any. Mr Pickthall had apparently believed that he had had a claim in negligence against Hill Dickinson, but his trustee had not pursued it because Mr Pickthall had not told him about it. The factual basis on which the hearing below, and this appeal, proceeded is that Mr Pickthall did not know that it had vested in his trustee, and had believed that he could pursue it himself once he had been discharged. In September 2006 his solicitors renewed a previous request to Hill Dickinson for the papers, which arrived in unsorted bundles in 9 brown envelopes. Mr Pickthall had to get some money together for counsel's advice, which was difficult, but that advice was obtained in early January 2007, at which point counsel advised that it was necessary for Mr Pickthall to obtain an assignment of the cause of action from his trustee (now the Official Receiver). That was requested, but was not finalised by the time of the 6^th anniversary of the sale agreement (6^th February 2007). Ultimately an assignment was obtained on 20^th June 2007, after the Official Receiver had been provided with information about the claim and had been able to conduct an appropriate investigation and negotiation.
7. The 6^th anniversary date presented obvious limitation points. With that in mind, Mr Pickthall started these proceedings against the defendants by issuing a claim form on 5^th February 2007. The claim form sought damages for negligence and breach of contract in relation to the sale agreement, or alternatively a declaration that the defendants owed the same damages to the Official Receiver (joined as third defendant). Mr Pickthall's solicitors had intended to serve the claim form themselves, at some point in the ensuing 4 months (doubtless once the hoped for assignment had been obtained) but the court slightly spoiled that plan by sending the form to the defendants. However, the proceedings were then stayed of the court's own motion until 8^th July 2007. Particulars of Claim were served on 20^th July, making a particularised claim of negligence.
8. Thus Mr Pickthall came to issue proceedings against Hill Dickinson at a time at which, to his knowledge, he did not have the cause of action vested in him. He had sought an assignment, and hoped to get it, though he had no entitlement to it as a matter of law. Whether he got it would ultimately be a matter of negotiation. It is, of course, far from unknown for trustees in bankruptcy to assign causes of action back to the bankrupt, usually in exchange for a share of any returns, but it is not a matter of course that a request for assignment should be complied with.
9. On 20^th May 2008, and by consent, Judge Waksman ordered the trial of 5 preliminary issues, which were refined down to 4 by the time he actually tried them in August. They were:

(1) As at 20^th June 2007 (the date of the assignment) was the claim statute barred?

(2) If it was, should the claim be struck out as being an abuse of the process?

(3) If it should not be so struck out, is it necessary for the Claim Form to be amended to plead the fact of the assignment?

(4) If it is necessary, should the Court in its discretion allow that amendment?

10. In the judgment under appeal those questions were answered as follows:

a) Issue (1) was answered in the affirmative. That decision has not been challenged. In fact, Mr Flenley, who appeared for Mr Pickthall, accepted at the hearing before us that the limitation period expired on 6^th February 2007.

b) Issue (2) was answered in the negative. Hill Dickinson had argued that it was an abuse of process to have commenced proceedings when Mr Pickthall did not have the cause of action vested in him, and placed reliance on a line of cases (to which I refer below) which were said to demonstrate the proposition that to start proceedings without any current intention of pursuing them, or without being able to formulate the claim, was an abuse, and that it was a similar abuse to start proceedings without having the relevant cause of action in the hope that an assignment would be obtained.

c) Issue (3) was answered in the affirmative – it was necessary to plead the assignment. There has been no challenge to that aspect of the decision.

d) On issue (4), the amendment should be allowed, since Hill Dickinson would suffer no prejudice if it were allowed; there was no abuse of process and the proceedings were not a nullity; it could not be said that the trustee had elected not to bring the proceedings; Mr Pickthall was not guilty of a "speculative manoeuvre" without any real intention to proceed; and it mattered not that the assignment came after the end of the limitation period. Mr Pickthall and the trustee were said to have a "close identity", and could properly be described "as two sides of the same coin".

The issues on this appeal

11. As observed above, there is no cross-appeal on the limitation point. Nor is there any cross-appeal on the necessity to amend to plead the amendment. That leaves the abuse and amendment point. They are closely linked. If the commencement of the proceedings was an abuse, then there should be no amendment (as Mr Flenley seemed to accept) or it would at least be a very material factor in the consideration of the amendment application. It will therefore be useful to take that point first.

Were the proceedings an abuse of the process?

12. In considering this point it is necessary to consider not only what was done, but why it was done. We assume for these purposes that there was a good, or at least an arguable, cause of action against Hill Dickinson. Mr Pickthall started proceedings against them at a time when he did not have a cause of action vested in him, and he actually knew that that was the case. That is prima facie an extremely odd thing to do. The explanation lies in the effect of limitation. He could apparently see the end of the limitation period looming, and did not want to lose the cause of action as a result of that. But he could not get the assignment before that time. So he sought to preserve the action from the effect of limitation by starting the case within that time, and then (as he hoped) getting in the title to sue. Mr Flenley maintained there was nothing wrong with that. There was a perfectly good cause of action against Hill Dickinson, and Mr Pickthall had every intention of pursuing it just as soon as he could get it vested in himself. Mr Ticciati, for Hill Dickinson, said that that was an abuse because by acting as he did Mr Pickthall unilaterally acquired for himself an extension of the limitation period.
13. Mr Flenley's first submission was that the determination of whether there was an abuse in this case was the equivalent of an exercise of judicial discretion which should only be interfered with on the same basis as the exercise of a discretion. He relied on Thomas LJ in Aldi Stores Group Ltd v WSP Group plc [2008] 1 WLR 748. That was a case in which the alleged abuse was of the kind which arises where a litigant tries to litigate matters which could and should have been litigated in earlier proceedings. At page 762 C-D Thomas LJ said:

"[The decision below] was a decision involving the assessment of a large number of factors to which there can, in such a case, only be one correct answer to whether there is or is not an abuse of process. None the less an appellate court will be reluctant to interfere with the decision of the judge where the decision rests upon balancing such a number of factors … The types of case where a judge has to balance factors are very varied and the judgments of the courts as to the tests to be applied are expressed in different terms. However, it is sufficient for the purposes of this appeal to state that an appellate court will be reluctant to interfere with the decision of the judge in the judgment he reaches on abuse of process by the balance of the factors; it will generally interfere where the judge has taken into account immaterial factors, omitted to take account of material factors, erred in principle or come to a conclusion that was impermissible or not open to him."

This was affirmed by Sir Anthony Clarke MR in Stuart v Goldberg Linde [2008] 1 WLR 823.

14. Those dicta describe cases of a different nature from the case before us. The nature of the abuse is different, but more importantly the nature of the exercise is different. The present case does not involve any great balancing of factors. It involves the application of principle to a relatively simple set of facts involving the circumstances in which one, and only one, set of proceedings was started. The proceedings were started at a time when the claimant had no cause of action, and knew he had no cause of action. The only countervailing feature was that he intended, if he could, to get in the cause of action. There is no reason why the constraints on an appellate court should apply to such a case. The process of judicial assessment in such a case is different in its quality from the sort of balancing and judgment that has to be deployed in the Aldi type of case. In my view this court need not, and should not, subject itself to those constraints in this case.
15. So I turn to consider the basis on which it is said that the proceedings in this case were an abuse. In my view the starting point is that where a man starts proceedings knowing that the cause of action is vested in someone else, then it is hard to see why those proceedings are not an abuse. He has started proceedings in which, even if he proves all the facts he wants to prove and establishes all the law he wants to establish, he will still lose because he does not have a right to sue. It is hard to see how that cannot be an abuse. Only people who own causes of action, or who have an appropriate interest in proceedings, have any business asserting the cause of action or starting proceedings. Any other use of the court's proceedings is improper. The position would be likely to be otherwise if the claimant does not know, or is uncertain, as to whether he has title to the relevant cause of action. In those circumstances, at least until it is authoritatively determined that the claimant does not own the cause of action, it may well not be appropriate to characterise the proceedings as an abuse, but that is different from the case currently under consideration.
16. Mr Ticciati seeks to reinforce his submission of abuse by relying on three cases which relate to other forms of abuse, and drawing a parallel with them. They are Nomura International plc v Granada Group Ltd [2008] 1 Bus LR 1, Steamship Mutual v Trollope & Colls [1986] BLR 77 and Barton Henderson Rasen v Merrett and Ernst & Young [1993] 1 Lloyds Rep 540.
17. In Nomura the claimant had been sued in other proceedings, but had agreed a standstill with the claimant in those proceedings. The claimant thought that if the claim against it was ultimately proceeded with then it might have its own claim over against the defendant, but since its own claimant had not particularised its claim against Nomura, Nomura could not particularise its claim against its own defendant (Granada). Nonetheless it issued a claim form to prevent the limitation period expiring, claiming damages in contract and tort for loss suffered as a result of its liability to its own claimant. Cooke J struck out the claim. He said (at para 37):

"If a claimant cannot do that which is necessary to prosecute the claim by setting out the basis of it, even in a rudimentary way, a claimant has no business to issue a claim form at all 'in the hope that something may turn up'. The effect of issuing a writ or claim form in such circumstances is, so the plaintiff/claimant hopes, to stop the limitation period running and thus deprive the defendant of a potential limitation defence. The plaintiff/claimant thus, unilaterally, by its own action, seeks to achieve for itself an extension of the time allowed by statute for the commencement of an action, even though it is in no position properly to formulate a claim against the relevant defendant. That must, in my judgment, be an abuse of process and one for which there can be no remedy save that of striking out the proceedings so as to deprive the claimant of its putative advantage. The illegitimate benefit hopefully achieved can only be nullified by this means. Whatever powers may be available to the court for other abuses, if this is an abuse, there is only one suitable sanction."

He went on to say at paragraph 40:

"40. Although defectively endorsed writs could be cured by subsequent statements of claim in the ordinary way, such cure depended upon the plaintiff having a known genuine cause of action at the time of the issue of the writ and the irregularity merely being the failure properly to set it out. As appears from the decisions discussed earlier, that principle is of no application where the plaintiff had no known basis for making the claim at the time when the writ was issued."

Note the reference to knowledge in that passage.

18. In Steamship Mutual the claimant issued proceedings against a fifth defendant but did not plead against it originally. When it sought to do so its claim was struck out as an abuse. When it first issued the proceedings the claimant had told the fifth defendant that it did not intend at that stage to make allegations against it. May LJ said (at pages 87-88:

"In my opinion to issue a writ against a party even in connection with a building dispute where cross-claims may subsequently be made, when it is not intended to serve a statement of claim and where one has no reasonable evidence or grounds on which to serve a statement of claim against a particular party, is an 'abuse of the process of the court' … had the structural engineers called for a statement of claim when the rate was first issued… [the claimant] would have responded either by declining to serve a statement of claim and consequently … having the proceedings struck out or… to have served a statement of claim which they knew had no foundation. When that is the dilemma … it readily becomes apparent that an improper use of the process of the court has been made."

19. That passage was considered by the learned judge below in this case. I shall shortly consider what he made of it. However, what he did not cite was what May LJ went on to say about limitation periods on page 88:

"Good justice needs to be swift justice, and, in my opinion, the limitation periods provided for by the Limitation Act 1980 are generous. Any artificial extension of those periods needs to be fully justified."

20. The third case was Barton. In that case the judge held that there was no abuse on the facts, but Mr Ticciati relied on dicta of Saville J as follows:

"To my mind, at least in the absence of very special circumstances, it could hardly be suggested that it would be a proper use of the processes of the Court to issue a writ with no intention of following it up with a statement or points of claim, in circumstances where the plaintiffs were unaware of any basis on which they could bring proceedings against the defendants. The reason for this is simply that in contentious matters the Courts and Court procedures exist for the purpose of determining claims. If a plaintiff starts an action with no present intention of pursuing it, being unaware of any basis for a claim, then on the face of it that plaintiff is not using the processes of the Court for the purposes for which they were designed.

In the present case there is no doubt that the writs were issued when they were in order to avoid a possible defence of limitation. To my mind this alone would not prevent the writ from being struck out, given there was no present intention of pursuing the matter nor any known basis for the claim. Parliament has stipulated the periods within which proceedings must be begun so that unless the proceedings are begun within the relevant period (or the plaintiff can bring himself within one of the exceptions) then it is nothing to the point that he may have wished to protect the position in case something turned up at a later stage. To allow him to do so would in effect be to extend the period beyond that thought appropriate by Parliament."

21. Those passages (with the exception referred to) were cited to the judge below. He held that they did not assist Hill Dickinson. His principal reason for distinguishing them was the fact (as he found) that they were really concerned with claimants who, when they issued their writs or claim forms, did not intend to proceed with the claim against the defendant in question. He made that point after each of the citations in his judgment, and seems to have thought that that was the principle to be extracted from those cases. After his citation of passages in Nomura he said:

"The underlying mischief is the bringing of proceedings without any intention to have them litigated; the fact that at some later stage a basis for the claim might turn up is not a justification. Nor is the fact that the Claimant seeks to protect his position with regard to limitation in case (a) a basis for the claim might turn up and (b) at that point the Claimant decides that there is good reason then to pursue a claim; that is not this case."

He distinguished Steamship Mutual in the same way:

"The abuse in that case was therefore concerned with the issue of a writ when there was no intention to prosecute it at all at least when it was issued and when the basis for any claim was not known … In my judgment the case before me is clearly distinguishable from Steamship Mutual. Mr Pickthall had every intention of pursuing this claim. However he needed an assignment to do so."

Mr Pickthall's intention to pursue his claim in due course therefore, in the judge's eyes, removed the proceedings from the realms of abuse.

22. With all due respect I think that this reasoning misses the point. Those cases are demonstrations of one particular type of abuse. They do not completely define the nature of abuse. The point at issue in the present case is related to the abuses in those cases, but is different. Indeed it is clearer. In the cited cases it was at least apparent that if there was a cause of action then the claimant was the right person to assert it in proceedings. In the present case the claimant is the wrong person to assert the cause of action, and knows that he is. The proceedings could immediately be subject to an irresistible application to strike out, precisely for that reason. If those are the only facts, the conclusion that the proceedings are an abuse is inevitable.
23. Does it make any difference to that conclusion that the claimant has the intention to get in the cause of action, and indeed has a prospect of doing so? In my view it does not. He has still started someone else's cause of action in circumstances where that other person has not started it himself. His action is still technically flawed, to his knowledge. If one then goes further and asks why this very odd thing is being done, then in the present case one comes up with the limitation point – it is being done in an attempt to beat the limitation trap, because if the claimant waits until he is in a proper position to sue he will be statute-barred. In my view that makes the position worse. It contravenes the principle which emerges from the above cases that it is an abuse to do this sort of thing in order to avoid the consequences of a limitation period which Parliament has deliberately prescribed. The conclusion that the proceedings are an abuse is even clearer. Mr Flenley urged on us that the intention of getting title to sue, and the real prospects of doing so, meant that the proceedings were not speculative and thus not an abuse. If it were necessary to put a label on what was going on, "speculative" might well be an appropriate one in the circumstances, but I do not think that the label matters. The intention does not save the proceedings from being abuse, no matter what the prospects were of getting in the cause of action.
24. Mr Flenley sought to argue that a claimant's starting proceedings without having the cause of action in his hands at the time, but in ignorance of that fact, was not of itself an abuse; and that knowing that he did not have it did not turn it into an abuse, putting various hypothetical examples of cases which he said would give rise to anomalies were the contrary true. I am afraid I am unconvinced by his examples, and in any event they do not help him on the relatively straightforward facts of the present case. The claimant had no cause of action on 5^th February 2007; he knew that; he hoped to acquire the cause of action but foresaw that if he waited he would be met by a limitation defence; so he started proceedings which he had no right to start hoping that he would get in the cause of action. I confess that seems to me to be a plain abuse of the process. If one wishes to take examples, suppose that he had had to wait a year to finalise his negotiations with the Official Receiver? Can it seriously be said that during that time the proceedings were not an abuse because he was negotiating with hope? I do not think it can. The fact that it was 4 months in the present case makes no difference.
25. Subject to the amendment point, the claim is therefore an abuse and ought to be struck out as such.

Amendment

26. That being the case, I think that it provides the answer to the second of the two questions before us, namely whether permission to amend to plead the cause of action ought to have been given. The purist view might well be that proceedings which are started by someone without the relevant cause of action vested in them are fundamentally technically flawed and cannot be saved by a subsequent assignment and pleading of that assignment. While amendments are to some extent retrospective in their effect, that retrospectivity does not affect the date from which the assignment vests the cause of action in the claimant, so that as at the date of commencement of proceedings he still did not have the relevant cause of action in his hands on which the court is asked to adjudicate. However, if that is the purist view, it has been overtaken by the practical one adopted by the courts which allow such a thing – see the cases gathered together and cited in Smith v Henniker-Major & Co [2002] BCC 544 at 553-4. Permission can apparently even be given where a limitation period expires after a failed assignment – see Smith v Henniker-Major on appeal at [2003] Ch 182.
27. However, it would in my view be wrong to grant that permission. A permitted amendment would not so much cure the abuse of process as be a reward for it. It seems to me to be wrong in principle to confer such rewards on those who act in that way. This is not a point which is dealt with in Smith v Henniker-Major at either level. That case had some elements in common with the case before us - the claimant did not have the cause of action vested in him at the date that he sued (albeit that in that case it was because of an invalid assignment) and he sought to fix the problem by taking a later assignment and then amending to plead it. However, the factual basis on which that case was proceeding did not seem to include the fact that the claimant knew that he did not have the cause of action when he started his proceedings. The debate about amendment therefore did not take place against a background of a finding of abuse of process. The case therefore does not help us, and certainly contains nothing to gainsay what I consider to be the proper approach as set out at the beginning of this paragraph.
28. The learned judge below in this case determined the amendment point against the background that he had not found an abuse of the process. That absence was part of his reasoning – see paragraph 67(2) where he said:

"It is true that the upshot [of the amendment] will be that Mr Pickthall can pursue a claim which he did not have at the outset. But on the other hand there was no abuse of process here and in law the claim form as issued was not a nullity."

He therefore failed to take a central point into account and it falls to us to consider the exercise of the discretion afresh. For the reasons just given I would determine it against the claimant and refuse him permission to amend to plead the assignment.

Conclusions

29. I would therefore allow the appeal in relation to the issues before us, with the result that the preliminary questions should be answered as follows:

(2) The claim should be struck out as an abuse of process, and

(4) The amendment to plead the assignment should not be allowed.

Thomas LJ : I agree.

Laws LJ: I also agree.