Abuse of process or a second bite at the cherry

United Kingdom

The TCC has helpfully restated the principles used to assess when a claim can be struck out on the basis that the claimant should have raised their argument in earlier proceedings.

The judgment builds on the key principles laid out in Johnson v Gore Wood & Co (a firm) [2002] 2 AC 1 (which itself follows Henderson v Henderson (1843)). The crucial consideration being whether the claimant should, as opposed to could, have raised the claim in the earlier proceedings.

Background

A new-build block of flats at New Lawrence House, Manchester, was found to have significant defects. The developer had entered insolvency so the claimants – the freeholder and certain leaseholders – claimed against their structural defects insurance policy. When that claim was declined, the claimants raised proceedings against their insurer (the Original Proceedings).

The Original Proceedings involved two elements. The first was a challenge to the declinature of the claim – see our earlier LawNow on this decision here.

The second element related to the final certificates issued to Building Control by insurers’ related property surveying company. The claimants successfully showed that these certificates had been issued fraudulently, as the issuing surveyors knew or ought to have known that the certificates did not accurately reflect the state of the properties at the point they were issued. Despite this, their claim failed as the Court did not think they had relied on these certificates when purchasing their properties.

However, in the course of the trial it emerged that the surveyors had also failed to complete inspections before issuing the cover notes for the claimants’ latent defects insurance. Specifically, there was witness evidence that (a) it was possible to manually issue insurance cover notes, and so bypass the safeguards built into the insurers’ system requiring evidence of an satisfactory final inspection, and (b) the surveyors had done this at a time when they knew or ought to have known that the properties had significant incomplete or defective works. Importantly, for many of the claimants the issue of these cover notes was the trigger for completion of their property purchase. They had therefore clearly relied on their contents.

The claimants therefore raised new proceedings, to run in parallel with the Original Proceedings, on the basis that the cover notes had been issued fraudulently. Insurers applied for this claim to be struck out as an abuse of process.

Key Principles

The TCC therefore applied the test: should the claimant have raised their claim in the earlier set of proceedings?

The TCC flagged the distinction between the claimants being able to raise their claim, and them being obliged to raise their claim in the same set of proceedings. While it is necessary for the claimants to have been aware of their claim during the first proceedings, that knowledge alone is not enough to satisfy this test. The Court must consider that the making of the claim earlier was “something which the law would expect a reasonable person to do in his own interest and in that of the efficient conduct of litigation.

This requires a case-specific balance between the public interest in the finality of court decisions and management of litigation costs, and the private interest in not denying the claimant a chance to make (and prove) their case. It is clear from the judgement that it is very much a fact specific assessment.

In this case, the TCC was satisfied that the claimants only became aware a claim could be made in relation to the issue of the insurance cover notes during the trial in the Original Proceedings. While evidence of the circumstances surrounding the issue of the cover notes had been made available during disclosure, the TCC did not think it unreasonable that the claimants had not identified the potential claim before this point. The judge rejected the notion that such a claim was “blindingly obvious”. In making this argument, the claimants undoubtedly benefitted from the fact that the judge hearing this application had also been the trial judge in the Original Proceedings, and so had first-hand experience of how the trial had developed.

The TCC also noted in passing that a higher standard of evidence is expected before pleadings a case of fraud, than for other allegations.

The strike out application was therefore dismissed.

Further Reading: Goldman v Zurich Insurance PLC [2020] EWHC 192 (TCC).