Arbuthnot Latham Bank Ltd & Anor v Trafalgar Holdings Ltd & Ors [1997] EWCA Civ 2999 (16th December, 1997)

JUDGMENT LORD WOOLF, MR: This is a judgment of the Court. This judgment relates to an appeal and an application for leave to appeal. The appeal is in the case of Arbuthnot Latham Bank Limited & Ors v Trafalgar Holdings Limited and Mr & Mrs Ashton. The application for leave to appeal is in the case of Chishty Coveney & Co v Ibrahim Khan Raja. We are giving a joint judgment which relates to both cases, because although they were heard on different dates, they raise an identical issue. That issue is the appropriateness of a Court striking an action out where there has been considerable delay if: (i) the cause of action relied upon by the plaintiff in the proceedings would be statute barred if the action were to be struck out, but (ii) the plaintiff has another cause of action upon which he has not so far relied for recovering the money or property the subject matter of the existing action and the cause of action is subject to a longer limitation period which has not expired, and (iii)if the original action is struck out, the probabilities are that fresh proceedings will be commenced which will rely upon the cause of action which is not statute barred. The two cases also provide a convenient opportunity for this court to give some guidance for the assistance of the profession, as to the likely consequences in the future of excessive delay in the conduct of legal proceedings now that the courts are in the process of implementing changes requiring the parties to conduct their litigation with reasonable expedition. The Background to the Two Cases The Arbuthnot Latham Bank Case ("The Bank Case") This is an appeal against a decision of Sir Ronald Waterhouse, sitting as a High Court Judge, on 31 July 1996, when he dismissed a summons by Mr & Mrs Ashton to strike out the action which had been brought against them. The claim against Mr & Mrs Ashton arose in this way. Mr Ashton was the first defendant's, Trafalgar Holdings Limited, representative in the United Kingdom. On 28 January 1987, Mr & Mrs Ashton signed a guarantee to meet on demand the liabilities of Trafalgar to Arbuthnot Latham Bank Limited ("the Bank"). Two years later on 2 March 1989 Mr & Mrs Ashton granted the Bank a legal charge over their home ("the mortgage"). Under the mortgage Mr & Mrs Ashton covenanted to discharge on demand all their liabilities to the Bank. By letter dated 8 June 1989, the Bank demanded from Trafalgar payment of money then due amounting to over £720,000 plus interest. When that sum was not paid, on 31 July 1989, the Bank demanded from the Ashtons the somewhat larger sum which by that time was allegedly due. Nothing was paid and on 23 August 1989 the Bank issued a writ endorsed with a statement of claim against Trafalgar and the Ashtons. Trafalgar did not serve a defence but the Ashtons did so. In the defence they contended that : (i) no debt was due from Trafalgar, (ii) the guarantee was subject to collateral warranties which made it unenforceable in the circumstances, and (iii)in the case of Mrs Ashton the guarantee was obtained by undue influence. Trafalgar took no further part in the proceedings but in relation to the Ashtons pleadings closed on 29 May 1990 and discovery was completed on 6 June 1991. On 7 June 1991, an order was made substituting Nordbanken London Branch as the plaintiff. Thereafter no step was taken until Securum Finance Limited wrote to the Ashtons on 20 March 1996. This was followed by the Ashtons on 3 May 1996 issuing a summons to strike out the claim against them on the grounds of delay. Sir Ronald Waterhouse : (1) dismissed the summons to strike out. (2) Gave the plaintiffs leave to join Securum Finance Limited as the third plaintiffs. (3) Gave the plaintiffs leave to issue a summons before the Master seeking leave to amend the Statement of Claim, and (4) refused the Ashtons leave to appeal. On 9 October 1996 Master Trench gave the plaintiffs leave to amend their Statement of Claim so as to include a claim based on the covenant in the mortgage. It is common ground between the parties that the plaintiffs original claim on the guarantee was a claim to which a six year limitation period applied and that period had expired on 14 August 1995. It is also common ground that in relation to the claim under the mortgage, the limitation period is 12 years and that period has not expired. (See section 8 in relation to an action upon a speciality and section 20 of the Limitation Act 1980) In his judgment, Sir Ronald Waterhouse concluded that there had been inordinate and inexcusable delay. In their evidence, the plaintiffs explained the delay by stating that the debt was assigned to the company now known as Securum UK Limited on 21 December 1992. After that assignment, that company became "in essence an asset recovery and debt collection company". It had inherited a large portfolio of bad debts some of which ran into 7 figures. It was therefore decided that the plaintiffs would deal with only those loans within their portfolio which required urgent action and, as in this case they had security, it was not regarded as an urgent situation and so it was not initially actively pursued. In addition Mr & Mrs Ashton were not only defending but also counter claiming against the plaintiffs and they appeared not anxious to pursue their counter claim. Mr & Mrs Ashton's defence turned substantially on oral evidence and the judge records that it is conceded by the plaintiff that the passage of time may have affected their recollection of events and this would impinge upon their oral evidence. But he drew attention to the fact that many important matters were recorded in correspondence and it is part of the Ashtons' case that the proceedings against them should have been deferred until 1994 because of an undertaking they have been given. It was however, on the basis that a fresh action could be brought by the plaintiffs based on the mortgage which would not be statute barred that the judge dismissed the defendant's application. By inference it appears that the judge would have come to a different decision, because of the anxiety to which the Ashtons had been subjected and their dimming recollection, if a fresh action could not have been brought. Chishty Coveney & Co (A Firm) v Ibrahim Khan Raja ("The Accountant's Case") In this action the plaintiff are a firm of accountants. They issued proceedings on 7 July 1986, over 11 years ago, for professional fees amounting to almost £84,000 and interest. Mr Raja disputes that sum is a reasonable price for the services which he received. In addition he alleges that his signature was obtained by the plaintiff to a piece of paper by fraud and that this was used subsequently to represent that he had agreed to a charge. He also made a counter claim suggesting that the plaintiff had been in breach of duty and removed certain property to which he was not entitled. A second action was commenced on 7 July 1986 for further fees and a third action was commenced naming a sum of over £157,000, including interest, based on an alleged compromise agreement. On 2 December 1992 the plaintiff's actions were struck out by the Master but on an appeal on 22 October 1993 the three actions were reinstated. They were subsequently consolidated and various directions were given which the defendant suggests were not complied with in time. The defendant contends that he has suffered serious prejudice. First because he suffered a heart attack in April 1994 and has ever since been less active and secondly because his recollection of events is now poor. He further suggests that he has been subject to additional tension and pressure because of the action not being resolved. After the appeal against the striking out had been allowed, the plaintiff changed solicitors. While it is conceded that there has been inexcusable delay, it is submitted that the delay was neither intentional nor contumelious. By an order of 11 August 1997 Master Hodgson dismissed all three actions. The Master also ordered that the plaintiff should pay the defendant's costs for the actions including the costs of the application. However, as both parties were legally aided he ordered that "such costs are not to be enforced without leave of the Courts". He also granted a legal aid taxation but indicated that the Taxing Master should consider the costs of photocopying up to a 1000 documents and whether the costs of doing this should be allowed. On 28 July 1997 His Hon Judge Roger Cox, sitting as a Deputy Judge of the High Court, dismissed the appeal. He also ordered the defence and counter claim to be struck out without any order as to cost save for the cost of the appeal which should be paid by the plaintiff to the defendant with the enforcement of the order adjourned generally. The judge also confined the order of the Master about the non-enforcement of the order for costs to the period during which the plaintiff was legally aided. On 7 April 1997, Lord Justice Schiemann gave leave to appeal on the cost point and although he stated "you may argue the other two (points)". It was thought necessary to renew the application for leave and it is that renewed application to which this judgment relates. The authorities on striking out. Although there is a continuous stream of satellite litigation coming before the courts over the issue of delay, the main principles applicable are now clearly established. The starting point is invariably the House of Lords decision in Birkett v James (1978) AC 297. In the very careful and helpful argument which was advanced by both sides in the Bank Case appeal we were taken through speeches in Birkett v James and in particular the speech of Lord Diplock. The position shortly is as follows : (1) An action should only be dismissed for want of prosecution where : (a) the plaintiff's default has been intentional and contumelious, or (b) where there has been inordinate and inexcusable delay giving rise to a substantial risk that a fair trial would not be possible or to serious prejudice to the defendant. (2) That before the limitation period has expired an action will not normally be dismissed for inordinate and inexcusable delay if fresh proceedings for the same cause of action could be initiated. The House of Lords in Birkett v James were not, however, by setting out these principles, acquiescing in delay. They indicated that the court should exercise such powers as they have to ensure that an action is pursued with due diligence. Thus Lord Diplock said (at p.321 C/D): "The Court may and ought to exercise such powers as it possesses under the rules to make the plaintiff pursue his action with all proper diligence, particularly where at the trial the case will turn upon the recollection of witnesses to past events. For this purpose the Court may make peremptory orders providing for the dismissal of the action for non-compliance with its order as to the time by which a particular step in the proceedings is to be taken. Disobedience to such an order would qualify as "intentional and contumelious"... But where no question of non-compliance with a peremptory order is involved the court is not in my view entitled to treat as "inordinate delay" justifying dismissal of the action in accordance with the second principle ... a total time elapse since the accrual of the cause of action which is no greater than the limitation period within which the statute allows the plaintiffs to start that action." In Birkett v James the House of Lords also explained why whether the limitation period has expired is so significant. The reason is that in the absence of some conduct which means that a second action could be stayed, it would not benefit the defendant to have the first action struck out since this would only result in further proceedings which would inevitably cause more expense and delay. If however the limitation period has expired, the same logic does not apply. It also does not apply where the defendant to the fresh action is able to show that it is "open to doubt and serious argument whether the cause of action asserted ... would be time barred if fresh proceedings were issued". In such circumstances the interests of justice may be best served by dismissing the action and leaving the party whose action has been struck out to bring fresh proceedings if he chooses to do so. This was established by this Court in Barclays Bank v Miller (1990) 1WLR 348. In that case Staughton LJ explained the reason for this approach. He pointed out that : "The alternative is that masters, and judges on Appeal and even this court, may become embroiled, on an application to dismiss for want of prosecution, in long and elaborate arguments as to whether some future action, if it were brought, would be time barred. There is a good deal to be said for the view that masters should not have that task forced upon them when the problem may never arise and, if it does arise, could perhaps more conveniently be considered in another way." The fact that the limitation period has not expired, does not figure to the same degree in a case where there has been contumelious conduct on behalf of a plaintiff or where the proceedings which are being struck out constitute an abuse of process. (see Grovitt v Doctor [1997] 1WLR 640 ) In such circumstances, the plaintiff may well find that if he brings fresh proceedings after the original proceedings are struck out they are stayed because of his conduct. For this purpose delay alone even delay of 11 years does not amount to an abuse of process. This was made clear in the recent case of Barclays Bank v Maling (CA 23 April 1997) a copy of the transcript of which was placed before us. In that case there was delay of this order but for a substantial proportion of the period of delay the court had made an order that the action against the relevant defendant was to be adjourned generally with liberty to restore pending proceedings against his wife which in fact were never pursued. With that background Aldous LJ following Teale v McKay (1994) PIQR 508 said : "That case is a clear indication that mere delay, whether or not caused by incompetence, cannot amount to an abuse of process which will enable an action to be struck out. What is needed is disregard of the Courts orders. It may be that deliberate as opposed to negligent disregard may not be required (see Hytec Information Systems v Coventry Council, The Times 31 December 1996 at page 755)." The Court distinguished Culbert v Stephen Westwell Co Ltd (1994) PIQR 55. It did so because in the Culbert case the defendants "had come to court to progress the action with the result that an unless order had to be made" on four occasions. In that situation Lord Justice Parker said : "There is however in my view another aspect of this matter. An action may also be struck out for contumelious conduct, or abuse of the process of the Court or because a fair trial in action is no longer possible. Conduct is in the ordinary way only regarded as contumelious where there is a deliberate failure to comply with a specific order of the court. In my view however a series of separate inordinate and inexcusable delays in complete disregard of the Rules of the Court and with full awareness of the consequences can also properly be regarded as contumelious conduct or, if not that, to an abuse of the process of the court. Both this and the question of fair trial are matters in which the court itself is concerned and do not depend on the defendant raising the question of prejudice. In my judgment the way in which the action has been conducted does amount to an abuse of the process of the court and it would be a further abuse of process if the action were allowed to proceed. In my judgment also, a fair trial is no longer possible. I am aware that liability is not seriously in doubt, indeed it may already have been decided in the plaintiff's favour but I can see no real possibility of a fair trial on quantum when even now the plaintiff's claim is still far from clear". These comments of Parker LJ are highly relevant in relation to the Accountant's case. In Grovit v Doctor & Ors [1997] 1WLR 640 , in a speech with which the other members of the House agreed, I referred to the decision of the House in Department of Transport v Chris Smaller (Transport) Ltd [1989] AC 1197. In his speech in that case Lord Griffiths (at p.1207) emphasised that "a far more radical approach is required to tackle the problems of delay in the litigation process than driving an individual plaintiff away from the courts when his culpable delay has caused no injustice to his opponent." He suggested that the remedy lay in the introduction of court controlled case management techniques. I pointed out in my speech, that the position had not improved since the decision in the Chris Smaller case. I went on to indicate that it was at least open to question whether it is not preferable to await the outcome of the implementation of the new rules (which at the present time are being drafted) before making a substantial inroad on the principles established in Birkett v James (supra). The application of the authorities to the present cases The Bank Case The previous authority which is closest to the Bank Case is the decision of this court in Barclays Bank Limited v Miller (supra). Sir Ronald Waterhouse distinguished Miller because if fresh proceedings were commenced, he took the view that the bank would succeed. There was not the same uncertainty as to the outcome of the fresh proceedings as there was said to be in Barclays Bank Ltd v Miller (supra). Was the judge right in adopting this approach? We do not think so, for reasons advanced by Mr Strachan QC on behalf of Mr & Mrs Ashton. Those reasons are as follows: (1) There is no dispute in this case that in relation to the only cause of action pleaded on behalf of the bank, any fresh proceedings would be statute barred, both as to principal and interest. In Birkett v James no consideration was given to a situation where the only claim which had been relied on would be statute barred if the action was dismissed but there was another cause of action which would not be barred. When considering whether or not to strike out a claim for delay, a defendant is entitled to assume that, normally the court will determine the issue, as to whether to strike out on the basis of the cause of action which has been pleaded and is before the Court. The defendant is entitled to say if the other requirements laid down in Birkett v James are met the claim which had been made should be determined in my favour. There may be exceptional circumstances where this approach will not be adopted by the courts but that will be an exceptional situation. (2) Mr Mowschenson QC on behalf of the plaintiffs accepts the plaintiffs may not recover as much interest in the second action as they would have recovered in reliance upon the first cause of action, (see section 20(5) Limitation Act 1980), but he submits that the plaintiffs can recover the principal sum and all the interest by relying on their remedies as mortgagees. This will involve appointing a receiver to sell the property which constitutes the security, taking possession and exercising the statutory powers of sale under the Law of Property Act 1925, Section 101 or by bringing an action for foreclosure. He submits the plaintiffs would then recover all monies owing from the Ashtons whether time barred or not. However the plaintiffs in seeking to enforce their rights in this way, would be taking a wholly different course from that which they had chosen to take so far and it is inappropriate to take into account possibilities of this sort in determining what should be the outcome of the very different action which the plaintiffs have relied on so far. In addition, if the plaintiffs sought to rely on the mortgage in this way, the Ashtons would still seek to rely upon the defences which they say they would have if the existing action was dismissed and the plaintiffs started further proceedings based upon the covenant contained in the mortgage. (3) If the existing action is dismissed, in relation to an action based on the covenant contained in the mortgage, Mr Strachan submits on behalf of Mr & Mrs Ashton that they would have the following defences. (a) The fact that the statute barred claim would not be a liability. By their covenant the Ashtons only promised to discharge on demand all their "liabilities" to the bank. Those "liabilities" would be under the guarantee which they gave to the bank and would not include sums which were payable under the guarantee which were not recoverable. They would not be liabilities for the purpose of the mortgage. (b) The general principle is that a plaintiff should bring forward at the outset his whole case. Accordingly, it would be not open to the plaintiff to rely upon a cause of action which he could have relied on in the original action to provide a foundation for the second action relating to the same subject matter. (c) That in any event because of the provisions of section 20(5) of the Limitation Act 1980, the plaintiffs would not be able to recover in the second action any interest in relation to which six years had expired from the date upon which it became due prior to the commencement of the action. This point is not disputed by the plaintiffs. (d) Finally it is said that the Ashtons would be entitled to their costs of the only action which has been brought against them and furthermore the plaintiffs would not be able to bring any further action until those costs had been paid. This would benefit the Ashtons. Apart from the point which depends upon section 20(5) of the Limitation Act 1980 and the situation as to costs, the defences which the Ashtons propose to rely on in a second action are submitted by Mr Mowschenson to be wholly without foundation. This is to overstate the position. They cannot be dismissed out of hand. Mr Strachan is therefore on strong ground when he submits that on an application to strike out, the court should not embark upon an investigation of the merits of defences which would be raised if a claim, which has not yet been made, were to be brought unless they are obviously unfounded. As Mr Strachan rightly points out, the task of courts in considering applications to strike out is difficult enough without having to explore issues which are far from straight forward and would, as here, require careful examination. It is submitted on behalf of the plaintiffs, that if the court were to dismiss the present proceedings this would bring the law into contempt in the eyes of the ordinary member of the public. The ordinary member of the public would regard it as a "lawyers game" to strike out a claim for a sum of money on the grounds of delay when an action could be brought for the very same sum of money the next day. That this would be the reaction of the public is far from clear. Their reaction is equally likely to be that the striking out of the action was richly deserved the plaintiffs having allowed this action to go to sleep for just over four and a half years because they had actions against other parties to which they wished to give priority. The Accountants Case Much of what has already been said in the Bank Case is also relevant to this case. However, the position of the defendant in this case is even stronger. He is entitled to draw attention to the overall delay of nearly 11 years and the fact that the action had already been struck out on a previous occasion, although subsequently that order had been set aside. Although there had not been a peremptory or an unless order made in this case which had not been complied with there had been a total disregard of the rules by both parties and the overall conduct of this case amounted to an abuse of the court. This was not a situation where the normal timetable provided for in the rules had been placed on one side by the action being adjourned as in Barclays Bank v Maling. If an action has already been struck out, the duty on a party to comply with the rules if the action is restored is heavier than it would be if the action had proceeded dilatorily without a previous intervention of the court of this sort. The conduct of the defendant may also have been remiss. However, this is not a matter upon which the plaintiff can rely when there has been an abuse of process. The counter claim has been correctly struck out as well. The plaintiff has however still leave to appeal in relation to the order of costs made by the judge. The order for costs is not the subject of this judgment. However, it is very much to be hoped that an appeal in regard to costs will not be pursued bearing in mind that the parties were in receipt of legal aid so the practical consequences of the orders for costs which were made must be limited. The future In his speech in the Chris Smaller case, Lord Griffiths identified the advantages which could accrue from a civil procedural process which was subject to "court controlled case management techniques." This process is now being introduced. The new unified rules are intended to come into force in April 1999. However, many aspects of the process can be introduced while the existing Supreme Court and County Court Rules are in force. Most of the powers which the court requires for the purposes of case management are already contained in the existing rules. The gradual change to a managed system which is taking place does impose additional burdens upon the courts, involving the need for training and the introduction of the necessary technological infrastructure. It is therefore in the interests of litigants as a whole, that the courts time is not unnecessarily absorbed in dealing with the satellite litigation which non-compliance with the timetables laid down in the rules creates. The substantial argument which was advanced before Sir Ronald Waterhouse and this court in relation to the Bank Case is just one instance of a phenomenon which is regularly taking up the time of the courts. In Birkett v James the consequence to other litigants and to the courts of inordinate delay was not a consideration which was in issue. From now on it is going to be a consideration of increasing significance. Litigants and their legal advisers, must therefore recognise that any delay which occurs from now on will be assessed not only from the point of view of the prejudice caused to the particular litigants whose case it is, but also in relation to the effect it can have on other litigants who are wishing to have their cases heard and the prejudice which is caused to the due administration of civil justice. The existing rules do contain time limits which are designed to achieve the disposal of litigation within a reasonable time scale. Those rules should be observed. It is already recognised by Grovitt v Doctor [1997] 1 WLR 640 that to continue litigation with no intention to bring it to a conclusion can amount to an abuse of process. We think that the change in culture which is already taking place will enable courts to recognise for the future, more readily than heretofore, that a wholesale disregard of the rules is an abuse of process as suggested by Parker LJ in Culbert v Stephen Westwell (supra). While an abuse of process can be within the first category identified in Birkett v James it is also a separate ground for striking out or staying an action (see Grovitt v Doctor, 642 H to 643 A) which does not depend on the need to show prejudice to the defendant or that a fair trial is no longer possible. The more ready recognition that wholesale failure, as such, to comply with the rules justifies an action being struck out, as long as it is just to do so, will avoid much time and expense being incurred in investigation questions of prejudice, and allow the striking out of actions whether or not the limitation period has expired. The question whether a fresh action can be commenced will then be a matter for the discretion of the court when considering any application to strike out that action, and any excuse given for the misconduct of the previous action (see Janov v Morris [1981] 1 WLR 1389). The position is the same as it is under the first limb of Birkett v James. In exercising its discretion as to whether to strike out the second action, that court should start with the assumption that if a party has had one action struck out for abuse of process some special reason has to be identified to justify a second action being allowed to proceed. It has been the unofficial practice of banks and others who are faced with a multitude of debtors from whom they are seeking to recover monies to initiate a great many actions and then select which of those proceedings to pursue at any particular time. This practice should cease in so far as it is taking place without the consent of the court or other parties. If there is good reason for doing so the court can make the appropriate directions. Whereas hitherto it may have been arguable that for a party on its own initiative to in effect "warehouse" proceedings until it is convenient to pursue them does not constitute an abuse of process. When hereafter this happens this will no longer be the practice. It leads to stale proceedings which bring the litigation process into disrespect. As case flow management is introduced, it will involve the courts becoming involved in order to find out why the action is not being progressed. If the claimant has for the time being no intention to pursue the action this will be a wasted effort. Finding out the reasons for the lack of activity in proceedings will unnecessarily take up the time of the court. If, subject to any directions of the court, proceedings are not intended to be pursued in accordance with the rules they should not be brought. If they are brought and they are not to be advanced, consideration should be given to their discontinuance or authority of the court obtained for their being adjourned generally. The courts exist to assist parties to resolve disputes and they should be used by litigants for other purposes. This new approach will not be applied retrospectively to delays which have already occurred but it will apply to future delay. The appeal of the Ashtons will therefore be allowed, the judge's order set aside and the plaintiffs claim dismissed. The counter claim will also be dismissed. In the Accountants Case the application for leave to appeal will be refused. Order: Appeal allowed with costs. Counterclaim dismissed. Judge's order set aside. Application for leave to appeal refused. Legal Aid Taxation of Plaintiff's costs. © 1997 Crown Copyright BAILII: Copyright Policy | Disclaimers | Privacy Policy | Feedback | Donate to BAILII