Lloyd v Hayward & Another [2024] EWHC 2033 (Ch)

Natasha Dzameh represented the successful Claimant in Lloyd v Hayward & Another [2024] EWHC 2033 (Ch), defending against an application to strike out the Claimant’s claim for abuse of process on the basis of allegations of warehousing the litigation. This was a hotly contested application involving numerous cases, the judgment referring to in the region of 25 authorities (including a plethora of Court of Appeal decisions as well as those of the House of Lords and the Privy Council (Bahamas)).

This decision casts serious doubt on the analysis of Mr Justice Richards in the recent warehousing case of Watford Control Instruments v Brown [2024] EWHC 1125 (Ch).

Facts

The underlying dispute involves businessmen and a company incorporated in Jersey. It concerns the status of an arrangement for the development and management of property, in particular whether it was simply a joint venture or a partnership, the terms of such and the sums owed. A counterclaim exists in which the Defendants assert that there was a joint venture between the Claimant and the Second Defendant only which terminated in December 2013 with it being said the balance of the account is in favour of the Second Defendant rather than the Claimant.

The Claimant instructed solicitors in October 2017. Prior to Natasha’s involvement steps were taken in respect of pre-action disclosure. In April 2018 an order was made for pre-action disclosure against the First Defendant. This was set aside by way of a consent order in August 2018 on terms including matters such as service on the Claimant of copies of the accounts of the joint venture by 15 September 2018 with the option for the Claimant to request copies of the underlying documentation on which the joint venture accounts were based by 1 October 2018. Documentation was produced which purported to be the accounts of the joint venture, the adequacy of which was disputed. On 25 October 2018 the Claimant indicated a desire to seek the underlying documents whilst seeking an indication of the costs associated with this, it having been indicated that the costs in respect of the pre-action disclosure application could be £78,250 + VAT. No response was received.

The claim was issued on 6 April 2020. On 21 December 2020 section 1A of the List of Issues for Disclosure was sent by the Claimant. A response was due from the Defendants by 4 January 2021 but was not sent until 17 March 2021. Following the filing of Directions Questionnaires, the Court made an order on 7 January 2021 staying the action for 1 month. The Court failed to list the matter for a CCMC at the end of the stay. By way of correspondence dated 18 March 2021 the Defendants’ solicitors intimated an intention to apply for summary judgment for the First Defendant and possible strike out in respect of parts of the claim against the Second Defendant. Correspondence followed with the Defendants ultimately deciding against making any such application but failing to communicate this to the Claimant. On 15 April 2021 section 1B of the DRD was served on behalf of the Claimant with the Defendants not providing their section 1B until 11 March 2024 despite having indicated they would do so in April 2021.

Between 8 March 2022 and 4 April 2023 no communication took place between the parties or between either of them and the Court. From around August or September 2022 Claimant’s solicitors went about collecting witness evidence. On 7 December 2023 the Claimant’s solicitors contacted the Court following which a CCMC was listed for a hearing on 26 March 2024. This was vacated with the Defendants ordered to pay the Claimant’s costs of the CCMC due to the Defendants making an application to strike out the claim for abuse of process on the basis of warehousing pursuant to CPR 3.4(2)(b) on 21 March 2024.

Submissions

Many submissions were made in this case and the below constitutes only a very brief overview.

The Defendants contended that the Claimant had, or at various times had, no genuine intention of proceeding to trial. It was said that bringing and/or continuing a claim without having an intention to bring it to a conclusion for a substantial period constituted abuse, namely Grovit abuse due to the House of Lords case of Grovit v Doctor [1997] 1 WLR 640. This is often referred to as warehousing litigation albeit warehousing is not a term of art. Allegations as to pre-action and post-issue delay. It was also averred by the Defendants that, insofar as the Claimants had begun to prepare witness evidence and the Defendants had not, the Claimant had sought to steal a march on them.

The Defendants relied upon the decisions in Watford Control Instruments v Brown [2024] EWHC 1125 (Ch) and Board of Governors of the National Heart and Chest Hospital v Chettle (1998) 30 HLR 618 (“Chest Hospital”) to contend that unless there were “compelling reasons” the Court was required to strike out the claim.

Initially the Defendants’ contended that pre-action delay could be considered from earlier than September 2017 despite this being the earliest date for termination on the Claimant’s case. This was opposed by the Claimant. In the course of the hearing it was conceded on behalf of the Defendants that the Court should proceed on the assumption that the Claimant’s case as to termination of the partnership or joint venture, in September 2017 at the earliest, for the purpose of the application.

The Claimant argued that there was no evidence of warehousing. This was not a situation where the Claimant commenced the proceedings with no intention of proceeding to a trial or had such an intention which had later been lost. Mere delay did not constitute abuse, if there was no warehousing there could be no abuse unless there was some form of prejudice and there was no prejudice. Insofar as the Defendants had failed to procure their witness evidence that was a deliberate choice by them. Even if there had been warehousing, warehousing did not always constitute abuse and the present circumstances were such that there was no abuse regardless.

The Claimant averred that, should the Court find there had been an abuse of process, it was incorrect as a matter of law to say the starting position was that the claim would be struck out unless there were “compelling reasons”. A number of arguments were made about the case of Watford Control and the approach of the Court in relation to strike out for warehousing by reference to a wide range of authorities, including the need to distinguish between different forms of Grovit abuse. It was contended that regardless of whether a strike out application was made pursuant to rule 3.4(2)(b) or 3.4(2)(c) the Court was required to consider all the circumstances of the case in respect of the default and the issue of proportionality of response. This would be consistent with the Court’s approach to relief from sanctions applications. It was said in the present circumstances that it would be disproportionate to strike out even if the Court found there had been abuse. This was particularly so when it was the Claimant who had taken steps to progress the litigation with the CCMC being ineffective due to the Defendants’ application and the Defendants had adopted a passive approach despite their Counterclaim.

Judgment

As to whether the approach differs in respect of CPR 3.4(2)(b) and CPR 3.4(2)(c) applications HHJ Keyser KC stated:

“I agree with Ms Dzameh that the fundamental approach, of considering the default in the context of all the circumstances of the case and with regard to the proportionality of available responses, is in principle applicable to r. 3.4(2)(b) as it is to r. 3.4(2)(c).”

He determined that there was no abuse of process and that even if there had been such abuse the claim would not have been struck out. He considered that the inactivity between October/November 2018 and April 2020 (the pre-action period) indicated some nervousness in respect of incurring costs but it was understandable in light of the Defendants’ estimate of the initial costs of disclosure. The judge noted “I cannot avoid the suspicion that the estimate in the pre-action disclosure provisions was given in terrorem.” The pre-commencement delay in this case was not such that the Court could properly infer a subsequent lack of intention to pursue the claim.

The Claimant had given proper indications of an intention to pursue the proceedings once they were issued. Although nothing of a procedural nature was done to advance the claim after April 2021 until December 2023 this was not due to an intention not to pursue the claim to its conclusion.

HHJ Keyser KC made specific reference to paragraphs [36]-[47] of Watford Control. In those paragraphs Richards J considered the Chest Hospital case, the assertion that once an action amounted to an abuse of process it was required to be struck out unless compelling reasons to the contrary were shown and whether that was a statement of principle binding on the Court. Richards J determined that the proposition in Chest Hospital that “compelling reasons” were required to prevent a claim involving Grovit abuse from being struck out remained good law post-CPR. HHJ Keyser KC stated that he considered “both the conclusion and the reasoning in this passage to be wrong”, referring to the analysis of Richards J as “incorrect in principle as well as out of step with other post-CPR cases”.

HHJ Keyser KC proceeded to provide 9 reasons for his view which are outlined at [66] of the judgment. He noted that nothing in Chest Hospital suggested Aldous LJ intended to state a refinement of Lord Woolf’s statements in Grovit. The comment about “compelling reasons” was specifically formulated with reference to the case before that Court rather than as a general legal proposition which was understandable in light of the abuse in that case. Even if Chest Hospital did set down a legal test, a “compelling reason” could mean two different things. On the one hand it could mean very strong reasons or the strongest reason. On the other it could mean simply that the burden was on the Claimant to show a sufficient reason why anything less than strike out would be appropriate, but the Court must consider all the circumstances of the case in order to deal with the application justly. HHJ Keyser KC stated Chest Hospital could not constitute binding precedent as to the correct response to Grovit abuse under the CPR, it being a pre-CPR decision. He concluded the proper course was to approach the matter by reference to the decisions in Asiansky Television plc v Bayer-Rosin (a firm) [2001] EWCA Civ 1792, Alfozan v Alrasheed [2022] EWHC 66 (Comm) and Morgan Sindall Construction and Infrastructure Limited v Capita Property and Infrastructure (Structures) Limited [2023] EWHC 166 (TCC) and to exercise the discretion in accordance with the overriding objective and make an order which was just and proportionate on the facts of the particular case.

Importance

This decision demonstrates the difficulty involved in establishing that litigation has been warehoused and that warehousing constitutes abuse in the circumstances of a particular case. It also casts doubt on the analysis of Richards J in Watford Control in relation to the supposed “compelling reasons” test and asserts that Chest Hospital cannot constitute a binding precedent as to the correct response to Grovit abuse under the CPR.

This case also serves as a reminder to solicitors that conduct is important in litigation. They would be wise to note the comments of HHJ Keyser KC at [10] and [28] of this decision in which he respectively refers to being “frankly unimpressed” by the “misleading selectivity” of a paragraph in a solicitor’s witness statement as well as the decision not to respond to some pre-action correspondence, and refers to the tone of a response letter during the litigation as being “hardly appropriate”.

Details of Natasha’s practice can be found here with more in depth information available on each sub-area. She is a commercial and chancery barrister and mediator who particularly enjoys tactical applications and is frequently instructed on complicated, high value matters.

Natasha is described in Chambers UK as follows: “Natasha’s technical expertise is phenomenal”, “A really tenacious and sharp barrister”, “really clear in terms of her advocacy, good on her feet and can be really forceful when needed”, “very thorough and quick on her feet in court. Her submissions are excellent, and she is able to respond to comments by the judge and opponents in excellent time”.

If you would like to instruct Natasha please contact her clerks on: c[email protected]