ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION (STANLEY BURNTON J)
Royal Courts of Justice
Strand,
London, WC2A 2LL
Before :
LORD JUSTICE SCHIEMANN
LORD JUSTICE WALLER
and
LORD JUSTICE DYSON
Between :
SWEETMAN | Claimant/ Appellant |
- and - | |
NATHAN & ORS | Defendants/Respondents |
(Transcript of the Handed Down Judgment of
Smith Bernal Wordwave Limited, 190 Fleet Street
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David Hodge QC & Thomas Grant (instructed by Wason & Co Solicitors) for the Claimant / Appellant
Michael Pooles QC & Matthew Jackson (instructed by Beachcroft Wansbroughs Solicitors) for the Defendants / Respondants
Judgment
As Approved by the Court
Crown Copyright ©
Lord Justice Schiemann :
Introduction
This is the judgment of the Court. Mr Sweetman sued the partners of his solicitor. They successfully applied to Stanley Burnton J to strike out his case. Mr Sweetman appeals to this court. This appeal takes place against a background of fraud involving considerable sums of money. As so often in such cases, the background facts are complex and the matter is further complicated by the existence of a number of actions by and against a variety of people.
The factual background
The background facts, some of which have been taken from Mr Sweetman’s written statement dated 3 October 2002 and placed before the court in this action and the remainder of which have been taken from the judgment below, appear to be as follows.
Some 37 acres of moorland had been valued in November 1990 at £10.4M on the basis that it either had, or had good prospects of obtaining, planning permission for mining.
The land was owned by a Mr Marsden but a Ms Shawdale had an option to buy it. On 1 February 1991 Mr Sweetman exchanged contracts to buy it from Ms Shawdale in return for
a sum of £1.5M payable on completion and
half of any profit made on any resale (“the Shawdale Profit Share”).
Mr Sweetman had a solicitor a Mr Nathan. Mr Sweetman agreed with Mr Nathan that, in return for the latter doing the legal work free of charge, they would share any profits accruing to Mr Sweetman on any resale of the land. The relative proportions between the two of them were eventually agreed as 60:40 in favour of Mr Sweetman. The defendants in the present action were Mr Nathan’s partners at all relevant times. They were however not personally involved in any material transaction. They are sued solely as partners.
Mr Sweetman needed to borrow the purchase price. He approached a Mr Brown of Coutts the bankers and they agreed to make a loan (“the First Loan”) against security. Mr Brown asked Nathan to act as Coutts’ solicitor and Nathan agreed.
Mr Sweetman on 26 February 1991 borrowed £1.6M from Coutts, it being envisaged that this loan would be repaid out of profits made on the resale. With that money he then completed the purchase of the land from Ms Shawdale and paid attendant fees. This action is not concerned with the First Loan which features only as part of the history.
In May 1991 a Mr Corbett introduced as a possible purchaser of the land from Mr Sweetman what was presented as a reputable company of substance called Darvist Property Company Ltd (“Darvist”). It was a term of that introduction that Mr Sweetman would pay to Mr Corbett £200K on exchange of contracts and £800K on completion (“the Corbett Commission”).
Darvist’s solicitor was a Mr Roberts in a firm called Shepherds. He was also a director of Darvist.
On 14 May 1991 Mr Sweetman informed Coutts that he had found a buyer for the land at a price of £10.5M, namely, Darvist.
On 23 June 1991, in a letter drafted by Nathan and forwarded by Mr Sweetman, Coutts were informed that Ms Shawdale would release her claim to the Shawdale Profit Share in return for £1.5M on completion of the resale. On 25 June 1991 Mr Sweetman, by letter, asked Coutts whether they would lend him this sum for this purpose. It was common ground before the judge and before us that, at the time that these two letters were written, Mr Sweetman had no intention of using all of the loan for the purpose for which it was sought : Ms Shawdale, as he knew, was willing to release her claim to the Shawdale Profit Share for much less.
On 26 June 1991 three things happened:-
Coutts made a loan (“the Second Loan”) of £1.5M to Mr Sweetman for the purpose of buying out the Shawdale Profit Share.
Ms Shawdale agreed to release her claim to the Shawdale Profit Share in return for the immediate payment of £200K
Contracts for the sale of the land were exchanged. The buyer however was not Darvist but a shell company without substance which had the name of Darvis. The final T was missing.
In October 1993 Mr Sweetman was declared bankrupt and on 11 November 1993 a trustee in bankruptcy was appointed.
What happened to the £1.5M provided by the Second Loan?
Mr Sweetman’s account in his statement was as follows
£618,325 went to him
£525,000 was lent to Darvis so as to enable Darvis to pay the deposit for the purchase of the land. This money went to Nathan. According to Mr Sweetman’s statement, Nathan retained £441,667. Presumably the remaining £83,333 went to Mr Sweetman.
£250,000 went to Ms Shawdale
£190,312.50 went to Mr Corbett
Somewhat different figures appear in this Court’s judgment in the Shepherd proceedings (to which proceedings reference will be made below) but the difference is of no present significance.
The land did not have the necessary planning permission and was in truth worth about £12,750. Darvis never completed and was not worth suing.
Coutts’ attempts to regain the £3.1M which they had lent to Mr Sweetman
Coutts demanded repayment of their two loans to Mr Sweetman. He did not pay. Coutts on 15 April 1992 started proceedings and on 9 November 1992 obtained judgment in debt (“the Coutts Debt Judgment”) against him for £3.1M. However they recovered nothing from him under that judgment.
In further proceedings (“the Coutts Deceit Proceedings”) brought in September 1992 Coutts sued Mr Sweetman, Mr Nathan, the Defendants, Mr Roberts and the remaining partners of Shepherds. Coutts alleged that Mr Sweetman, Mr Roberts and Mr Nathan had defrauded them. Coutts claimed that Mr Sweetman had obtained the Second Loan by two misrepresentations
He required £1.5M to buy out Ms Shawdale
That the purchaser was Darvist, a reputable company of substance.
They claimed that Mr Roberts was a party to the second of these representations. No judgment has yet been obtained against anyone in respect of the second of these representations.
However, in respect of the first misrepresentation, Coutts obtained summary judgment from Mr Conrad Dehn Q.C., sitting as a Deputy High Court Judge on 5 March 1993, for £1.5M against Mr Sweetman, Mr Nathan and Nathan’s partners. He found, and this I refer to as “the Dehn Finding”, that Mr Sweetman had obtained the Second Loan of £1.5 M from Coutts by false representations made by him and Nathan that he required £1.5M to buy out Ms Shawdale. He found that it was plain that Coutts were willing to lend this sum only because Mr Sweetman wanted it to buy out Ms Shawdale. The Dehn Finding is of significance in this appeal.
Mr Sweetman, acting for himself, did not deal in detail with their case against him. So far as the first misrepresentation was concerned, he stated that he had told Mr Brown of Coutts who was responsible for the transaction that not all of the £1.5M would be used to buy out Ms Shawdale. He also ran a defence of estoppel based on the Coutts Debt Judgment. Mr Dehn rejected Mr Sweetman’s assertion that he had told Mr Brown and also rejected the estoppel defence.
None of the Defendants in the Coutts Deceit Proceedings appealed against the Dehn Judgment.
Mr Sweetman has not paid anything on account of that judgment nor has Mr Nathan. Stanley Burnton J records that that Mr Sweetman accepts that Mr Roberts and Shepherds compromised with Coutts by a payment of nearly £.5M. The Judge finds that a substantial part, if not all, of the balance must have been paid by Nathan’s Partners or their insurers pursuant to an agreement with Coutts. The amount paid under that agreement is not in evidence. Because the insurance cover of Nathan’s Partners was insufficient to meet their liabilities to Coutts, some of them were made bankrupt.
So the overall position so far as Coutts is concerned appears to be that they have recovered most if not all of the Second Loan. Of the recovery most was made available by Nathan’s Partners and their insurers. None was made available by Mr Sweetman.
Mr Sweetman’s position
Mr Sweetman has paid out £1.5M of the monies provided by the First Loan for the purchase of the land, has paid out some of the further monies provided by the Second Loan and has kept the rest.
Mr Sweetman has not repaid any of either loan made to him by Coutts. So it seems, and appeared to be common ground before us at the hearing, that Mr Sweetman has kept or spent the £618,325 and the £83,333 referred to in paragraph 14 above.
According to Mr Sweetman he was made bankrupt later in 1993 and a trustee in bankruptcy was appointed. Mr Sweetman was automatically discharged from bankruptcy on 28 October 1996. The trustee however is still in office.
In 1996 Mr Sweetman was acquitted in criminal proceedings on counts alleging conspiracy in relation to the above matters but Nathan was convicted.
On 23 July 1997 all relevant causes of action against Nathan, Nathan’s partners, Roberts and Shepherds, were assigned by the trustee in bankruptcy to Mr Sweetman in return for a share in anything recovered. Mr Sweetman thereupon commenced two sets of proceedings. One against Shepherds; the other against Nathan’s partners.
The Shepherds proceedings
On 25 July 1997 Mr Sweetman brought an action against Mr Roberts and Shepherds (solicitors to the proposed purchaser) alleging that they had deceived him in relation to the proposed purchaser, leading him to believe that it was the wealthy Darvist as opposed to the penniless Darvis. By reason of that belief he had entered into various commitments, borrowed £1.5M from Coutts for the Second Loan and paid out monies which he had not recovered. I refer to these as the Shepherds Proceedings.
Shepherds applied in 1999 to strike out Mr Sweetman’s claim summarily on the basis that he was “estopped from challenging or contradicting” the Dehn Finding and that the claim was an abuse of the process of the court because in order to succeed it would be necessary to contradict the Dehn Finding. Shepherds said that the £1.5M loan was obtained by Mr Sweetman’s own false representation that he required that sum in order to buy out Miss Shawdale. Shepherds pleaded various other defences but they were of no relevance to the strikeout application.
Ian Kennedy J granted the application to strike out. He rejected the estoppel claim stating that “the finding that the claimant told a lie to the bank in order to get the money is not contradicted by the proposition that he needed the money because he himself had been duped into supposing that he had a lucrative contract at his fingertips”. However he held that Mr Sweetman should have raised the claim against Shepherds in the Coutts Deceit Proceedings in 1993 and that it would be unjust to let the matter proceed.
On appeal, however, this court (Kennedy and May LJJ) reversed the judge. It allowed the claim in the Shepherds Proceedings to continue but only on condition that Mr Sweetman pay into court, if he could afford it, 75 – 80% of the costs which Shepherds might expect to recover if they succeeded in one or more of their defences. From this one can deduce that the Court did not rate Mr Sweetman’s chances of success highly but was not prepared to put them as zero.
The Court said this:
11. Is this Re-litigation?
We return now to the facts of this case. At first sight it does look as though re-litigation is not an issue here. The claimant says that he was deceived by Roberts substituting Darvis for Darvist. In order to prove that deceit it is not necessary for him to contradict Mr Dehn’s finding that the claimant obtained £1.5 million from Coutts by means of his false representation that such money was required to buy out Miss Shawdale. That was [counsel for Mr Sweetman’s] starting point, …. But it is unrealistic. As [Counsel for Shepherds] demonstrated in the course of his submissions, by reference to the statement of claim, all of the losses which the claimant seeks to recover by way of damages in this action can be traced back to the second Coutts loan. As Toulson J said in Standard Chartered Bank v Pakistan National Shipping Corporation No3 [1999] 1 Lloyds Rep 747 at 758 a claimant “cannot recover for a loss avoidable by reasonable action on his own part because, if he could reasonably have avoided it, it will not be regarded as caused by the wrongdoer”. The point can be put in other ways but for the present purposes that will suffice. Essentially the situation here was that the claimant needed the second Coutts loan in order to proceed to exchange of contracts, and his liabilities to Ms Shawdale and others only arose when that exchange took place. So, as [Counsel for Mr Sweetman] frankly conceded at one stage in his reply, it would be very difficult for the claimant to pursue this case if he was unable to displace the Dehn finding. In our judgment that was entirely realistic. Thus the judge’s reasons for finding as he did in favour of the claimant on the re-litigation issue are not, in our judgment, persuasive, but of course the question remains as to whether if this is in substance even if not in form re-litigation, it should nevertheless be permitted.
…
13. Should Re-litigation be permitted?
There are, as it seems to us, three points to be made in favour of allowing re-litigation. The first is that before Mr Dehn the proceedings were summary, an application for judgment under Order 14, the present claimant was unrepresented, and because he already had judgment against him he had relatively little interest in defending. Although he gave evidence briefly he was not cross-examined, and there seems to have been no oral evidence from other potential witnesses such as Brown, Nathan or Sugars. Mr Dehn’s conclusion must therefore be regarded as of lesser weight than, for instance, the decision of the trial judge and the jury in Hunter v Chief Constable of West Midlands Police [1982] AC 529.
Secondly, although if properly represented the present claimant could have raised against his co-defendants in the Coutts action the claim which he now seeks to pursue, his failure to do so does seem to be attributable to his own inexperience of legal procedure rather than any deliberate holding back.
Thirdly, and perhaps most significant, the claimant is now seeking to prove that Roberts was dishonest towards him, an allegation which was not litigated at all before Mr Dehn. If it can be proved then, as Mr Davidson accepts, the defendants must accept liability under the provisions of the Partnership Act unless Mr Roberts was not acting as a partner as alleged at paragraph 2(d) of the Defence.
Turning now to the arguments against permitting re-litigation, it seems to us that they can be put under four heads - first, as we have already said, Mr Dehn, sitting as a Deputy High Court judge, was the right forum to decide whether Coutts was defrauded by the present claimant. He had the right parties before him, and gave judgment seven years ago, at a time when if oral evidence was to be called and explanations given the evidence would have been much more compelling than it will be now if this action is allowed to proceed. Furthermore, it is clear that Mr Dehn did all he could to investigate thoroughly the issues before him, and gave the present claimant every possible opportunity to put his case.
Secondly, on the information before him Mr Dehn’s conclusion, which was never appealed, appears to have been correct. Despite the subsequent verdict of a jury, and the filing of affidavits, it seems to us that the present claimant will have considerable difficulty in establishing that he was not a party to at least some deceit of Coutts. As can be seen from the authorities, where there is re-litigation dishonesty is an additional factor militating in favour of a finding of abuse of process, but here it cannot be decisive because it is that very finding of dishonesty which the claimant seeks to set aside.
Thirdly, although the defendants are in law answerable for some of the acts of their former partner, the court has a duty to see that litigation is properly conducted so as to enable all defendants and insurers, and particularly those defendants who are only at risk of being held liable vicariously, to discharge their liabilities in an orderly fashion, and to get on with their lives. Here the defendants settled with Coutts many years ago, and the present claimant’s three year period as a bankrupt does not seem to us to be anything like a satisfactory reason for the delay in prosecuting this claim.
Finally we are not satisfied that even now the claimant is being frank with the court. We are not told how this action is being funded, or who is to benefit and to what extent from any award of damages. There is the possibility that his case is simply an improper attempt to use the threat of expensive litigation to extract a settlement from the defendants or their insurers.
In our judgment the arguments in favour of a finding of abuse of process are powerful, but not completely overwhelming. As we remind ourselves the burden of proof is on the defendants, and the court must be assiduous not to strike out a claim which may be meritorious, even though the prospects of it being so are remote.”
Mr Sweetman paid the appropriate sum into court in relation to the Shepherd proceedings in February 2002. Nothing further has been done in those proceedings since both parties desire to see what happens on this appeal. If the appeal is allowed it would, at least arguably, be sensible for these proceedings and the Shepherds proceedings to be heard together.
The present proceedings
On 23 July 1997 Mr Sweetman’s trustee in bankruptcy assigned all relevant causes of action to Mr Sweetman in return for a proportion of any recovery which Mr Sweetman might make. The present proceedings, in which he claims as assignee, were commenced by him on 25 July 1997. They originally sought more than is relevant on this appeal. The other causes of action were struck out and there is no appeal in relation to them. We are only concerned with paragraphs 17 – 29 of the amended particulars of claim. Those paragraphs assert that
Nathan negligently failed to alert Mr Sweetman to the change of name from Darvist to Darvis and to the worthlessness of the latter
The defendants at all material times were Nathan’s partners and liable for his breaches of obligations owed to Mr Sweetman
Mr Sweetman in reliance on having a bona fide purchaser borrowed the Second Loan of £1.5M from Coutts, paid £250,000 to Miss Shawdale in order to obtain her release to her claim to the Shawdale Profit Share, and paid £190,000 to Mr Corbett as an advance in respect of the Corbett Commission
Nathan knew or ought to have known that Mr Sweetman would act as set out in the preceding sub-paragraph
Mr Sweetman had suffered the following damage
interest on the Second Loan payable to Coutts
£75,000 arrangement fee payable to Coutts
£250,000 paid to Miss Shawdale
£190,000 paid to Mr Corbett
losses caused to Mr Sweetman because he was unable to discharge his indebtedness to Coutts, was thereupon made bankrupt and his assets were sold at forced sale prices
damage to Mr Sweetman’s business caused by his bankruptcy
the loss of the £441,000 retained by Mr Nathan – see paragraph 14 above
After a substantial delay, the reasons for which are not presently relevant, Mr Sweetman was asked by the defendants to offer security for their costs. He declined to do so. A Defence was served in the present action on 27 November 2000. It asserted in substance that what was being litigated in the present proceedings had already previously been decided in the Coutts deceit proceedings and that the Dehn Judgment could not be attacked collaterally. The Defendants applied to strike out the present proceedings.
The Judge below struck the proceedings out on twin grounds of issue estoppel and abuse of process. The most relevant paragraphs of his judgment are as follows
46. The issue under this head is whether Mr Sweetman may be entitled to re-open the finding by Mr Dehn QC that he fraudulently obtained the loan of £1.5 million from Coutts on 26 July 1991. As has been seen, all of Mr Sweetman’s surviving claims relate to those moneys. Mr Hollington fairly conceded before me, as he had to the Court of Appeal in the Shepherds proceedings, that Mr Sweetman can succeed only if he can challenge that finding. To take an obvious example, if that sum was obtained by deceit, the Defendants’ obligation to account was to Coutts, who had been defrauded, and not to Mr Sweetman, who had defrauded them.
47. For completeness, I mention that it is clear that the doctrine of cause of action estoppel does not apply: there has been no judgment on any cause of action as between Mr Sweetman and the present Defendants. Clearly, however, Mr Dehn QC determined the issue of Mr Sweetman’s fraud, an issue crucial to the liability of the present Defendants to Mr Sweetman in proceedings to which both were parties.
48. In support of’ his submission that issue estoppel applies in the present case, Mr Pooles relies on the statement in Spencer Bower, Turner & Handley, the Doctrine of Res Judicata (third edition, 1996):
“Res judicata estoppels normally operate between plaintiffs and defendants.However they may also operate between defendants. The relevant principles were developed by the Privy Council in Indian appeals. In Munni Bibi v Tirloki Nath, the Privy Council said:
“In such a case three conditions are requisite: (1) There must be a conflict of interest between the defendants concerned; (2) It must be necessary to decide the conflict in order to give the plaintiff the relief he claims and (3) The question between the defendants must have been judicially decided’.”
53. In Johnson v Gore Wood, the House of Lords emphasised that issue estoppel and abuse of process are separate and distinct: see the speech of Lord Bingham of Cornhill at 31A, his citation with approval at 28 of the judgment of May LJ in Mayson v Vooght [1999] BPIR 376, and his similar citation of the following passage from the judgment of Auld LJ in Bradford and Bingley Building Society v Seddon [1999] 1 WLR 1482, 1490-1491:
“In my judgment, it is important to distinguish clearly between res judicata and abuse of process not qualifying as res judicata, a distinction delayed by the blurring of the two in the courts’ subsequent application of the above dictum. The former, in its cause of action estoppel form, is an absolute bar to re-litigation, and in its issue estoppel form also, save in “special cases” or “special circumstances:” see Thoday v. Thoday [I964] P.181, 197-198. per Diplock L.J. and Arnold v. National Westminster Bank Plc. [1991] 2 A.C. 93.The latter, which may arise where there is no cause of action or issue estoppel, is not subject to the same test, the task of the court being to draw the balance between the competing claims of one party to put his case before the court and of the other not to be unjustly hounded given the earlier history of the matter.
Thus, abuse of process may arise where there has been no earlier decision capable of amounting to res judicata (either or both because the parties or the issues are different) for example, where liability between new parties and/or determination of new issues should have been resolved in the earlier proceedings. It may also arise where there is such an inconsistency between the two that it would be unjust to permit the later one to continue.”
54. I should also refer to the judgment of May LJ in Specialist Group International Ltd v Deakin [2001] EWCA Civ 777:
“22. As Aldous LJ said during the hearing, the authorities taken as a whole tend to encourage elaborate technical submissions which many percipient non-lawyers would scarcely understand. Cause of action estoppel and issue estoppel are not readily understandable phrases to a non-lawyer. It should not be necessary to have to pick for hours over the precise text of a dozen or so law reports to find out what in the end is reasonably straightforward and understandable law capable of being simply expressed. I would try to express it simply as follows.
23. If a claim has been explicitly determined in previous concluded proceedings between the same parties, that claim cannot be raised again, other than on an appeal, unless there is fraud or collusion. If a necessary element of a claim has been explicitly determined in previous concluded proceedings between the same parties, that issue cannot be raised again, if, as is likely but not inevitable, it would be an abuse to raise that issue again. This may also extend to an implicitly necessary element of the previous determination. The previous determination may include a settlement. If a claim or issue has not been determined in previous concluded proceedings between the same parties, there may nevertheless be circumstances in which, as a matter of public and private interest on a broad merits-based procedural judgment, it would be an abuse for a party to raise that claim or issue. Such circumstances may depending on the facts, exist where the litigant could and should have raised the matter in question in earlier concluded proceedings. There may in particular cases be other elements of abuse, including oppression of another party: but abuse of process is a concept which defies precise definition in the abstract. The court will only stop a claim as an abuse after most careful consideration.”
56. Shepherds were not a party before Mr Dehn; the present Defendants were. This statement suggests that the position of the present Defendants in relation to issue estoppel differs from that of Shepherds. It is different: the question before me is whether an issue decided in proceedings to which both Mr Sweetman and the present Defendants were parties is binding on them, not whether Mr Sweetman should be able to raise an issue that has not previously been decided in proceedings to which they were both parties. In my judgment, the decision of the Court of Appeal in Shepherds case is not authority that the principle of issue estoppel does not apply as between Mr Sweetman and the present Defendants.
57. There is another important difference between the position of Shepherds and that of the present defendants. Mr Sweetman seeks to contest the finding of fraud against him on the basis that he informed Mr Brown, before the second loan was made, that he was buying out Ms Shawdale for much less than the sum of £1.5 million. On that basis, the misrepresentations in the faxes of 23 and 25 July 1991 were corrected before Coutts acted on them. … this allegation was considered and rejected by Mr Dehn QC. The rejection of this allegation was crucial not only to the finding that Mr Sweetman was liable in deceit; its rejection was similarly vital to the finding that the present Defendants were liable to Coutts in deceit: for if Coutts had been informed of the truth before they acted on the misrepresentation, the present Defendants could not have been vicariously liable for the fraudulent misrepresentation of Mr Nathan, which on this basis was ineffective. The effectiveness of the misrepresentations in the faxes was a condition of the liability of the present Defendants as it was of Mr Sweetman: they were joint tortfeasors. Thus if Mr Sweetman had successfully appealed against the finding that his allegation raised no triable issue, and the present Defendants had also appealed, the judgment against the present Defendants would have been set aside too. Mr Sweetman did not appeal.
58. Put otherwise, the implication of Mr Sweetman’s case is that the present Defendants were wrongly held liable to Coutts and should not have settled with them.
59. In my judgment, it would be wholly wrong and unjust for Mr Sweetman now to be permitted to reopen an issue decided in proceedings to which both he and the present Defendants were parties (i.e.. the proceedings before Mr Dehn QC) by repeating an allegation which, had it been decided in his favour, would equally have led to the present Defendants not having been liable to Coutts. I think that it is irrelevant that there were no claims as between the defendants before Mr Dehn. If there had been claims for contribution or indemnity or damages between the defendants in the Coutts action, it cannot be doubted that they would have been determined on the basis of Mr Dehn’s judgment. Mr Sweetman would have been unable to dispute the finding of fraud against him. I cannot see that the fact that there are now different proceedings in which the liabilities of some of those defendants to one of them are in question can make any difference.
60. The position of Shepherds in this respect is fundamentally different. They were alleged to be liable to Coutts not for the misrepresentations in the faxes concerning the buyout of Ms Shawdale’s rights, but for the misrepresentations concerning the identity and means of the purchaser from Mr Sweetman, Darvist/Darvis.
62. I therefore hold that Mr Sweetman is precluded from asserting or establishing that the loan of £1.5 million was not obtained by his fraud.
63. Mr Hollington [Counsel then acting for Mr Sweetman] did not suggest that there are “special circumstances” or that this is a “special case” justifying disapplication of issue estoppel. He was clearly right not to do so. …
64. It follows that Mr Sweetman’s claims against the present Defendants set out in paragraphs 17 to 29 of the Statement of Claim in HQ5431 cannot succeed, and his claim should therefore be struck out or dismissed as having no reasonable prospect of success.
65. In these circumstances, it is strictly unnecessary for me to consider whether the claims in those paragraphs of the Statement of Claim constitute an abuse of the process of the court. In case my decision goes further, I should say that the differences between the case of the present Defendants and that of Shepherds, summarised above, lead me to consider that a different decision from that made by the Court of Appeal in the Shepherds case is appropriate. In the first place, the considerations mentioned in paragraphs 58 and 59 support the conclusion that it would be an abuse of process for the claims in paragraphs 17 to 29 of the Statement of Claim to continue.
66. Secondly, the Court of Appeal in the Shepherds proceedings concluded that Mr Dehn’s finding of fraud on the part of Mr Sweetman appeared to have been correct on the information before him. … the allegation that Mr Brown knew that not all of the sum of £1.5million to be lent by Coutts was required to buy out Ms Shawdale’s interest would not necessarily constitute a defence to Coutts’ claim that the loan was procured by the fraud of, at least, Mr Sweetman. In my judgment, these considerations strongly support Mr Dehn’s conclusion. The question of abuse of process involves “a broad merits-based procedural judgment”, which includes the merits of Mr Sweetman’s case. The merits are strongly against permitting Mr Sweetman to reopen the finding of fraud on his part.
67. In other respects, the pros and cons of permitting the proceedings to continue may be taken from the judgment of the Court of Appeal in the Shepherds case. I appreciate that the effect of the decision that the proceedings are an abuse is to deprive Mr Sweetman of the possibility of proving allegations that were not litigated in front of Mr Dehn, namely the negligence of Mr Nathan in respect of the resale of Crow Knowl and his wrongful retention of the sum of £441,677 out of the second Coutts advance, for both of which the present Defendants are alleged to have been vicariously liable. However, to permit Mr Sweetman to continue with the present proceedings involves his re-opening an issue “explicitly determined in previous concluded proceedings between the same parties”, in circumstances where the present Defendants have acted to their prejudice on, or otherwise been prejudiced by, that determination. The balance is overwhelmingly in favour of holding that the claims in paragraphs 17 to 29 of the statement of claim … are an abuse of the process of the court.
68. In case my decision is appealed, I mention one other matter. The Court of Appeal considered that less weight should be given to the decision of Mr Dehn than a decision made after trial, on the basis that he did not have the advantage of hearing oral evidence from Mr Brown and other potential witnesses. I have come to my decision on abuse of process on this basis. However, with great respect to the Court of Appeal, I question whether this approach is appropriate. It leaves out of account the fact that Mr Dehn’s decision was not simply that Mr Sweetman had defrauded Courts, but that Mr Sweetman had not raised a triable issue that he had not done so. Mr Dehn’s judgment was not a default judgment, but a judgment on the merits. A decision that on the evidence he has brought forward a litigant has no arguable case, or under the CPR no reasonable prospect of success, seems to me to be as significant as a decision made on the evidence at trial where there is an arguable case or one with a reasonable prospect of success.
Submissions on behalf of the appellant
Mr David Hodge Q.C. who, with Mr Thomas Grant appeared on behalf of the appellant, submitted that
Issue estoppel did not arise in the present case since there had been no issue between Mr Sweetman and the present defendants in the Coutts Deceit proceedings, and
Nor was there any abuse of process.
The substance of Mr Sweetman’s case against the defendants was that if Nathan had not been negligent then Mr Sweetman would not have taken out the Second Loan because he would have known that there was no genuine purchaser Darvist but only the insubstantial Darvis. The taking of the Second Loan had itself caused him damage in that he thereby incurred liability to Coutts for interest and the arrangement fee of 75K. Moreover, he had been prevented from repaying the Second Loan with the purchase price from the resale of the land since the worthless Darvis had not produced the purchase price on time or at all. Whilst still under the impression, caused by Nathan’s negligence, that he had a contract with a sound purchaser he had made payments to Miss Shawdale and to Mr Corbett which were irrecoverable. Further, this disastrous failure to receive the purchase price from a sound purchaser had resulted in damage to his business and his bankruptcy. Moreover, and quite separately, Nathan had walked off with £441K of the second Loan.
He also submitted that, even if it be assumed that Mr Sweetman obtained the Second Loan by fraud, this fact would not prevent him from succeeding in his action against the defendants. He relied on the judgment of Aldous LJ, with which Ward LJ agreed, in Standard Chartered Bank v Pakistan National Shipping Corporation (No 2) [2000] 1 Lloyd’s Rep.218 at page 232
“… public policy requires that the Courts will not lend their aid to a man who founds his action upon an immoral or illegal act. The action will not be founded upon an immoral or illegal act, if it can be pleaded and proved without reliance upon such an act. … The fact that damage may not have resulted but for a decision to deceive is irrelevant to the cause of action when pleaded and proved.”
He posited the following case. Someone wishes to purchase a house. His solicitor negligently fails to discover a covenant which renders it worthless. The buyer, in ignorance of this, obtains a mortgage by false representations as to the level of his income. Before the fraud comes to light the mortgagee is repaid. He submitted that these facts would not prevent the buyer from suing his solicitor. The loss was properly described as flowing from the solicitor’s negligence not from the buyer’s fraud.
He accepted that it had been conceded before the Judge by counsel then appearing on behalf of Mr Sweetman that he could not recover if he had been involved in defrauding Coutts. He submitted that this concession had been wrongly made and that justice did not require that Mr Sweetman should be held to it.
Issue estoppel
The Judge had correctly stated the test in relation to issue estoppel between defendants in his paragraph 48 where he cited Munni Bibi. In Cottingham v Earl of Shrewsbury(1843) 3 Hare 627 Sir James Wigram V-C said at page 638
“If a plaintiff can not get at his right without trying and deciding a case between Co-defendants the Court will try and decide that case, and the Co-defendants will be bound. But, if the relief given to the Plaintiff does not require or involve a decision of any case between Co-defendants, the Co-defendants will not be bound as between each other by any proceeding which may be necessary only to the decree the Plaintiff obtains”
In all the cases cited by the Judge the 3 conditions in Munni Bibi cited at paragraph 48 of his judgment were satisfied.
In the present case in the original suit both parties were defendants. The only issue which was decided judicially was that Mr Sweetman had obtained the Second Loan by a misrepresentation made by him and Nathan jointly as to the amount of money needed to buy out Miss Shawdale. In relation to that issue there was no conflict of interest between Mr Sweetman and the present defendants. On the contrary : it was in the interest of each of them to defeat the claim that the Second Loan had been obtained by misrepresentation.
Moreover, there was a fundamental difficulty in the assertion that the doctrine of issue estoppel was presently relevant. Mr Sweetman in the present action did not assert or need to assert anything which the doctrine of estoppel might prevent him from asserting.
In any event, even if in principle issue estoppel could apply to the present case, there were special circumstances which justified the disapplication of the rule – see Bradford and Bingley Building Society v Seddon [1999] 1 WLR 1482, at 1490-91.
Abuse of Process
The leading authority was Johnson’s case cited by the judge. The following approach of Lord Bingham at page 31A was expressly adopted by Lord Goff of Chieveley, Lord Cooke of Thorndon and Lord Hutton.
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.
In striking out his case and in considering whether it was an abuse of process for Mr Sweetman to start the present action against the Defendants the Judge had failed to take into account a number of highly material considerations
It was possible for Mr Sweetman to succeed in the present action even if it has to be accepted that he obtained the Second Loan fraudulently. If this submission was right the whole of the rest of the appeal falls away.
In the Shepherds action Mr Sweetman has been permitted by this court to maintain his claim to trial at which the judge will be invited to come to the conclusion that Shepherds deceived Mr Sweetman in relation to the proposed purchaser leading him to believe that it was the wealthy Darvist as opposed to the penniless Darvis. This is very similar to the allegation made in the present case namely that Nathan negligently failed to inform Mr Sweetman that the proposed purchaser was Darvis rather than Darvist. There was no reason to distinguish between them and it would be convenient for the two cases to be tried together.
The main issue in the claim brought by Mr Sweetman against the defendants was not the issue decided by Mr Dehn Q.C. – namely, whether he had any prospect of defeating Coutts’ assertion that the Second Loan had been obtained by his false representation that he required it to buy out Miss Shawdale – but a totally different issue, namely, whether Nathan was negligent. Mr Hodge drew our attention to the observation of Lord Hobhouse of Woodborough in re Norris[2001] UKHL 34, [2001] 1 WLR 1388, at para 26 that it would be “a rare case” where litigation of an issue which had not previously been decided between the same parties or their privies would amount to an abuse of process. He also asked us to bear in mind the comment of Lord Bingham of Cornhill in the passage cited above from Johnson’s case that there would “rarely be a finding of abuse unless the later proceedings involve what the court regards as unjust harassment of a party”.
At the time of the Coutts Deceit Proceedings Mr Sweetman had already had the Coutts Debt Judgment entered against him and he therefore had no financial interest in fighting those proceedings (whether at first instance or on any possible appeal) since even if he lost his liability to Coutts would not be increased. His only interest in fighting the proceedings was that he was the subject of a criminal investigation and manifestly to be cleared of fraud by a civil court would be of possible advantage in that context. In the event when he did fight the criminal proceedings which were eventually brought against him and Nathan, the latter was convicted whereas Mr Sweetman was acquitted.
Because he would suffer no financial damage even if he lost, Legal Aid was refused to Mr Sweetman in the Coutts Deceit Proceedings. In consequence he was not legally represented. If he had been, the Coutts Deceit Proceedings would have been struck out as against him on the basis that they were, in the light of the Coutts Debt Judgment already obtained against him by Coutts, pointless oppression.
Mr Sweetman had made it clear in a draft affidavit before Mr Dehn Q.C. that he intended to issue proceedings against the defendants.
The claim in relation to the £441,000
The Judge should have given, but did not give, independent consideration to this claim. Essentially Mr Sweetman’s claim was that Nathan held this sum on trust for him. The origin of the money was irrelevant to the cause of action. Pleading that cause of action did not require any assertion of any fact which had been found against Mr Sweetman in the Dehn Judgment.
Submissions on behalf of the respondents
Michael Pooles Q.C., who appeared with Matthew Jackson on behalf of the respondents, made the following submissions.
The judge below came to the right conclusion for the right reasons.
Mr Sweetman had already received more than £600,000 out of the Second Loan which had been obtained by the fraud of Mr Sweetman and Nathan acting together and it was absurd to suggest that he should be allowed to top this up by a further £441,000 by suing Nathan’s innocent partners, the guilty Nathan having kept the proportion of the spoils which had been agreed between him and Mr Sweetman (see paragraph 5 above).
All of the losses which Mr Sweetman alleged that he had suffered were caused by, or would not have been incurred without, his own deception of Coutts. The doctrine of ex turpi causa non oritur actio provided the defendants with a complete defence to the claim.
Even if Mr Sweetman’s case - namely that he had told Mr Brown of Coutts the truth before the loan was made – was proved by him this would not avoid a finding that Mr Sweetman was a party to a deliberate deception of those superior to Mr Brown who were responsible for sanctioning the loan.
In the absence of any appeal by Mr Sweetman of the Dehn Judgment there had been no realistic possibility of the present defendants challenging the finding by Mr Dehn that Mr Sweetman had defrauded Coutts. They therefore settled with Coutts on the basis of that finding. It was eminently reasonable of them so to do, and it would be unjust now to allow Mr Sweetman to reopen the issue.
The judgment of this court in the Shepherds proceedings, which preceded the guidance given by the House of Lords in Johnson’s case and the Civil Procedure Rules, was distinguishable for a number of reasons :-
In the present case there was a powerful argument against permitting the claimant to challenge the findings made by Mr Dehn which was not available in Shepherds case. This was that Mr Sweetman’s claim to have told Coutts’ Mr Brown before the loan was made that the misrepresentations were untrue would, if true, have provided as much of a defence for the present defendants as for Mr Sweetman in the Coutts Deceit Proceedings. The facts that this allegation was advanced by Mr Sweetman, rejected by Mr Dehn and not appealed by Mr Sweetman were all irrelevant to the Shepherds proceedings and therefore could not have been relied on by the Shepherds partners.
Shepherds were not a party to the proceedings before Mr Dehn although they were parties to the action : everyone had agreed that Shepherds should have permission to defend.
The third point in favour of permitting relitigation, which was described by this court in the Shepherds proceedings as “perhaps [the] most significant” was that the claimant was seeking to prove that his solicitor Mr Roberts had been dishonest and that allegation had not been litigated before Mr Dehn. In the present proceedings the issue was whether Mr Sweetman was a knowing participant in defrauding Coutts. That was precisely the issue which Mr Dehn had decided against him.
It is now even longer since the Dehn Judgment and therefore relevant and credible evidence is likely to be even more difficult to produce before the court.
Even carrying out the same sort of exercise as this Court had carried out in the Shepherds proceedings one was entitled to come to a different conclusion on the facts which, when before this Court in the Shepherds proceedings, were clearly seen as finely balanced. There was force in the point made by Stanley Burnton J in the last paragraph of his judgment quoted at paragraph 37 above and it was difficult to see why the refusal of Mr Dehn to permit cross-examination of Mr Sweetman should impugn the correctness of his decision that Mr Sweetman’s evidence in chief was not worthy of belief.
The three conditions set out in Munni Bibi (quoted by the judge below in paragraph 48 of his judgment which is in turn quoted at paragraph 38 above) were in substance fulfilled. There was a conflict of interest between the present defendants and Mr Sweetman : they could not have been represented by the same counsel. It was open to Mr Dehn to do that which Mr Sweetman himself had suggested, namely, to enter summary judgment against Mr Nathan and the present defendants but give leave to defend to Mr Sweetman. Where two defendants are both potentially liable for the same damage there could be said to be a conflict.
There were no special circumstances which would entitle the court to disapply the estoppel.
It had been conceded on behalf of Mr Sweetman before the Judge below that his claim against the defendants could not succeed unless he could persuade the trial judge both that he should be permitted to challenge the Dehn Findings and that those findings were in fact wrong. The chances of doing the latter were exceptionally poor. Mr Sweetman should not be permitted to resile from this concession which in any event had been rightly made.
The fact that Mr Sweetman had indicated prior to the hearing in front of Mr Dehn that he intended to sue the present defendants strengthened the case that to start proceedings years later doing just that was an abuse of process.
A decision by a judge that in particular circumstances it was an abuse to continue to litigate was one which this court should only upset if the court was satisfied that it was plainly wrong.
So far as the First Loan was concerned no claim against the respondents was maintained any longer. Given Mr Sweetman’s failure to repay any part of this sum to Coutts he would inevitably have been made bankrupt even without any failure to repay the Second Loan and therefore his claim in respect of losses flowing from his bankruptcy is unmaintainable in any event.
So far as the claim to a repayment of the £441K retained by Nathan is concerned, it had been conceded in the court below by counsel then acting for Mr Sweetman that these monies were held on trust for Coutts and not for Mr Sweetman. He should not be allowed to resile from this concession.
In any event the concession was rightly made. Coutts was induced to transfer the mortgage advance to Nathan & Co’s account by a fraudulent misrepresentation made to Coutts by both Mr Nathan and Mr Sweetman. In those circumstances Mr Sweetman could not at any time have had any beneficial interest in it. Had Mr Sweetman been declared bankrupt shortly after receiving the Second Loan and whilst the money was still in his account it would not have been available for distribution among the general body of creditors. On the contrary, Coutts would have been able to trace it. Coutts had sued on the basis that the monies were impressed with a constructive or resulting trust in favour of them and the firm has settled with Coutts on that basis.
If the court should decide that it was just for the claimant to proceed he should only be allowed to do so on terms that he gave security for costs.
Discussion
The starting point is that a case is not to be struck out unless it has no serious prospect of success. This court in Shepherd said
“In our judgment the arguments in favour of a finding of abuse of process are powerful, but not completely overwhelming. As we remind ourselves the burden of proof is on the defendants, and the court must be assiduous not to strike out a claim which may be meritorious, even though the prospects of it being so are remote. ”
The Significance of a Fraud Finding
It is important to establish at the outset what significance if any in the present action is a finding (“a Fraud Finding”) that Mr Sweetman only obtained the Second Loan because he had deliberately misrepresented matters to Coutts. If a Fraud Finding – whether reached on the basis of estoppel, abuse of process or because no other finding was possible on the material before the court -would not necessarily prevent Mr Sweetman from succeeding in the present action, then in principle it would be wrong to strike out Mr Sweetman’s case on the basis that his action is bound to fail because of the Fraud Finding.
The Judge below understandably proceeded on the basis of a concession that a Fraud Finding, unless capable of being upset, was fatal to Mr Sweetman’s case and examined that matter no further. In our judgment however it would be wrong to hold Mr Sweetman to this concession which was purely one of law and to which no facts are relevant. It has not been submitted that permitting Mr Sweetman to resile from this concession would cause any prejudice to the defendants which can not be assuaged in costs.
This Court in the Shepherds Proceedings similarly proceeded on the basis that it had been conceded by Mr Sweetman’s counsel that “it would be very difficult for the claimant to pursue this case if he was unable to displace the Dehn Finding”, although the Court went on to describe that concession as entirely realistic. However, two points need to be made. The first is that where a judgment proceeds on the basis of a concession accepted by the court then the concession does not constitute part of the precedential force of the case. The second is that this court came to the conclusion that Mr Sweetman’s case should not be struck out. In those circumstances the assumption adverse to Mr Sweetman by the court that the Fraud Finding could not be upset does not form part of the reasoning which persuaded the court to decide the application in Mr Sweetman’s favour. For these reasons, we do not consider that loyalty to the doctrine of precedent obliges us to follow their conclusion that unless the Fraud Finding can be displaced Mr Sweetman is bound to fail in the present action.
Nevertheless, the defendants can fairly make the point that this court was clearly of the view that Mr Sweetman’s case was hopeless unless he could upset the Fraud Finding and that view is at the least entitled to respect.
As we understand it, the argument in favour of holding that a Fraud Finding makes Mr Sweetman’s case unsustainable contains four assertions :-
None of the loss which Mr Sweetman has incurred would have been incurred but for his obtaining of the Second Loan;
The Second Loan was obtained by Mr Sweetman’s fraud on Coutts;
Therefore the action against the defendants arises out of Mr Sweetman’s own fraud;
Therefore as a matter of public policy the Courts will not permit Mr Sweetman to succeed.
In our judgment it is clear on the facts of the present case that the first assertion is justified. The contrary has not been argued. As for the second assertion that is the premise upon which we proceed so far as this part of the case is concerned.
The third assertion needs careful analysis. The action against the defendants can only succeed if an action against Nathan would have succeeded. That we do not understand to be disputed. Assuming that Nathan and Mr Sweetman were jointly engaged on falsely representing to Coutts that Mr Sweetman was going to use the Second Loan to pay off Ms Shawdale and that but for this false representation the Second Loan would never have been made, would Mr Sweetman have any prospect of successfully suing Mr Nathan for his assumed negligence in carrying out the conveyancing?
If one assumes negligence on the part of Nathan it seems probable that breach of contract will be proved. If there were no prospect of Mr Sweetman showing that he had suffered more than nominal damage as a result of that negligence it might nevertheless be right to strike out his case. We return to this aspect of the matter below and proceed for the present on the basis that there is some prospect of his showing that he has suffered substantial damage as a result of the negligence.
What remains is a pure question of public policy. Should the courts refuse in principle to lend Mr Sweetman their assistance in suing Nathan when they were jointly engaged on a fraud? If Mr Sweetman were suing Coutts for, say, failing to transfer the money to him, one could see a strong case for refusing him the courts’ aid.
However he is suing his fellow fraudster. If he were suing him for writing such an incompetent letter that Coutts had grasped in time that there was a fraud going on and had therefore refused to lend the money and that therefore a profitable deal had fallen through, again one could see a strong case for refusing him the courts’ aid. He is however not doing this. He is suing his solicitor for negligence which is conceptually entirely separate from the fraud upon which both of them are engaged.
With diffidence we record that we are not persuaded that the reasoning in paragraph 11 of this Court’s judgment in the Shepherd proceedings which is quoted in paragraph 34 above is correct. We accept that a claimant cannot recover for loss reasonably avoidable by him but, in the present case on the assumed facts, at the time that Mr Sweetman incurred a liability to Coutts for the repayment of the Second Loan, for interest, for the arrangement fee and at the time that he paid out various sums he was not aware of the fact that he had a worthless purchaser. In those circumstances the duty to mitigate any loss for which his solicitor might otherwise be liable by reason of his negligence is not in play.
In the present case Mr Sweetman’s action against Nathan’s erstwhile partners can be pleaded and proved without reliance upon any part of the fraud assumed to have been committed on Coutts. The fact that damage might not have resulted but for a decision to deceive Coutts is irrelevant to his cause of action. There is force in the analogy with the case referred to in paragraph 42 above. Moreover we are bound by what is said in the Standard Chartered Bank case cited in paragraph 41 above. That reflects the pragmatic approach referred to by Bingham LJ in Saunders v Edwards[1987] 1 WLR 1116 where he said at 1134
“… the courts have tended to adopt a pragmatic approach to these problems, seeking where possible to see that genuine wrongs are righted so long as the court does not thereby promote or countenance a nefarious object or bargain which it is bound to condemn. Where the plaintiff’s action in truth arises directly ex turpi causa he is likely to fail …Where the plaintiff has suffered a genuine wrong, to which the allegedly unlawful conduct is incidental, he is likely to succeed.”
Inevitably the plight of the innocent partners arouses sympathy but becoming a partner with a negligent or fraudulent person has as a consequence that you may be liable for his negligence or fraud.
We therefore do not think it right to strike out this action on the basis that, given the Fraud Finding, Mr Sweetman has no prospect of success in any action against his solicitor for negligent conveyancing.
This conclusion renders it unnecessary for us in order to resolve this appeal to decide whether the Fraud Finding is beyond legal attack. However, we record the view that we do not consider that the doctrine of issue estoppel renders beyond attack an assertion by the defendants of the Fraud Finding. The conditions in Munni Bibi are not fulfilled in the present case and we heard no sustained argument to the effect that those conditions should not govern our resolution of this matter. Further, we do not think it appropriate to decide now whether at any trial it would be an abuse of process for Mr Sweetman to fight an allegation by the Defendants that the Dehn Finding is correct. That will be for the trial judge to decide, bearing in mind the guidance given by this court in the judgment delivered by Sir Andrew Morritt V-C in Secretary of State for Trade and Industry v Bairstow[2003] 1 BCLC 696.
Can Mr Sweetman show loss flowing from the assumed negligence?
Intuitively one has considerable sympathy with the submission made on behalf of the defendants that Mr Sweetman, far from losing money as a result of Mr Nathan’s activities, has already gained quite a lot from Mr Nathan’s cooperation in the fraud on Coutts. Mr Sweetman, albeit with a sharing arrangements with the Trustee, is attempting to recover from these defendants - on the basis that they negligently caused him to borrow money – a substantial part of the monies lent to him by Coutts, which he should never have received, which he has failed to repay to them and which he will probably never be called upon to repay to them.
During the hearing we queried whether, in these circumstances, Mr Sweetman could show any loss at all as resulting from the assumed negligence. If not then the action should be struck out. Mr Hodge, understandably caught somewhat by surprise, attempted to deal with this point and we also have given it further thought. We have come to the conclusion that it would not be right to strike the action out on this basis. The following points have weighed with us.
It is important to remember that Mr Sweetman is suing as an assignee of the trustee in bankruptcy. So he has the rights of the trustee. The rights which the trustee in bankruptcy had against the defendants were the same as Mr Sweetman had when the trustee was appointed : section 306 of the Insolvency Act 1986. No more and no less.
If by 11 November 1993 Mr Sweetman had incurred some losses as a result of Nathan’s negligence, then the fact that he was then declared a bankrupt and thereafter was discharged may not necessarily prevent him for suing for those losses. Nor should the fact that others have paid monies to Coutts by way of settlement of actions which Coutts had commenced against them. All that might diminish any claim which Mr Sweetman made against Nathan’s partners which was founded on his liability to pay Coutts. However none of his claim is founded on such liability.
It is not clear when, on what terms, and to what extent Coutts were paid out by the other parties. It is not clear whether Coutts has any rights against Mr Sweetman personally notwithstanding his discharge – see s. 281(3) of the Insolvency Act 1986. It is not at all clear that the terms on which Coutts have been paid out would prevent those who have paid from exercising a right of subrogation/contribution against Mr Sweetman. Moreover the law as to the reach of the principle of res inter alios acta is not clear and it seems arguable that the payment out of Coutts is legally irrelevant.
As a matter of arithmetic we are not presently persuaded that the proved gain will inevitably exceed the proved loss. Nor, as a matter of mixed fact and law, are we presently persuaded that the fraud on Coutts and the negligent conveyancing are so closely connected that it would be right to strike out Mr Sweetman’s action on that basis.
Therefore, bearing in mind the way the point on loss was raised and the total obscurity in relation to the relevant facts, we have, after some hesitation, come to the conclusion that it would be wrong to strike this action out on the basis that is not arguable that Mr Sweetman has suffered some loss as a result of Nathan’s negligence.
Nevertheless, we agree with all those who have previously considered this problem that the chances of Mr Sweetman ultimately succeeding in this action are wholly unclear. The Defendants have been disadvantaged in costs by reason of Mr Sweetman’s resiling from concessions previously made and in principle we think it right that he should give security for the defendants’ costs in an amount that he can afford. That can be determined by the costs judge.
Disposal
We therefore allow this appeal.
Order; appeal allowed; order re costs of judge below to stand; costs of both sides re appeal to be costs in case; order re security to stand.
(Order does not form part of the approved judgment)