Otkritie Capital International Ltd & Anor v Threadneedle Asset Management Ltd & Anor

In Aldi Stores Ltd v WSP Group plc and others [2007] EWCA Civ 1260; [2008] 1 WLR 748 the Court of Appeal considered “the application of the principles set out in Johnson v Gore Wood & Co [2002] 2 AC 1 to an attempt to strike out a claim for abuse of process on the basis that the claim could and should have been brought in previous litigation” (Aldi, at [1]).

The context there, as in the present case, was “complex commercial litigation” (Aldi, at [1]). Thomas LJ (as he then was) concluded his judgment with these words, at [31]:

“… for the future, if a similar issue arises in complex commercial multi-party litigation, it must be referred to the court seized of the proceedings. It is plainly not only in the interest of the parties, but also in the public interest and in the interest of the efficient use of court resources that this is done. There can be no excuse for failure to do so in the future.”

Longmore LJ and Wall LJ expressly associated themselves with these words (Aldi, at [36] and [42]). I will refer to the words used by Thomas LJ as a “requirement”. That is one of the terms used in Gladman Commercial Properties v Fisher Hargreaves Proctor & Others [2013] EWCA Civ 1466; [2014] PNLR 11 (CA) at [64] per Briggs LJ. It is of note that across the authorities the terms “rule”, “guideline”, “guidance”, “advice” and “statement” are also to be found.

The judgments of the Court of Appeal in Aldi were handed down on 28 November 2007. Three years later, the Claimants and other members of the group of companies of which they were members sued (ultimately) 19 defendants in proceedings commenced in the Commercial Court (“the 2011 Litigation”).

Mr Vladimir Gersamia (“Mr Gersamia”), a former employee of Threadneedle Management Services Limited, was the tenth defendant. He was added, with others, on 1 March 2012. Until that point the Claimants had focused their claims against former employees of their own group and related individuals and entities.

Leaving aside what has been termed a separate “Sign-On Fee Fraud” which is of little materiality to the present application, the alleged circumstances giving rise to this litigation may be summarised, in very broad outline, as follows.

The first Claimant had been caused to purchase Argentine government warrants for a multiple of their market value. The purchase followed false representations by employees within the Claimants’ group that the purchase was genuine and at a discount to market value, was from the Threadneedle group, and was the first stage of a two stage transaction in which the Threadneedle group had agreed to buy the warrants back at the second stage at a price that would leave the first Claimant with a profit.

An execution of part of the second stage was attempted but was prevented by Threadneedle’s systems. Mr Gersamia was behind that attempt, but had, it was alleged, in various other respects assisted or attempted to assist fraudulent behaviour on the part of the Claimants’ employees. The parties, including Mr Gersamia, who were added in March 2012 to the 2011 Litigation were each said to have received a share of proceeds of the fraud on the Claimants.

At a case management conference on 18 July 2012, Walker J highlighted the fact that defendants in the litigation were subject to freezing orders. He expressed the view that it was not satisfactory to cause the claim against them “to wait rather longer than would otherwise have been the case” whilst on the Claimants’ part “steps are taken both in this country and elsewhere to elicit further evidence, [and] the things that the claimants want to have determined and the people that they want to be parties may change”. Hamblen J was at a later interim hearing on 9 November 2012 to refer to the “very real need to get on with the case”.

The 2011 Litigation came to trial before Eder J in 2013. An observer was present on behalf of the Threadneedle group. The trial lasted more than 45 days and ended in November 2013. Judgment was handed down on 10 February 2014 (Otkritie International Investment Management Ltd and Others v Georgy Urumov and Others [2014] EWHC 191 (Comm); [2014] 1 WLR 748). The judgment of Eder J exceeded 200 pages including schedules. The sums awarded “in principle” exceeded US$150 million, including against Mr Gersamia (Otkritie v Urumov, at [555]-[557]).

Then, on 14 November 2014, the Claimants commenced the present proceedings (“the 2014 Litigation”) against Threadneedle Asset Management Limited and Threadneedle Management Services Limited (together “Threadneedle”).

The claim was for US$120 million as damages or equitable compensation. The first paragraph of the brief details of claim endorsed on the Claim Form referred to the 2011 Litigation and stated that Eder J had held Mr Gersamia liable to the Claimants “in conspiracy, dishonest assistance and knowing receipt arising from a fraud perpetrated by Mr Gersamia and his co-conspirators in March 2011”. Full Particulars of Claim accompanied the Claim Form. These added a claim that Mr Gersamia had made representations to the Claimants that “for reasons set out in the Judgment” of Eder J, he knew were false.

The basis of the claim against Threadneedle Management Services Limited was that it had been Mr Gersamia’s employer. As regards Threadneedle Asset Management Limited the allegation was that it “exercised control over Mr Gersamia and/or the relationship between them was akin to employment.” The Claimants alleged that Mr Gersamia’s acts or omissions were within the scope of his actual or apparent authority for Threadneedle, or that his conduct was “so closely connected with his employment that it is fair and just to hold [Threadneedle] vicariously liable to the Claimants.”

It is obvious that the Claimants could have chosen to seek to make Threadneedle defendants in the 2011 Litigation, making 21 defendants in all.

Instead they chose to wait until they had the result of the trial in the 2011 Litigation. Then, having succeeded against Mr Gersamia at that trial, they commenced a second set of proceedings - the 2014 Litigation - in order to sue Threadneedle.

At no point during the 2011 Litigation had the Claimants referred to the Commercial Court, as the court seized of those proceedings, the question whether the course they preferred was an acceptable course.

After acknowledging service of the 2014 Litigation, Threadneedle issued the application notice now before the court, seeking an order striking out the Claim Form and Particulars of Claim, and dismissing the claim, on the grounds that the 2014 Litigation is an abuse of the process of the court.

As Thomas LJ made clear in Aldi (at [5]) the principles that are engaged by an application to strike out a claim, made on the basis that it is an abuse of process to bring a claim that could and should have been brought in previous proceedings, are set out in the speech of Lord Bingham of Cornhill in Johnson v Gore Wood.

Lord Bingham’s summary of the main principles, included the following, at page 31:

“The[re] is [an] underlying public interest … 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. … [I]t 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.”

Thomas LJ also referred (Aldi, at [6]) to the summary given by Clarke LJ (as he then was) in Dexter Ltd v Vlieland-Boddy [2003] EWCA Civ 14 at [49]-[53] of the principles to be derived from Johnson v Gore Wood. This summary was in these terms:

“49.

… (i) Where A has brought an action against B, a later action against B or C may be struck out where the second action is an abuse of process. (ii) A later action against B is much more likely to be held to be an abuse of process than a later action against C. (iii) The burden of establishing abuse of process is on B or C or as the case may be. (iv) It is 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. (v) The question in every case is whether, applying a broad merits based approach, A's conduct is in all the circumstances an abuse of process. (vi) The court will rarely find that the later action is an abuse of process unless the later action involves unjust harassment or oppression of B or C.

50.

Proposition (ii) above seems to me to be of importance because it is one thing to say that A should bring all his claims against B in one action, whereas it is quite another thing to say that he should bring all his claims against B and C (let alone against B, C, D, E, F and G) in one action. There may be many entirely legitimate reasons for a claimant deciding to bring an action against B first and, only later (and if necessary) against others.

51.

Those reasons include, for example, the cost of proceeding against more than one defendant, especially where B is apparently solvent and the case against B seems stronger than against others. More defendants mean more lawyers, more time and more expense. This is especially so in large commercial disputes. It by no means follows that either the public interest in efficiency and economy in litigation or the interests of the parties, including in particular the interests of C, D and E, is or are best served by one action against them all.

52.

It seems to me that the courts should be astute to ensure that it is only in a case where C can establish oppression or an abuse of process that a later action against C should be struck out. I could not help wondering whether the defendants in this case would have given their lawyers the same instructions on the question whether they should have been sued in the first action if they had been asked before that action began as they have given now that a later action has been begun.

53.

It is clear from the speeches of both Lord Bingham and Lord Millett that all depends upon the circumstances of the particular case and that the court should adopt a broad merits based approach, but it is likely that the most important question in any case will be whether C, D, E or any other new defendant in a later action can persuade the court that the action against him is oppressive. It seems to me to be likely to be a rare case in which he will succeed in doing so.”

Henley v Bloom [2010] EWCA Civ 202; [2010] 1 WLR 1770 was decided after Aldi. Although Aldi was not directly cited to the Court of Appeal, Stuart v Goldberg Linde [2008] EWCA Civ 2; [2008] 1 WLR 823 was, and it contains extensive reference to Aldi and the Aldi requirement. Lord Neuberger MR (as he then was, and with whom Longmore LJ, who had given one of the judgments in Aldi, and Smith LJ agreed) said this in Henley v Bloom (at [25]-[26]):

“… However desirable it may be for a party to bring all his claims forward in one go, the abuse principle, as the judgments in the Stuart case … underline, does not bar a claim simply because someone fails to raise a claim when he could have done so. The facts must be such that the second action amounts to an abuse of process before it can be struck out.

The importance of the general principle that every person with an arguable claim should be able to pursue it in court is enshrined in article 6 of the Convention for the Protection of Human rights and Fundamental Freedoms. As Sir Anthony Clarke MR indicated in the Stuart case, at para 98, if the court is not satisfied that a claimant’s attempt to raise his claim is actually abusive in the light of his previous failure to raise it, the claim cannot be barred from proceeding however desirable it might have been for the claimant to have raised it earlier.”

Mr Ali Malek QC, appearing with Mr Michael Lazarus for Threadneedle, submitted that Aldi makes clear that after that decision it was for the court not the parties to decide what process should be followed. Thomas LJ’s words in Aldi were mandatory, and it was no longer acceptable (whatever the position in the past) for parties in the position of the Claimants simply to put their private interest over the public interest.

Mr Malek QC observed that whilst Thomas LJ had (Aldi, at [25]) considered and acknowledged what he, Thomas LJ, described as the “real public interest in allowing parties a measure of freedom to choose whom they sue in a complex commercial matter and not to give encouragement to bringing a single set of proceedings against a wide range of defendants or to complicate proceedings by cross-claims against parties to the proceedings”, Thomas LJ had made quite clear that “[t]hat freedom can and should be restricted by appropriate case management”.

For litigation after Aldi, Aldi was a “game changer”, submitted Mr Malek QC. Thomas LJ had said what “must” happen. The requirement was simple and there was no excuse for not complying with it. The requirement had become more important than ever in the context of increasing demands on hard pressed court resources. The requirement was fair as it was always open to parties in the Claimants’ position to share their view (here, a preference for two sets of proceedings) with the court. Mr Malek QC submitted that parties in the Claimants’ position no longer had (if they ever had) a “right” to bring claims in two sets of proceedings rather than one. He emphasised that the consequence of breach of the Aldi requirement is that the court is deprived of the opportunity to case manage.

The question of breach of the Aldi requirement and the question whether there is an abuse of process are, in my view, related but not the same, and should not be treated as co-extensive.

Of course the presence of a breach of the Aldi requirement can “contribute” to a conclusion on the question whether there is an abuse of process, and is “relevant” to the latter (see Gladman v Fisher Hargreaves at [59] and [68]; I keep in mind that this decision was not handed down until the trial in the 2011 Litigation was underway). In similar vein Clarke LJ emphasised in Stuart v Goldberg Linde at [86] that an approach by a litigant that might not formerly have been abusive might “now be held to be abusive in light of the guidance in the Aldi Stores Ltd case.”

But all that said, the question of breach of the Aldi requirement ultimately concerns the important subject of case management. The question whether there is an abuse of process on the other hand concerns the important “general procedural rule” and “policy” against abusive proceedings or abuse of process; a “concept which informs the exercise of the court’s procedural powers”, with the “underlying purpose of limiting abusive and duplicative litigation” (Virgin Atlantic Airways Ltd v Zodiac Seats UK Ltd [2013] UKSC 46; [2014] AC 160 at [17] and [25] per Lord Sumption JSC, in passages with which Lord Neuberger PSC and all other members of the court agreed at [42]). I believe this distinction is clear from the treatment of the subject area by Thomas LJ in his judgment in Aldi.

Where the Aldi requirement has been breached, and as a result there has not been the case management required, then a court considering the question of abuse of process should, in my judgment, be ready to go on to form a view, as best it can, of what the probabilities are had case management been undertaken.

Of course this is not easy. Speculation is to be avoided, and indeed the avoidance of speculation is another reason for the Aldi requirement (see at [30]-[31] in Aldi per Thomas LJ). But the court should do its best to examine the probabilities, and not limit itself to noting the possibility that case management might have required a different course.

Football Dataco Limited and Others v Stan James (Abingdon) Limited and Another [2014] EWHC 504 (Ch), was a very different case on the facts to the present case, and each case will turn on its facts. There had been a breach of the Aldi requirement, and the Judge (Mr Iain Purvis QC, sitting as a Deputy High Court Judge of the Chancery Division) also held that there was an abuse of process.

In doing so he stated that it was “no excuse for [a failure to comply with the Aldi requirement] to contend that the Court would probably not have acted differently if they had been told about the new claim”. With that I agree, but the Judge went on to hold on the facts that “Although we cannot know what would have happened if the matter had been raised ... it is quite possible that [the court] would have directed [certain] matters to be dealt with at the first trial, with some consequent saving in cost and inconvenience to [a party] and a more efficient use of court resources.”: see [112]-[114].

A breach of the Aldi requirement, coupled with a possibility that the court might have taken a different course but for the breach, creates a low threshold for a finding of abuse of process. I do not find support for that in the authorities. I do not, with respect, accept the submission of Mr Malek QC and Mr Lazarus that “[i]t is sufficient to justify striking out a second claim if compliance with the Aldi rule might have resulted in different, more appropriate case management of the totality of [the Claimants’] claims” (my emphasis added).

It seems clear, for example, that what drove the conclusion of abuse in Gladman v Fisher Hargreaves was the fact that after non-compliance with the Aldi requirement “[t]he shocking consequence of permitting [a second claim] to continue would be that precisely the same issues would fall to be litigated at two successive trials involving .. wasteful duplication of time, money and effort”: see per Briggs LJ at [66]. It is also clear that the court was there prepared to look, as best it might, into what would have happened.

Looking at the basis on which the Claimants sued Mr Gersamia, I am entirely satisfied that the Claimants realised they might have a claim against Threadneedle at latest by 1 March 2012 when they applied to add Mr Gersamia as a defendant to the 2011 Litigation. Equally I find there is no realistic basis for a contention that the Claimants did not have the evidence with which to sue Threadneedle when they sued Mr Gersamia.

Mr Nathan Pillow QC, appearing with Mr Anton Dudnikov for the Claimants, submits that there was no breach of the Aldi requirement “where [the Claimants] were not contemplating proceedings against [Threadneedle] (precisely because they were not being advised as to that, and were properly and reasonably concentrating exclusively on pursuing the primary wrongdoers)” (their underlining).

With respect, I must emphatically reject that submission. A party well able to afford and take advice cannot avoid the Aldi requirement by declining to take advice. And even if the Claimants considered, from their viewpoint, that “concentrating exclusively on pursuing the primary wrongdoers” was proper and reasonable, the Aldi requirement is designed to ensure that other viewpoints are brought into consideration - consideration by the court before whom the Claimants were pursuing those “primary wrongdoers”.

Mr Malek QC and Mr Lazarus analysed the Claimants’ failure to comply with the Aldi requirement. However the essential submission here was their submission that nothing justified that failure, and in that submission they are, in my judgment, correct. As Thomas LJ has said, there can be no excuse for failure to follow the Aldi requirement.

The evidence as to why the Claimants did not sue Threadneedle on 1 March 2012 is at times confusing and contradictory, and some of it is given in hindsight. I am satisfied that the principal reason why the Claimants decided not to include Threadneedle in the 2011 Litigation was because that would have involved a change of the Claimants’ solicitors. The Claimants’ solicitors in the 2011 Litigation were Hogan Lovells, and Threadneedle group companies were clients of that firm. A secondary reason was that the Claimants preferred to try to secure a positive outcome against Mr Gersamia before reaching a final decision, with legal advice from a different firm to Hogan Lovells, to move against Threadneedle.

There is no suggestion that in this the Claimants were behaving with a lack of honesty or with the object of unjustly harassing Threadneedle. The Claimants’ approach was however focused on their interests and not, in any degree, on the interests of anyone else.

However as regards reaching a judgment on whether there is abuse of process, Lord Bingham cautioned in Johnson v Gore-Wood (at p31F) that the preferable course is not “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” but is rather to ask “whether in all the circumstances a party's conduct is an abuse”. In these circumstances I shall not lengthen this part of this judgment.

Applying Johnson v Gore-Wood (at p31D-F), I must make “a broad, merits-based judgment” and the crucial question is “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”.

With the benefit of the submissions I have heard, and the material I have read, my assessment is as follows:

Overall, I am satisfied that there has been a breach of the requirement made plain by Thomas LJ in Aldi. The potential for litigation against Threadneedle should have been referred to the Commercial Court in the 2011 Litigation.

Certainly the case management question should have been raised, but to say that a case management question should have been raised is not the same as saying that the claim itself should have been made then if it was to have been made at all. The claim against Threadneedle could have been made in the 2011 Litigation but I do not consider it should have been. On the question of principle in relation to abuse of process, I am not “satisfied … that the claim … should have been raised in the earlier proceedings if it was to be raised at all” (Lord Bingham in Johnson v Gore-Wood at p31B-C; my emphasis).

Asking myself whether in all the circumstances the Claimants’ conduct is an abuse, my answer is no. It was in breach of a clear requirement, but that is not the same. Just as the courts must insist that its requirements are complied with, so also the courts should be astute to ensure that, in this context, it is only in a case where an applicant can establish abuse of process that a later action should be struck out.

What is to be done instead? Thomas LJ could not have made the requirement more plain and yet it was not met. The requirement is directed to “making it possible for the court to manage the issues so as to be fair to both sides”: Stuart v Goldberg Linde (above) at [77] per Sedley LJ. It is part of what the overriding objective is all about. It goes to the “… underlying approach of the Civil Procedure Rules, namely that of co-operation between the parties, robust case management and disposing of cases, including particular issues, justly …”: Sir Anthony Clarke MR in Stuart v Goldberg Linde at [96] and [101]. The approach is reinforced by the terms of the Admiralty and Commercial Court Guide (see in particular paragraphs A1.6 and D11).

In the present case it is appropriate first to record publicly in this judgment that the course taken on behalf of the Claimants fell well below the standards that the courts expect. It was not a responsible approach to complex commercial litigation.

Then, when it comes to argument on the costs of this application, even though Threadneedle has not succeeded I shall consider carefully any submission Threadneedle makes (and any submission in response from the Claimants) that the costs of this application should not follow the event but should instead be borne by the Claimants in any event.

There may be other and wider costs consequences for the Claimants: see Henley v Bloom at [35] per Lord Neuberger MR, referring to a point made by Smith LJ in the course of argument.

And more generally, it should be pointed out that the Claimants have run a major risk, with a claim that they contend is worth US$120 million. The seriousness of this risk should be obvious and has been emphasised judicially: see for example Stuart v Goldberg Linde at [101] per Sir Anthony Clarke MR and at [77] per Sedley LJ. It is a risk for parties and for their lawyers. It may be in another case on its particular and different facts that the broad merits-based judgment would be against those who chose to ignore the Aldi requirement.

In the circumstances of the present case, however, I do not grant the application to strike out and dismiss the 2014 Litigation.

The Aldi requirement is not only a matter for a claimant.

A person “concerned that the prospect of a second action might cause them oppression or vexation” is able to put a claimant “on notice of their position and apply[] to the court if necessary” said Thomas LJ (Aldi, at [21], expressly cross-referring to paragraphs [29]-[31] of his judgement where the Aldi requirement is set out, and see also [29] (last sentence)).

Agreeing with paragraphs [29]-[31] of Thomas LJ’s judgment, Longmore LJ added (Aldi, at [42]) that “the parties” in that case (that is, not simply the claimant) “… should have raised the possible difficulties of a further set of proceedings with the court at a stage when the matter could have been sorted out in a proper way at a case management conference and not left it to fester in a way that has now made the difficulties problematic, time-wasting and expensive at a later stage.”

That it is not only a claimant who has the route of referring the matter to the court, in accordance with the Aldi requirement, is in keeping with the interests, private and public, that are here engaged.

None of this relieves a claimant of its own clear responsibilities in this area. And none of this is to suggest that, for example, a prospective defendant need invite litigation against itself when that litigation is not otherwise clearly in prospect. But if a defendant (or prospective defendant, for that was the situation in Aldi) is concerned that a claimant is not complying with the Aldi requirement when it should, then it is open to that defendant (or prospective defendant) itself to apply to the court if necessary. Indeed, sometimes that will be what a court will actively expect from a defendant, for, under CPR 1.3, all parties are required to help the court to further the overriding objective.

I wish to record my appreciation of the quality of the advocacy on this application. That appreciation applies to all concerned, but the informed concision that Mr Lazarus, who undertook some of the advocacy for Threadneedle, brought to his share of the oral argument was exemplary.