Abuse of the court process for issuing a Claim Form

A recent decision of the High Court has clarified the circumstances in which the issue of a Claim Form will constitute an abuse of the court process: Nomura International plc v Granada Group Limited and others [2007] EWHC 642 (Comm). In addition the case has affirmed that the only proper sanction for such an abuse is striking out of the claim.

The practical implications of this case for claimants are:

• To avoid the risk of strike out, it is prudent to expend some time and money in investigating potential claims in advance of issuing a Claim Form, particularly when limitation periods are close to expiry;
• Where claims are being considered as a consequence of third party claims, serious thought should be given to whether it is necessary and/or economic to bring direct claims or whether a claim by way of contribution will suffice; and
• Whilst it is tempting to seek to defer being embroiled in litigation, defendants should be cautious of entering into lengthy standstill arrangements with claimants where they are not able to agree back to back standstills with all parties against whom they may have direct claims.

The decision

The judge held that the key question in determining if a Claim Form constitutes an abuse of process must always be whether, at the time of issue, the claimant was in a position properly to identify the essence of the tort or breach of contract and, if given appropriate time, to formulate particulars of claim.

Pre-issue investigation must, at the very least, put a claimant in a position to:

• Give details of the relevant contract and alleged breach where the claim arose out of breach of contract; and
• Give the date and place of the occurrence and the nature of the tort alleged where the claim arose out of a tort.

The absence of a present intention to pursue proceedings is not in itself sufficient to amount to an abuse of process. By contrast, the absence of a known valid basis for claims will amount to an abuse, even if the claimant intended to pursue litigation.

Background

Nomura entered into a year long standstill agreement with WestLB AG in respect of claims threatened by WestLB against Nomura. In anticipation of those claims litigating, Nomura unsuccessfully attempted to agree a back to back standstill with Granada in respect of claims that it might have against Granada in connection with WestLB's claims.

In the absence of a standstill and perceiving the imminent expiry of limitation periods in respect of those claims, Nomura issued a Claim Form against Granada for: "Damages and/or indemnity and/or contribution…for breach of contract and/or negligence and/or breach of duty and/or negligent misstatement and/or negligent misrepresentation…to the extent that Nomura has incurred and/or incurs any liability and/or has suffered and/or suffers any loss or damages as a result of WestLB's claim."

Granada applied to strike out Nomura's claim on the grounds that Nomura had no intention to pursue the proceedings or, even if it had such intention, no known valid basis for its claims.

It emerged that Nomura would not be in a position to particularise its claim against Granada until WestLB had particularised its claim against Nomura.  By reason of the standstill WestLB was not obliged to do so for a year.  Further, Nomura's purpose in issuing the Claim Form had been to prevent limitation defences from accruing to Granada whilst avoiding the costs of investigating claims that it felt would only be necessary in the event that the WestLB claim litigated. It was clear that very little had been done by Nomura to analyse the factual or legal bases of its claims.

The judge considered whether it was necessary to show an absence of both a known valid basis for claims and a present intention to pursue them, in order for the claim to be an abuse of process.  In addition, he considered whether strike out was an inappropriate draconian remedy.

The judge concluded that Nomura's claim did amount to an abuse of process and that the only proper remedy was striking out.

In coming to his conclusion on the facts, the judge warned claimants of the dangers of putting off a full investigation of potential claims until after issue of the Claim Form and of seeking "unilaterally… to achieve for [themselves] an extension of the time allowed by statute for the commencement of an action…" even though they are not in a position to formulate claims.

It is important to note that a claim for contribution against Granada in respect of any liabilty in the WestLB proceedings was not time barred and could still have been pursued by Nomura within 2 years of judgment in that litigation.