Court of Appeal clarifies when a claim may be an abuse of process due to a failure to raise it with the court in earlier proceedings

The Court of Appeal has upheld a decision not to strike out misrepresentation claims as an abuse of process, despite the claimant's failure to follow the so-called "Aldi guidelines": Outotec (USA) Inc v MW High Tech Projects UK Limited [2023] EWHC 1142 (TCC).

Laid down in Aldi Stores Limited v WSP Group PLC [2007] EWCA 260, the guidelines require a party to ongoing litigation who realises that they might have a connected claim to, at least, raise the issue with the court to enable it to consider appropriate case management directions.

The judgment reiterates the importance of the Aldi guidelines, emphasising that any unexplained failure to comply with them will be treated as a serious matter. However, it confirms that even a serious breach will not automatically mean that a subsequent action is an abuse of the court's process and should be struck out. The court will undertake a broad merits-based evaluation, taking account of the public and private interests involved and all the facts of the case.

Although a breach of the Aldi guidelines will be a relevant factor, and "may be a strong pointer" towards abuse, the defendant still needs to demonstrate vexation, oppression or harassment. The court is likely to consider various factors including the extent to which the issues in the new claims overlap with those litigated in the earlier action and whether, had the Aldi guidelines been complied with, the further claims may have required subsequent litigation to some extent.  

It remains the case that a party who fails to comply with the Aldi guidelines risks a later court finding that a related action is abusive. And, as the Court of Appeal emphasised here, an appellate court will be slow to interfere with a judge's evaluation.  

Background

The issue arose in the context of a construction dispute, where the client had brought an action against the contractor for delay and defects. The contractor defended the claim and joined a subcontractor to the proceedings by way of a Part 20 contribution claim, alleging breach of the subcontract.

Following a trial on liability on the client's claim, the contractor settled with the client but continued its Part 20 claim. At the same time, it issued separate proceedings against the subcontractor (and its parent company guarantor), alleging that they had induced it to enter into the subcontract by fraudulent or negligent misrepresentations regarding the subcontractor's credentials and capability to conduct the work ("the misrepresentation claims").

The subcontractor was largely successful in defending the Part 20 claim.  It applied to strike out the misrepresentation claims as an abuse of process, on the basis that they should have been raised in the original action.

The judge:

1.  held that the potential misrepresentation claims should have been brought to the court's attention in the original action, and that by not doing so the contractor had breached the Aldi guidelines; but
2.  declined to strike them out, primarily because there was little overlap between the new claims and the issues in the main action and it was likely that the subcontractor and its parent would have had to face subsequent litigation in any event.

The contractor appealed.

Decision

The Court of Appeal (Coulson LJ, Arnold LJ and Stuart-Smith LJ) dismissed the contractor's appeal.

The relevant principles

The court reviewed the authorities regarding when it may be an abuse of process to bring related claims in separate proceedings.

Although historically it was said that, absent special circumstances, a second claim would be an abuse if it could have been brought in earlier proceedings (Henderson v Henderson (1843) 3 Hare 100), the modern approach is less dogmatic. As established in Johnson v Gore Wood [2002] 2 AC 1, a court will undertake “a broad merits-based judgment" to determine "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”.

The burden rests on the party alleging abuse, and it will be rare for a court to find that a subsequent action is an abuse unless it involves "unjust harassment or oppression".

The Court of Appeal in Aldi laid down in mandatory terms a requirement that a party to ongoing litigation who realises that they may have a connected claim must at least raise the issue with the court, so that it can consider appropriate case management directions, taking into account the parties' interests and efficient use of the court's resources.

Subsequent authorities have suggested that a breach of the Aldi guidelines will give rise to a “high risk” that a subsequent action will be found to be an abuse of process (Stuart v Goldberg Linde [2008] 1 WLR 823). 

However, a breach of the guidelines does not automatically mean that the second action is an abuse and will be struck out. That proposition was expressly rejected in Otkritie Capital International Limited v Threadneedle Asset Management [2017] EWCA Civ 274, where the Court of Appeal confirmed that the Aldi guidelines are simply one facet of the broad merits-based evaluation.

In the present case, the court observed that a breach may be "a strong pointer towards" abuse, but it does not obviate the need for the applicant to demonstrate vexation, oppression or harassment.

It was therefore necessary to consider the judge's conduct of the broad evaluative exercise in this case. In framing this exercise, the court noted that an appellate court will be reluctant to interfere in such an evaluation and will only do so if the judge took account of something they should not have, failed to take into account something they should have, erred in principle, or reached a conclusion that was so perverse as to be “plainly wrong”.

The present case

The judge found that the contractor could have raised the misrepresentation claims in the main action, and that was not challenged on appeal.

As to whether they should have done so, again the judge had made a finding to that effect and it was not open to the contractor to challenge that finding on appeal. However, the court observed that there was some force in the contractor's objection that, given it was defending allegations of defects and delay in the relevant works, it could be detrimental to that defence to raise allegations that it had been deceived by its subcontractor as to their capability to conduct the works. The court observed that this scenario was above and beyond the normal situation in which a main contractor commonly has to "look both ways" in construction litigation.

However, the Aldi guidelines did not require a party, at least in the first instance, to plead out the new claims in detail. The requirement was to raise the fact that there were such claims, not as yet formulated, but which might have a serious impact on the case management of the ongoing proceedings. In the court's view, although great care would have been needed, it should have been possible for the contractor to do so without irreparably damaging their defence.

No excuse had been offered for the failure to raise the claims with the court, beyond it being "a commercial decision". It was accepted that it was a breach of the Aldi guidelines.

The court observed that the judge had referred to the breach as "not the most egregious". However, that was on the basis of his findings as to the impact of the breach (below), which the court considered better viewed as part of the assessment of vexation, etc. In the court's view, in circumstances where a failure to comply with the Aldi guidelines has not been adequately explained or justified, the breach must be regarded as serious.

However, the court agreed that the judge had been entitled to reach the view that there was no abuse of process, on his assessment of all the circumstances, including:

• That there was very little overlap between the main action and the misrepresentation claims. It was true that the losses claimed as a result of the misrepresentations would include losses arising out the contractor's failure in the main action. However, as the judge had concluded, that would not involve any re-litigation of issues previously addressed.
• It was impossible to state precisely what case management directions would have been made if the contractor had raised the misrepresentation claims in accordance with the Aldi guidelines. The three Court of Appeal judges had slightly differing views as to what the most likely outcome would have been, and as to what the judge had actually held in that regard. However the key point was that (as the judge made plain) it was possible that the misrepresentation claims would not have been joined to the main action. The judge was correct to consider that it was inappropriate to strike out the claims when, if they had been raised at the time, they might have been hived off to be dealt with separately, similar to how they would now be dealt with.
• The judge had been right to take account of the fact that the contractor had other very similar claims against the subcontractor in relation to other projects, which were now listed to be tried alongside these misrepresentation claims. The subcontractor was therefore always going to have to address the allegations in a separate trial, and it was more convenient that the claims be heard together. The Court of Appeal considered this a "highly relevant" factor, which pointed firmly away from a finding of vexation/oppression/harassment 

The Court of Appeal concluded that, while a breach of the Aldi guidelines was a serious matter, and one which weighed heavily in the balance against the contractor, on a consideration of all the circumstances "the misrepresentation claims should survive by a small – but still meaningful – margin".