High Court strikes out claims relating to alleged mis-selling of IRHPs on res judicata and abuse of process grounds

The High Court’s decision in Elite Property Holdings Limited & Anor v Barclays Bank plc [2021] EWHC 772 (Comm) is the latest instalment in a series of claims brought by the same claimant property investment companies against the defendant bank (and others) in relation to alleged mis-sold interest rate hedging products (IRHPs), which were included in the then-FSA (now FCA) past business review undertaken by the bank. The High Court granted the bank’s application to strike out the claim alleging breaches of agreements: (i) in relation to the bank’s assessment of consequential loss suffered by the claimants in respect of their IRHPs and (ii) that the bank would not take enforcement action against the claimants.

The decision is a reassuring one for financial institutions faced with duplicative claims involving the same cause of action, or matters determined in previous proceedings. The decision highlights the High Court’s scope to strike out such claims on the grounds of cause of action estoppel, issue estoppel or abuse of process. It also suggests that claimants may face difficulties in bringing further claims on issues not raised or determined in previous proceedings if, in the court’s view, such issues could or should have been raised then.

In the present case, the High Court was satisfied that the claim involved the same cause of action as was determined against the claimants in the original action or, in the alternative, it raised the same issues previously resolved against the claimants (see our banking litigation blog posts, on the previous decisions by the High Court and the Court of Appeal in related actions brought by the same claimants). Accordingly, the High Court held that the claim was barred by the principle of res judicata. The High Court also observed that: (i) even if it was wrong about the claim being barred by cause of action or issue estoppel, the new claim would fall squarely within the principle in Henderson v Henderson (1843) 3 Hare 100 and/or be an abuse of the court’s process; and (ii)  the claimants’ allegations had no real prospect of success and, if it had been necessary to do so, the court would have granted the bank’s application for summary judgment.

We consider the decision in more detail below.

Background

The claimant property investment companies had entered into a number of IRHPs with the defendant bank (the Bank) between 2006 and 2010. In June 2012, the Bank agreed with the then-FSA (now FCA) to undertake a past business review in relation to the alleged mis-selling of IRHPs (the FCA Review). The claimants’ IRHPs were included in this review. In the context of the FCA Review, the Bank made basic redress offers to the claimants in respect of their IRHPs in June 2014. The claimants rejected the basic redress offers and elected to submit a claim for consequential loss. However, in September 2014, the claimants asked the Bank to pay them the basic redress amounts offered, pending determination of their consequential loss claim. Consequently, the Bank made revised basic redress offers to the claimants. The revised basic redress offers were accepted by the claimants via signed acceptance forms in November 2014 (the 2014 Agreements), which acknowledged that the basic redress payments were in full and final settlement of all claims connected to the IRHPs, but excluding any claims for consequential loss.

Subsequently, in 2015, the claimants rejected the Bank’s consequential loss decision and instead commenced litigation against the Bank (the Original Action). The majority of the claimants’ case was struck-out by the High Court. The Court of Appeal refused to grant permission to appeal (see our banking litigation blog post for further details on the background to this claim and the Court of Appeal’s decision). In 2019, the claimants issued a second claim, this time against BDO LLP, alleging that they had sustained loss and damage due to an unlawful means conspiracy in which the Bank and BDO conspired to mislead KPMG into allowing the Bank to foreclose on the underlying loan of one of the claimant companies when in fact there were no exceptional circumstances justifying that course of action. The High Court struck out the second action on the basis that it was a collateral attack on the Court of Appeal’s findings in the Original Action and it was an abuse of process (see our banking litigation blog post for further details on the background to this claim and the High Court’s decision).

The present decision is in connection with a third claim brought by the claimants, this time against the Bank, alleging breach of: (i) the 2014 Agreements in relation to the Bank’s assessment of consequential loss suffered by the claimants as a result of the IRHPs (the Consequential Loss Claim); and (ii) an oral agreement, claimed to have been made on 24 June 2013, that the Bank would not take any enforcement action against the claimants (the Oral Agreement Claim).

The Bank applied to the High Court to strike out the claimants’ latest claims on the grounds that they were an attempt to re-litigate matters that were (or could and should have been) raised against the Bank in the Original Action and were therefore res judicata and/or an abuse of process. In the alternative, the Bank applied for summary judgment on the grounds that the claims had no real prospect of success. The Bank argued that the Consequential Loss Claim involved the same cause of action that was determined against the claimants in the Original Action by the High Court and the Court of Appeal, or in the alternative, that the claims raised identical issues to those that have already been resolved against the claimants. The Bank also argued that the Oral Agreement Claim was barred by issue estoppel, or in the alternative fell squarely within the Henderson v Henderson principle since the point that the claimants now sought to raise was directly relevant in the conspiracy claims that were made in the Original Action concerning the lawfulness of enforcement action.

Decision

The High Court found in favour of the Bank, striking out the claimants’ Consequential Loss Claim and the Oral Agreement Claim for the reasons explained below.

Res judicata and abuse of process principles

The High Court noted that the principles relating to res judicata and abuse of process were reviewed in Virgin Atlantic Airways Ltd v Zodiac Seals UK Ltd [2013] UKSC 46 and more recently in Test Claimants in the FII Litigation v HMRC [2020] UKSC 47. The High Court then highlighted the following key principles:

• Cause of action estoppel. Once a cause of action has been held to exist or not to exist, that outcome may not be challenged by either party in subsequent proceedings. This is “cause of action estoppel”. The discovery of a new factual matter which could not have been found out by reasonable diligence for use in the earlier proceedings does not, according to the law of England, permit the latter to be re-opened, and cause of action estoppel also extends to points which have might have been but were not raised and decided in the earlier proceedings for the purpose of establishing or negativing the existence of a cause of action (as per Arnold v National Westminster Bank Plc [1991] 2 AC 93 and Virgin Atlantic).
• Definition of cause of action. A cause of action was defined in Co-operative Group Ltd v Birse Developments Ltd [2013] EWCA Civ 474 as follows: “In the quest for what constitutes as a ‘new’ cause of action, i.e. a cause of action different to that already asserted, it is the essential factual allegations upon which the original and the proposed new or different claims are reliant which must be compared”. Unnecessary or inessential allegations or facts must be ignored.
• Issue estoppel. Where the cause of action is not the same in the later action as it was in the earlier one, some issue which is necessarily common to both was decided on the earlier occasion and is binding on the parties, this is “issue estoppel”. Issue estoppel extends to cover not only the case where a particular point has been raised and specifically determined in the earlier proceedings, but also where in the subsequent proceedings it is sought to raise a point which might have been but was not raised earlier in relation to an issue that has already been finally determined (as per Arnold v National Westminster Bank Plc).
• Henderson v Henderson principle. A party is precluded from raising in subsequent proceedings matters which were not, but could and should have been raised in earlier proceedings. The High Court noted that the correct approach to the Henderson principle was considered by the House of Lords in Johnson v Gore Wood & Co [2000] UKHL 65 where the court said:

1. 1. The underlying public interest is that there should be finality in litigation and a party should not be twice vexed in the same matter.
   2. The bringing of a claim or the raising of a defence may, without more, amount to an abuse if the court is satisfied (the onus being on the party alleging abuse) that it should have been raised in the earlier proceedings if it was to be raised at all.
   3. A claim may be abuse where it amounts to a collateral attack on the outcome of prior litigation, either between the same parties or with a third party.
   4. 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. The court should carry out a broad, merits-based judgment which takes account of the public and private interests involved and also takes account of all of the facts of the case, focusing attention on the critical question whether, in all the circumstances, a party is misusing or abusing the court’s process by seeking to raise an issue which could have been raised before.
   5. The private and public interests which are served by the Henderson principle are distinct and either or both may be engaged.

• Abusive proceedings. There is a more general rule against abusive proceedings. The court has an inherent power to prevent misuse of its procedure where the process would be manifestly unfair to a party, or would otherwise bring the administration of justice into disrepute among right-thinking people (as per Hunter v Chief Constable of the West Midlands Police [1981] UK HL 13).

Application of res judicata and abuse of process principles

Consequential Loss Claim

The High Court agreed with the Bank that the Consequential Loss Claim involved the same cause of action as was determined against the claimants in the Original Action, or in the alternative, it raised the same issues which had already been resolved against the claimants, and it was therefore barred by the principle of res judicata. There were four reasons for this:

1. Both claims were for the alleged breach of the same contract and all the documents relied on in this claim were before the courts in the Original Action. Whilst there now appeared to be a different spin being put on the interpretation of the documents as to the material points of the contract, the fact remained that the same material was before the courts in the Original Action.
2. Both claims were premised on the Bank having assumed an obligation to deal fairly and reasonably with the claimants’ consequential loss claim. Whilst not identically framed, there were effectively the same allegations of an obligation on the Bank to act fairly and reasonably in accordance with established legal principles in relation to the assessment and payment of the claim for consequential loss.
3. The alleged breach of contract was the same i.e. a failure to do the assessment correctly resulting in the rejection of the claimants’ consequential loss claim. The allegation in the Original Action was not limited to the failure to assess in accordance with the terms of the FCA Review or the Bank’s agreement with the FCA but was broader, including a failure to assess in accordance with general legal principles and pay ‘fair and reasonable’ redress. The same was now being alleged again. However, it was determined against the claimants in the Original Action that the Bank had agreed to carry out the FCA Review in any particular way or pay redress in any particular form.
4. The same loss was claimed in both actions i.e. damages for breach of the 2014 Agreements.

The High Court also said that even if it was wrong about the Consequential Loss Claim being barred by cause of action or issue estoppel, it would conclude that such a claim would fall squarely within the Henderson v Henderson principle and/or be an abuse of the court’s process as it was, at most, a different way of putting the same claim as brought in the Original Action.

Accordingly, the High Court struck out the claimants’ Consequential Loss Claim.

Oral Agreement Claim

The High Court agreed with the Bank that the Oral Agreement Claim was barred by issue estoppel as the issue of the lawfulness of enforcement action was live and determined by HHJ Waksman QC in the Original Action. Although the issue was not determined on an appeal to the Court of Appeal in the Original Action, the High Court said that in its view this did not prevent an issue estoppel from arising.

The High Court then said in the present case, the order of HHJ Waksman QC in the Original Action remained in full force and effect (the appeal having been dismissed) and that his decision continued to be fundamental to the disposal of the case. In the High Court’s view, there was also no injustice to the claimants because they could have sought to appeal against the decision of the appeal court which had gone against them.

The High Court also commented that even if had been wrong as to whether the decision of HHJ Waksman QC amounted to issue estoppel, in its view if the claimants wished to run the Oral Agreement Claim, they could and should have done so in the Original Action. Accordingly the attempt to run it in this claim contravened the Henderson v Henderson principle.

Accordingly, the High Court struck out the Oral Agreement Claim.

Summary Judgment

The High Court also commented that had it been necessary to do so, it would have in any event have concluded that both the Consequential Loss Claim and Oral Agreement Claim had no real prospect of success and granted summary judgment.