A familiar scenario
A limitation period is about to expire. You only have a partial understanding of the facts. You don’t have time to carry out a proper investigation of the claim. What do you do?
The cheapest and safest option was always to issue a general claim form (without particulars of claim) providing brief details of the claim and hold off serving the potential defendant(s) while you investigate further.
But is that a safe option?
Until recently, the above may have been a fairly safe option to consider and one that frequently occurs in practice. However, given the recent first instance decision of Mr Justice Cooke in Nomura International plc v Granada Group Ltd and others  EWHC 642 (Comm) that is not necessarily the case.
In Nomura, a claim arose out of a merger in which Granada and Nomura each contributed one of the two merger parties. Investment bank West LB lent a considerable amount of money to the merged entity but sustained significant losses when it later went into receivership.
West LB commenced proceedings against Nomura alleging negligent misrepresentation in relation to financial information that Nomura had provided to it. West LB did not serve its claim form and instead entered into a standstill agreement with Nomura, on the basis that it had not made a decision on whether to continue its claim.
Nomura informed Granada that although it could not identify details, it might bring a claim against it if West LB pursued its claims against Nomura. Granada refused to enter into a standstill agreement which mirrored the standstill agreement between Nomura and West LB.
Nomura issued a claim against Granada to prevent limitation expiring on its contract and tort claims. The claim form was 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 arising out of the provision by the defendants (or any of them) of financial models and/or projections and/or advice and/or information to the extent that Nomura has incurred and/or incurs any liability and/or has suffered and/or suffers any loss or damage as a result of West LB’s claim”
Nomura accepted that at the date of issue, it had not investigated the claim and had been unable to plead fully its claim against Granada and that this would continue to be the case until West LB served particulars of its own claim on Nomura.
Granada applied to strike out Nomura’s claim as an abuse of process. Nomura had commenced proceedings at a date where there was no intention to pursue the proceedings by serving particulars of claim and where it was not in a position to identify any specific breaches of duty.
Cooke J struck out Nomura’s claim. The key question when determining whether a claim form constitutes an abuse of process must always be whether, at the time of issuing, the claimant is in a position properly to identify the essence of the tort or breach of contract complained of and formulate particulars of claim. If a claimant cannot prosecute its claim by setting out the basis for it, even in a rudimentary way, Cooke J held that it has no business in issuing a claim form at all ‘in the hope that something may turn up’. The judge warned claimants of the seriousness of putting off a proper investigation of the claim until after the issue of a claim form, thereby obtaining an extension of time allowed for the commencement of an action when they are not in a position to properly formulate a claim. Stopping the limitation period in this way was regarded by Cooke J as an illegitimate benefit.
Relevant knowledge at date of issue
The decisive time for ascertaining whether there is an absence of knowledge of any basis for a claim, and therefore an inability properly to formulate a claim, is at the time of issue of the claim form. Whether or not a party then becomes able to particularise its allegations at a later stage is irrelevant.
Present intention to prosecute?
The absence of a present intention to pursue proceedings is not enough to amount to an abuse of process. By contrast, the absence of a known valid basis for a claim will amount to an abuse, even if the claimant intended to pursue litigation.
Although Draconian, Cooke J held that the only proper sanction for a claim improperly brought in the first place, is to strike it out. The importance of getting the claim form right at the outset has therefore been restated
hints & tips
The practical effects of the decision in Nomura are:
- Don’t assume that a claimant’s position is safe against a limitation defence where a general claim form has been issued at the last minute. Whether acting for a claimant or defendant, be alert to the possibility of an application to strike out for abuse of process being issued.
- Ensure when acting for a claimant that the claim form contains a concise statement of the nature of the claim, particularly when a limitation period is about to expire. Where a claim arises out of a contract, the claim form should give details of the relevant contract and the alleged breach. Where the claim arises out of a tort, the date and place of the occurrence and the nature of the tort alleged should be pleaded, as should the duty which it is alleged the defendant has failed to perform.
- Remember that where a claim form has been issued but not yet served, a defendant may by notice require the claimant to serve the claim form, or discontinue the action within a period of at least 14 days after service of the notice. Failure to comply with that notice allows a defendant to apply to the court for dismissal of the claim or some other order.
- Think twice before agreeing an invitation by a claimant to sign a standstill agreement. Why agree a standstill if any claim form the claimant might issue opens the possibility of an application to strike out?
- Tread carefully if you are a defendant. Exercise caution before entering into lengthy standstill agreements with claimants where you are not in a position to agree back-to-back standstills with all parties against whom you may have direct claims.
- Consider spending some time and money investigating potential claims prior to issuing a claim form in order to reduce the risk of strike out. Although difficulties with issuing a claim form are most likely to arise where limitation is an issue, there is no reason to limit the scope of Nomura to such situations.
- Consider whether a claim by way of contribution will be more appropriate than a direct claim.