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Fresh proceedings on same facts - two bites of the cherry?

27 June 2014 #Dispute Resolution


The recent Judgment in the Court of Appeal case of Kotonou v National Westminster Bank plc [2014] raises a number of interesting issues for litigation practitioners.

Mr Kotonou was granted permission to appeal the decision to strike out his Claim against the defendant bank (NatWest) having previously had his application for permission to appeal turned down on paper by the Court of Appeal. The reason that permission was granted at this third (and final) attempt was that the Court considered that Mr Kotonou’s Appeal raised a point of principle of general importance on an area of law that was described as “far from straightforward”. To understand this principle and how it arose requires a brief summary of the background of Mr Kotonou’s extensive litigation with NatWest.

Underlying Dispute

Mr Kotonou had procured a standby letter of credit (the SLOC) to secure the liabilities of a company (ORS) to NatWest on 25 February 2000. Several extensions of the SLOC were arranged but after that, the SLOC lapsed on 16 March 2001. Mr Kotonou gave NatWest a personal guarantee for £425,000, which was equal to the extent of ORS’s liabilities to NatWest. ORS assigned its alleged causes of action against NatWest arising from the withdrawal of funding to ORS to Mr Kotonou and ORS was wound up on 2 February 2005. NatWest sued Mr Kotonou under the guarantee on 2 April 2004.

NatWest’s Claim against Mr Kotonou

On the second day of trial on 9 March 2006, the Deputy Judge Mr Jules Sher QC, allowed Mr Kotonou to amend his Defence and Counterclaim to make various averments about the SLOC and to allege that it was NatWest’s fault that it had been allowed to lapse. Mr Sher QC heard detailed evidence on this point and both sides made legal submissions on these issues. Mr Kotonou’s Counsel also made a specific request for Mr Sher QC to make findings on the loss of the SLOC. NatWest’s submissions were prefaced by contending that the Judge did not need to make a finding on the loss of the SLOC to determine the validity of the guarantee.

In his Judgment on 22 May 2006, Mr Sher QC made, as requested, a series of findings of fact about the loss of the SLOC. Mr Sher QC also made a finding that NatWest owed no duty to ORS (or anyone else) to prevent the SLOC from being lost but, following a further request from Mr Kotonou’s Counsel, prefaced his Judgment by saying that this view had been arrived at on a provisional basis because of the limited material before him. Mr Sher QC held that the personal guarantee was invalid because it had been procured on the basis of a misrepresentation by NatWest. 

Mr Kotonou’s Claim against NatWest

On 14 August 2007, Mr Kotonou issued a Claim against NatWest claiming that NatWest owed Mr Kotonou personally and/or as assignee of ORS a duty of care not to allow the SLOC to lapse. NatWest applied for Summary Judgment and/or strike out of Mr Kotonou’s claim citing the many findings of fact in Mr Sher QC’s Judgment. On 11 July 2008 Master Teverson struck out the Particulars of Claim on the basis that the Particulars amounted to a collateral attack on Mr Sher QC’s Judgment. Master Teverson granted Mr Kotonou permission to appeal his decision to strike out the Particulars and reserved the Summary Judgment application to the Judge hearing Mr Kotonou’s appeal. Master Teverson also ordered Mr Kotonou to file amended Particulars of Claim so that any application for permission to amend the Particulars could be made to the Judge hearing the appeal of the strike out. Mr Kotonou’s amended Particulars of Claim repeated all the allegations that had been struck out previously and made further allegations as well.

Appeal of the Decision to Strike Out 

On 5 July 2010 Mr Justice Morgan upheld the Master’s decision:

  • Mr Kotonou’s allegations of fact were contrary to the findings of Mr Sher QC;
  • Mr Sher QC’s findings had been made after a full trial and a full factual investigation and full evidence;
  • The findings of fact made by Mr Sher QC were not provisional, whereas the finding regarding the existence of a duty of care was provisional; and
  • Mr Kotonou probably could not have appealed the findings of fact of Mr Sher QC at trial because they were not essential to the decision. 

Paper Application for Permission to Appeal

On 6 September 2010 Mr Kotonou sought permission to appeal Judge Morgan’s decision, which was refused on paper by then Master of the Rolls Lord Neuberger on 24 June 2011. Lord Neuberger summarised the issue as:

whether it is open to Party A to start fresh proceedings against B based on allegations of fact which were rejected in earlier proceedings between A and B, but were not essential for the fact that A succeeded against B in the earlier proceedings.”

Lord Neuberger decided that the fresh proceedings would be an abuse only if there was a special factor beyond the position that the findings of fact had been decided in earlier proceedings. This was because A could not have appealed the adverse decision in the previous hearing because it was not essential to the decision. Lord Neuberger decided there was such a specific factor in the case because Mr Kotonou’s Counsel had asked Mr Sher QC to make specific findings of fact. Accordingly, he refused permission to appeal, saying that the appeal “could only succeed if it were the law (which it was not), that it was always open to a litigant to reargue a point of fact determined against him unless it was essential to the result”.

Renewed Application for Permission to Appeal

On 8 September 2011 Mr Kotonou was made bankrupt. Having been discharged from his bankruptcy on 15 June 2013, Mr Kotonou sought to renew his appeal at a hearing, which was the matter that came before Lord Justices Vos and Tomlinson.

Lord Justice Vos agreed with Lord Neuberger’s summary of the main issue of Mr Kotonou’s appeal, namely whether Mr Kotonou’s claim was an abuse of process. Lord Justice Vos also agreed with Mr Justice Morgan that Mr Kotonou probably could not have appealed the findings of fact made by Mr Sher QC in his successful action against NatWest. However, Lord Justice Vos did not necessarily agree that there needed to be a special factor to be shown before such proceedings can be an abuse. Lord Justice Vos also stated that he did not necessarily agree that a special factor existed in this case.  

Furthermore, Lord Justice Vos felt that Mr Kotonou’s appeal raised an important point of law in an area that was far from straightforward. In Lord Justice Vos’ view, the actions of the parties, particularly regarding the legal effect of Mr Kotonou’s Counsel’s requests to Mr Sher QC to make findings of fact on the lapse of the SLOC were open to interpretation. Lord Justice Vos therefore decided to grant Mr Kotonou permission to appeal.

Conclusions

Most litigators would agree that this is an important issue where further clarification of the law would be helpful when the full appeal hearing finally comes before the Court of Appeal. There are a number of issues that the Court of Appeal will be able to consider, such as the interplay between different causes of action on largely the same facts. In the long term this may reduce the amount of litigation arising out of broadly similar facts. However, Lord Justice Vos’ decision will probably be viewed as something of a tragedy by NatWest given the lengths to which they have already had to go to in defending Mr Kotonou’s claim.

Clarkslegal, specialist Dispute Resolution lawyers in London, Reading and throughout the Thames Valley.
For further information about this or any other Dispute Resolution matter please contact Clarkslegal's dispute resolution team by email at disputeresolution@clarkslegal.com by telephone 020 7539 8000 (London office), 0118 958 5321 (Reading office) or by completing the form on this page.

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