Otkritie and the "Aldi requirement"

The judgment in Otkritie –v- Threadneedle examined the interplay between the "Aldi requirement" ...

… (that claimants consult the courts as to whether to join additional defendants to existing proceedings or hold back and pursue them in separate later proceedings) and the court's discretion to strike out claims for abuse of process where claims could and should have been brought in earlier proceedings.  In doing so, the court struck a careful balance between the draconian nature of the power to strike out, and the court's ability to enforce respect for its case management powers.

Introduction

Perhaps especially in heavy commercial litigation, it is commonplace to find that the same or closely connected facts and circumstances give rise to multiple potential claims against multiple potential defendants.  Such circumstances inevitably lead to tensions between the competing interests of (i) the private rights of claimants to pursue redress for wrongs (ii) protecting defendants against being vexatiously pursued in repeated proceedings which are variations on a theme and (iii) upholding the public interest in managing the resources of and caseload in the court system in an efficient manner.  The principles of res judicata and issue estoppel are examples of the restrictions which have accreted around (i) to protect the competing interests in (ii) and (iii).  These principles are enforced through the court's inherent power to strike out claims for abuse of process.

In his recent judgment in Otkritie Capital International Ltd and another –v-  Threadneedle Asset Management Limited and another [1], Mr Justice Knowles considered what sanctions the court should impose on claimants which, after obtaining judgment against one set of defendants at trial, then sought to bring a second set of proceedings which arose from the same facts and issues, but against different defendants.  In doing so, he revisited the principle known as the "Aldi requirement" after the 2007 Court of Appeal case of Aldi Stores Ltd v WSP Group plc and others.  This requires claimants to consult and seek guidance from the court on decisions as to whether defendants should be joined into an existing action or may instead be pursued in later separate proceedings, so that the courts can take into account their own case management interests.  The judgment considers the sanctions which should be applied for the breach of the Aldi requirement, and the interplay between such breaches and the application of the power to strike out claims for abuse of process.

The facts

The claimants are part of the Otkritie group, the Russian financial institution.  In 2010-2011, Otkritie was fraudulently induced to purchase certain securities at an overvalue.  In 2011, Otkritie launched proceedings against a number of individuals and companies to seek to recover their losses.  Over time, Otkritie joined additional defendants, and by the time the matter reached trial in October 2013, there were 19 defendants to the action.  Those included a Mr Vladimir Gersamia, who at the time of the fraud was an employee of Threadneedle group.  Otkritie succeeded at trial in this first action and obtained awards of damages against various defendants including Mr Gersamia amounting to over US$150 million. 

In 2014, Otkritie commenced proceedings against two Threadneedle companies on the basis that they were vicariously liable for Mr Gersamia's unlawful conduct.  It appears that the main reason Threadneedle was not joined to the earlier 2011 proceedings was that Threadneedle was a client of Otkritie's solicitors in the earlier proceedings.  Joining Threadneedle would have caused Otkritie the detriment and cost of having to instruct new solicitors. 

Otkritie had not raised the issue of its claims against Threadneedle with the court in the earlier proceedings, and so had not sought any endorsement of its private decision to pursue Threadneedle, if at all, in separate later proceedings.

The underlying principles: abuse of process and the "Aldi requirement"

The principles governing the exercise of the power to strike out claims for abuse of process because they are claims which should and could have been brought in previous proceedings are long established.  The leading authority is the House of Lords case, Johnson –v- Gore Wood[2].  The principles were helpfully summarised in a later Court of Appeal judgment[3] (as cited in the Otkritie judgment) as follows:

"(i) Where A has brought an action against B, a later action against B or C may be struck out where the second action is an abuse of process.

(ii) A later action against B is much more likely to be held to be an abuse of process than a later action against C.

(iii) The burden of establishing abuse of process is on B or C or as the case may be.

(iv) It is 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.

(v) The question in every case is whether, applying a broad merits based approach, A's conduct is in all the circumstances an abuse of process.

(vi) The court will rarely find that the later action is an abuse of process unless the later action involves unjust harassment or oppression of B or C."

As is obvious, the power to strike out for abuse of process can only be wielded in the later set of proceedings.  The introduction of the "Aldi requirement" was an attempt to strengthen the court's case management powers by giving it the opportunity to order that claims be brought in the earlier set of proceedings.  At that stage, the court can be freer with its case management decisions:  ordering that a claim must be brought in the earlier proceedings is much less draconian than ordering that a later claim must be struck out because it was not brought in the earlier proceedings.    So, in the Aldi decision it was pronounced that:

"… if a similar issue arises in complex commercial multi-party litigation, it must be referred to the court seized of the proceedings.  It is plainly not only in the interest of the parties, but also in the public interest and in the interest of the efficient use of court resources that this is done.  There can be no excuse for failure to do so in the future."

The Otkritie judgment

Threadneedle argued that the fact that Otkritie had not complied with the "Aldi requirement" by seeking the endorsement of the court not to pursue the claims in the earlier proceedings meant that its claims in the later proceedings should be struck out as abuse of process.  It submitted that the requirement was mandatory, and failure to comply with it meant that Otkritie had lost any right to pursue Threadneedle in separate proceedings.

The judge rejected this argument, finding instead that:

• Otkritie should have raised the issue of its claims against Threadneedle with the court in the 2011 matter, and not to do so was a breach of the "Aldi requirement".

• The failure to comply with the "Aldi requirement" was "not a responsible approach to commercial litigation" and was conduct which " fell well below the standards that the courts expect". 

• Aside from the issue of that breach, the claims against Threadneedle were not otherwise claims which constituted an abuse of process under the Johnson –v- Gore Wood principles summarised above.

• Had the issue been raised with the court in the 2011 proceedings, it was probable that the court would have been persuaded that Otkritie should be allowed to pursue Threadneedle in subsequent proceedings if it chose to do so.

• Whilst in some circumstances breach of the "Aldi requirement" might on its own cause later proceedings to be an abuse of process on the Johnson –v- Gore Wood broad merits based approach, that was not the case here.  In particular, the judge had regard to the likely case management outcome outlined above.

• Although Threadneedle had lost its application to strike out and would normally therefore bear Otktritie's costs of the application as well as its own, the judge indicated that he was minded to reverse the usual costs order and make Otkritie pay Threadneedle's costs as a sanction for breaching the 'Aldi requirement'.  He also warned that wider costs sanctions might be applied against Otkritie in due course as the case progressed.

Accordingly, while claimants should and must pay due respect to the court in following the Aldi requirement, the judgment is a clear rejection of the suggestion that not following that requirement is on its own necessarily sufficient to justify strike out for abuse of process.  As the judge observed, that is not to say that there will not be circumstances in which it will not be sufficient, in particular where it is overwhelmingly obvious that the court in the earlier proceedings would have ordered that the claims be brought in those proceedings.  Moreover, any claimant which chooses to make a private decision (without consulting the court under the "Aldi requirement") to prefer its own interests in a decision to bring connected claims in separate later proceedings should expect to encounter serious costs sanction from the court.

[1] http://www.bailii.org/ew/cases/EWHC/Comm/2015/2329.html

[2] [2002] 2 AC 1

[3] Dexter Ltd v Vlieland-Boddy [2003] EWCA Civ 14