Groundless commercial litigation – advantage defendants?

Discreetly slipped out at the same time as the more high-profile Versloot decision comes another Supreme Court case, of more subtle significance for commercial lawyers. In Willers v Joyce [2016] UKSC 43 a businessman caused his company to sue his erstwhile sidekick for breach of contract and fiduciary duty, well knowing that there was no plausible claim against the latter. The action duly failed, whereupon the erstwhile defendant sued the businessman in tort, seeking to recover the losses that had not been made good by the award of costs in his favour. His claim was dismissed at first instance, and an appeal followed.

By a 5-4 majority the Supreme Court followed the lead of the Privy Council in Crawford Adjusters (Cayman) Ltd v Sagicor General Insurance (Cayman) Ltd [2014] AC 366 and decided that there was a cause of action available for maliciously bringing civil proceedings without reasonable and probable cause and for purposes other than the bona fide enforcement of legal rights. The claim was therefore allowed to proceed.

Defendants and P&I interests might care to take note, since what was said in Willers is highly apposite to commercial litigation generally. Imagine, for example, a cargo claim brought by a claimant whose CEO or controlling mind was fairly sure that the loss was actually due to inherent vice; or a charter claim brought with a view to extracting something by way of settlement despite advice to the claimant that it was almost certainly statute-barred. In both cases it would seem that the person sued now has a plausible claim to recover damages at large, including investigation expenses and where appropriate unrecoverable costs.

Two caveats.

(1) It is not clear what degree of knowledge must be shown by the (now) claimant. Lord Toulson (with whom Lady Hale and Lords Kerr and Wilson agreed) seems to suggest actual knowledge or recklessness: Lord Clarke, who drew an analogy with liability for wrongful arrest of ships, might be taken as suggesting that extreme negligence would do. One hopes that the former criterion will be applied.

(2) If the claim is defended by, and at the expense of, insurers or P&I interests, there is a possible technical argument that it is not they, but their assureds, who are being sued, and therefore that they have no claim. Whether this will be accepted, at least where the Third Parties (Rights against Insurers) Act 1930 (or 2010) is in play, will have to be seen. A possible workaround, though one that will have to be closely looked at, might be an arrangement under which underwriters or P&I clubs take an assignment from their insureds of any rights to sue the undeserving claimant.

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