TAG Capital Ventures
Ltd v Potter [2012] EWHC 3323 (Ch)
On 23 November 2012, the High
Court decided that a four-month delay in proceedings and a decision by the
Official Receiver (OR) not to continue with proceedings against a company
director, four days before the deadline for filing the pre-trial questionnaire,
did not amount to an abuse of process which would have sanctioned the striking
out of proceedings.
On the 25 July 2011, Mr and
Mrs Workman (‘the Workmans’) made a petition to the Court for TAG Capital
Venture Limited (‘the Company’) to be wound up. Provisional liquidators (PLs) were
appointed and soon thereafter they submitted a without notice application to
the Court for a freezing order to be made against Mr Potter- the Director and
“leading light” of the Company. The basis of their claim was that Mr Potter had
breached his statutory and/or fiduciary duties to the Company and requested a
remedial constructive trust and/or equitable compensation in respect of money
paid by the Workmans to the Company. On the return date of the without notice
application, the orders were continued by the Court.
Mr Potter opposed the PLs’
claim and the freezing order, submitting that the Workmans were not creditors
and therefore lacked legal standing to present the petition. If this contention
was correct, there could be no winding up on the basis of the petition, and the
action brought by the PLs against Mr Potter would have fallen away.
The PLs were subsequently
replaced by the OR as the liquidator of the Company. The following history of
the management of the proceedings by the OR became the subject of the abuse of
process claim:
1. After
an apparent stall in the pursuance of the claim, solicitors for Mr Potter wrote
to the OR requesting it to respond by indicating whether it intended to continue
with the claim and warned that their client would be seeking the costs of the freezing
order on an indemnity basis. Albeit not parties to these proceedings, but with
an apparent interest in its outcome, the Workmans were not sent a copy of this
correspondence.
2. The
OR conducted the usual interviews with Mr Potter, who seemed to have gathered
an impression that the action would not be pursued. The Court did not review
evidence supporting this belief, and although accepted it as fact, did not
attach any weight to it.
3. Mr
Potter’s solicitors sent another letter a day before the pre-trial
questionnaire was due to be filed, requesting that the OR confirm whether it
was continuing with the proceedings. The OR responded the following day,
stating there was insufficient evidence to continue; to which Mr Potter’s
solicitors responded by requesting that the OR apply for a discontinuance
within fourteen days or they would submit an application that the proceedings
be struck out as an abuse of process. No response was forthcoming from the or
within the 14-day deadline, and as a result, Mr Potter issued the application for
strike out.
4. During
the hearing the Court became aware of the administrative difficulties the OR
faced due to financial and personnel shortages. This delayed the OR’s investigations
which ultimately lead to the decision not to continue to pursue proceedings and
explained, in part, the delay in responding to Mr Potter’s solicitors’ ultimatum.
Thereafter, an insolvency practitioner
was appointed as the liquidator was appointed replacing the OR.
Mr Potter’s submissions that
the proceedings ought to be struck out centred on the fact that the OR had given
notice of its intention not to continue with the proceedings for want of
supporting evidence; and that it did so as a representative of the Company. As
a consequence, the newly appointed liquidator was bound by this decision. Any
intention by the new liquidator to continue with the proceedings, in addition
to the delay of the investigations of the OR, accordingly amounted to an abuse
of process on the grounds that the liquidator would be continuing the action
when the Company had already shown an intention not to proceed. This, it was
submitted, warranted the Court striking out the proceedings.
Warren J, who dismissed the
application, found that there was no evidence that the OR had categorically
decided to discontinue the claim against Mr Potter. Accordingly, neither the OR’s
nor the new liquidator’s actions amounted to abuses of process.
The judge further held that if
he was wrong in his assessment, and there was indeed an abuse of process, it
was insufficient to tip the scales to warrant the striking out of proceedings; for
it would have been disproportionate. The reasoning for his decision was that:
1. Although
it was under the old regime of the RSC that a delay may have been sufficient to
question whether there was an abuse of process for want of prosecution (Groit v Doctor [1997] 1 WLR 640); the
law still applied under the new CPR. This was established in Habib Bank Ltd. v. Jaffer (decided on 29
March 2000, briefly reported in The Times on 5 April 2000). It was held that a
“wholesale disregard of the rules” was required, which was not found to have
happened in the present case.
2. Nevertheless,
although Groit is still considered good
law (Jeffery v. Flanders [2005] EWHC
1697 (Ch)) it was not applicable in this case. Some factor must be demonstrated
to establish an abuse of process of which a long delay may suffice however the
delay of four months did not tip the scale in this instance.
3. In
reaching his decision, Warren J considered all the relevant circumstances of
the case, which included the manner in which Mr Potter (and his representatives)
had conducted the case. He accepted that Mr Potter was entitled to take
whatever proper steps he thought appropriate in order to defeat the claim
against him. However, he found it highly relevant that he had failed to keep
the Workmans informed when they had such a vested interest in the outcome of
the proceedings.
Conclusively, Warren J held
that in the light of the above, it was not appropriate to visit the proceedings
with a sanction of strike out.