Barnett-Waddington Trustees (1980) Ltd & Ors v The Royal Bank of Scotland Plc

The Henderson v Henderson abuse principle applies to claims and defences which could and should have been raised in earlier proceedings. Whether later litigation is abusive requires a broad, merits-based assessment of all the circumstances, including pre-litigation conduct, the parties’ knowledge, and the way the earlier dispute was defined. A defendant cannot rely on the procedural form of earlier Part 8 proceedings where it itself identified the issue and the basis of its claim. In a quasi-redemption dispute, a mortgagee or lender should advance the complete justification for the sum it seeks to charge. A later attempt to rely on a funding transaction which could and should have been investigated and raised earlier may amount to unjust harassment and an abuse of process.

The claimants were borrowers under a fixed-rate loan secured on property. In earlier proceedings, the bank claimed that the borrowers would have to pay the cost of unwinding an internal interest-rate swap on early redemption. Warren J declared that the borrowers were not liable for sums relating to that internal swap: [2015] EWHC 2435 (Ch). The bank did not appeal.

After the earlier judgment, the bank discovered an external interest-rate swap which it asserted was a back-to-back hedge and a funding transaction within clause 12.1(f) of the loan agreement. The claimants sought declarations that the bank could not rely on that swap in calculating redemption charges. The central issue was whether raising the newly discovered transaction amounted to abuse of process under the Henderson v Henderson principles.

1. The claimants’ summary judgment application succeeded and the bank’s cross-application failed. The bank was precluded from relying on the external swap to add break costs to the redemption charges.

2. The governing principle was the broad, merits-based abuse jurisdiction explained in Johnson v Gore Wood [2002] AC 1. It applies to a later claim or defence which should have been raised earlier, but requires consideration of all the public and private interests and all the facts. The doctrine may apply to defendants as well as claimants and does not require a collateral attack or dishonesty.

3. The court was entitled to examine events before the first proceedings. The bank’s state of knowledge, the information available to it, and the way the dispute had been formulated were relevant to whether it could and should have advanced the external-swap case earlier.

4. There was no general duty requiring a potential claimant to investigate every possible claim. However, reasonable diligence may be relevant in the abuse inquiry where the party knew enough to be put on inquiry. The absence of a general duty did not excuse the bank from investigating the basis on which it positively sought to charge the borrowers.

5. The first proceedings were not narrowly chosen by the claimants. The bank had repeatedly identified the internal swap as the only relevant funding transaction and had thereby defined the dispute. The proceedings were analogous to a redemption action in which the mortgagee must identify the sums claimed. Part 8 procedure and restrictions on evidence did not prevent the bank from advancing an alternative case which it had itself failed to investigate or formulate.

6. The external swap could have been discovered by reasonable investigation and should have been raised in the first proceedings. Requiring the claimants to face a second dispute after the bank belatedly investigated its own records would constitute the unjust harassment contemplated in Johnson v Gore Wood. The merits of the proposed external-swap claim were not sufficiently clear to alter that conclusion.

7. The court did not decide whether the particular external arrangements were a funding transaction under clause 12.1(f). The declaration and the appropriate consequential relief were to be agreed, or determined by the judge if necessary.

The judgment itself records that Warren J’s earlier decision was given in [2015] EWHC 2435 (Ch). Permission to appeal was granted by Lewison J, but the bank’s appeal was dismissed on 9 August 2016.