PriceWaterhouseCoopers v BTI 2014 LLC

The Court of Appeal dismissed PwC's appeal against Fancourt J's order refusing to strike out or summarily dispose of BTI's negligence claim. The central legal principle was the law on abuse of process where the parties to successive proceedings are not identical: a second action will amount to an abuse only if relitigation of issues would be manifestly unfair or would bring the administration of justice into disrepute. The court held that where the claimant had sought a joint trial, and the defendants had agreed consent orders dismissing that application and staying the second action, it was not an abuse for the claimant to pursue the alternative action if the first claim failed. The judge's factual conclusion that there was a realistically arguable case on breach, reliance and causation was also upheld: the likely existence of fresh evidence (including PwC audit papers and witnesses not heard at the earlier trial) meant the claim was not bound to fail. The decision also engaged company law provisions (Companies Act 2006, sections 836–838) and questions of auditors' duties and causation in professional negligence cases.

This was an appeal from Fancourt J's dismissal of PwC's application to strike out, or for summary judgment in, BTI's negligence claim arising from PwC's audits of AWA's 2007 and 2008 accounts. BTI, assignee of AWA's claims, sued PwC after unsuccessful recovery against Sequana and certain directors in long trials before Rose J concerning the lawfulness of large dividends paid by AWA in December 2008 and May 2009.

Background and parties: BTI (a BAT subsidiary by assignment) sued Sequana and directors in the "Sequana claim"; Rose J held those dividends were paid in accordance with Parts 23 of the Companies Act 2006 (sections 836–838) so the Sequana claim failed. BTI then pursued a separate professional negligence claim against PwC for its audits completed in October 2008 and May 2009.

Procedural posture: BTI applied to have the two sets of proceedings tried together. That application was opposed; ultimately a consent order dismissed the joint-trial application and later the proceedings against PwC were stayed until conclusion of the Sequana litigation. After the Sequana litigation concluded adversely to BTI, PwC applied to strike out or obtain summary judgment in the present action; Fancourt J dismissed that application and PwC appealed to the Court of Appeal.

Nature of the claim and relief sought: BTI sought damages in negligence against PwC for alleged defective audits that, it contended, led to misleading accounts and hence unlawful dividends; PwC sought strike-out/summary judgment on grounds of abuse of process (collateral attack on Rose J's findings) and that the claim had no real prospect of success.

Issues the court addressed:

• whether pursuing the second action against PwC amounted to an abuse of process because it sought to relitigate issues determined by Rose J;
• whether parts or all of the claim were bound to fail such that summary disposal was appropriate, particularly on causation and reliance; and
• the effect of the procedural history including the joint-trial application and consent orders on the abuse analysis.

Court’s reasoning: The court restated the applicable principles from authority (including Michael Wilson & Partners and Bairstow): when parties are not the same there is no automatic bar to relitigation, and a close merits-based analysis is required; a second action will be abusive only in rare cases where relitigation would be manifestly unfair or would bring the administration of justice into disrepute. The Court of Appeal held that the case management history was decisive: BTI had sought a joint trial and both consent orders (dismissing joint trial application and staying proceedings) were agreed or consented to; PwC had thereby accepted the practical consequence that, in some outcomes, BTI might pursue the alternative claim. That history, together with the likelihood of fresh evidence (audit files, PwC witnesses, new expert evidence and new pleaded matters), meant the second action was not an abusive collateral attack. On the second issue, the court held that at the early interlocutory stage it could not be said the negligence claim had no real prospect of success; reliance and causation were fact-sensitive and there was an arguable case that directors relied on audited reports and that different audit conduct could have led to different accounts and decisions.

Appeal dismissed. The Court of Appeal agreed with Fancourt J that the claim against PwC was not an abuse of process and was not bound to fail. The court relied principally on the procedural history (the joint-trial application and the consent orders) and the realistic prospect of fresh evidence and arguable issues of breach, reliance and causation which required trial rather than summary disposal.

Appeal from the High Court of Justice, Business and Property Courts (Chancery Division), Fancourt J [2019] EWHC 3034 (Ch). Underlying trial decisions included Rose J's judgment on the Sequana claim: [2016] EWHC 1686 (Ch); related Court of Appeal decision in the section 423 claim: [2019] EWCA Civ 112. This judgment is the Court of Appeal decision: [2021] EWCA Civ 9.