Bank of Scotland plc v Hoskins

Mortgage – Possession – Settlement – Claimant seeking possession of property for arrears of mortgage payments – Settlement of earlier proceedings containing covenant that defendant not to make any claim in relation to subject matter of counterclaim – Claimant applying to strike out or for summary judgment on counterclaim in present proceedings – Whether counterclaim covered by compromise of earlier proceedings – Application granted The defendant owned a property known as Morwell House in Tavistock, Devon. The property was purchased with a loan of £2,625,000 from the claimant bank secured by a mortgage on the property. The defendant fell into arrears with the mortgage repayments and the claimant sought possession of the property and surrounding land. At the date the claim was issued, there were arrears of £150,854.52 in repayments. The defendant resisted the claim and made a counterclaim for damages for alleged breaches of contract (duties of good faith) and in “fraud”, both in his own right and as assignee of a company (EiRx). However, the defence and counterclaim raised issues based on more or less the same facts as the counterclaim in the earlier proceedings which were settled. following a successful mediation. The settlement included the release of all claims, past, present and future, that the defendant might have against the claimant arising out of or in any way relating to the proceedings or the subject matter of them, whether or not known at the time to the defendant. It also contained a covenant that the defendant would not make any claim in relation to the subject matter of the counterclaim. Accordingly, the claimant said that the counterclaim was barred by the settlement agreement. The defendant argued that the settlement agreement was liable to be set aside in any event, either because of fraudulent nondisclosure or because of breach of contractual duties of good faith. The claimant applied for an order striking out the counterclaim (though not the significant part of the defence), or alternatively, summary judgment on the counterclaim on the basis that it had no real prospect of success. Held: The application was granted. (1) Strike out was a draconian step which should only be taken as a last resort.  In a strike-out application, the proportionality of the sanction was very much in issue. If the court was able to say that a case was “unwinnable” such that continuance of the proceedings was without any possible benefit to the respondent and would waste resources on both sides, it might be struck out. However, an application to strike out the claim should not be granted where there were significant disputes of fact between the parties going to the existence and scope of an alleged duty of care unless the court was certain that the claim was bound to fail. Where the legal viability of a cause of action was unclear, or in any way sensitive to the facts, an order to strike out should not be made. A statement of case was not suitable for striking out if it raised a serious live issue of fact which could only be properly determined by hearing oral evidence. Although the term “abuse of the court’s process” was not defined in the rules or practice direction, it had been explained in another context as “using that process for a purpose or in a way significantly different from its ordinary and proper use: Benyatov v Credit Suisse Securities (Europe) Ltd [2020] EWHC 85 (QB) considered. (2) Although the causes of action pleaded in the present counterclaim were said to be different from those in the earlier proceedings, the events pleaded and relied upon to give rise to such claims were the same events. There appeared to be no reason why the defendant could not have pleaded in the first set of proceedings the causes of action now put forward in the present counterclaim. It might therefore be that the counterclaim was barred by application of the rule in Henderson v Henderson (1843) 3 Hare 100, 115, discussed by the Supreme Court in Virgin Atlantic Airways Ltd v Zodiac Seats UK Ltd [2014] AC 160. But the court did not need to go that far. It was enough that the counterclaim fell within the scope of the compromise in the earlier proceedings. The claims put forward in the new counterclaim plainly “relate to” the subject matter of the first proceedings. The words “relating to” were about the widest words of connection in the English language. And there were no limits on what counted as such a connection for that purpose, because of the use of the phrase “in any way” to qualify those words.  It was possible for parties in English law to enter into a contract to release claims which they did not know that they had, or which had not yet been recognised by English law. The only question was whether, as a matter of construction, that was what they intended to do. In the present case, it was clear that, on the true construction of the words which the parties used in the earlier release, they must have intended to cover claims of the kind subsequently introduced into the counterclaim in the current proceedings.  (3) The defendant’s claim to rescind the settlement agreement for fraud or breach of implied duties of good faith was unsustainable. The defendant had not pleaded that he had been induced to enter into the compromise and there had never been a suggestion of an application to amend in order to cure the defect. In all the circumstances, the counterclaim should be struck out. (4) Before giving summary judgment on a claim, the court had to consider whether the claimant had a realistic as opposed to a fanciful prospect of success. In reaching its conclusion the court had to take into account not only the evidence actually placed before it on the application for summary judgment, but also the evidence that could reasonably be expected to be available at trial. The court should hesitate about making a final decision without a trial, even where there was no obvious conflict of fact at the time of the application; Easyair Ltd (t/a Openair) v Opal Telecom Ltd [2009] EWHC 339 (Ch) considered. Had it been necessary to decide the point, the court would have refused to grant summary judgment in the present case. It could not be said that the prospect of success by the defendant was entirely illusory. Tim Calland (instructed by TLT LLP) appeared for the claimant; Gerard McMeel QC (instructed by GL Law) appeared for the defendant. Eileen O’Grady, barrister Click here to read a transcript of Bank of Scotland plc v Hoskins