Court of Appeal: subsequent deceit claim was not abuse of process

The High Court had originally struck out the deceit claim on the grounds of abuse of process, but the Court of Appeal has now found that Playboy Club "behaved reasonably and entirely properly". The club could only have raised its deceit claim against Banca Nazionale del Lavoro (BNL) during the negligence trial on a "speculative and inferential basis", which would not have befitted the seriousness of a claim for fraud such as deceit.

The Court of Appeal, in its judgment, said that although the deceit claim "could" have been introduced by the club, "it cannot properly be said that such a deceit claim should have been introduced - i.e. on pain of losing any later opportunity to plead a case in deceit, no matter what further evidence pertaining to fraud might emerge".

"The pleading of fraud or deceit is a serious step, with significance and reputational ramifications going well beyond the pleading of a claim in negligence," said Lord Justice Sales, giving the unanimous judgment of the court.

"Courts regard it as improper, and can react very adversely, where speculative claims in fraud are bandied about by a party to litigation without a solid foundation in the evidence. A party risks the loss of its fund of goodwill and confidence on the part of the court if it makes an allegation of fraud which the court regard as unjustified, and this may affect the court's reaction to other parts of its case. Moreover, [to quote a 2015 case], allegations of fraud 'can cause a major increase in the cost, complexity and temperature of an action'," he said.

The judgment shows that parties to litigation should not "close their minds to the possibility of bringing further claims in relation to the same facts after the initial claims have been decided", according to civil fraud expert Bill Geiringer of Pinsent Masons, the law firm behind Out-Law.com.

"The ruling of Lord Justice Sales makes a bold statement that it is possible to commence further claims if the particular circumstances merit such an action," he said.

"The abuse of process rule, that claims relating to the same facts and issues should be brought at the same time, is designed to allow finality to litigation and to avoid a party having to defend the same proceedings twice. The court will not depart from this rule lightly. However, parties should always consider whether exceptional circumstances, such as late evidence coming to light, merits issuing an application to commence further claims," he said.

The litigation arose out of Playboy Club's decision to extend a significant credit facility to a customer of BNL's, following a favourable credit reference from the bank. The customer, Hassan Barakat, ultimately defaulted on the facility, leaving Playboy Club with a total net loss of more than £800,000.

Playboy Club's negligence claim against BNL ultimately ended up at the Supreme Court, which ruled that BNL did not owe a duty of care to the club as it had given the reference to Burlington Street Services, a third party agent which Playboy Club had contracted with to obtain the credit reference. BNL had not known, and had no way of knowing, when it provided the reference that Burlington was acting on behalf of Playboy Club.

During the negligence trial, a dispute emerged over whether a signature on the credit reference had been forged. The court declined to rule on the point in its judgment of July 2014, which went in favour of Playboy Club before being overturned on appeal in 2016. In August 2015, the club obtained evidence which it said indicated that the individual whose signature had allegedly been forged was involved in a fraud committed on another London casino in the summer of 2010. The club began its claim for deceit in April 2016, shortly before BNL's successful appeal in the negligence claim.

The High Court, striking out the deceit claim as an abuse of process, held that the club had been "aware of facts which would allow an inference of fraud to be drawn and which were not consistent with honesty" during disclosure related to the negligence claim. The judge did not regard the new information obtained by the club in August 2015 as "significant", and said that Playboy Club's delay in bringing the deceit claim went "well beyond what might be regarded as prudent or sensible".

The Court of Appeal, while re-stating the general 'public interest' rule that there should be finality in litigation, said that this was one of those cases where the subsequent deceit action was "excused or justified by special circumstances".

"Contrary to the view of the judge, I consider that the new evidence ... is highly material to the deceit claim which the club now wishes to pursue," said Lord Justice Sales. "I also think that the judge gave inappropriate weight to BNL's statement ... that it was not advancing a positive case that [the] signature on the reference was a forgery. Further, I think the judge was in error in saying that following disclosure in the negligence action the club was aware of facts which 'were not consistent with honesty'."

"The potential reputational consequences for a bank of a pleading of fraud against it are particularly serious, since trust in a bank is such an important foundation for its business ... On the material the club had available to it before trial, it was entitled to think long and hard about whether to allege fraud on the part of [the individual], and to conclude that it would not be prudent or appropriate to do so," he said.

"Advancing a claim in fraud or deceit is a serious step with significant consequences for the defendant and the conduct of the proceedings," said Alan Sheeley, head of civil fraud and asset recovery at Pinsent Masons. "Parties must not make such a claim without sufficient evidence."

"However, this ruling shows a clear difference between whether a fraud or deceit claim could have been brought with other claims, such as negligence; or should have been. The evidence which came to light during the short first instance negligence trial allowed the casino to subsequently advance the deceit claim. Without this evidence, a claim of this significance should not have been advanced alongside the negligence claim," he said.