Abuse of process: Irwin Mitchell on the commercial cost of vexatious claims | Commercial Awareness Compass #86

Hello everyone and welcome to all about laws commercial awareness compass your weekly guide to thinking like a commercial lawyer. In each episode we take one major commercial issue and break it down across three levels beginner, intermediate and advanced so you can build your understanding step by step. So this isn't just about understanding legal principles, it's also about developing the commercial mindset that law firms are looking for and understanding how businesses create that value, manage risk and use lawyers as strategic advisors. I'm Fahika Childry, a future trainee lawyer and today I'm joined by Hannah and associate solicitor and Tom Payton, a partner at Winmichal. Hannah and Tom it's great to have you with us today so before we dive into today's topic could you please both tell us a little bit about yourself so Hannah will start with you first. Yeah thank you. I'm an associate solicitor in the restructuring and in solvancy team Owen Mitchell Sheffield office. I joined the firm in 2019, start my training contract and then joined the team year later and qualified in March 2021. I specialize in contentious insolvency acting basically for insolvency practitioners usually in liquidations or bankruptcies and I invest in the affairs of the bankrupt or the company with a view to bring claims to recover the assets within those estates. Great thank you and Tom will come to you next. Hi I'm Tom Payton I'm a partner at Owen Mitchell. I'm in the restructuring in the solvancy team as well. I qualified back in 2010 and since then I've been part of building one of the country's largest contentious insolvency teams and we see a lot of this subject matter we're talking about today on that. Great thank you very impressive indeed so today's topic focuses on something that many aspiring lawyers may have never heard of before so vexatious litigants before most court proceedings are brought by people seeking to resolve disgenuine disputes but occasionally individuals misuse the legal system by bringing repeated or meritless and abusive claims creating significant costs delays and commercial disruption so in today's discussion we'll explore how lawyers identify these cases early on the practical and legal tools available to then manage them and why balancing access to justice with protecting clients from abusive litigation is such an important challenge so as we go through today's discussion I'd encourage everyone listening to notice how each level builds upon the previous one so at the beginning level we'll understand the foundations at the intermediate level where explore why these issues matter to businesses and clients and finally at the advanced level we'll step back to consider how the court's balance access to justice with protecting businesses from abusive litigation and what the future might hold for managing these cases so let us begin to begin with the fundamentals at the beginning level why do lawyers actually what do lawyers actually mean by the term vexatious litigant? Now a vexatious litigant is a person who repeatedly brings legal claims applications or court proceedings that are usually without merit and often for the purpose of frustrating the courts or burdening another party rather than trying to genuinely resolve a legal dispute typically a vexatious litigant might issue multiple applications or claims arising from the same material fact or after the matter has already been determined conclusively by the courts so they may make a number of unmeritorious applications throughout the course of those proceedings. Great so that's a really helpful foundation and highlights the issue is about repeated abuse of the legal process rather than simply just bringing an unsuccessful claim so building on that are there any common warning signs that suggest a litigant may be acting vexatiously rather than pursuing a genuine legal claim? I think one of the clearest indicators is a refusal to accept final decisions so they'll repeatedly seek to reopen matters that have already been dealt with by the courts usually on a substantial in the same facts another red flag that we sometimes see is persistent allegations of things like corruption and conspiracy with the litigant insisting that any adverse outcome to them is evidence of some sort of bias or regulatory misconduct breach of duty that sort of thing between the successful party and the courts and often without any credible evidence that that's taken place so there's also typically an excessive volume of correspondence sent which tends to be quite repetitive in nature and often demanding immediate responses so to say that two of the sort of common signs that the litigant is going down that vexatious route. So it's interesting to hear that lawyers are often able to identify those patterns of behaviour before a case actually progresses too fast so Hannah looking at the commercial impact why can vexatious litigation become such a significant problem for businesses in solvents, practitioners and creditors? I think the vexatious litigation can become a significant commercial issue due to the increased time and costs that are often associated with dealing with them even completely unmeritorious claims will require a sort of minimum amount of input involving reading through the correspondence or the application responding to that when there is a requirement to do so attendance at court hearings or compliance with court directions that you sort of have to do that even if the claim is without merit. And that sort of litigation can also cause a significant delay in realising assets in an insolvency context where applications are listed often months in advance to try and frustrate the process of realising those assets. For example, they might appeal the decision or apply to set aside an adverse judgment or a cost-sorder and the longer that delay the higher the costs in the estate are likely to be meaning that the return to creditors will likely reduce or be eradicated entirely depending on the length and severity of that litigation. Great, I think that really demonstrates how even weak claims can consume valuable time, money and management resources. So just to expand on that, even where claims have little merit can they still create significant costs and disruption for businesses? Yes, they definitely can. Even if the claims have little to no merit or they're a clear abuse of process, it is likely that an application to strike out that application would still be needed in order to ensure compliance with the court's process. And whilst the court, they do occasionally dismiss applications without them being sealed and without listing them for hearing, but in our experience that's relatively rare and the courts will typically err on the side of caution and list of hearing, meaning that the costs will continue to be incurred and realisation of assets and insolvenous states will be further delayed. It's striking that the commercial impact can often be just as significant as the legal issues themselves. So Tom, turning to you, specifically to insolvency cases are their particular features of insolvency disputes that make them more vulnerable to this type of litigation? Yeah, so if you look at what Hannah and I are doing, we're asking for liquidators of companies. So that's companies that have gone bust. And trustees and bankruptcies of individuals, and those individuals have gone bankrupt. So if you think about before that, vexation's litigants as Hannah has just mentioned, they have a propensity to get involved in lots of litigation. So before they are even bankrupt or before their company has gone bust, they may have been involved in lots of litigation, cost orders may have been made against them. And because of that, a lot of vexation's litigants generally will end up bankrupt, or if it's a company and they're a director of it, it will end up in liquidation. So we see a lot of them just because of that alone. Then when we're in that process, what are Hannah and I doing? Where we're generally clawing back assets or money that's been wrongfully extracted from those estates prior to the bankruptcy of the liquidation. So when that happens, we're going up against individuals who did it one time, have some wealth. They built it up and they maybe feel a sense of unfairness that it's been taken away from them. Hannah said before that they don't recognise often the legitimacy of court orders. They feel it's unfair, they don't agree with it. So often they are psychologically in a bit of a loop where they're thinking back years before they had wealth and now they haven't. And it goes on and on. And then certainly in terms of what we're doing, we're clawing things back. So we actually act a little bit like police detectives and trying to find out where the money or the assets went to. We have through our clients a lot of powers to go and investigate, get court documents, list as files. And sometimes those vexatious litigants, I think it's better to say they feel the fact that we've uncovered the crime so to speak. They feel irritated by it up because they thought it had all been sorted and they would go off into the sunset. So I think those three reasons alone means our error in salty litigation is quite right for the vexatious type of litigant. Thank you. That's a fascinating insight into why insolvency practitioners often face unique challenges here. So Hannah, now let's progress into the intermediate level before turning to the formal legal remedies. What informal steps can lawyers take when dealing with correspondence or repeated applications from VIXA's listkins? There are certain steps that you can take from an informal perspective to try and deal with things like correspondence or applications from VIXA's listkins. In my experience, particularly in insolvency matters, the objective is to try and reduce the drain on time and costs and but making sure that we're keeping a clear record of that individual's conduct in case court intervention is required later down the line. So limiting correspondence and increasing the time between responses can be quite an effective method of trying to reduce the amount of correspondence that's coming through in the early stages of litigation. I think it's important to try and establish clear boundaries as to what is essential and what isn't. So, for example, stating that we're not going to conduct litigation by correspondence or stating that the issues that have been raised in that particular correspondence or application are already being dealt with substantially by the court. So we're not going to respond further on those issues if they continue to be raised moving forward. And I think in circumstances where if correspondence becomes so frequent or starts to board around harassment, then it may then be suitable to block correspondence by email and insist that all the correspondence be posted, which will not only slow down the correspondence, but they'll also have to pay for things like postage. It might disincentivise them from sending dreams and dreams of documents and that's just one of the methods that we have available to us. Yes, it's interesting to hear how early intervention can actually sometimes prevent disputes from escalating unnecessarily. So building on that, how do you strike the right balance between managing abusive conduct and ensuring legitimate concerns are still heard. So I think any genuinely new issues should be considered on the merits, providing that new evidence is provided in support of those issues to make sure that we're not unfairly restricting access to justice. So if following an investigation into that new issue that's been raised, we find that to have no merit, then we would communicate that to the litigant clearly in writing. So I think on the flip side where the same complaint is being raised 10, 15, 20 times after it's already been investigated and we've already answered the questions, then continuing to devote time and effort resources to those same issues is not likely to be in the interest of the creditors as a whole. So I think it's important to try and balance those two things. Yes, that really illustrates the careful judgment lawyers need to excise during these situations. So Hannah, if those informal approaches don't work, what legal tools are available to the courts? So there are legal remedies that can be sought to try and tackle vexatious litigants. Firstly, making an application to the court to strike out any vexatious claims for abuse of the process. That might be an appropriate step to take where a party is attempting to really litigate matters that have already been decided or where proceedings are quite clearly abusive. For an insolvency practitioner might arise where say a bankrupt is repeatedly challenging the same trustees decision, despite the court having already made the determination on that issue. If the applications are struck out or dismissed, then cost orders may be available to be sought on an indemnity basis against the vexatious litigant and failure to pay those cost orders may lead to further enforcement such as an unless order, which may have the effect of striking out the opponent's defense of all their evidence or alternative enforcement, via things like bankruptcy petition. Sometimes the threat of a bankruptcy petition alone may be enough to get those cost orders paid alternatively to that or maybe in addition to those things, it might be appropriate to apply to the courts for a civil restraint order, which would prevent the opponent from making any applications against the insolvency practitioners for an extended period of time, which is usually two to five years, unless they first obtain the court's permission to do that. So it's reassuring to know that there are mechanisms available to protect both the courts and those involved in the occasion. So looking at those remedies in practice, could you explain how tools like unless orders strike out applications and civil restraint orders work in practice. And unless order will give the litigant a basically final opportunity to comply with the court's direction. So for example, that might be to pay an outstanding cost order that they've not paid on time, failing which the court may impose quite heavy restrictions on their ability to defend the claim or to continue with the claim that they've brought. So it may result in their own applications being dismissed or the defense to an insolvency practitioner claim being struck out, which means they'll be unable to rely on any of their evidence or the statements that they filed within those proceedings. Strike out applications will allow the courts to dispose of all or part of a claim without a full trial being necessary, if the proceedings are defective or a clear abuse process. So they may strike out a statement of case if there's no reasonable grounds for that claim to be brought or if it's an a clear abuse, which is often the case when dealing with vexatious litigants. And finally, civil restraint orders. They create filter for the vexatious litigant in bringing claims against the office holders. So if they're first required to obtain the court's permission before their applications can proceed. The court will be reviewing the merits of that application prior to it being sealed and prior to it being listed for a hearing, meaning that any claims that are obviously vexatious or have no merit will be dismissed at an early stage before the office holders are there for required to engage with that application or respond to it. So it creates that sort of filter process within the courts. Thank you. That's a really useful overview of how the courts manage abuse of litigation whilst maintaining fairness. Tom, from a commercial law is perspective, how important are cost consequences when dealing with abusive litigation? I think it can range from really, really useful to completely hopeless. As Hannah mentioned before, cost consequences is two things you can have from that where where parties unsuccessful within application or a claim and say that's a vexatious person. The court then orders them usually to pay the cost of these aside. So those costs are going to be anything from a couple of thousand pounds up to hundreds of thousands of pounds in this type of litigation. And as Hannah said, you have the thing of obviously them being ordered to pay and they might be made bankrupt again. So it's the financial loss to them. But it's also the tactical element within the litigation that if they don't pay, the court can in theory then stop them doing anything else in the claim. Procedure elements like filing further pleadings or attending a hearing or giving up, giving up standing up to give witness evidence. But the reason I say it can be anything from very effective to not effective at all is for somebody that's vexatious litigants, they're on the beginning of a journey. They're on that journey and they still have something to lose financially. So that might be that they've come out of bankruptcy and they have built themselves up again and they have got some money again and they don't want to lose that. It could be if it's a director being sued, they're not bankrupt, but they've got a family home and other assets and they don't want to lose that, you know, they've lost the company. They don't want to lose the personal assets and this litigation is now against them personally. But at the other end of the spectrum, it can be that it has really no effect on them. They are literally at the point of scorched earth. They don't care. And often that kind of litigation happens when there may be beyond the age of mid fifties. And I think it's a psychological thing where they think that they can't they don't have enough time left in their career to build themselves back up again. You know, retirement 10 years away and it's very hard to be doing things in your sixties and seventies where you're emassing wealth again. You don't have those that compounding effects to the possibly almost feel a sense of hopelessness that they can't rebuild. And so things like an order to pay costs isn't going to really bother them. And at the end point, if you what's done is done and it is just scorched earth. On the flip side to that where you are pursuing and you're looking at maybe a bankrupt and they've got a spouse and we see this quite a lot and the spouse is involved in the litigation. And it might be the bankrupt vexatious person that's controlling a lot of their spouses engagement in the litigation and doing applications and things. something very tangible they can lose because maybe it's a problem. property or properties are owed 50/50 and they've already lost their half but if they play it with fire and take a vexation approach, they're acting on behalf of their spouse and they could lose their spouse's 50% share as well. But unfortunately even then we've seen them do that. Sometimes they will literally cut off their nose despite their face with finances and wealth just because they are in this psychological loop a little bit and the court has to step in there and you know really intervene. Thank you so that really shows us how cost can influence both litigation, strategy and commercial decision making with the added level of psychological factors as well. So Hannah now diving into the advanced level stepping back from individual cases, how do courts balance a person's right to access justice with the need to prevent abuse of court processes? The court's approach is that while status justice is a fundamental right of those litigants, it doesn't give them an unlimited license to abuse the court's process and misuse its resources. So the starting point is usually going to be for the courts to allow the application to be heard unless there is evidence that the people involved, that there's like a pattern of the conduct being abusive, repetitive, wholly without merit, that sort of thing. I think the court will usually focus on whether the litigants conduct is obstructing fair justice and it's important to note as well that it's not just the litigants access to justice but all of the parties involved access to justice. So if they're continuing down this vexatious route, the courts are risking the other parties access to justice being affected as a result of that. We've seen certain judges, particularly in the insolvency courts, reserve applications to themselves. So they tend to get the measure of these vexatious litigants and rather than say, no, your applications can't proceed, they allocate all of the applications that are made to one particular judge who has all of the background knowledge and they can assess the conduct and they are aware of the issues that have already been raised. So they can quite quickly ascertain whether this is another opportunity to try and undermine the court's previous decisions or whether this is a new issue that they need to deal with. Great, so that balance seems fundamental to maintaining both fairness and confidence in the justice system. So building on that, why is striking that balance so important for maintaining public confidence in the legal system? I think if the courts were too quick to label people as vexatious in certain senses where a claim is sort of weak rather than necessarily without any marriage at all, there might be a risk that legitimate grievances that they raised might never be heard. So the public needs to have confidence that the judges will consider claims fairly and independently, even if the claimant is overly persistent or that self-represented or in circumstances where they've had a number of successful, unsuccessful applications rather. But the opposite issue could be equally problematic, whereas if the courts allow endless, meritless claims and repetitive applications, other litigants could lose confidence in the system and the court's ability to sort of deliver, you know, timely and effective justice. So it does risk undermining the court's authority if they just allow absolutely everything to go through as well. Thank you. So that's a great reminder that these decisions have implications far beyond the parties involved in single case. So looking ahead, Tom, do you think courts are becoming more proactive in dealing with these abusive litigation? Yes, I think they are and I think they've had to because it takes up a huge amount of court resource and time. They are themselves the judges and the court staff having to deal with this massive claims. They've got limited budgets, they're overworked themselves. So this is a problem just as much for them as it is for us and so they've had to. One of the key things we've seen is that judges are now talking to each other. I think a little bit more behind the scenes. I think they must have sort of like clinics where internally they discuss difficult cases and difficult litigants and I think that's a really good thing, you know, rather than reinvent the wheel and, you know, each judge realises that a litigant is vexatious, maybe months into it or applications into it. I think they're getting their heads up now. Like Hannah said, there are then sometimes reserved certain litigants cases to one judge so the judge has the whole picture because sometimes what we see is that a vexatious litigant will say to a certain judge that certain things have happened in the history of this litigation and if that judge hasn't seen that that whole background, they can only take it face-value and they can't really make a point of determination on it which might slow down dealing with that point in the hearing or as if they were the judge dealt with it last time. It's very easy for them to say, well, no, that's not the case because I was here and I dealt with it. So yes, we are seeing judges talk a little bit more. There's sometimes being more proactive. So Hannah mentioned something called the Civil Restrain Order which stops vexatious litigants issuing more claims and applications unless they've had permission. Normally you find that it's up to the other side to the litigation to apply and ask the judge to make that order which is a costly thing in itself and it's going to take up more of their time as well but what we are seeing judges sometimes do is make it of their own abolition which means they don't need one of the parties to ask them to do it, they'll just do it and I think that's again that's a proactive case management thing they're doing themselves because they are seeing a lot of their own resource is taken up by it. So yeah, those are the two main proactive areas I think we're seeing in the minute. Great, so it certainly feels as though the courts are taking an inclusively active role in protecting the integrity of the legal process. So looking to the future, my technology and digital case management create new opportunities for identifying repeated abuse litigation. Yeah, I think very much so. So in that example I gave, well, you've got a judge that has every one of that vexatious litigants cases reserved them. That judge has a handle on it and knows what's going on but if that litigant starts issuing cases in other parts of the country which have got different courts, different judges or different levels so you've obviously got county court, high court and so on you're not going to have the same judge and that judge that gets it for the first time then has to sort of go on their journey of realisation is this person's vexatious, how am I going to deal with them? Whereas if it was all digital, I think each party would probably have a case history and if you were the judge looking at it for that first time, you wouldn't be blind. You'd see, well, they've got 20 other cases where they've issued claims of those 18 of them have been struck out. There's a civil restraint order in this other court. You would then go into it as a judge, I think, without the the wall being pulled over your eyes initially and you'd be able to conduct that application or that hearing much more effectively and efficiently with the background information. So it's only got to be a good thing but the entirety of my career going about 18 years, we've been told that everything's going to be digitised and from what I'm hearing, I'm not sure we're only close to really to that now than we were all those years ago. So it's maybe pying the sky, we're still going to be reliant in the meantime on human beings, judges being human beings and making good case management discussions and being inquisitive and trying to find out what they can. Thank you. So it'll be fascinating to see how much further technology helps us shape the future of case management and dispute resolution. And finally, looking ahead, as litigation continues to evolve, what's the biggest lesson aspiring commercial lawyers should take away from about managing vexatious litigation effectively? So Hannah, I'll come to you first. I think the key lesson is to treat vexatious litigants or potentially vexatious litigants as a case management issue rather than like an emotional problem. It can be very frustrating having to deal with the same issues over and over again when it takes up a lot of your time, your time recording on your client's files for the same things constantly. It's not the most commercially sound way of going about litigation and that can just be exacerbated if the litigants are sending a constant stream of allegations against you or your clients. But I think it's important to not get drawn into responding to each and every email or allegation that comes through and instead only respond when it's necessary in order to protect the client's position. Or if the courts are directing you to do so, I also like to keep a bit of a record of things like number of applications that being filed, what the outcomes are because it can be helpful to have some sort of record for any future applications that you might make. for things like a strikeout or a civil restraint order and to provide that as evidence of a vexatious conduct of the opponent because it will really sort of provide a clear picture to the judge as to the history of what's happened here. So I think it's important to bear that in mind. Great, thank you. How about yourself Tom? Yeah, I'd very much agree with Hannah that you need to be very well organised when you're against vexatious litigants. It's completely different ballgame so when you're up against normal law firms, when you're up against normal law firms, there are rules that everyone abides by you will assist your opponent in getting up to speed and understand the background you won't try to mislead them. Unfortunately when we deal with vexatious litigants all of those rules get thrown out and we're on our own a little bit you see you have to be supremely organised. I think on top of that it's also the psychological point and I've mentioned that a couple of times today and you're dealing with individuals who are human beings they're not going to be rational and they all have different sets of motives. What you think they're actually out to get isn't necessarily what the case is and again when we're up against normal opponents generally they've issued a claim because they want that relief that in the claimform or the application they want money or property or whatever. These individuals whatever they've put in their claim form that's not necessarily psychologically what they're trying to achieve. There's different there's more layers to it than that and if you can take a step back and try and understand that then you're going to get a better outcome because you're not going to just go back the same approach you would do to a rational law firm in your dealing with. You might have to go down a completely different route. So for example over the years sometimes this has worked and sometimes it hasn't we've stopped and supported things we've had meetings with them. We've talked to them sort of face to face I to I when we wouldn't normally do a lot of the solicitation these days is done remotely or we've got third parties involved and sometimes it involves even our clients having direct conversations with them. Sometimes you take the lawyers out a bit momentarily just to diffuse things a little bit and see if you can gain common ground. Now sometimes that works unfortunately sometimes it just won't work you are you're never going to sort of build a rapport with them but it's still really important understanding what whether trying to get to because in the day you could find some of these battles the years and years and years forever if you just go in that sort of one-dimensional business as usual mode and you have to step out of that and work out a different way to get the conclusion to invest interests of your own client. Great thank you lots of Gordon nuggets or wisdom there so Hannah and Tom thank you both so much that was a genuinely insightful discussion and a brilliant example of how commercial lawyers must balance legal principles with the practical business realities so you've shown us that whilst Vixation's litigation may seem like a niche area of law it raises much of broader questions about protecting businesses preserving access to justice and ensuring that the legal system operates fairly and efficiently. So for everyone listening well at the level where you feel like you've joined us today I hope you're leaving with a stronger understanding of how commercial lawyers approach complex disputes as we've explored throughout this episode it's important to ask what risks does this create for the client how can those risks be managed strategically and ultimately how can lawyers resolve disputes whilst supporting their clients wider commercial objectives so cases involving Vixation's litterance remind us that commercial law isn't just about applying legal rules it's also about helping clients navigate our uncertainty, minimise disruption and make informed strategic decisions as businesses continue to operate in an increasingly complex legal environment those skills will only become more valuable so thank you everyone for joining us for this week's commercial awareness compass if you found today's discussion useful be sure to share it with someone else in their legal journey also and until next time prepare without the panic.