Pricewaterhousecoopers LLP v BTI 2014 LLC

Factual and Procedural Background

The Appellant, referred to as "PwC," appeals against an order dismissing its application to strike out the claim of the Respondent, "BTI," or parts thereof, or for summary judgment. The claim concerns damages for negligence against PwC related to its audit of the 2007 and 2008 annual accounts of a company formerly known as Arjo Wiggins Appleton Ltd ("AWA"), renamed Windward Prospects Ltd, a nominal second defendant in the proceedings.

BTI is a wholly-owned subsidiary of BAT Industries plc ("BAT"). BTI, as assignee of AWA, sued AWA's former parent company Sequana S.A. ("Sequana") and AWA's directors in what is referred to as the "Sequana claim," seeking recovery of large dividends paid by AWA to Sequana in December 2008 and May 2009. The dividends were paid against the backdrop of the audits in question. Rose J heard the Sequana claim in 2016 and found that the claim failed, holding that the accounts on which the dividends were based were proper for the purposes of the Companies Act 2006. Although permission to appeal was granted, the appeal was not pursued due to Sequana's precarious financial position.

Concurrently, Rose J heard BAT's claim under section 423 of the Insolvency Act 1986 ("the section 423 claim") seeking repayment of dividends. That claim succeeded in respect of the May dividend but not the December dividend, a decision upheld by the Court of Appeal in 2019. Shortly thereafter, Sequana entered insolvency protection and liquidation, with none of its liability to BAT paid.

The factual background involves the purchase by a BAT subsidiary, Appleton Papers Inc ("API"), of two paper coating businesses responsible for environmental pollution liabilities. BAT and API agreed to share environmental liabilities, including remediation costs and natural resources damages related to pollution of the Lower Fox River and potential future liabilities at other sites such as the Kalamazoo River. AWA acquired API and later sold it, retaining contingent liabilities and purchasing an insurance policy ("the Maris policy") to cover future liabilities.

AWA ceased trading after selling API, with its main assets being an inter-company receivable from Sequana, the Maris policy, and other insurance policies. The 2006 accounts showed a provision for environmental liabilities. In 2008, AWA's directors sought to release tied-up capital by reducing share capital and paying large dividends to Sequana, steps taken after PwC audited the 2007 accounts. The December 2008 interim accounts and the 2008 annual accounts were prepared and approved, with PwC providing unqualified audit certificates. No provision or disclosure was made in the accounts for potential liabilities at the Kalamazoo River or other future sites.

When it became apparent that liabilities exceeded the Maris policy value, AWA brought a claim against Sequana and its directors, which was assigned to BTI. The present claim against PwC was issued in October 2014.

Procedurally, BTI sought to have the PwC claim tried together with the Sequana and section 423 claims due to substantial overlap. PwC opposed, intending to strike out or seek summary judgment. Applications for joint trial were dismissed by consent, and the claim against PwC was stayed pending resolution of the claims against Sequana and the directors. Following the Court of Appeal judgment in 2019, the stay was lifted and PwC made the application that is the subject of this appeal.

Legal Issues Presented

1. Whether the claim against PwC constitutes an abuse of process by reason of being a collateral attack on findings made in the prior proceedings (the Sequana claim).
2. Whether the claim against PwC has no real prospect of success and should be struck out or summarily dismissed.

Arguments of the Parties

Appellant's Arguments (PwC)

• The claim against PwC improperly seeks to relitigate issues already determined in the prior trial before Rose J, constituting a clear abuse of process that should be struck out at an early stage.
• The findings of Rose J, after extensive oral evidence, accepted the directors' decisions and estimates as honest and reasonable. BTI's current challenge to those findings is bound to fail.
• The December dividend was not based on the 2007 audited accounts but on internally prepared December 2008 interim accounts, accepted as reasonable by BTI after the first trial.
• BTI's attempt to argue that the 60% provision figure was unacceptable contradicts its prior acceptance and is abusive.
• BTI's claim involves a collateral attack on the prior judgment, which should not be permitted absent new evidence that entirely changes the case.
• There is no reasonable prospect of success because the prior findings were based on detailed evidence and expert analysis, and it is unlikely a second judge would reach a different conclusion.
• Any new evidence BTI alleges is speculative and insufficient to take the claim outside abuse of process principles.
• PwC consented to dismissal of the joint trial application and the stay of proceedings, but these procedural steps do not legitimize BTI's attempt to relitigate settled issues.

Respondent's Arguments (BTI)

• PwC bears a heavy burden to show that the claim is a rare abuse of process case, which it has not met.
• There is no inherent abuse in seeking inconsistent decisions between different parties not bound by prior judgments.
• The absence of mutuality (PwC not party to prior proceedings) strongly weighs against abuse.
• BTI sought a joint trial to avoid inconsistent findings, but both sets of defendants opposed this; the dismissal of the joint trial was a reasonable compromise.
• Consent orders staying proceedings against PwC pending the Sequana claim imply BTI could pursue PwC if the Sequana claim failed.
• BTI did not delay unreasonably in serving its claim against PwC and promptly sought a joint trial upon receipt of disclosure.
• BTI raises new points and evidence not before Rose J, including disclosure of PwC audit files and new expert witnesses, which may cast issues in a different light.
• Issues of causation and reliance in auditor negligence claims are fact-sensitive and inappropriate for summary disposal.
• BTI contends that reliance on the 2007 audited accounts was significant in the directors' decisions, contrary to PwC's submissions.
• BTI's allegations should be considered cumulatively, and the claim is plainly arguable and appropriately proceeds to trial.

Table of Precedents Cited

Court's Reasoning and Analysis

The court acknowledged that the parties to the second proceedings (PwC claim) differ from those in the first (Sequana claim), so doctrines of issue estoppel and res judicata do not apply. However, abuse of process may still arise if relitigation would be manifestly unfair or bring the administration of justice into disrepute.

The court emphasized that a mere collateral attack on a prior judgment is not automatically abusive, particularly where the parties differ and there is no suggestion of improper purpose or vexatious litigation. The critical question is whether relitigation would bring the administration of justice into disrepute.

The court found that the procedural and case management history was decisive. BTI had promptly sought a joint trial to avoid inconsistent findings, which was opposed by PwC and others. The joint trial application was dismissed by consent, and the claim against PwC stayed pending the first trial. These consent orders implicitly recognized that BTI could pursue PwC if the first claim failed, accepting the risk of inconsistent findings.

The court rejected PwC's argument that BTI's claim was late or abusive, noting BTI's entitlement to await disclosure before pleading and its early efforts to consolidate trials. The opposition to consolidation by all defendants was a key factor allowing BTI to pursue separate claims.

Further, the court found that it would be unfair and asymmetric to bind BTI by prior findings against Sequana and its directors while allowing PwC to avoid such binding effect by virtue of not being a party to the first proceedings.

On the merits, the court held that it could not be concluded at this early stage that the PwC claim had no real prospect of success. There would likely be new evidence, including audit files and witness testimony not before Rose J, and the findings in the first trial were neither binding nor admissible. Issues of reliance and causation were fact-sensitive and properly for trial.

The court also rejected PwC's contention that parts of the claim seeking to relitigate issues decided by Rose J should be struck out, noting that the claim involves a series of interlinked causes of action and that "salami slicing" was inappropriate. The presence of new evidence further negated the strike-out argument.

Overall, the court concluded that the claim against PwC did not amount to an abuse of process and had a real prospect of success, warranting dismissal of the appeal.

Holding and Implications

The court DISMISSED the appeal by PwC against the order dismissing its application to strike out the claim or for summary judgment.

The direct effect is that the claim against PwC will proceed to trial. The court recognized the risk of inconsistent findings due to separate trials but found this risk insufficient to constitute abuse of process given the procedural history and consent orders. No new precedent was established; rather, the decision confirms established principles that, absent unfairness or improper purpose, a party may pursue claims against different parties in separate proceedings even if issues overlap.