Hill: High bar for challenge
The High Court has rejected an appeal by a former law firm whose counterclaim was struck out on the grounds of abuse of process by “warehousing”.
Mrs Justice Hill said [1] Master Davison was justified in finding that London firm Denning Sotomayor, closed last year by the Solicitors Regulation Authority (SRA), had “deliberately delayed progressing the counterclaim until the claim against them was concluded”.
Hill J rejected the law firm’s argument that the master “erred by failing properly to take into account the wider circumstances of the case and wrongly laying all the blame for the delay at the door” of the law firm, when both parties had delayed.
The judge said Master Davison was “repeatedly critical” of the claimants in the case, Western Avenue Properties Ltd, noting that nothing had happened for almost five years between August 2018 and June 2023.
“This reflected a failure by both parties to do anything in the litigation during that period of time.”
The High Court heard that in 2017, Western Avenue and Kalpesh Patel obtained an interim injunction [2] to restrain Sadhana Soni, who had been their in-house lawyer for 11 months before setting up Denning Sotomayor, from acting for a client because of the confidentiality obligations she owed them.
The company argued that Ms Soni and her law firm had acted in breach of confidence and/or breach of the fiduciary duties owed to them.
She and the firm counterclaimed for non-payment of fees. Western Avenue successfully applied for £40,000 in security for costs for this, which was paid into court in August 2018.
The solicitor applied to strike out the claim in June 2023 based on failure to progress, which was agreed shortly before a hearing last December. The injunction was discharged and the claimants paying her and her firm’s costs.
The order was silent as to the counterclaim and the claimants applied to strike it out, which Master Davison did in August last year [3], the same month that the SRA intervened [4] in Denning Sotomayor.
The SRA said the firm was shut down because there was “reason to suspect dishonesty by Ms Soni in connection with her practice”. The intervention was not referred to in Hill J’s judgment.
Hill J said Ms Soni had subsequently assigned her rights in the litigation to the law firm.
The judge held that the master “fully understood the procedural history and formed an unimpeachable conclusion as to the tactical positions that had been adopted by each party”.
Master Davison’s judgment made it clear that he had applied the two-stage test laid down in the leading case of Asturion, which defined warehousing as “deliberately deciding not to pursue a claim for a substantial period of time”.
He concluded that there was an abuse and then exercised his discretion to strike out the claim.
He was justified in concluding that the law firm had warehoused the counterclaim, Hill J held, his reasoning reinforced by the fact that they had not replied to a part 18 request for further information or progressed their application to re-amend the counterclaim, both of which dated back to 2018.
Counsel for the law firm argued that there was “no proper basis” on which the judge could infer prejudice to Western Avenue since none had been identified by the company, “nor was there any evidence of actual prejudice”.
However, Hill J said the law firm could not “meet the high bar for challenging on appeal a decision made in the exercise of judicial discretion”.
The master was entitled to infer that there would be prejudice to the company from the scale of the delay which was “extensive” at in the region of six years.