Legal Village

Aikens and the Three Rivers problem

Posted 12/12/2007 by Charles Hollander QC

The Working Party into Commercial Court Long Trials, chaired by Mr Justice Aikens, reported this week. The foreword to the report makes clear that the working party was set up in the light of the experience in two very large claims that led to criticisms of commercial court procedure in long and complex trials.

The two cases are of course Three Rivers and Equitable Life. And it is true that what occurred in those two cases has damaged the perception of the commercial court as an efficient forum for dispute resolution for the international (as well as national) business community.

Unfortunately, it was beyond the powers of the working party to address the real difficulty in each of these cases. Both Three Rivers and Equitable Life were massive claims arising from a high-profile financial collapse. In each case, the figures claimed were enormous. Each of the cases was utterly hopeless and each was generally perceived as such from the outset.

Notwithstanding this, other defendants might have cracked under the pressure of the sums involved and brokered a settlement. But neither the Bank of England nor Ernst & Young saw things that way.  So each case lumbered on endlessly in the commercial court, until finally, in each case, the claimants recognised that enough was enough and in each case the litigation collapsed. In Three Rivers it collapsed quite literally, counsel coming into court one morning and unexpectedly announcing the discontinuance of the claim.

One can debate whether the cases could have been managed differently but once the cases came to trial, no amount of case management would ever have prevented them taking up a very large amount indeed of court time. The problem arose rather earlier.

In Three Rivers, the defendants tried to strike out the case at the outset as hopeless. The judge (the current Master of the Rolls) struck it out. The Court of Appeal affirmed the decision. In 1992 Lord Justice Bingham’s inquiry into the BCCI collapse had comprehensively reviewed the conduct of the Bank of England and barely regarded the Bank of England’s conduct as negligent. As one would expect from Lord Bingham, no stone was left unturned. So for the claimants to claim that the Bank of England were guilty of misfeasance in public office, a cause of action which required the high test of “subjective recklessness” looked an entirely hopeless endeavour.

In the House of Lords, Lord Hobhouse and Lord Millett advocated dismissing the appeal and striking out the claim. Their criticisms of the claimants’ case are both devastating and unanswerable, as well as prescient. But the other three law lords took a different view, declining to strike out the claim. They said that the opinions in the Bingham report were inadmissible for this purpose, a conclusion difficult to reconcile with common sense, and, crucially, made it clear that the court would not normally strike out highly complex cases of this nature in advance of trial.

These statements of principle were widely, and correctly, interpreted as the death-knell for strike-out applications in big cases. An attempt was in fact made to strike out the equally hopeless Equitable Life but the claimants rebuffed that by citing the House of Lords in Three Rivers. And thus both of these mega-cases came to trial, with judicial approval in each case for the claimants to have their day (or couple of years) in court.

The real culprits are those three Law Lords, not the commercial court. But what is the solution? There is no problem with the test for striking out a case: does it have a real prospect of success? The problem is the application of the test. But how does one change that? Neither a first instance judge nor the Court of Appeal can alter that. And it may be a generation before the House of Lords has an opportunity to review what was said in Three Rivers, as strike-out applications tend not to reach the House of Lords.

So good luck to the Aikens reforms. It is true that long cases need stringent case management and the report stresses that. Mr Justice Aikens has always been a leader in the field of proactive case management of long cases. Someone will just have to encourage their lordships’ house to revisit their comments in Three Rivers and to make it clear that in appropriate cases the court will take a robust approach to a strike out, even in mega-cases.