PARTICULARS OF CLAIM MUST BE IN A FORM THAT THE DEFENDANT CAN RESPOND TO: PLEADINGS STRUCK OUT ALTHOUGH THE CLAIM WAS NOT

Mediatelegal

In Kaplan -v- Super PCS LLP [2017] EWHC 1165 (Ch) Mrs Justice Rose struck out the particulars of claim because it was impossible for the defendants to respond to it. It is an object lesson that, even in a complex case, the particulars have to drafted in a way that the defendant can respond to.

“...it is the Claimants’ obligation to put the case forward in a manner which does not involve the Defendants having to chase back through multiple cross-references to other paragraphs in the pleading which may then say something different leading to a lack of clarity about what the allegation actually is. I agree with the Defendants that the proposed amended Particulars of Claim are properly described as unnecessarily prolix and embarrassing. They fail fairly to identify the claims being pursued in a way which can be reasonably understood or responded to by the Defendants.”

THE CASE

The claimants brought an action in deceit. They were applying to amend the particulars of claim.  The defendant made an application to strike out the particulars of claim and the claim on the grounds that the particulars of claim disclosed no reasonable cause of action.  The matter took a considerable time to reach a hearing.

THE JUDGMENT

The judge refused to grant some of the proposed amendments on the ground that they were statute barrred. In relation to the other amendments.

The proposed amendments to the deceit claim and the strikeout application
  1. I now turn to consider the proposed amendments to the deceit claim and the strike out application. CPR r 3.4(2) provides in paragraph (a) that the court may strike out a statement of case if it appears to the court that the statement of case discloses no reasonable grounds for bringing the claim and in paragraph (b) that the court may strike out a statement of case if it appears to the court that “the statement of case is an abuse of the court’s process or is otherwise likely to obstruct the just disposal of the proceedings”.
  2. At the hearing of this application Ms Rogers QC said that neither the allegations of dishonest representations arising from the Business Proposal nor the alleged oral representations have any real prospect of success. She took me through the wording of the Business Proposal appended to the Particulars of Claim to show how the allegations as to the misrepresentations said to be made in the document are flatly contradicted by the actual wording of the Business Proposal itself. For example in paragraph 39(i)(a) of the proposed amended Particulars of Claim it is alleged that a representation was made in the Business Proposal that “PM4 was a safe, low risk investment scheme led by industry professionals”. However, the Business Proposal is replete with warnings that prospective members are “strongly advised to conduct their own due diligence” and that “The value of the Partnership’s interests and the underlying assets may go down as well as up and a Member may not get back the amount he or she has contributed. No guarantees as to performance, the income payable to Members, or capital gains, are given either expressly or by implication”.
  3. Another example is the allegation in paragraph 39(iv)(e) and paragraph 39(v)(c) of the proposed amended Particulars that the Business Proposal contained representations that the earlier scheme PMs 1-3 had not been challenged by HMRC and that they were ongoing and successful partnerships. However, in the section of the Business Proposal headed “Risk Factors” where legislation and tax are discussed, the Business Proposal points out first that the bases of taxation, tax relief and rates of tax may change and that “HMRC have indicated that they will enquire into significant loss claims where these arise from the trade of an LLP. Further HMRC have indicated that they are likely to withhold any tax repayment arising from a Loss Claim until the completion of the enquiry and they are satisfied regarding the validity and quantum of the claim.”. PM 1 to PM 3 are not mentioned at all in the Business Proposal.
  4. As a final example Ms Rogers points to the allegation in paragraph 39(xiii) that PM4 would aim only to invest in films where funding commitments are in place for no less than 75% of total production budgets. Although she accepts that this is based on a statement included in the Business Proposal, there is no allegation in paragraph 41 of the proposed amended pleading that the representation was untrue. Further, as regards the statement “PM4 was a safe, low risk investment scheme led by industry professionals”, although at paragraph 41(i) of the Particulars of Claim it is alleged that the whole of that statement was false, the new paragraph 9A that the Claimants seek to introduce asserts that day to day control was exercised by PFFL which is described as “the member of the Scheme who was a professional in the industry”.
  5. I have worked through all the examples contained in the helpful annex to Ms Rogers’ skeleton and I accept that most, if not all, of the allegations as to representation said to be made in the Business Proposal appear untenable – or at the very least it is difficult to see which wording of the document is said to give rise to the alleged representation.
  6. Ms Rogers’ second complaint was about the allegations of oral representations. The criticism here is that the structure of the proposed pleading makes it very difficult to work out what is actually being alleged against the individual Defendants. The proposed pleading first describes the investment concept and the business proposal. It then sets out what is called “Specific background for each Claimant”. The paragraphs in that section describe the meetings that each Claimant says he attended, where and when the meeting took place, who was there and what was said. There is then in respect of each Claimant an averment as to the express and/or implied statements made to that Claimant. That section of the pleading runs from paragraph 21 to paragraph 37A.
  7. There is then a section sought to be introduced headed “Summary of makers and recipients of statements”. That appears to be intended to set out the same information as in the preceding section but in a different way; namely listed by Defendant rather than by Claimant, setting out for each Defendant the names of those Claimants to whom he is said to have made statements, cross-referring to the paragraphs in the previous section. There is then a further section of the pleading headed “The Representations” which again purports to set out the same information but reordered by representation and so listing 12 representations and saying in respect of each one by which Defendant that representation was made and to which Claimants cross-referring back to paragraphs in the previous sections of the pleading. The Particulars then go on to assert that some but not all of the representations were false and that they were made to induce the Claimants to enter into the scheme, giving particulars of how it is said that the Defendants knew that the representations were false.
  8. The problem is that whereas Mr Jones submitted that the intention was for these expanded sections to clarify the position, unfortunately they do the opposite. This is because some of the cross-references on which later paragraphs rely are incorrect and the different sections are inconsistent. So for example, the allegation in paragraph 39(i)(c) of the amended Particulars of Claim that Mr Smith repeated an express representation made by Peter Nichols to Anthony Day refers back to paragraph 25A. There indeed is a sentence that at a meeting on 28 November 2008 Mr Smith told Mr Day that the scheme was low risk. However in the supposed “Summary of makers and recipients of statements” one of the amendments proposed is to cross through the allegation that Timothy Smith made statements to Anthony Day.
  9. Another example is that paragraph 39(ii) alleges that Mr Smith made an express statement to Mr Piasecki that the scheme was profitable. That subparagraph cross refers to what is pleaded at paragraph 29A(h) and 28 above. However, neither of those earlier paragraphs actually alleges that Mr Smith said that the scheme “was profitable”. Rather they allege say that Mr Piasecki was told by Mr Smith that 85% of films made money and that because PM4 was first in the recoupment waterfall the scheme was virtually guaranteed success. If the alleged representation that the scheme “was profitable” is supposed to be a paraphrase or summary of the earlier allegation then I agree with the Defendants that that is unsatisfactory way to go about pleading a deceit claim. Where a Claimant asserts that statements made in a meeting many years ago amounted to a deliberately false statement, the Defendant has no chance of recollecting what was said at the meeting in order to defend himself against the allegation unless it is set out very clear precisely what it is alleged was said.
  10. At the hearing before me, Mr Jones accepted that the pleading in the form attached to the application to amend still needed quite a bit of surgery. He said that the striking through of the allegation that Mr Smith made representations to Mr Day was a mistake – that allegation was still being pursued. He also accepted that even though the Claimants had decided some time ago not to pursue various of the Defendants because they are now insolvent, there were still large sections of the proposed new pleading which are directed at them and which now need to come out. There was no prospect therefore of me giving permission for the amended Particulars of Claim to be filed and served in the form presented at the hearing. There would need to be a further iteration of the draft, making substantial additional changes to it and then a further consideration of that draft.
  11. I recognise that the pleading may need to be lengthy simply because there are five Claimants and now four individual Defendants said to have made different false statements. But it is the Claimants’ obligation to put the case forward in a manner which does not involve the Defendants having to chase back through multiple cross-references to other paragraphs in the pleading which may then say something different leading to a lack of clarity about what the allegation actually is. I agree with the Defendants that the proposed amended Particulars of Claim are properly described as unnecessarily prolix and embarrassing. They fail fairly to identify the claims being pursued in a way which can be reasonably understood or responded to by the Defendants.
  12. I have therefore concluded that to accede to the application to amend the Particulars of Claim in anything like their current form would be likely to obstruct the just disposal of the proceedings within the meaning of CPR 3.4(2)(b). The individual Defendants are professional people authorised under FSMA who have been accused of deceitfully inducing prospective investors to enter into a scheme by issuing a Business Proposal which was materially inaccurate and compounding that with false oral representations. These are serious allegations and each of the Defendants is entitled to be told simply and clearly what the case is against him.
  13. I therefore will refuse permission to amend the deceit claim and strike out the Particulars of Claim.
  14. There then remains the question whether I should strike out the claim itself, rather than requiring it to be re-pleaded.
  15. The Defendants contend that it is unfair that these proceedings continue against them in their proposed amended form or at all. They point out that in large part the deceit claim is based on allegations of what was said by various Defendants at meetings in 2008 or very early in 2009. No notice of the claim was given to the Defendants until November 2014 and the claim form was issued in August 2014. Although of course the Claimants are entitled to rely on the six-year limitation period available to them, if they leave the making of the claim which relies on oral representations to the end of that period it is incumbent on them to make as rapid progress with the claim as possible.
  16. Far from doing that, there have been many different iterations of the Claimants’ statement of case. Some Defendants have been removed entirely and some causes of action such as negligence or breach of fiduciary duty were asserted in earlier versions of the Particulars and then abandoned in successive drafts. Ms Rogers makes the point that although this is the fourth iteration of the pleading, all versions are supposedly based on instructions taken from the Claimants on the content of the alleged oral conversations. There has been no explanation from the Claimants as to why, if all the different versions have been based on the same material, the ground seems to be shifting so much as to who said what to whom and when.
  17. The Defendants also point to the long delays that have occurred in this case so far. The current draft of the proposed amended Particulars was first provided to the Defendants at the end of September 2015. The Defendants have written on numerous occasions to the Claimants pointing out flaws in the pleading and asking for clarification. Those letters have largely been ignored by the Claimants.
  18. I can see much force in the Defendants’ complaints but I have decided to step back from striking out the claim in its entirety. There is no suggestion here that the litigation is being pursued by the Claimants for some abusive or ulterior purpose. There may be the kernel of a good claim here. I have considered the cases referred to in note 3.4.3.5 of the White Book on when delay can amount to an abuse of process justifying the striking out of the claim, in particular Icebird Ltd v Winegardner [2009] UKPC 24 and Wearn v HNH International Holdings Limited [2014] EWHC 3542 (Ch). Those authorities make clear that even inordinate and inexcusable delay does not justify the striking out of a claim on the basis of abuse of process unless there is some additional factor. I also have regard to what is said in note 3.4.3 that although the categories of abuse of process are many and are not closed, there must be an abuse before a claim can be struck out and striking out must be supportive of the overriding objective. It does not follow from this that in all cases of abuse the correct response is to strike out the claim. The striking out of a valid claim should be the last option. If the abuse can be addressed by a less draconian course then it should be.
  19. I will not therefore strike out the claim. But I make it clear that at this stage the Claimants should undertake a serious review of what allegations can properly be made against each of the Defendants and limit the scope of those allegations to matters which they have a reasonable prospect of establishing at trial.
  20. Mr Jones states at the end of his skeleton argument that the Claimants are anxious to press on. I will therefore set a short period in which the case can be repleaded from scratch. The court will be watching carefully to make sure that the claim is pursued with all possible speed from here on in.”

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