A WHOLE COURT OF APPEAL CASE ABOUT WHETHER IT IS APPROPRIATE TO DRAFT A “NON-ADMISSION”: NO DUTY ON A DEFENDANT TO SEEK OUT INFORMATION FROM A THIRD PARTY WHEN DRAFTING A DEFENCE

In the judgment today in SPI North Ltd v Swiss Post International (UK) Ltd & Anor [2019] EWCA Civ 7 the Court of Appeal carried out a close analysis of the rules relating to pleading a defence. In particular the drafting of a “non-admission”.   The Court decided that it was not incumbent upon a defendant to raise enquiries of a third party before filing a defence which contained a non-admission.  However the judgment also contains a clear warning against any attempt to return to the old fashioned “stone walling” defence.  It also questions the wisdom of parties getting entangled in lengthy (and expensive) interlocutory wrangles at an early stage.

“Continuing use of the language of non-admission, convenient though it may be, must not be allowed to blur the distinction, or still less to encourage a reversion to the bad old days when a defendant could get away with a stonewalling defence full of indiscriminate non-admissions. Clearly, a defendant is now under a positive duty to admit or deny pleaded allegations where he is able to do so, and he may only put the claimant to proof of a fact where he is unable to admit or deny it.”

“the present case seems to me to provide a good example of the disadvantages inherent in the claimant’s approach to rule 16.5(1)(b), generating unnecessary and expensive inter-solicitor correspondence and satellite litigation at a time when the energy and resources of the parties should be devoted to getting on with the action in a proportionate and cost-effective manner”

(See also:  The difference between a non-admission and a denial)

THE CASE

The claimant brought a case for breach of contract and inducing a breach of contract.

THE DEFENCE

The defence contained a number of “non-admissions”. The Claimant took issue with this.

    1. On 21 May 2018, Peters & Peters wrote to Milners confirming that, wherever words of non-admission were used in the amended defence, they were intended to comply with the substantive requirements of CPR rule 16.5, so “any substantive allegation as to which no admission is made is one which the Defendants are unable to admit or deny.” Mr Tickner repeated this explanation in his second witness statement signed on the following day, 22 May. He added:
“In each case there are unexceptional reasons, for example relating to the relative inaccessibility of particular information, or the ambiguity of the relevant allegation, or both, why the Defendants are unable to admit or deny the relevant allegation.”
  1. This explanation was not accepted by Milners, who attached to a letter dated 31 May 2018 a table setting out thirteen instances of “matters which your clients are able to answer after making enquiries of relevant witnesses” and therefore could not properly be the subject of a non-admission. This is the table to which I have already referred, by reference to which the argument before the judge and this court was conducted. It is worth noting, as Mr Drake reminded us, that the table post-dated Mr Tickner’s evidence on the present application, so the general comments (quoted above) which Mr Tickner made in his second statement were not specifically addressed to it.

THE CLAIMANT’S APPLICATION TO STRIKE OUT THE DEFENCE

The claimant then applied to strike out the Defence on the grounds of the Defendant’s failure to comply with the rules. It was stated that the defendant could easily obtain the information which was the basis of the “non-admission”.  The Court carried out a comprehensive review of the rules relating to pleadings and the history of the CPR.

THE JUDGMENT
    1. According to CPR rule 16.5(1), the defendant must state in his defence:
“(a) which of the allegations in the particulars of claim he denies;
(b) which allegations he is unable to admit or deny, but which he requires the claimant to prove; and
(c) which allegations he admits.”
    1. Although the rule does not use the language of “non-admission”, it is I think still common practice in a professionally drawn defence for the pleader to state that a particular allegation in the particulars of claim is “not admitted”, when the intention is to say that the allegation falls within paragraph (1)(b) as one which the defendant is unable to admit or deny, but which he requires the claimant to prove. So used, the expression is a convenient form of shorthand, provided that the requirements of the sub-paragraph are not thereby overlooked or watered down. Under the CPR, unlike the previous Rules of the Supreme Court (“RSC”), a non-admission may only properly be pleaded by a defendant where he is, in fact, unable to admit or deny the allegation in question, and therefore requires the claimant to prove it.
    2. Plainly, a defendant is able to admit or deny facts which are within his own actual knowledge, or which he is able to verify without undue delay, difficulty or inconvenience, by reference to records and other sources of information which are under his control or otherwise at his ready disposal. Furthermore, in the case of a corporate defendant, which can only act through human agents and has no mind of its own, its actual knowledge must clearly be understood as that of its individual officers, employees or other agents whose knowledge is for the purposes of applying rule 16.5 to be attributed to it, in accordance with the relevant rules of attribution: see the well-known observations of Lord Hoffmann in Meridian Global Funds Management Asia Limited v Securities Commission [1995] 2 AC 500 (PC) at 506-507. But does paragraph (1)(b), properly construed, go further, and require a defendant to make reasonable enquires of third parties before it can be said that he is “unable” to admit or deny a particular allegation? That is the novel question of principle which arises on this appeal.
    3. The judge (His Honour Judge Klein, sitting as a judge of the High Court in the Business and Property Courts) answered this question in favour of the defendants, which are both UK companies, when dismissing an application by the claimant for an order striking out their defence unless it was amended to comply with rule 16.5. The argument before him revolved around a list of thirteen alleged breaches of paragraph (1)(b) where according to the claimant the defendants had improperly pleaded a non-admission in the defence which counsel had settled on their behalf. In some, but by no means all, of those instances, it was said that the defendants would, or at least might, have been able to admit the relevant allegation had they taken reasonable steps to contact certain key individuals who had been closely involved in the transactions in issue as employees of the defendants, but had subsequently left their employment.
    4. After hearing oral argument for the best part of a day, the judge gave an extempore judgment of which we have the approved transcript: [2018] EWHC 1706 (Ch). He expressed his conclusion as follows, at [18]:
“Taking all these matters into account, as a matter of principle, I have concluded that a defendant is not required, before being able to make a non-admission, to have made reasonable inquiries. Instead, in my view, consistent with Mr Drake’s submission, I have concluded that a defendant can properly make a non-admission based on his own knowledge. In the case of an individual that would be his own knowledge and may well be, as Mr Drake contends, information he has reminded himself of by looking through and making reasonable inquiries of his records. In the case of a corporate defendant, the non-admissions are based on the corporate knowledge.”

THE CONCLUSION: NO DUTY TO SEEK INFORMATION FROM A THIRD PARY

The Court considered the claimant’s submissions.
  1. These submissions were persuasively advanced by Mr Sachdeva, but I find them unconvincing. I do, however, agree with his starting point, which is the significant difference between the language and structure of rule 16.5(1) on the one hand, and the position which obtained under the RSC on the other hand. Continuing use of the language of non-admission, convenient though it may be, must not be allowed to blur the distinction, or still less to encourage a reversion to the bad old days when a defendant could get away with a stonewalling defence full of indiscriminate non-admissions. Clearly, a defendant is now under a positive duty to admit or deny pleaded allegations where he is able to do so, and he may only put the claimant to proof of a fact where he is unable to admit or deny it. But that does not answer the question of what “unable” means in this context.
  2. In my judgment, a number of factors point towards the conclusion that a defendant is “unable to admit or deny” an allegation within the meaning of rule 16.5(1)(b) where the truth or falsity of the allegation is neither within his actual knowledge (including attributed knowledge in the case of a corporate defendant) nor capable of rapid ascertainment from documents or other sources of information at his ready disposal. In particular, there is no general obligation to make reasonable enquiries of third parties at this very early stage of the litigation. Instead, the purpose of the defence is to define and narrow the issues between the parties in general terms, on the basis of knowledge and information which the defendant has readily available to him during the short period afforded by the rules for filing his defence.
  3. There are two main reasons which in my view support this conclusion. The first reason has to do with the procedural timetable laid down by the CPR for all Part 7 claims, whatever their magnitude or value, and whether commenced in the High Court or the County Court. The default position is that a defence must be filed within fourteen days after service of the particulars of claims, extended to twenty eight days if more time is needed and an acknowledgement of service is filed. This is, deliberately, a relatively short period, designed to encourage expedition and the rapid progress towards trial of an action once it has been started. Within such a short period, it does not seem to me practicable to impose a general obligation on defendants to make all reasonable enquiries of third parties who may be in possession of relevant information before filing the defence. That is not to say, of course, that a defendant is prevented from making such enquiries, if he chooses and has the time to do so. Nor would I wish to discourage claimants from granting, or not opposing, reasonable extensions of time for that purpose, if satisfied that this would further the overriding objective. But that is a very different matter from saying that, as a matter of obligation, a defendant is precluded from putting the claimant to proof of an allegation until all reasonable third party enquiries potentially relevant to it have been pursued. The action is still at its earliest stages, and in most cases the preferable course will be for the parties to follow the strict timetable prescribed by the CPR, leaving the making of wider enquiries and further refinement of the issues to subsequent stages in the pre-trial procedure, including requests for further information under Part 18, disclosure and the exchange of witness statements.
  4. My second main reason is to do with the difficulty of drawing a sensible line if a general duty of the type I have mentioned were held to exist at the stage of filing the defence. There would be endless scope for disagreement about the enquiries which the defendant ought reasonably to make in the limited time available to him, particularly as there is no relevant guidance in Part 16 itself or its associated Practice Direction, nor is there any requirement for a defence to be accompanied by a statement explaining what enquiries have been made. By contrast, where an application for further information is made under Part 18, the focus will be on a specific request for clarification or additional information in relation to a matter in dispute in the proceedings, evidence relevant to the application will usually have been filed on both sides, and the court should be well placed to decide whether or not to make an order.
  5. A related point, of equal importance, is that a defence has to be verified by a statement of truth signed by the defendant or their legal representative: see CPR rule 22.1(1)(a) and (6)(a). There should be no difficulty in complying with this requirement where the contents of the defence are based on the defendant’s own knowledge, but the position may be very different where an admission or denial is based on information obtained from a third party. In such a case, making contact with the third party may be only the first step in a complex process which will require the information obtained to be evaluated, tested and correlated with other information which is or becomes available to the defendant. It would often be completely unrealistic to expect such a process to be completed within the short period allowed for the filing of a defence, and it is correspondingly difficult to believe that this is what rule 16.5(1)(b) on its true construction really requires.
  6. Again, the appropriate stage for dealing with issues of this kind is not when the defence is being drafted, often under considerable time pressure, but at later stages when the court has ample tools in its armoury to review and refine the issues, and to require the provision of relevant information or documents by a reluctant or obstructive defendant. What is unreasonable, in my opinion, is to accuse a defendant of acting improperly and in breach of rule 16.5(1) merely because he does not make allegedly reasonable enquiries of third parties before stating in his defence that he is unable to admit or deny an allegation.
  7. For these main reasons, which largely reflect Mr Drake’s cogent submissions for the defendants, I have little hesitation in concluding that the wording of rule 16.5(1)(b) does not import any duty to make reasonable enquiries of third parties before putting the claimant to proof of an allegation which the defendant is “unable to admit or deny”. But that is not the end of the matter, because Mr Drake advanced a further argument against the claimant’s approach which I find equally compelling. The argument was, in short, that rule 16.5(1) does not import a “process” requirement, of which the defendants were arguably in breach and which could for that reason alone have arguably justified striking out the defence (or parts of it) if the offending non-admissions were not remedied. In order to justify such a draconian remedy, submits Mr Drake, it would have been necessary for the claimant to establish, to the civil standard of proof, that the defendants actually could have had available to them knowledge (whether or not derived from third parties) which meant that they were in fact able to admit or deny specific allegations which they had chosen not to admit. In other words, it would not be enough merely to show that the defendants failed to make reasonable enquiries of third parties which they ought to have made. It would be necessary to go further, and to establish that the impugned non-admissions were in fact improper because the relevant allegations should have been either admitted or denied.
  8. I would accept this submission, to which in my view Mr Sachdeva had no convincing answer. More generally, the present case seems to me to provide a good example of the disadvantages inherent in the claimant’s approach to rule 16.5(1)(b), generating unnecessary and expensive inter-solicitor correspondence and satellite litigation at a time when the energy and resources of the parties should be devoted to getting on with the action in a proportionate and cost-effective manner