PERMISSION TO AMEND PLEADINGS TO PLEAD NEW CASE AFTER EXPIRY OF LIMITATION PERIOD REFUSED: COURT OF APPEAL DECISION: STICK TO THE PLEADINGS

In Samba Financial Group v Byers & Anor [2019] EWCA Civ 416 the Court of Appeal overturned an order allowing the claimant permission to amend its case.  In essence the Court of Appeal decided that where a court was considering an application to amend outside the limitation period its should consider the applicant’s pleaded case.  The court should rarely, if ever, investigate matters outside the statements of case.

“(2) The court may allow an amendment whose effect will be to add or substitute a new claim, but only if the new claim arises out of the same facts or substantially the same facts as a claim in respect of which the party applying for permission has already claimed a remedy in the proceedings.”

 

“In my judgment, in the vast majority of cases what is “in issue” in an existing claim will usually be determined by examination of the pleadings alone. It will be the primary, and probably the only, source of material for deciding the question”

THE CASE

The claimant brought an action for certain shares that had been transferred were held on trust.   A decision in the Supreme Court meant that the claim as it was then formulated could not succeed.  The matter was remitted back to the High Court to consider amendment of the claim.

THE NATURE OF THE AMENDMENT

They deleted entirely the claim under s.127, which the Supreme Court had held was bound to fail, and in its place formulated a claim in constructive trust against Samba personally, a claim which, as I have mentioned, they had previously deliberately eschewed. The new claim is presented in some 6 ½ pages of pleading, alleging features of “Samba’s knowledge and conduct”…

THE DECISION OF THE HIGH COURT JUDGE

    1. The cross-applications by the present respondents for permission to re-amend in these terms and by Samba to stay/strike out the action came before Birss J on two days in October 2017. A number of points were advanced by Samba in resistance to the amendment application and in support of its own application to bring the action to an end. One argument was that the newly formulated claim was bound to fail because Saudi Arabian law was the applicable law and under it the new claim had no proper legal foundation. The judge found that there were properly arguable grounds in favour of both Saudi law and Cayman law being the relevant system. Accordingly, he held that it was correct not to refuse permission to amend on the basis that it was bound to fail under Saudi law.
    2. Next, Samba relied upon the limitation point, namely that to allow the amendment to be made would defeat a good limitation defence. In response, the respondents relied upon CPR r.17.4(2). Under r.17.4(1), sub-rule (2) applies where a limitation period has expired. Rule 17.4(2) provides as follows:
“(2) The court may allow an amendment whose effect will be to add or substitute a new claim, but only if the new claim arises out of the same facts or substantially the same facts as a claim in respect of which the party applying for permission has already claimed a remedy in the proceedings.”
    1. The judge held that he was not confined to looking at the pleadings alone to see whether the new claim arose out of “the same or substantially the same facts” as the old claim. He said that one could look at a number of statements made by Samba or its advocates, in earlier parts of the proceedings, in which they said that Samba did not know of SICL’s alleged interest in the shares in question. His conclusion on this point was expressed in paragraph 51 of his judgment as follows:
“51. … I find that although it is true that the position has never been pleaded formally, the defendant has from the outset advanced a positive case to the court about its state of knowledge and bona fides. Although no formal Defence was filed, these issues were raised and (if it matters) would have been pleaded in a formal Defence at that time if the procedure required it. Given what the defendant was telling the court, the defendant must have investigated these matters at the time. These issues are the very same questions which arise on the new claim and therefore the new claim satisfies the test in CPR r17.4. For that reason I would allow the amendment. It does not prejudice the defendant.”
  1. Accordingly, the judge decided that he would permit the amendment, having also rejected a defence argument of abuse of process, based upon the decision in Henderson v Henderson (1843) 3 Hare 100.

THE DECISION OF THE COURT OF APPEAL

The court of appeal allowed the appeal against the order granting permission to amend.

    1. There is only one other case to which I believe I should refer. That is Papadimitriou v Crédit Agricole Corpn and Investment Bank [2015] 1 WLR 4265, a case in the Privy Council on appeal from the Court of Appeal of Gibraltar. The case concerned the extent of inquiries incumbent on a bank in order to avoid liability as a constructive trustee. We were taken by Mr Howard to the short additional judgment delivered by Lord Sumption, in agreeing with the opinion of the Board (on the appeal as a whole) given by Lord Clarke of Stone-cum-Ebony. The passage from Lord Sumption’s judgment was this (at paragraph 33):
“33. … Whether a person claims to be a bona fide purchaser of assets without notice of a prior interest in them, or disputes a claim to make him accountable as a constructive trustee on the footing of knowing receipt, the question what constitutes notice or knowledge is the same. It is a question which has taxed judges for many years. In particular they have been much exercised by the question in what circumstances a person is under a duty to make inquiries before he can claim to be without notice of the prior interest in question. Ultimately there is little to be gained from a fine analysis of the precise turns of phrase which judges have employed in answering these questions. They are often highly sensitive to their legal and factual context. The principle is, I think clear. We are in the realm of property rights, and are not concerned with an actionable duty to investigate. The hypothesis is that the claimant has established a proprietary interest in the asset, and the question is whether the defendant has established such absence of notice as entitles him to assume that there are no adverse interests. …”
I would note in addition that Lord Sumption continued as follows:
“33. …The mere possibility that such interests exist cannot be enough to warrant inquiries. There must be something which the defendant actually knows (or would actually know if he had a reasonable appreciation of the meaning of the information in his hands) which calls for inquiry. The rule is that the defendant in this position cannot say that there might well have been an honest explanation, if he has not made the inquiries suggested by the facts at his disposal with a view to ascertaining whether there really is. I would eschew words like “possible”, which set the bar too low, or “probable” which suggest something that would justify a forensic finding of fact. If even without inquiry or explanation the transaction appears to be a proper one, then there is no justification for requiring the defendant to make inquiries. He is without notice. But if there are features of the transaction such that if left unexplained they are indicative of wrongdoing, then an explanation must be sought before it can be assumed that there is none. …”
I quote those passages largely for the statement that questions about the duty to make inquiries are often “highly sensitive to their legal and factual context”.
Discussion
    1. In my judgment, the statement by Lord Sumption in Papadimitriou (supra) is of particular relevance to the issue before us as to whether the facts of this new claim are “the same or substantially the same” as were in issue on a claim in which the respondents had already claimed a remedy in these proceedings. The new claim is based on allegations of knowledge to be inferred from a multitude of facts said to have been known and of a plethora of sources of inquiry that it is said ought to have been undertaken over a very lengthy period indeed. It is a claim made against a Saudi Arabian company in respect of shares in other Saudi Arabian companies which were traded on the Saudi stock market. What is to be taken to be known by Samba in that context and what inquiries it ought to have made must be extremely fact sensitive and very sensitive to the legal and commercial context of the disputed transfer.
    2. I do not consider that Samba, in asserting its good faith in the four one-line passages, relied upon by the respondents from submissions in the earlier stages of the proceedings, is to be assumed to have made an investigation of the highly detailed factual case upon which the new constructive trust claim is advanced.
    3. Until the new claim was advanced, the parties were immersed in a complex legal battle about issues of proper law, jurisdiction and forum conveniens, so much so that the ultimately decided issue as to the proper application of s.127 of the 1986 Act had escaped their attention until raised by one of the judges in the Supreme Court. It is not surprising that Samba had asserted its good faith, but, in my judgment it is fanciful to assume that the detailed facts now alleged would have been investigated by Samba to the extent that the respondents contend. As far as we have been shown, in the proceedings prior to the respondents’ failure in the Supreme Court, we have seen no material emanating from the respondents’ side indicating their case that Samba had not been acting in good faith and relying on facts of the type and volume now pleaded. Indeed, as already mentioned, the respondents had consciously decided not to make any such case at the time of the original claim. Prior to formulation of the amendment, the respondent’s case on absence of good faith appears to have been entirely unformulated.
    4. The one item of evidence that we were shown at the hearing of the appeal was a short statement of 14 July 2017 by a Mr Beji Tak-Tak, who says that he was the Chief Risk Officer with Samba at the time of the transfer of the disputed shares. This statement was, we were told, before Birss J on the hearing of the applications in October 2017. In it, Mr Tak-Tak states that he did not know or suspect the existence of trusts in favour of SICL and did not see any need to make inquiries. He gives his reasons. This statement was produced to us in argument by Mr Howard in support of his submission that, having asserted that it was a bona fide purchaser, there was no evidence from Samba that it had not investigated the position. However, neither was there assertion of any facts of the kind now alleged by the respondents to counter Samba’s assertion; they were simply not “in issue”.
    5. I do not say that the statement from Mr Tak-Tak can be anything more than the briefest of position statements on behalf of Samba and, in the light of the claim now made, there will clearly be a contest about such matters and a large amount of documentary and other evidence relevant to the question. However, in my judgment, it reinforces the point that the new pleading raises a positive case of bad faith on the part of Samba based on a volume of new facts which were not at any stage asserted by the respondents at the earlier stages of the proceedings. Mr Tak-Tak’s statement does not give any indication that, at the earlier stages, Samba should be assumed to have investigated a claim of the character now made.
    6. In my judgment, with respect to the learned judge’s careful judgment, he did not conduct any real evaluation of the new claim against the facts in issue in the old claim. No doubt he accepted a submission along the lines of that made by Mr Howard before us that no such evaluation was necessary. I disagree. As I think Sales LJ was saying in the Mastercard case, it is necessary to make an evaluation of the new case as against the old case in order to ask the threshold question whether the new case arises out of the same or substantially the same facts as the old one. In this case, I do not find that the judge really asked the question how the extensive pleaded facts related to the bare assertion of good faith by Samba in the absence of any facts adduced by the respondents in contradiction of that assertion. The claim now made by the respondents is of an entirely different character from the claim they advanced previously.
    7. Having carefully considered the new pages of the pleading, I do not consider that the newly formulated claim arises out of the same or substantially the same facts as those already in issue in the old claim. Broadly similar allegations, implicitly made or understood will not do. In real terms, paraphrasing the words of Colman J in the BP v Aon case (supra) (which should not be read as a statute) I find that the new case puts Samba in the position of being obliged to investigate facts and obtain evidence well beyond the ambit of the facts that it could reasonably be assumed to have investigated for the purpose of defending the amended claim at the stage that it had reached before the amendment application. It may be that Samba will have to address those facts in the new 2017 action, but there is no reason to deprive it of the benefit of any accrued limitation period in the present action.
    8. So far I have not addressed Mr Onslow’s submission that the application for permission to amend should have failed at the first hurdle in this case because the question arising under CPR r.17.4(2) has to be determined solely on the pleadings and on the pleadings the new facts do not appear at all.
    9. In my judgment, in the vast majority of cases what is “in issue” in an existing claim will usually be determined by examination of the pleadings alone. It will be the primary, and probably the only, source of material for deciding the question. In some cases, however, such as those considered above where, for example, there has been an extensive evidential battle on a summary judgment application or on a jurisdictional question, it may be possible to discern that facts are already in issue in a case prior to being crystallised in formal pleadings. Nonetheless, I consider that such cases will be rare. Certainly, I do not see that the “one line” assertions of good faith (which are not accepted by the other side) to which our attention was drawn, present sufficient material on which to find that wide ranging factual allegations of an absence of good faith are already in issue in the action.
Conclusion
  1. For these reasons, I would allow the appeal. I would quash the judge’s order granting permission to re-amend the Particulars of Claim. I believe that it necessarily follows that the 2013 action should be dismissed. I cannot see that it is right to leave on foot an action which is bound to fail. I would invite submissions in writing from the parties as to the correct order for costs in that action in that event.

LORD JUSTICE FLOYD

There is a short judgment of Lord Justice Floyd which assists in understanding the issues.

    1. I agree with McCombe LJ that the appeal should be allowed for the reasons he gives in paragraphs 44-50 above. The new constructive trust claim does not arise out of substantially the same facts “as are already in issue on” the existing claim. I also agree with the order he proposes. I add some words of my own because this case has some unusual, but potentially important features.
    2. First, neither counsel was able to show us a case touching on the question dealt with in paragraphs 51 and 52 of McCombe LJ’s judgment, namely whether it is permissible to look outside the pleadings to determine what facts are “already in issue on the existing claim”. Whilst I can understand that there might be situations where it would strike one as fair to enquire more widely, there are obvious practical difficulties in defining the scope of the permissible enquiry if it is not limited by the pleadings. Does the pool of facts in which it is permissible to fish for the basis of the new cause of action include facts alleged in party and party correspondence, or in every witness statement which has been filed? Do transcripts of submissions and evidence count? I am inclined to think that the decision in Goode v Martin might have been different if the defendant had merely set out its version of the facts in correspondence, or his counsel had done so in a skeleton or oral argument at a case management conference. My provisional view is that neither the Act nor the rule contemplates such a broad-ranging enquiry to determine what facts are in issue. The scope of such an enquiry has obvious practical implications for judges deciding on amendment applications. I would prefer, however, to leave a final decision on that issue to a case where it affected the outcome.
    3. A second unusual feature of the present case, effectively a consequence of the first, is that the respondents argue that they are entitled to rely on facts, as yet unpleaded by them or their opponent, even though it might never be necessary for either side to rely those facts as part of its case. Significantly, Mr Howard’s skeleton argument put his case as being that Samba “would necessarily have been required to advance [a good faith, lack of knowledge] defence to the s. 127 Claim”. But that is not so. Apart from anything else, Samba did succeed in defending the claim on a different basis, and there were other grounds on which it argued that the claim should fail which did not depend on a showing of good faith (see paragraph 33 above). To allow a party to rely on a fact that its opponent might or might not wish or need to plead might be said to be going further than permitted by the language of the Act and rule because it is not a fact “already in issue” on the original claim. It also might be said to go beyond the purpose of the rule as stated by Hobhouse LJ in Lloyd’s Bank plc v Rogers [1997] TLR 154 where he said:
“The policy of the section was that, if factual issues were in any event going to be litigated between the parties, the parties should be able to rely on any cause of action which substantially arises from those facts” (my emphasis).