POINTS HAVE TO BE PLEADED: APPLICATION TO AMEND AT TRIAL CORRECTLY DISALLOWED: PLEADINGS ARE THERE TO ENSURE THAT THE ESSENTIAL ELEMENT OF EACH PARTY’S CASE ARE KNOWN

In  Kensington Mortgage Company Ltd v Mallon & Ors [2019] EWHC 2512 (Ch)  Sir Gerald Barling, sitting as a Judge of the High Court, dismissed an appeal against a judge’s refusal to consider a point that was not pleaded.  The trial judge had also refused an application to amend, that application being made at the first day of the trial.

“The whole point of pleadings was to ensure that the essential elements of each party’s case were known to the other side, and to prevent situations such as that confronting the court, where on the day before the trial began a new point was raised in a skeleton argument”

THE CASE

The claimant was a loan company  who had granted a mortgage of the the owner  of a house.  The owner had subsequently become bankrupt. The house had been sold to the bankrupt by the defendant in unusual terms – to cover a trade debt.  The claimant sought possession of the property, the defendants defended the claim on the basis that they were entitled to remain in the house.

THE ISSUE OF WHETHER AN ARGUMENT IN RELATION TO TRUST WAS PLEADED

At trial the defendants attempted to argue a point in relation to the property being hold on trust.  The judge held that this point was not pleaded.  He also refused the defendants’ application to amend to plead the trust point.

  1. On the morning the trial began, counsel (not Mr Lakin) for Mr and Mrs Zaman sought to raise a further issue, either on the basis of the existing pleading or by amendment. This was that a constructive or resulting trust of the House existed in favour of the Zamans. Mr Payton, on behalf of the Respondent, objected on the basis that a trust point had not been pleaded. The Judge noted that in a skeleton argument prepared for the strike out hearing in August 2017 mention had been made of the possibility of reliance on a constructive trust. The Judge also noted that no application appeared to have been made on that occasion to include such a point in the amended pleading which Mr and Mrs Zaman were given permission to serve, and which they did serve on 22 August 2017; nor was any attempt made thereafter to re-amend the pleading to include a trust point of any kind.
  2. The Judge rejected Mr and Mrs Zaman’s argument that no amendment was required as the necessary facts had already been pleaded. He held that CPR 16.2(1) required the claim form to contain a concise statement of the nature of the claim. Further, under Practice Direction 16PD.8.2(4), details of any breach of trust must be set out in the particulars of claim. The whole point of pleadings was to ensure that the essential elements of each party’s case were known to the other side, and to prevent situations such as that confronting the court, where on the day before the trial began a new point was raised in a skeleton argument. It was incumbent on the Zamans to plead the specific kind of constructive trust they proposed to rely upon, and the factual basis for it. The same applied to any resulting trust contended for. He therefore held that it was not open to Mr and Mrs Zaman to run any kind of trust case. He refused the application to amend by addition to the Zamans’ pleading of the words “the above gives rise to a constructive and/or resulting trust in favour of the second defendants”.

 

THE DECISION ON APPEAL

Sir Gerald Baring rejected the argument that the claim was adequately pleaded and that the trial judge could have determined the issue on the pleadings.

    1. In Mr Lakin’s submission these matters were adequately pleaded in the Appellants’ Amended Defence and Counterclaim. In this respect he relied upon CPR 16.4 (1), which stipulates that particulars of claim must include “a concise statement of the facts on which the claimant relies”. He contended that it was not necessary to include the word “trust” in the pleading in order to comply with the rules, and it was sufficient for the Appellants to have pleaded such facts as were set out at paragraphs 4 to 11 of their pleading. Although those facts were pleaded in support of different grounds for relief, including in particular proprietary estoppel, Mr Lakin submitted that if one is in the territory of proprietary estoppel, which includes a promise, reliance on it, and unconscionable conduct on the part of the counterparty in reneging on the promise, one is also in the territory of a constructive trust. In this regard he relied upon the dicta of the Court of Appeal in Yaxley v Gotts.[2]
    2. As mentioned already, the Judge rejected these arguments on the basis that CPR 16.2(1) required the claim form to contain a concise statement of the nature of the claim, and that the whole point of pleadings was to ensure that the essential elements of each party’s case were known to the other side and to the court at the appropriate time, which was not on the day before the trial began.
    3. I do not see how the Judge’s conclusion can be faulted. As the passages from judgments in Yaxley, Herbert v Doyle, Thorner v Major, and Farrer v Miller at, respectively, paragraphs 39, 50, 53 and 57 above make clear, a constructive trust is not to be assimilated in all respects with a proprietary estoppel. Although there are cases where the same factual situation may support both concepts, there are others where one will be present but not the other. There are (in the words of Robert Walker LJ) “large areas where the two concepts do not overlap”[3] and they are (as per Lord Scott) “distinct and separate remedies”.[4] Similarly, as Kitchen LJ said, although a proprietary estoppel may have similarities with a common intention constructive trust, “the two are different both in terms of their jurisprudential basis and in their effects.”[5] For example, the relief available is not the same: a successful proprietary estoppel claim gives rise to relief which is within the discretion of the court, which will determine the minimum necessary to satisfy the equity. On the other hand, where a constructive trust is found to exist the court determines the extent of the actual beneficial interests under the trust.
    4. In my view, if facts are pleaded expressly in support of an allegation of proprietary estoppel, that cannot reasonably be taken to indicate to the other side that an allegation of a constructive or resulting trust is also being made. A trust allegation must be specifically pleaded, as it is quite likely to provoke specific responses of fact and law from the other side. In order properly to meet such an allegation it will be necessary to know not just the identity of the trust property, the trustee and the beneficiary, but also the type of trust alleged, its terms (including whether there was power to mortgage the property), and how and when the trust came into being. The paragraphs of the Appellants’ pleading relied upon are silent on most of these matters.
    5. Mr Payton submits that had a constructive or resulting trust been pleaded, he would have sought further and better particulars of all such matters. In my view that would have been justified. The argument conducted at the hearing before me, in which Mr Lakin has sought to indicate (more or less on the hoof) how the constructive or resulting trust arose, the nature of its relationship with the earlier resulting trust involving the Fadias and with the Zamans’ obligation to pay the meat debt, demonstrates why a precise pleading was required. Mr Payton also submits that in all probability his client would have wished to serve an amended pleading itself. Again, this is far from fanciful.
    6. In Credit Suisse AG v Arabian Aircraft and Equipment Leasing Co [2013] EWCA Civ 1169, the claimants pleaded a breach of clause 18.3 of a lease, and at a summary judgment hearing sought to rely on a breach of clause 18.4. That clause was not referred to in the pleading, although in a letter terminating the lease the claimant had referred to it. The Court of Appeal held that the claimant was not entitled to put forward a claim under clause 18.4, either on the application for summary judgment or at trial. It was necessary for the claimant to seek permission to amend if it wished to include such a claim. In the absence of such an amendment the judge should not have allowed that claim to be pursued. The principle to be applied was clearly put by Moore-Bick LJ (with whom Lloyd and Mummery LJJ agreed) at paragraph 17:
“Particulars of claim are intended to define the claim being made. They are a formal document prepared for the purposes of legal proceedings and can be expected to identify with care and precision the case the claimant is putting forward. They must set out the essential allegations of fact on which the claimant relies and which he will seek to prove at trial, but they should also state the nature of the case that is to be made in order to inform the defendant and the court of the basis on which it is said that the facts give rise to a right to the remedy being claimed.”
    1. In the present case the Zamans did not in their amended pleading set out the nature of a constructive or resulting trust case at all, let alone with care and precision. The Judge was entitled so to hold, and the challenge to his judgment in this regard fails.

REFUSAL OF THE APPLICATION TO AMEND

The trial judge’s refusal to allow an  application to amend was also upheld.  The application was (i) too late; (ii) inadequate in any event.

Refusal of the oral amendment application
    1. Ground 2 of the appeal relates to the Judge’s refusal of the oral application to amend the Zamans’ pleading. As I said, the application was made on the first day of the trial. The proposed amendment was the addition of the words “the above gives rise to a constructive and/or resulting trust in favour of the second defendants”. The Judge refused the application on the ground that it was too late.
    2. Mr Lakin argues that the amendment should have been permitted, as it was purely formal, and in any event no prejudice was caused to the Respondent .
    3. As to the content of the proposed amendment, for the reasons I have given I do not consider that this addition to the pleading would have been compliant with the rules. It would not have provided the other side or the court with the requisite information about the nature of the Zamans’ trust case.
    4. On the question of prejudice, Mr Lakin relies, as he did below, on the history of the proceedings. The following is common ground: in a skeleton argument prepared for the strike out hearing in August 2017 there was mention by the Zamans’ then counsel of the possibility of reliance on a constructive trust; at the strike out hearing the Zamans were given permission to serve (and did on 22 August 2017 serve) an amended pleading; no application was made at that hearing, or on any other occasion before the trial, to amend to include an allegation of a constructive (or any type of) trust; no intimation of an intention to allege a trust was given to the Respondent until service of the Zamans’ skeleton argument 2 days before the trial began; and in the Respondent’s skeleton argument at trial, and in its counsel’s closing submissions, the trust argument was referred to.
    5. Mr Lakin submits that in the light of the August 2017 reference to a possible trust point, and the Respondent’s reference to that possible issue in its own skeleton argument for trial, there was no prejudice to the Respondent, and the Judge erred in deciding the case purely on the lateness of the application. In that connection he drew attention to the principles set out in the judgment of Carr J in Quah Su-Ling v Goldman Sachs International [2015] EWHC 759 (Comm), at paragraphs 37-38:
“37.… the relevant principles applying to very late applications to amend are well known. I have been referred to a number of authorities: [details omitted]…

38. Drawing these authorities together, the relevant principles can be stated simply as follows:

a) whether to allow an amendment is a matter for the discretion of the court. In exercising that discretion, the overriding objective is of the greatest importance. Applications always involve the court striking a balance between injustice to the applicant if the amendment is refused, and injustice to the opposing party and other litigants in general, if the amendment is permitted;b) where a very late application to amend is made the correct approach is not that the amendments ought, in general, to be allowed so that the real dispute between the parties can be adjudicated upon. Rather, a heavy burden lies on a party seeking a very late amendment to show the strength of the new case and why justice to him, his opponent and other court users requires him to be able to pursue it. The risk to a trial date may mean that the lateness of the application to amend will of itself cause the balance to be loaded heavily against the grant of permission;

c) a very late amendment is one made when the trial date has been fixed and where permitting the amendments would cause the trial date to be lost. Parties and the court have a legitimate expectation that trial fixtures will be kept;

d) lateness is not an absolute, but a relative concept. It depends on a review of the nature of the proposed amendment, the quality of the explanation for its timing, and a fair appreciation of the consequences in terms of work wasted and consequential work to be done;

e) gone are the days when it was sufficient for the amending party to argue that no prejudice had been suffered, save as to costs. In the modern era it is more readily recognised that the payment of costs may not be adequate compensation;

f) it is incumbent on a party seeking the indulgence of the court to be allowed to raise a late claim to provide a good explanation for the delay;

g) a much stricter view is taken nowadays of non-compliance with the Civil Procedure Rules and directions of the Court. The achievement of justice means something different now. Parties can no longer expect indulgence if they fail to comply with their procedural obligations because those obligations not only serve the purpose of ensuring that they conduct the litigation proportionately in order to ensure their own costs are kept within proportionate bounds but also the wider public interest of ensuring that other litigants can obtain justice efficiently and proportionately, and that the courts enable them to do so.”

  1. In the present case the oral application to amend was made at trial. The draft of the proposed amendment was, for the reasons I have stated, inadequate. Had the Judge not taken the view he did, the Respondent would have been entitled to make an application to adjourn the hearing. Absent an adjournment to allow a draft re-amended pleading to be presented by the Appellants and responded to by the Respondent, there would have been an obvious risk of prejudice to the Respondent. An adjournment itself would also have prejudiced the Respondent. The fact that the Respondent’s counsel made brief submissions on the trust point, does not affect that conclusion. The Zamans had had ample time to apply to amend without causing the trial to be vacated. In those circumstances, it is unsurprising that the Judge exercised his discretion as he did. That discretion was a wide one, in what was archetypically a matter of case management. Unless the decision of the Judge was plainly wrong, an appeal court should not interfere with it. I consider it was one which the Judge was clearly entitled to take.