APPEAL ALLOWED WHERE THE TRIAL JUDGE DEPARTED FROM THE PLEADED CASE: “A MISUNDERSTANDING OF THE JUDGE’S FUNCTION)

The judgment of the Court of Appeal today in Satyam Enterprises Ltd v Burton & Anor [2021] EWCA Civ 287 provides another example of the importance of statements of case. The Court allowed an appeal where the trial judge had determined the case on a basis that was not pleaded.  The case was remitted to be heard by a different judge.

“The present case however is not one of a party seeking to depart from his pleaded case, but one where the parties addressed in their evidence and submissions the cases that had been pleaded, but the Judge decided the case on a basis that had neither been pleaded nor canvassed before him. In our system of civil litigation that is impermissible, and a misunderstanding of the judge’s function which is to try the issues the parties have raised before him”

THE CASE

The claimant appealed a decision made after a trial. One of the grounds of the appeal was that the matter was determined on a basis that was not pleaded.  The Court of Appeal upheld this argument.

THE COURT OF APPEAL JUDGMENT ON THE JUDGE’S DEPARTURE FROM THE PLEADED CASE

Lord Justice Nugee found that the judgment was based on a basis that had not been pleaded. It was therefore unsustainable.

Ground 1 of Appeal – not part of either party’s case

1. 1. I have already said that Mr Shaw did not seek to uphold the Judge’s finding that the Croydon Properties were held on trust for Mr V Sharma, thereby in effect conceding Grounds 1 and/or 2 of the Appeal. It is not therefore necessary to deal with this aspect of the case at any great length but I should indicate why I consider that he was right to do so.

1. 1. I have already summarised the pleadings above. The entire basis of JVB5’s claim against Mr Burton was that JVB5 was not only the legal but the beneficial owner of the Croydon Properties; that by executing the Transfer he had transferred the properties (both legally and beneficially) to JVB7; and that that was a breach of duty because the Transfer was at an undervalue. Neither Mr Burton’s Defence nor that of JVB7 (which although a separate pleading was also settled by Mr Brown and was in all respects aligned with his) took issue with JVB5 having been the legal and beneficial owner of the Croydon Properties up to the date of the Transfer, or with the Transfer having been effective to pass the legal and beneficial ownership to JVB7. Mr Burton’s substantive defence to the breach was that the Transfer was at an effective price of £1,096,000, to be paid not in cash but in discharging JVB5’s liabilities, and that that was in the circumstances for full consideration (paragraphs 13(2), 13(3) and 16 above).

1. 1. Nor was this a case where the case advanced by Mr Burton at trial was at odds with his pleading. On the contrary his witness statement for trial was to the same effect as his defence, specifically saying that the Transfer was a sale at the true value of the Croydon Properties; and Mr Brown’s skeleton argument for trial similarly said that Mr Burton’s intention was to transfer the properties at their true value. Mr Temmink in his skeleton argument for the appeal said that the question of whether the Croydon Properties were, or even might be, held on trust for Mr V Sharma was simply not an issue in the case, and so was not explored at trial or during cross-examination, or raised in closing argument. We have been shown nothing to suggest that this statement is wrong.

1. 1. This is not therefore a case, as sometimes happens, where one or other of the parties seeks to run a different case at trial from that pleaded. That itself is unsatisfactory and can cause difficulties, as has been said recently by this Court more than once: see UK Learning Academy Ltd v Secretary of State for Education [2020] EWCA Civ 370 at [47] per David Richards LJ where he said that statements of case play a critical role in civil litigation which should not be diminished, and Dhillon v Barclays Bank plc [2020] EWCA Civ 619 at [19] per Coulson LJ where he said that it was too often the case that the pleadings become forgotten as time goes on and the trial becomes something of a free-for-all. As both judges say, the reason why it is important for a party who wants to run a particular case to plead it is so that the parties can know the issues which need to be addressed in evidence and submissions, and the Court can know what issues it is being asked to decide. That is not to encourage the taking of purely technical pleading points, and a trial judge can always permit a departure from a pleaded case where it is just to do so (although even in such a case it is good practice for the pleading to be amended); in practice the other party often, sensibly, does not take the point, but in any case where such a departure might cause prejudice he is entitled to insist on a formal application to amend being made: Loveridge v Healey [2004] EWCA Civ 173 at [23] per Lord Phillips MR.

1. 1. The present case however is not one of a party seeking to depart from his pleaded case, but one where the parties addressed in their evidence and submissions the cases that had been pleaded, but the Judge decided the case on a basis that had neither been pleaded nor canvassed before him. In our system of civil litigation that is impermissible, and a misunderstanding of the judge’s function which is to try the issues the parties have raised before him. The relevant principles were stated by this Court in Al-Medenni v Mars UK Ltd [2005] EWCA Civ 1041. There the trial judge had rejected the claimant’s pleaded allegation of how she had sustained an accident but nevertheless found the defendant liable on the basis of his own theory of what had happened (referred to as the “third man theory”), which had never formed any part of either party’s pleaded case. Dyson LJ (with whom Tuckey and Brooke LJJ agreed) said at [21]:

“In my view the judge was not entitled to find for the claimant on the basis of the third man theory. It is fundamental to our adversarial system of justice that the parties should clearly identify the issues that arise in the litigation, so that each has the opportunity of responding to the points made by the other. The function of the judge is to adjudicate on those issues alone. The parties may have their own reasons for limiting the issues or presenting them in a certain way. The judge can invite, and even encourage, the parties to recast or modify the issues. But if they refuse to do so, the judge must respect that decision. One consequence of this may be that the judge is compelled to reject a claim on the basis on which it is advanced, although he or she is of the opinion that it would have succeeded if it had been advanced on a different basis. Such an outcome may be unattractive, but any other approach leads to uncertainty and potentially real unfairness.”

1. 1. In that case the Judge had in fact raised the third man theory with counsel in the course of closing submissions, and there was a “rather faint-hearted” espousal of it by the claimant’s counsel, but that was far too late for the claimant to take the point as it had not been explored with any of the witnesses: see at [23]-[24]. Dyson LJ said that the judge, having rejected the claimant’s pleaded case, should have dismissed the claim, and by making findings for which the claimant was not contending, had crossed the line which separates adversarial and inquisitorial systems; what he did might have been legitimate in an inquisitorial system but was impermissible in our system: see at [25].

1. 1. In the present case, the possibility that the Croydon Properties were held on trust for Mr V Sharma does not appear to have been even canvassed by the Judge during the hearing, but, as far as we know, first emerged fully-formed in the Judgment. That, for the reasons given by Dyson LJ in Al-Medenni, was not a course that was open to him. Judges may sometimes think – and may even sometimes be right – that their own theory better fits the facts than that of either party, but if it is wholly outside the scope of the pleaded issues, that is nothing to the point, and to decide a case on a basis that has not been explored in evidence or addressed in submissions is likely to leave at least one, if not both, parties with a profound and justified sense of unfairness.

1. I therefore have no doubt that Ground 1 was well-founded, and Mr Shaw wise not to attempt to uphold the Judgment in this respect. It is unnecessary in those circumstances to address Ground 2.