AMENDMENT, COMPLIANCE WITH PEREMPTORY ORDERS AND THE DENTON CRITERIA: THERE IS NO HALFWAY HOUSE: COURT OF APPEAL DECISION

There are so many judgments dealing with the issue of late amendment that, as I have stated before, I often do not write about them – each being fact specific.  However the Court of Appeal judgment in CNM Estates (Tolworth Tower) Ltd v Carvill-Biggs & Anor [2023] EWCA Civ 480 considers this issue with a further twist – the judge had overlaid an issue relating to relief from sanctions.  The Court of Appeal indicated that this was an incorrect approach.  There was a simple question – either the claimant had complied with a peremptory order or it had not.  The claimant had complied with the order and there was no “halfway house”  in relation to sanctions as found by the judge at first instance.

 

In the present case the unless order undoubtedly imposed a sanction, namely that in the event of non-compliance CNM’s claim would be struck out. That means that its whole claim would be struck out. There was no scope for the halfway house adopted by the judge, which was to hold that the effect of the order was to prevent CNM from pursuing a claim which was not included in the draft amendment served within the time specified, while permitting the claim which it had pleaded in time to go forward. That is not what the unless order said. The correct position was that either CNM had complied with the order, in which case no question of relief from sanction arose, or it had not, in which case (subject to relief from sanction) its whole claim was struck out.”

THE CASE

The claimant brought an action against the defendant.  The defendant asserted that the claimant’s pleadings were defective.  An unless order was made compelling the claimant to file amended Particulars of be struck out.  The claimant filed draft amended Particulars.  At an application to amend the judge found that the claimant required relief from sanctions to plead anything other than those issues set out in the draft amended Particulars of Claim.

The claimant appealed.

THE JUDGMENT IN THE COURT OF APPEAL

The Court of Appeal indicated that it would have allowed the appeal (the entire action being settled shortly before judgment was handed down).  The claimant had complied with the peremptory order.  Having complied the issue of relief from sanctions was not relevant.  The judge should have considered the application to amend on every proposed amendment without reference to the Denton criteria.

    1. However, months went by and CNM took no steps to amend its Particulars of Claim. On 12th January 2021 the Receivers invited CNM to discontinue its claim or to provide a draft amendment for the Receivers to consider. In March 2021 CNM sought advice from leading counsel and, on 8th April 2021, indicated that it intended to continue with its claim and to seek permission to serve an amended pleading. However, it did not do so, as a result of which the Receivers applied to the court for directions. Before the application was heard, Mr Samady (at that stage acting without lawyers, although CNM had previously had five different firms of solicitors and at least two counsel teams acting for it) advised on 29th October 2021 that CNM intended to advance a case of wilful misconduct. Eventually, on 3rd November 2021, shortly before the hearing for directions was due to take place, CNM agreed the terms of an order which was then duly made by Mr Justice Bryan (“the unless order”). It provided by consent that:
“The Claimant shall, by 4pm on Friday, 14 January 2022 serve on the parties and CE File draft Re-Re-Amended Particulars of Claim (‘the Proposed RRAPOC’), failing which its claim shall be struck out.”
    1. CNM did serve a draft pleading on 14th January 2022, which pleaded a case of wilful misconduct. It did not at that stage make an allegation of gross negligence. Nor did it make a formal application to amend.
    1. The Receivers indicated that CNM would need to make a formal application to amend at the second case management conference, which was listed for 11th May 2022. This resulted in CNM issuing an application on 6th May 2022, appended to which was a further Re-Re-Amended Particulars of Claim which, this time, included a plea of gross negligence as well as wilful misconduct. In the event CNM sought an adjournment of the case management conference, which took place before the judge on 25th and 27th May 2022.
The proposed amendments
    1. The proposed amendments assert for the first time that the failures alleged against the Receivers were not merely negligent, but were part of a deliberate scheme by the Receivers to suppress any interest on the part of potential buyers in order to enable TTIL, an associate of Meadow which had purchased the loans, to secure the site at the lowest possible price, such that the entire bidding process conducted by Knight Frank was a sham.
    1. Thus it is proposed to add the following to paragraph 74 should of the Particulars of Claim which I have set out at [11] above:
“However, the Receivers wilfully withheld this information from perspective [sic.] buyers, despite multiple requests from Knight Frank for this information to be made available as requested by potential buyers. Both Knight Frank and potential buyers viewed this as critical information which would have a very significant impact on the value of the property. The Receivers did so, wilfully, to suppress the buyer interest, and hence the value of the highest bid in order, that TTIL/Meadows, who appointed them, could reach their known objective of securing the site purchase at the lowest possible price.”
    1. In similar vein, CNM proposes to add the following to paragraph 75, dealing with the failure to include information about the Café Lease and Sub-lease in the data room:
“This was a wilful omission by the Receivers to suppress the buyer interest, and hence the value of the highest bid in order, that TTIL/Meadows, who appointed them, could reach their known objective of securing the site purchase at the lowest possible price. Despite protests from Knight Frank, they were instructed by the Receivers to ‘go to market come what may’.”
    1. The quotation “go to market come what may” purports to be taken from an email sent by Mr Carvill-Biggs to Knight Frank on 17th October 2017. It is a misquotation. The email complains about what is said to be Mr Samady’s obstruction of the marketing of the site and says that:
“I want to make it plainly clear that his [Mr Samady’s] obstruction only hampers the marketing effort and come what may, we shall launch tomorrow with the information as it stands.”
    1. The email had nothing to do with the Café Lease and could not have had anything to do with the Hartland Agreement relating to the Café sub-Lease, about which (as CNM accepts) the Receivers and Knight Frank knew nothing at this time.
    1. The allegation that the entire bid process was a sham is contained in paragraph 76 of the draft amendment:
“The Receivers conducted the bid process to enable the ‘pre-selected’ buyer TTIL/Meadows to purchase the property at the lowest possible price and on the best delayed completion terms, dictated by TTIL/Meadows, thereby rendering the entire process a sham.”
    1. The plea of gross negligence is dealt with more shortly. The Particulars of Breach contained in paragraph 80 are materially unchanged, but the plea is added in paragraph 81 that:
“The Claimant will contend that the breaches of duty set out above constitute gross negligence on the part of the Receivers. …”
  1. The amendments appear to have been settled by Mr Samady himself. They are not signed by counsel or by any lawyer owing professional duties not to make allegations of what is effectively fraud without reasonable grounds on which to do so.
Submissions on appeal
    1. For CNM Mr Lundie submits that the judge was wrong to hold that relief against sanction was required before permission could be given to advance a plea of gross negligence. He submitted that the unless order required CNM to serve a draft pleading by 14th January 2018 if it was to avoid a strike out, which is what it had done. There was therefore no question of CNM being in breach of the unless order and there was nothing in the order which prevented CNM from seeking permission to make a further amendment, which should be dealt with in the ordinary way. Accordingly this was not a case of failure to comply with an order within the scope of CPR 3.8(1) and no sanction was applicable from which relief needed to be sought. Mr Lundie submitted also that, if relief from sanction was necessary, the judge ought to have granted it.
    1. As to wilful misconduct, the judge was wrong to have concluded that the proposed amendment was speculative and weak. It was a claim with a real prospect of success which the judge ought to have permitted to go to trial. What she had done, in effect, was to conduct a mini-trial, contrary to the well established approach that this is not appropriate.
    1. Mr Mark Simpson KC for the Receivers supported the judge’s reasoning and submitted, by a Respondent’s Notice, that if the judge had not found that the claim had no real prospect of success, she ought to have done so.
Analysis
Was relief from sanction needed?
    1. I deal first with the question whether CNM needed relief from sanction in order to be able to apply for permission to advance a case of gross negligence.
    1. CPR 3.8(1) provides that:
“Where a party has failed to comply with a rule, practice direction or court order, any sanction for failure to comply imposed by the rule, practice direction or court order has effect unless the party in default applies for and obtains relief from the sanction.”
    1. Whether relief from sanction should be granted must be determined in accordance with the approach set out in the well-known case of Denton v T.H. White Ltd [2014] EWCA Civ 906, [2014] 1 WLR 3296, but before that approach comes into play, two prior questions must be considered. The first is whether a rule, practice direction or court order imposes a sanction. The second is whether a party has failed to comply with the rule, practice direction or court order in question.
    1. In the present case the unless order undoubtedly imposed a sanction, namely that in the event of non-compliance CNM’s claim would be struck out. That means that its whole claim would be struck out. There was no scope for the halfway house adopted by the judge, which was to hold that the effect of the order was to prevent CNM from pursuing a claim which was not included in the draft amendment served within the time specified, while permitting the claim which it had pleaded in time to go forward. That is not what the unless order said. The correct position was that either CNM had complied with the order, in which case no question of relief from sanction arose, or it had not, in which case (subject to relief from sanction) its whole claim was struck out.
    1. So did CNM comply with the order? This is a binary question. Either it did or not. What the order required CNM to do was to serve a draft amendment to its Particulars of Claim within the specified deadline. That is what it did. It cannot be, and was not, suggested that the document which CNM served was not a “draft Re-Re-Amended Particulars of Claim”. Accordingly it complied with the order. That should have been the end of any question of relief from sanction being needed.
    1. I would accept that it is possible to envisage a case where a party who is required to comply with an unless order, for example by serving a pleading, does something within the deadline which cannot properly be regarded as compliance, for example by serving a document which contains gibberish or blank sheets of paper or that a party may serve a Response to a Request for Further Information which provides some but not all of the information which a party has been ordered to provide. In such a case, it would be obvious that there has been non-compliance and the sanction takes effect. But this case is far removed from anything like that.
  1. I conclude, therefore, that the judge was wrong to rule against CNM on this issue. She should have considered the application to amend to plead gross negligence on its merits, as she did with the amendment concerning wilful misconduct. We must therefore consider the question of amendment for ourselves….

THE RESULT

The Court of Appeal indicated that they would have allowed the appeal.  However the action was compromised shortly before the judgment was handed down.