England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE QBENI 98/0916/1

(HIS HONOUR JUDGE THORNTON QC )

Royal Courts of Justice

Strand

London WC2A 2LL

Friday 18 September 1998

B e f o r e:

LORD JUSTICE NURSE

LORD JUSTICE EVANS

LORD JUSTICE WARD

- - - - - -

JFS (UK) LIMITED

TILGHMAN WHEELABRATOR LIMITED

Plaintiffs/Appellants

- v -

DWR CYMRU CYF

Defendant/Respondent

- - - - - -

(Transcript of the Handed Down Judgment of

Smith Bernal Reporting Limited, 180 Fleet Street,

London EC4A 2HD

Tel: 0171 421 4040

Official Shorthand Writers to the Court)

- - - - - -

MR N DENNYS QC (Instructed by Messrs Cameron McKenna, London, EC1A 4DD) appeared on behalf of the Appellant

MISS B DOHMANN QC and MR D STREATFIELD-JAMES (Instructed by Messrs Taylor Joynson Garrett, Carmelite, London, EC4Y ODX) appeared on behalf of the Respondent

- - - - - -

J U D G M E N T

(As approved by the Court)

- - - - - -

©Crown Copyright

Friday 18 September 1998

JUDGMENT

LORD JUSTICE NOURSE: This appeal raises a question on section 35 of the Limitation Act 1980, to which the marginal note is "New claims in pending actions: rules of court". Subsection (3) provides:

"Except as provided by section 33 of this Act or by rules of court, neither the High Court nor any county court shall allow a new claim within subsection (1)(b) above, other than an original set-off or counterclaim, to be made in the course of any action after the expiry of any time limit under this Act which would affect a new action to enforce that claim.

For the purposes of this subsection, a claim is an original set-off or an original counterclaim if it is a claim made by way of set-off or (as the case may be) by way of counterclaim by a party who has not previously made any claim in the action."

Shortly stated, the question is whether the "claim in the action" referred to at the end of that subsection must be a claim for some form of relief, or whether it is enough that it is a positive averment made by way of defence.

The appeal is by the plaintiffs against an order made on 27th February 1998 by His Honour Judge Thornton QC, dealing with Official Referees' business, by which he gave the defendant leave to amend its defence by replacing it with a substituted defence and counterclaim. The original defence, although it made positive averments by way of defence, made no claim for relief against the plaintiffs, whereas several such claims would be made by the substituted defence and counterclaim, if allowed. It is now accepted by the defendant that some at least of the claims so made would, if they had been made the subject of a new action commenced on 27th February 1998, have been statute-barred. Those are the circumstances in which the question stated has arisen. There are also two subsidiary questions.

The trial of the action is fixed to start on 12th October next, with a directions hearing listed for 23rd September. Accordingly, the appeal, for which leave was granted by Millett and Brooke LJJ on 9th July 1998, has been treated as vacation business. It first came before Simon Brown and Auld LJJ, when they were unable to agree as to its disposal. After it had been reargued before us on 11th September, we informed the parties that we were all, as then advised, of the opinion that it ought to be dismissed. I remain of that opinion. In the circumstances stated, I will explain my reasons as briefly as I can.

The material facts can be recorded mainly in the judge's own words. He described the action as being one of considerable technical complexity. It is concerned with a contract or contracts for the supply by the plaintiffs to the defendant of a water treatment plant in the Neath Valley in Wales, the method of treatment being known as the Tricon process. The plaintiffs made a proposal based on a design brief prepared by the defendant, the proposal being supplemented by a presentation in July 1990. Representatives of the defendant then visited the plaintiffs' parent corporation in the United States, where they were given further presentations and visited three water treatment plants. The defendant alleges that the plaintiffs' presentations, meetings and proposals gave rise to substantial and material misrepresentations as to the suitability and capability of the Tricon process, being misrepresentations which induced the defendant to enter into a contract with the plaintiffs on 28th March 1991. It is the defendant's wish to rely on those alleged misrepresentations that has given rise to the bulk of the proposed amendments which it now seeks leave to make.

The plaintiffs' claim in the action, as it now stands, is for approximately £64,500 as the value of work not paid for and £812,000 loss of profit. There is a further claim for loss of interest amounting to approximately £400,000. In its original defence the defendant alleged that the contract, or the first contract, was discharged by agreement, frustrated or rendered impossible of performance by supervening illegality, because the defendant was unable to obtain the required planning permission for its chosen site. As to the resited scheme, the defendant contended that no concluded contract came into being; alternatively that the uncertainties as to the efficacy of the process entitled it to terminate any relevant contractual relationship concerned with mechanical and electrical work at that site. The defendant also contended that no profit could or would have been earned by the plaintiffs, so that that part of the sums claimed was in any event irrecoverable. Thus it is clear that the original defence made a number of positive averments by way of defence. Conversely, it made no claim for any form of relief against the plaintiffs.

Based on the alleged misrepresentations to which reference has been made, the proposed substituted defence and counterclaim includes the following claims for relief against the plaintiffs: rescission pursuant to section 2(2) of the Misrepresentation Act 1967, or damages in lieu; damages for misrepresentation pursuant to section 2(1) of the 1967 Act; and, by reason of a total failure of consideration, recovery of any sums paid to the plaintiffs as money had and received. The frustration defence originally pleaded is also supplemented by a claim for the return of all sums already paid to the plaintiffs pursuant to the Law Reform (Frustrated) Contracts Act 1943. Thus it is clear that the substituted defence and counterclaim, unlike the original defence, makes a number of claims for relief against the plaintiffs.

The writ in the action was issued on 3rd June 1996. The statement of claim was served soon afterwards and the original defence on 3rd September 1996. The further preliminary stages of the action were delayed by the parties' involvement in another action concerning a contract to supply a similar water treatment plant at Bolton Hill, Dyfed. Eventually, a substituted statement of claim in the present action was served on 9th January 1998, shortly before the defendant's application for leave to put in its substituted defence and counterclaim came before the judge on 27th February. On that day he announced his decision to grant leave, his reasons being set out in a comprehensive written judgment dated 3rd March 1998.

The issues have narrowed in this court. On the footing that some at least of the causes of action on which the defendant's claims for relief against the plaintiffs are founded arose on or before the date on which the parties first entered into a contractual relationship (28th March 1991), more than six years before the application for leave to amend was determined by the judge, the first and principal question is whether any of the positive averments made in the original defence was a "claim in the action" made by the defendant within the second paragraph of section 35(3) of the 1980 Act. If it was, the defendant accepts that the first paragraph of section 35(3) precludes the court from allowing it to make any claim for relief against the plaintiffs which is based on a statute-barred cause of action. If it was not, the plaintiffs accept that the court has jurisdiction to allow the defendant to make such claims against them, provided (these are the two subsidiary questions), first, that there is power to allow the amendments under RSC Ord.20, r.5 and, secondly, that it is proper for them to be allowed in the exercise of the court's discretion.

In order to answer the first and principal question it is necessary to set out the material provisions of section 35(1) and (2):

"(1) For the purposes of this Act, any new claim made in the course of any action shall be deemed to be a separate action and to have been commenced -

(a) in the case of a new claim made in or by way of third party proceedings, on the date on which those proceedings were commenced; and

(b) in the case of any other new claim, on the same date as the

original action.

(2) In this section a new claim means any claim by way of set-off or counterclaim and . . . "

If the definition of a new claim contained in subsection (2) is read into subsection (1)(b), the result is that, for the purposes of the 1980 Act, any claim by way of set-off or counterclaim made in the course of any action is deemed to be a separate action and to have been commenced on the same date as the original action. However, the first paragraph of subsection (3) provides that such a claim shall not generally be allowed to be made after the expiry of any time limit which would affect a new action to enforce it. That is a provision restrictive of subsection (1)(b), an exception from which is then made in the case of an "original" set-off or counterclaim as defined in the second paragraph of subsection (3).

That being the scheme of section 35(1), (2) and (3), what is meant by any "claim in the action" in the second paragraph of subsection (3)? The question is short and no doubt one of impression. But a question of impression arising in the construction of a statute, just as much as any other such question, must be answered in the belief that, where there is no context to the contrary, Parliament uses words in their correct legal sense. Although we have been referred to no dictionary or other definition of "claim", I think it is correctly understood to be the equivalent of "demand", a word which necessarily imports a request for some form of relief. While a defendant may loosely be described, for example, as "claiming" that a debt is not due because the plaintiff has extended the time for its repayment, he cannot be said to be making a claim in the correct legal sense. There being no context to the contrary in section 35(3), indeed the context is supportive of its correct legal meaning, it is clear that "claim" means "claim for relief".

Each side has pointed to difficulties which are said to flow from the other's construction. I need not go into these, except to say that the most formidable of them was faced by Mr Dennys QC, for the plaintiffs. While contending on the one hand that a positive averment by way of defence was a claim in the action, he was, on the other hand, forced to accept that a non-admission or a simple denial could not be such a claim. He was unable to explain why Parliament should have intended that the court's jurisdiction to allow an original set-off or counterclaim to be made should depend on whether the defence had been pleaded in the one way or in the other. I can think of no good reason myself.

In the circumstances, I would decide the first question in favour of the defendant and hold that the judge had jurisdiction under section 35(3) to allow it to put in its substituted defence and counterclaim. Before that question is departed from a passing reference should be made to section 35(4), which provides:

"Rules of court may provide for allowing a new claim to which subsection (3) above applies to be made as there mentioned, but only if the conditions specified in subsection (5) below are satisfied, and subject to any further restrictions the rules may impose."

It is plain that an original set-off or counterclaim as defined in the second paragraph of subsection (3), being an exception from the first paragraph, is not "a new claim to which subsection (3) above applies". Accordingly, subsection (4) (and with it subsection (5)) has no application to the present case. Mr Dennys has not argued to the contrary.

It is then necessary to consider the first subsidiary question, which is whether the judge had power to allow the amendments under Ord.20, r.5. This question was first raised in exchanges between the court and counsel at the hearing before Simon Brown and Auld LJJ. It was suggested that, whatever might be the true construction and effect of section 35(3), there was no power to allow the amendments under that rule. That suggestion has been adopted by Mr Dennys by way of submission before us.

Ord.15, r.2(1) provides that, subject to r.5(2), a defendant may, instead of bringing a separate action, add a counterclaim to his defence. R.5(2) provides that if it appears that the subject-matter of a counterclaim ought for any reason to be disposed of by a separate action, the court may order the counterclaim to be struck out or may order it to be tried separately. Where a counterclaim is not made in his original defence, the defendant, if he is not to bring a separate action, must apply for leave to amend the defence under Ord.20, r.5.

So far as material Ord.20, r.5 provides:

"(1) Subject to . . . the following provisions of this rule, the Court may at any stage of the proceedings allow the plaintiff to amend his writ, or any party to amend his pleading, on such terms as to costs or otherwise as may be just and in such manner (if any) as it may direct.

(2) Where an application to the Court for leave to make the amendment mentioned in paragraph (3), (4) or (5) is made after any relevant period of limitation current at the date of issue of the writ has expired, the Court may nevertheless grant such leave in the circumstances in that paragraph if it thinks it just to do so . . .

(5) An amendment may be allowed under paragraph (2) notwithstanding that the effect of the amendment will be to add or substitute a new cause of action if the new cause of action arises out of the same facts or substantially the same facts as a cause of action in respect of which relief has already been claimed in the action by the party applying for leave to make the amendment."

Ord.20, r.5 has been in its present form since 1964. At that time the limitation provision applicable to claims by way of set-off or counterclaim was section 28 of the Limitation Act 1939, which provided:

"For the purposes of this Act, any claim by way of set-off or counterclaim shall be deemed to be a separate action and to have been commenced on the same date as the action in which the set-off or counterclaim is pleaded."

That provision, like section 35(1)(b) of the 1980 Act, enabled a defendant who included a counterclaim in his original defence to overcome any limitation objection which would otherwise have arisen between the date of the writ and the date of the defence. However, Mr Dennys has submitted, in my view correctly, that where a defendant applied for leave to add a counterclaim by amendment, he would have encountered the well established rule of practice not to permit a party to add, by way of amendment, a cause of action which was statute-barred at that time. He would not have been given leave to amend under Ord.20, r.5(1). Nor could he have obtained it under r.5(2) and (5), because ex hypothesi he would not have been a party who had already claimed relief in the action.

Had the court's present jurisdiction rested only on section 35(1)(b) of the 1980 Act, the position would have been the same as it was before that Act. But it is clear that section 35(3) has widened the jurisdiction to the extent that the court may now allow a new claim which is an "original" set-off or counterclaim to be made, even though it is founded on a cause of action which is statute-barred. No doubt it would have been possible for a consequential amendment to be made to Ord.20, r.5. But neither that rule nor the previous rule of practice can override the express provision of the Act. Accordingly, I conclude that the application to amend is one which is capable of being made under the general power contained in r.5(1).

Unknown to counsel or the court at the previous hearing before Simon Brown and Auld LJJ, a division of this court consisting of my Lord, Lord Justice Evans and Mr Justice Wilson had already arrived at the same conclusion in Lloyds Bank PLC v. Wojcik (19th December 1997, unreported), where the facts were in essential respects similar to those of the present case. In the judgment of the court (at pp. 10-11 of the official transcript) a passage is quoted from the Annual Practice (1997) vol 2, para. 6163. The judgment continues:

"The editors therefore support Mr Neville-Clarke's submission that a set-off and counterclaim which is time-barred may be added to an original Defence in which no set-off or counterclaim was relied upon.

In our judgment, this is the effect of section 35 and Ord.20, r.5 in its present form. The proposed amendment is not within r.5(5) and therefore the appellant cannot rely upon the permissive power ("the Court may nevertheless grant such leave") given by r.5(2). He does however rely upon the general discretionary power given by r.5(1). The objection to leave to amend being given is that the proposed set-off and counterclaim raise a new cause of action which is time-barred. The time-bar relied upon is the six-year limit under section 5 and 2 of the Limitation Act 1980, but this is subject to section 35. Section 35 permits a new claim to be added as if it had been made at the date of the Writ or Summons and the prohibition upon new claims under section 35(3) is subject to the express exception of an original set-off or counterclaim as defined in the sub-section. The proposed amendments are within that definition. This justifies, in our judgment, the view expressed in the Annual Practice that a set-off and counterclaim may be added to an original Defence which does not contain either, notwithstanding that the cause of action is time-barred when the addition is made by amendment. The fact of the time-bar is not an insuperable objection to leave to amend being given.

If this is correct, then the matter is governed by the general exercise of the Court's discretion under Ord.20, r.5(1)."

It will be observed that that passage also supports the view already expressed on the first question, although Mr Dennys has sought to distinguish Lloyds Bank v. Wojcik on the ground that there the defence had not made any positive averments by way of defence.

I would therefore decide the first subsidiary question in favour of the defendant and hold that the judge had power to allow the amendments under Ord.20, r.5(1). I turn finally to the second subsidiary question, which is whether, as Mr Dennys has contended, the judge, in allowing the amendments to be made, erred in principle or exercised his discretion in a manner which was plainly wrong.

This question can be dealt with very briefly. The judge considered whether the claims for relief made in the substituted defence and counterclaim were statute-barred and concluded:

"they are largely not subject to limitation considerations at all and, in so far as they are subject to limitation considerations, are not statute-barred, or can arguably be brought within the ambit of section 14A of the Limitation Act."

As I have said, it is now accepted by the defendant that some at least of the claims so made would, if they had been made the subject of a new action commenced on 27th February 1998, have been statute-barred. Moreover, Miss Dohmann QC, for the defendant, has not argued that others of the claims are not statute-barred.

In this state of play, Mr Dennys has submitted that the judge exercised his discretion to allow the amendments on a false premise. He thought that the claims were largely not statute-barred, whereas he ought to have proceeded on the footing that they were all statute-barred. Had he done so, he could not reasonably have allowed the amendments.

I reject Mr Dennys's submissions. Although he referred us to a passage in the judge's judgment which suggests that if he had thought that the claims were all statute-barred he might have concluded that the case was sufficiently exceptional to call for a refusal of leave to amend, it is far from clear, on a consideration of the judgment as a whole, that he would have adopted that course. Moreover, if we were to interfere with the judge's exercise of discretion, we would have to exercise an original discretion of our own. For my part, doing the best I can on the material and arguments which have been put before us, I would have allowed the amendments to be made, even if the correct view was that all the claims were statute-barred.

For these reasons I would decide the second subsidiary question in favour of the defendant and confirm the judge's decision to allow the amendments. I would therefore dismiss the plaintiffs' appeal.

LORD JUSTICE EVANS: I agree.

LORD JUSTICE WARD: I also agree.

Order: Appeal dismissed with costs.