England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(Mr Justice Evans-Lombe)

		The Royal Courts of Justice Strand London WC2 Thursday 18th July, 2002

1. LORD JUSTICE LAWS: I will ask Lord Justice Jonathan Parker to give the first judgment.
2. LORD JUSTICE JONATHAN PARKER: This is an application to set aside a grant of permission to appeal. The application is made by the second and third defendants in an action in which the claimants (to whom the permission to appeal was granted) are Barings Plc (in liquidation) ("PLC") and Bishopscourt (BS) Ltd (also in liquidation), formerly Barings Securities Ltd ("BSL"). BSL was at the time an indirect subsidiary of PLC. I will refer to the action as "the PLC action". The applicants are sued in their capacity as partners at the material time in the accountancy firm of Deloitte & Touche (Singapore), and I will refer to them as "D&T". Also joined as a defendant in the PLC action is the accountancy firm Coopers & Lybrand ("C&L").
3. D&T applies to set aside a grant by Robert Walker LJ, made on the papers on 5 February 2002, of permission for PLC and BSL, as claimants in the PLC action, to appeal against an order made by Evans-Lombe J on 5 December 2001 striking out the PLC action as against D&T.
4. The background to the application is somewhat complex, but I shall attempt to summarise it as shortly as I can.
5. The PLC action is one of two actions being heard together by Evans-Lombe J arising out of the collapse of Barings Bank in February 1995 as a result of the fraudulent activities of Nicholas Leeson in trading on the Singapore International Monetary Exchange (otherwise known as SIMEX). Leeson was general manager of Barings Futures Singapore Pte Ltd ("BFS") from 1992 until he went missing shortly before the collapse. BFS was an indirect subsidiary of BSL and hence of PLC.
6. The other action is brought by BFS as claimant against D&T and C&L. I will refer to it as "the BFS action".
7. In each action, the respective claimants claim damages against D&T for negligence in acting as auditors of BFS, on the footing (expressing it broadly) that had D&T carried out its duties properly Leeson's activities would have been discovered earlier and their catastrophic consequences would have been avoided. The BFS action is based specifically on the local statutory reports made by D&T in respect of BFS' accounts.
8. In the PLC action, essentially three different heads of claim are pleaded.
9. Firstly, BSL claims damages in respect of very substantial sums advanced by it to BFS by way of dollar funding, which were then lost by BFS. By way of defence to this claim, D&T contends, among other things, that this a loss which would be made good if BFS were to succeed in achieving full recovery in the BFS action, and that BSL, as the parent company of BFS, has no direct claim against D&T as auditors of BFS. This defence is based upon the decision of the House of Lords in the case of Johnson v Gore Wood [2001] 2 WLR 72. D & T also contends that the claim fails the "purpose test", in that there is no pleaded allegation that the loss was caused by BSL entering into transactions of which D & T were aware at the time and for the purposes of which D & T provided its services.
10. Secondly, PLC and BSL claim damages representing the loss in value of their respective groups, which were rendered insolvent as a consequence of Leeson's unauthorised activities. By way of defence to this claim, D & T repeat the contention that the claim as pleaded does not meet the "purpose test".
11. Thirdly, PLC claims damages in respect of bonuses alleged to have been paid out by PLC on the basis of profits of BFS as shown in its 1993 accounts, which were audited by D & T and in respect of which D & T reported direct to PLC. As to that claim, D & T raises (among other things) a defence based on Johnson v Gore Wood. D&T further contends that the loss arising from paying the bonuses was in fact borne not by PLC but by BSL, and that accordingly the claim as pleaded must fail.
12. The trial of the two actions began in June 2001 but was halted after a short time because settlement negotiations were taking place between the respective claimants on the one hand and C&L on the other. The trial resumed on 2 October 2001. Shortly before its resumption, on 28 September 2001, D & T applied to strike out the PLC action. It also applied for a direction for the hearing of a preliminary issue, the nature of which I shall indicate in a moment.
13. As I say, the trial resumed on 2 October 2001. Six days later, on 8 October, settlement agreements were concluded with C&L between the claimants and C&L, conditional on the approval of creditors and of the courts both in England and in Singapore. The agreements became unconditional, as I understand it, in the course of January 2002.
14. Prior to the resumption of the hearing in October 2001, and in anticipation of a binding compromise being reached with C&L, PLC and BSL had informed D & T that in that event they would limit their claims against D & T in the PLC action to damage suffered prior to 31 December 1994, and they further proposed that (and I quote from a letter dated 9 October 2001 from Ashurst Morris Crisp to Clifford Chance (D & T's solicitors)):

"... the PLC action against your clients should be stayed on terms that such a stay will only be lifted in the event that the Court finds your clients to have been negligent but they avoid any damages award in favour of BFS on grounds which would not be a bar to a claim by PLC/BSL."

15. In effect, PLC and BSL took the position (which they have since maintained) that, assuming a binding settlement was reached with C&L, they would be content to leave it to BFS to prosecute its claims against D&T, provided that this did not lead to D&T escaping liability by reason of a defence which it could not have run as against them.
16. By that stage, the only defence which might have fallen into that category was D&T's pleaded defence in the BFS action that two representation letters written to D&T by Mr Jones, the finance director of BFS, were written dishonestly and/or recklessly. This defence, if made good, would entitle D&T to a cross-claim against BFS which would serve to extinguish any claim by BFS; but it could not be run as against PLC or BSL. D&T had earlier applied for a direction that the issue whether this defence was a good defence as against BFS be tried as a preliminary issue (this being the application to which I referred a moment ago). In the event, the judge made the direction sought.
17. The judge then heard argument as to whether it was appropriate that he should hear and determine the strike-out application in advance of the hearing of the preliminary issue. PLC and BSL submitted that there was no point in dealing with the strike-out application at that stage since under the proposals made in Ashursts' letter of 9 October 2001 the court was unlikely to have to consider any substantive issues which were peculiar to the PLC action. D&T, on the other hand, submitted (through Mr Gaisman QC) that the judge should go ahead and determine the strike-out application, in advance of the hearing of the preliminary issue. In this context Mr Gaisman identified costs as being, as he put it, "a serious consideration". His oral submission continued, according to the transcript:

"It would be a highly material consideration, to put it no higher, on the question of costs if I were able to demonstrate that this claim was always doomed to failure."

18. In the event the judge decided that it was appropriate to hear the strike-out application in advance of the preliminary issue.
19. The judge then proceeded to hear the strike-out application. The hearing of that application began on 23 October 2001. In a lengthy and detailed judgment which he handed down in draft on 21 November and which was released to the public on 23 November, the judge concluded that the first head of claim (dollar funding) failed on Johnson v Gore Wood grounds and also because it failed the "purpose test". As to the second head of claim (value of the groups), he held that it too failed the "purpose test". As to the third head of claim (PLC's claim in respect of bonuses), he held that it failed on Johnson v Gore Wood grounds and because the uncontroverted evidence established that the loss claimed was not in fact suffered by PLC but by BSL.
20. Consequential matters arising out of his judgment were dealt with at a further hearing which took place on 5 December 2001. In the course of that hearing counsel for PLC applied for leave to amend its pleading in relation to the third head of claim so as to change its case from one of overpayment by the parent company to one of a loss suffered by the parent company as a result of an overpayment by its subsidiary, BSL. The judge refused permission to amend, on the ground that the application had come too late. In this connection, it is to be noted that in paragraphs 144 and 145 of his substantive judgment the judge recorded that in the course of the hearing an amendment to the same effect had been (as he put it) tabled, but that no formal application had been made to make it. The judge went on to say (in paragraph 145) that he would in any event have refused such an application as being embarrassing to D&T.
21. The judge also refused permission to appeal.
22. PLC and BSL applied to the court for permission to appeal against the strike out. The grounds of appeal annexed to the appellants' notice extended to 35 paragraphs and cover each of the three heads of claim which I identified earlier. Paragraphs 30 to 34 inclusive of the grounds of appeal were devoted exclusively to the third head of claim (bonuses).
23. As I recounted earlier, on 5 February 2002 permission was granted by Robert Walker LJ on the papers. He expressed his reasons for granting permission as follows:

"It will not be easy to overturn the judge's careful and thorough judgment. Nevertheless the grounds of appeal are arguable, and the issues are important both to the parties and generally."

24. Since the grant of permission, the preliminary issue in the BFS action has been heard by the judge, and determined in favour of BFS. In other words, the judge has concluded that the defence based on the representation letters is not a good defence to BFS' claims. That in turn means that, as PLC and BSL accept, under the proposals to which I referred earlier, the first and second heads of claim against D&T in the PLC action are stayed. As a matter of analysis, the third head of claim (bonuses) remains as a live issue on the appeal, but PLC and BSL have confirmed that the appeal is now relevant only in relation to costs. As one may expect, the costs of the PLC action are likely to be very substantial. According to a witness statement of Mr Grandison, of Slaughter & May, D&T's costs of the PLC action have been estimated at £3 million.
25. D&T has announced that it does not propose to seek permission to appeal against the judge's decision on the preliminary issue.
26. It is against that somewhat complex procedural background that D&T now applies to set aside the grant of permission to appeal by Robert Walker LJ.
27. At this point I turn to the relevant provisions of the Civil Procedure Rules, which are to be found in CPR 52.9. Paragraph (1) of the rule gives an appeal court power to set aside permission to appeal in whole or in part. Paragraph (2) of the rule provides that the court will only exercise its powers under paragraph (1) "where there is a compelling reason for doing so".
28. So what is relied on by D&T as providing such a "compelling reason"?
29. Mr Christopher Butcher QC, for D&T, submits that the permission should be set aside primarily because of developments which have occurred since the permission was granted, to which I have referred, in consequence of which the appeal is now only relevant to the issue of costs. He further submits that it is highly unlikely that if Robert Walker LJ had been asked to grant permission in respect of the bonuses issue alone, he would have done so, since an appeal on that issue would (Mr Butcher submits) have no real prospect of success. Indeed, he submits that it would be bound to fail. Mr Butcher also submits that in applying for permission to appeal, PLC and BSL "failed properly to disclose the relevant facts relating to the bonuses claim and in particular those relating to the proposed amendment" (I quote from paragraph 12(c) of D&T's initial written skeleton argument in support of the present application). The suggestion is that neither the grounds of appeal nor the skeleton argument makes it sufficiently clear that the formal application to amend the pleadings in relation to the bonuses issue was made after judgment had been handed down, the inference (I take it) being that if that had been made clear to Robert Walker LJ he would inevitably have refused permission on the bonuses issue.
30. Mr Butcher also points out that PLC and BSL have not sought to appeal against the judge's refusal to allow the amendment, and he submits that in any event the bonuses issue does not give rise to any point of general importance such as might otherwise justify a grant of permission to appeal in respect of that issue.
31. In the first place, I reject straightaway the submission (which is implicit if not explicit in Mr Butcher's submissions) that PLC and BSL misled the court on the question of the application for permission to amend the pleading in relation to the bonuses issue. Paragraph 72 of their skeleton argument in support of their application for permission to appeal is in the following terms:

"The learned Judge gave a written judgment ... which was released in final form on 23 November 2001 and formally handed down on 27 November 2001 (when it was indicated for PLC and BSL that consideration was being given to the possibility of putting forward amendments). Consequential matters were then dealt with on 5 December 2001... On that occasion PLC and BSL put forward draft amendments on the duty of care point and the bonuses point, which they sought leave to make if the Judge considered that they would remedy the deficiencies which he saw in the Statement of Claim... D&T submitted that such amendments were too late (relying on Stewart v Engel [2001} 1 WLR 2268, CA) and, in any event, that they added nothing new. The learned Judge refused the application on the ground it was made too late." (Emphasis supplied)

32. I cannot for my part see anything remotely misleading in that paragraph. On the contrary, as I read it, it makes it clear that the formal application to amend was made at the hearing on 5 December 2001 when "consequential matters" were being considered.
33. So what is left? In my judgment, the remaining factors relied on by Mr Butcher do not amount, singly or collectively, to anything which even begins to resemble "a compelling reason" for setting aside the grant of permission.
34. "Compelling reason", in this context, connotes, in my judgment, something which is sufficiently serious to be in the nature of an irregularity in the grant of permission. In Nathan v Smilovitch [2002] EWCA Civ 759 Longmore LJ said, at paragraph 9, referring to an application to set aside a grant of permission to appeal:

"For my part, unless the nature of the application shows that some decisive authority or decisive statutory provision has been overlooked by the Lord Justice granting permission to appeal, an applicant would normally have to show that the single Lord Justice had actually been misled in the course of the presentation of an application."

35. I respectfully agree.
36. The fact that the appeal is now relevant on costs only is a matter which can (and no doubt will) be brought to the attention of the court hearing the substantive appeal, and the court will give that factor such weight as it sees fit in disposing of the appeal. But it cannot in my judgment amount to a compelling reason for setting aside the grant of permission.
37. In my judgment the power conferred by paragraph (1) of rule 52.9 is emphatically not a power to, in effect, entertain an appeal against the grant of permission. Yet that, in substance, is what Mr Butcher has invited this court to do in relation to the bonuses issue. In my judgment the power to set aside a grant of permission to appeal is not available for the purpose of second-guessing the single judge who granted the permission and thereby generating satellite litigation: rather, its purpose is to enable the court to do justice in those rare cases where something in the nature of an irregularity has occurred in the granting of permission, whether by reason of the single judge having been misled or for some other like reason.
38. It follows that in so far as D&T seek to rely on the fact that the only issue remaining in the appeal is the issue of costs I regard this application as wholly misconceived; and that in so far as D&T seek to assert that Robert Walker LJ was misled, I consider that there is no substance whatever in that assertion. Indeed, I regard it as regrettable that it was ever made.
39. I would accordingly dismiss this application, and in doing so I would express the hope that in future practitioners will think twice before launching an application of this kind, in the knowledge that only in very limited circumstances will such an application be likely to succeed.
40. That leaves one outstanding matter. PLC and BSL have proposed in correspondence, and they have repeated this proposal on this application, that given that the appeal is now relevant only as to costs, the hearing of the appeal should be deferred until after the conclusion of the BFS action.
41. Mr Butcher has indicated that D&T are willing to concur in that proposal, on the footing that it is a sensible way of managing the case in this respect. I agree that the proposal seems a thoroughly sensible one and I would make a direction accordingly.
42. LORD JUSTICE LAWS: I agree that this application should be refused for the reasons given by my Lord. I agree also that the direction proposed by Mr Davies QC should be made.
43. I add only this. It seems to me to be of the highest importance that the court should very firmly discourage the bringing of satellite litigation under the guise of an application under CPR Part 52.9. The rule is there to cater for the rare case in which the Lord Justice granting permission to appeal has actually been misled. If he has, the court's process has been abused and that is of course a special situation. There may also be cases where, as Longmore LJ indicated in Nathan v Smilovitch [2002] EWCA Civ 759, some decisive authority or statute has been overlooked by the Lord Justice granting permission. But where such a state of affairs is asserted, the learning in question must in my view be plainly and unarguably decisive of the issue. If there is anything to argue about, an application to set aside the grant of permission will be misconceived.
44. This application should not have been made.
ORDER: Application to set aside the grant of permission to appeal refused with costs assessed in the sum of £27,817.48; appeal stayed pending the outcome of the BFS action. (Order not part of approved judgment)