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
QUEEN'S BENCH DIVISION
MANCHESTER DISTRICT REGISTRY
MERCANTILE LIST
(HIS HONOUR JUDGE HEGARTY
(sitting as a deputy High Court judge))

		Royal Courts of Justice Strand London, WC2
		7th October 2004

1. LORD JUSTICE PETER GIBSON: I will ask Lord Justice Longmore to give the first judgment.
2. LORD JUSTICE LONGMORE: By an undated document but signed by the respondent defendant, Mr Dawood, on or about 25th April 1989, Mr Dawood guaranteed repayment of all monies due from one Barry McColgan, with a limit of £300,000 exclusive of interest and charges.
3. On 25th August 1992 Habib Bank (the claimant in the proceedings and the appellant before us) made a formal demand on Mr McColgan for £495,367.56, made up partly of principal and partly of interest. Mr McColgan failed to pay and on 18th February 1993 the bank made a formal demand on Mr Dawood for the maximum sum under the guarantee of £300,000 by way of principal and £1,703,202.75 for interest and costs up to 5th February 1993, making £473,202.75 altogether.
4. Mr Dawood made no payment pursuant to that demand. On 22nd December the bank issued a writ (so long ago is it) with an endorsed statement of claim claiming: (1) the figure of £473,202.75; (2) interest thereon to the date of the writ pursuant to section 35A of the Supreme Court Act 1981, which was quantified in the sum of £69,800.65; and (3) continuing interest from the date of that writ, also pursuant to the Supreme Court Act.
5. On 10th March 1997 the bank applied for summary judgment. That application became ineffective after evidence had been filed from Mr Dawood. A trial date was in due course fixed for 14th December 1998.
6. The bank failed to serve its list of documents until 27th May 1998 and that trial date had to be vacated. No new trial date was fixed. Mr Dawood applied to strike out the claim for want of prosecution. That application failed.
7. In due course the matter came for trial before His Honour Judge Hegarty QC in the Mercantile List at Manchester and he gave judgment on 30th January 2002 on liability. Since there was no doubt that at least £300,000 was owing, he also gave judgment for that sum. He reserved questions of any final sum and interest and costs.
8. Later that year there was oral argument on interest and costs. In the course of that oral argument it became clear that the bank wished to argue that the contractual rate of interest was something to which they were entitled, both as against Mr McColgan and against Mr Dawood, and that they would prefer to make a claim for contractual interest rather than the statutory interest as pleaded. An application was made to amend in the course of argument, but no formal document proposing any such draft amendment was at that stage produced.
9. On 20th November His Honour Judge Hegarty gave a second judgment dealing with interest and costs, among other things. He decided, first, that the statement of claim did not on its face include a claim for compound interest calculated at the contractual rate agreed in the loan to Mr McColgan. Secondly, that the bank should not have permission to amend to claim compound interest at what was, on any view, a very late stage of the proceedings. Thirdly, that as far as statutory interest was concerned, the bank should be entitled to interest for seven rather than the nine full years that had elapsed since the cause of action accrued.
10. On 18th February new proceedings were issued by the bank asserting a right to compound interest from 1st September 1995 to 31st January 2003. On 29th April 2003 judgment in an agreed sum, on the basis that the second judgment was correct, was entered for £346,000 and costs.
11. In due course His Honour Judge Hegarty heard applications in relation to the new proceedings. On 20th December 2003 he decided inter alia that the claim for compound interest in the second action could and should have been brought, if at all, in the first action and should therefore be struck out.
12. The bank now appeals to this court, originally asserting that the writ in the first action contained on its true construction a claim for compound interest. That has been abandoned by Mr Jonathan Marks QC, now appearing for the bank. (He did not appear in the courts below.) Secondly -- and this is supported by Mr Marks -- the bank asserts that the judge was wrong to refuse the bank permission to amend; and thirdly, the bank submits that if permission was rightly refused, the claim in the second action should not have been dismissed.
13. Since the date of the third judgment but after the date fixed for the hearing of this appeal, Mr Dawood's solicitors have informed the court that they have no instructions. They have, however, informed Mr Dawood of the date so fixed, but he has decided not to appear on the appeal. He has taken no steps to satisfy the judgment given in April 2003, and Mr Marks has told us that Mr Dawood is currently in Canada.
14. The burden of Mr Marks' submissions is that the judge was wrong to have refused the bank permission to amend. His primary submission was that the judge approached the application on the basis that the bank could only add accruing contractual interest to its claim if it availed itself of the option granted to it in clause 1 of the guarantee document to hold the guarantor primarily responsible as a principal debtor, rather than as a surety only. This was because a claim for post-writ contractual interest was a claim which inevitably accrued after the issue of the writ, and it was only as against a principal contracting party that it was a permissible practice for such interest to be claimed up to the date of judgment.
15. The way the judge put the matter was this:

"79. ... the proposition is that proceedings can be commenced only in respect of an existing cause of action and that judgment cannot, therefore, be given in respect of monies which have only fallen due subsequent to the commencement of proceedings.

80. In the case of a cause of action for damages, it seems to me that the proposition is plainly wrong. Provided that the cause of action conferring the right to damages is complete at the time when the action is commenced, damages will be assessed as at the date of judgment.

81. But the same does not generally hold true in relation to claims for a liquidated sum. In such cases, the almost invariable rule appears to be that the amount must be ascertained or ascertainable as at the date of commencement of proceedings. Thus, for example, a landlord's claim for rent must be quantified as at the date of commencement of proceedings, notwithstanding that further rent may continue to fall due in the period prior to judgment. The same would apply to claims on a hire purchase agreement, though commonly, in such cases, the agreement will have been determined and future instalments may, accordingly, be indirectly recovered by way of a claim for damages.

82. The distinction between a claim for a debt and for damages is deeply entrenched in the law. Its origins are, no doubt, to be found in the old forms of action which, as Maitland observed, 'still rule us from their graves'.

83. But, whatever the origins of the distinction, there appear to be few if any exceptions to the principle that a debt must be ascertained or ascertainable as at the date upon which the proceedings are commenced. Whilst mesne profits in a possession action may be computed up to the date upon which possession is given, they represent tortious damages rather than a debt. So the only real exception to which my attention was drawn seems to be the current practice by which interest pursuant to contract can be claimed against the contracting party, right up to the date of judgment in an action to recover the principal debt."

16. The judge then concluded that the bank could avail itself of the right to claim contractual interest in the proceedings, but to do so it would have to hold Mr Dawood responsible as a principal debtor. This, said the judge, would be a late shift in position, which was one of the reasons why he was not prepared to allow the bank to make, as he put it, the amendment "after judgment".
17. The judge may well have been guided to this conclusion of law by counsel then appearing for the bank, since he says that the only exception to the rule one cannot sue for money falling due subsequent to the commencement of proceedings, to which his attention had been drawn, was what he called "the practice" of claiming contractual interest against the contracting party. But whether he was guided by counsel or not, it is not a proposition which I can accept as correct. It is in my experience by no means uncommon for post-writ contractual interest to be claimed against a guarantor, regardless of whether the guarantor is sued as a surety or as a principal debtor. Any other conclusion would indeed allow the forms of action to rule us from their graves.
18. In Toepfer v Cremer [1975] 2 Lloyd's Rep 118, Lord Denning MR, at page 125, called the rule that a plaintiff cannot recover for a cause of action which only accrued after the writ was issued, a rule of practice rather than a rule of law. Moreover, it was a rule of practice which could be departed from whenever the justice of the case required. Lord Denning gave mesne profits and interest accruing after the issue of the writ as examples of cases where the rule of practice was commonly not followed. Orr and Scarman LJJ concurred, although they emphasised that the nature of the proceedings in that case, viz. a commercial arbitration, meant that practical concerns were paramount. Moreover, later cases, such as Hendry v Chartsearch Ltd [1998] CLC 1382 and Maridive and Oil Services (SAE) v CNA Insurance Co (Europe) Ltd [2002] EWCA Civ 369, have followed Lord Denning and permitted amendments which could have been said to be in respect of causes of action technically accruing after the issue of the writ, but where the substantial cause of action had already been pleaded.
19. I would therefore respectfully disagree with Judge Hegarty's conclusion that it was necessary for the bank to assert that Mr Dawood was liable to it as a principal debtor before it could have permission to amend. But the bank did undoubtedly need permission to amend to assert a claim for compound interest, and the question remains whether the judge was correct to have refused that permission.
20. The judge gave four specific reasons for his refusal:

(1) the lateness of the application being, as he put, it "after judgment";

(2) any such amendment would allow the bank to sidestep the discretion, which would otherwise exist, to deprive the bank of part of the interest to which it would normally be entitled for reasons such as delay in the prosecution of proceedings;

(3) the bank had chosen to sue Dawood as surety, and should not at this stage be allowed to change tack and sue him as a principal debtor;

(4) any claim to contractual interest would be a different cause of action from that based on Dawood's liability as guarantor. Such new cause of action would now be statute-barred, at least in respect of sums falling due before 1996, since 2002 was the year in which the amendment was being considered.

21. I have already concluded that there was no need for the bank to treat Dawood as a principal debtor in order to maintain a claim for post-writ contractual interest; reasons (3) and (4) are, therefore, no longer valid. It seems to me that the second reason has no validity either. If it is otherwise appropriate to allow a claim to be made for contractual interest, the absence of any discretion in respect of the period over which the claim is to be made cannot be a reason for not allowing such a claim for contractual interest to be made. It is inherent in the nature of the claim that the principal debtor, whose liability Mr Dawood guaranteed, has agreed that, while the loan is outstanding, interest at a particular rate is to be paid.
22. The judge's discretion has therefore been exercised, in my view, on a wrong basis. If my brethren agree with me thus far, it will then be for us to exercise our discretion afresh. The principles on which permission to amend should be granted are of course well known. I take a convenient summary from the judgment of my Lord, Lord Justice Peter Gibson, in the case of Cobbold v London Borough of Greenwich, decided on 9th August 1999:

"The overriding objective is that the court should deal with cases justly. That includes, so far as practicable, ensuring that each case is dealt with not only expeditiously but also fairly. Amendments in general ought to be allowed so that the real dispute between the parties can be adjudicated upon provided that any prejudice to the other party or parties caused by the amendment can be compensated for in costs, and the public interest in the efficient administration of justice is not significantly harmed."

23. In the light of those principles I would permit the amendment sought to be made. It is of course true that it is very late, but it is not true to say that it was sought to be made after any relevant judgment. Judgment on liability was given on 30th January 2002, but all questions of interest remained in issue until the second judgment of 20th November 2002. Judgment was not fully entered for the principal sum plus statutory interest in fact until 29th April 2003. Up to that time any appropriate amendment could be allowed.
24. Most importantly, it is impossible to detect any prejudice to the defendant beyond the obligation of becoming obliged to pay what he had contractually agreed to pay. Of course he is not here before us today, but the only prejudice relied on by the judge, who was after all in the defendant's favour on this application, was what the judge called the "possibility" that the defendant would have wished to bring the action on for trial earlier. In light of the way in which the defendant has fought the action tooth and nail since its inception to date, that "possibility" is in my judgment so remote that it cannot constitute prejudice of the kind which my Lord, Lord Justice Peter Gibson, had in mind in Cobbold.
25. The judge observed that no properly formulated amendment had been placed before him, but he was prepared to decide the application after full argument without any formal document. We now have a formal document before us and, since full argument took place about the contractual interest before the judge, there would be no point in remitting the matter to the judge for a further hearing. Of course, Mr Dawood has had no notice of the precise figures claimed or the mathematical process according to which the final figure has been calculated. But I would propose (1) to allow the bank's appeal; (2) to give permission to amend in the terms sought; and (3), to give judgment for compound interest in the claimed figure of £147,607.51, since section 9 of the notice of appeal, which has been served on Mr Dawood, makes it clear that a substituted judgment including compound interest will be sought from this court.
26. I would, however, order further (4) that the fact of our judgment and the calculation resulting in the figures for which judgment is given be served on Mr Dawood before close of business on 15th October, and (5) that the order of the court be not drawn up until 15th November, so that Mr Dawood can apply (if so advised) to the Mercantile judge at Manchester to dispute the calculations made in the schedule to the amendment to the statement of claim which we have permitted to be made. In the absence of any application, our order is to be final as from 15th November.
27. In the light of that judgment, it is not necessary to consider further the second appeal which arises from the third judgment of His Honour Judge Hegarty, and I would propose that that appeal be adjourned sine die.
28. MR JUSTICE LINDSAY: I agree.
29. LORD JUSTICE PETER GIBSON: Although we are differing from the conclusion of the judge in his full and careful judgment, there is nothing which I would wish to add to the judgment of my Lord, Lord Justice Longmore, with which I am in entire agreement.

ORDER: Appeal allowed with costs, to be subject of detailed assessment if not agreed.

(Order not part of approved judgment) ______________________________