England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE,
QUEEN'S BENCH DIVISION
THE HONOURABLE MR JUSTICE TUGENDHAT

		Royal Courts of Justice Strand, London, WC2A 2LL
		10th February 2006

Lord Justice Pill :

1. This is an application for permission to appeal against a judgment of Tugendhat J given on 12 May 2005. If permission is granted, the appeal has been listed for immediate hearing. Both Mr Tager QC, for the applicant Mrs Josselyne Cohen, and Mr Gatt QC for the respondents, Kingsley Napley ("KN"), have made all the submissions they would wish to make if permission is granted.
2. The claim is against the respondent solicitors for damages for professional negligence. The respondents were retained by the claimant and her husband in the period December 1995 to a date after 21 November 1996, the relevance of that date being that it was six years before the present claim was commenced on 21 November 2002.
3. The circumstances were succinctly stated by Tugendhat J:

"2. That retainer in turn related to proceedings in which a firm of architects referred to as KNM had sued for their fees. The defendants were Mr Cohen, together with a firm of accountants of which he had been senior partner and a company called Ryhald in which Mr Cohen had been interested. Mr Cohen had counterclaimed against KNM. KNM had started that action in February 1992, and the counterclaim was served on April 16, 1992. KNM had been retained to carry out work on two projects. These were referred to respectively as the St John's Wood project and the French project. KNM had ceased work in 1991.

3. KN deny that they have been negligent, but the issues before me relate not to that, but to whether these proceedings are statute barred. That issue in turn depends on whether the counterclaim against KNM had any prospect of success by the time KN were acting in the period December 1995 to November 21, 1996.

4. The claimant sues on her own behalf and as assignee of her husband. He was bankrupt. His trustee in bankruptcy has been joined but has taken no part in the matters to which this judgment relates."

The fees claimed by KNM were in the region of £23,000. The counterclaim was for about £1.8million

4. In paragraph 5 of his judgment, the judge set out the three matters which were before him:

"There are three matters before the Court: the application of KN for the striking out of the claim on the ground that the claimant's Particulars of Claim disclose no reasonable grounds for bringing the claim, or summary judgment under Pt 24 on the ground that the claimant has no real prospect of succeeding on her Claim; the application of the claimant for permission to amend the Particulars of Claim dated April 19, 2005; and the adjourned Case Management Conference, if the matter proceeds. It is also accepted by both parties that KN apply to strike out those paragraphs of the Reply alleging deliberate concealment on the part of Mr Osborn [of the respondent firm]. The issue in this application covers substantially the same ground as the claimant's application for permission to amend the Particulars of Claim."

As the judge noted, central to the issues was the submission of the respondents that if any relevant damage was suffered before 21 November 1996, the claim is statute barred.

5. The respondents sought to strike out the claim. The judge held that the claim could survive insofar as it related to the alleged negligence of the respondents in failing, on behalf of the applicant, to make a claim against KNM based on alleged consequences of inadequate design of the waterproofing and tanking of the basement of the claimant's premises ("the basement counterclaim"). The damage, put at over £1 million, arose from a flooding of the basement in June 1992 and the judge held that, if a writ had been issued in 1996, it was not at any risk of being struck out before 21 November 1996. Subject to that, the judge found for the respondents on each of the points at issue. Application for permission to amend the claim was refused. Paragraph 3 of the Order was:

"Judgment is entered for the First Defendant [KN] in relation to all the claims made in the Particulars of Claim other than the claim relating to the First Defendant's alleged negligence and/or breach of contract in relation to the alleged basement counterclaim."

6. No point now arises on the standing of the applicant to make the claim against the respondents, on her own behalf and as assignee of her husband and I treat the claims throughout as hers. Further, consideration of Mr Cohen's status, in relation to the accountancy firm and the company called Ryhald, does not arise.
7. The applicant's counterclaim against KNM in the underlying action was in fact struck out by His Honour Judge Humphrey Lloyd QC on 8 July 1998 as an abuse of the process of the court. KNM had agreed not to proceed with their claim. Notice of intention to proceed, together with a notice of legal aid certificate, had been served on behalf of the applicant on 30 June 1997 and KNM's application to strike out was dated 26 February 1998. It was claimed that the failure to pursue the counterclaim was "intentional and/or contumelious and/or an abuse of the process."
8. The present claim against the respondents is, for present purposes, based on the respondents' failure to take steps in that action between December 1995 and 21 November 1996. Tugendhat J held, at paragraph 39, that, subject to the basement counterclaim, the counterclaim had no value by 21 November 1996 and that no loss could be shown to have resulted from any breach of duty by the respondents between December 1995 and 21 November 1996.
9. Judge Lloyd's reasons for dismissing the counterclaim were set out at page 23 of his judgment. Having rejected the submission that failure to serve a Scott Schedule could be regarded as an affront to the court or its rules, Judge Lloyd stated:

"However the defendants' failure to issue a summons for directions or, if one were to treat the summons issued in 1997 as tantamount to such a summons (since as a matter of practice all appropriate directions would have been given on it, whether or not specifically sought), the failure to do so promptly after 30 July constitute, both individually and collectively, a contumelious disregard of the rules such as to amount to an affront to the court and to its rules. In my judgment the conduct of defendants' case has from 1991 been carried on with the intention that the interests of Mr Cohen should take precedence over compliance with the rules of court and thus with a calculated disregard for them: see, for example, the early failure to comply with the court's order of 9 September and Mr Cohen's deliberate failure to disclose in the list of documents served in June 1993 the existence of the assignment executed in 1991 as admitted in his solicitors' letter of 11 April 1994, as well as the key failures. A person in the position of the third defendant in mounting and maintaining a claim for the furtherance of his own commercial interests may do so only within the rules of court. Whatever misfortunes Mr Cohen may have suffered, e.g. in his encounters with the Legal Aid Board, they do not excuse the failures relied on by the plaintiff. There was no reason why a summons for directions should not have been issued in 1994. Mr Cohen's difficulties in funding the action would have been heard sympathetically and probably directions would then have been given permitting the suspension of the prosecution of the counterclaim for a little while. There was certainly no reason why a summons for directions (or even a summons for only specific orders) should not have been issued immediately after 30 July 1997, as contemplated by the notice of intention to proceed.

For these reasons, on the plaintiff's consent to the dismissal of its action, the counterclaim of all the defendants will be dismissed."

10. The judge considered whether the claim would have been struck out if application had been heard in early 1997. He adopted that date on the basis of a notice of intention to proceed notionally issued by KN on behalf of the applicant by 21 November 1996. The judge answered that question on the basis that the law which would have been applied in early 1997 was substantially as it was when Judge Lloyd gave his judgment in July 1998. That approach is not now challenged on behalf of the applicant, save that it is submitted that the parties' perception of the law may have been different on the earlier date, a point to be considered later.
11. The judge noted, at paragraph 35, that "the delay would have been about 13 months less in relation to a summons issued early in 1997 than it was in relation to a summons issued in February 1998". The judge stated that by 21 November 1996, "the pleaded claims were in part already statute barred, and as to the remainder would become statute barred in March 1997 at latest". The judge concluded, at paragraph 38:

"On these facts there is no arguable basis for saying that the claims would not have been struck out if the summons for strike out had been heard in early 1997. And for the same reasons, any protective writ issued in respect of the pleaded claims would also have been struck out".

Thus, the judge concluded, "the claims pleaded in the counterclaim against KNM had no value by 21 November 1996".

12. The submission was also made on behalf of the applicant that, upon an investigation of the facts, if a step in the action had been taken by 21 November 1996 by the respondents, there was a real prospect that KNM would not have applied to strike out the counterclaim for want of prosecution, so that the claim retained value. The judge considered that point along with the point also made at that stage that the law may have been less favourable to striking out applications in 1996 than it was in 1998. The judge stated, at paragraph 33:

"It would be wrong to assess the value of the claim by reference to what, with hindsight, can be seen to be a wrong view of the law. It would also be wrong to investigate what KNM might have done as a matter of fact, because that was influenced by the prevailing view of the law. In any event, a claim should not be valued on the footing that a defendant might mistakenly think it had a value when as a matter of law it did not. However, if the facts would have been materially different had an application to strike out the counterclaim come before the court just before November 21, 1996, then it is those facts which are relevant in determining the value of the claim."

The finding that it would be wrong to investigate as a matter of fact what KNM would have done was restated at paragraph 35:

"For the purpose of assessing the value of the claim just before November 21 1996, it is to be assumed that a notice of intention to proceed would have been issued at about that time, and that the application to strike out would have been issued shortly after, say December 1996 or January 1997."

13. On behalf of the applicant, Mr Tager QC submits, first, that the action would not have been struck out pursuant to a summons issued in early 1997, secondly, that a protective writ issued prior to that date would not have been struck out and, thirdly, that it was incumbent on the judge to consider the evidence and make a finding of fact as to whether a summons to strike out would have been served by KNM in response to a notice of intention to proceed served prior to 21 November 1996. If there is more than a minimal chance that it would not have been served, it is submitted, the applicant could have pursued her claim against KNM. It would have remained a valuable claim.
14. In reaching his conclusion at his paragraph 38, Tugendhat J referred to the decision of this court in Janov v Morris [1981] 1 WLR 1389 and the statement of principle by Lord Woolf MR, citing Birkett v James [1978] AC 297, Janov and Grovit v Doctor [1997] 1 WLR 640, in Arbuthnot Latham Bank Ltd v Trafalgar Holdings Ltd [1998] 1 WLR 1426. In challenging the judge's conclusion, Mr Tager seeks to rely on the unreported decision of this court in Charles v Osman [transcript 4 March 1997] and Bailey v Bailey [1983] 1 WLR 1129. In Bailey, the first action was dismissed for want of prosecution and it was held that the issue of a second writ within the limitation period did not constitute an abuse of the process of the court. Purchas LJ referred to "the fundamental distinction between failure to comply with a peremptory order and failure to comply with the ordinary rules of procedure".
15. The factors relied on by Judge Lloyd in reaching his conclusions went well beyond a finding of dilatoriness in prosecuting the claim. They included long delay in complying with a court order as to discovery, and a deliberate failure to disclose the existence of an assignment executed in 1991. Judge Lloyd's conclusion that since 1991 the applicant's case had been carried on with a calculated disregard for the rules of courts was a strong one and was justified on the evidence before him. That conduct pre-dated 1997. It is not in my judgment arguable that the result of a strike out application, upon an application made in early 1997, would have been any different from the result upon that issued in February 1998. The same applies to any protective writ issued in respect of the pleaded claims.
16. In seeking to uphold the judge's conclusion, cited at paragraph 12 above, that it is to be assumed that an application to strike out would have been issued shortly after a notice of intention to proceed in November 1996, Mr Gatt QC, for KN, submits that the damage arises when the claim is susceptible or amenable to being struck out. Its value can be assessed without reference to whether an application to strike out would have been brought. The courts have taken that objective view, it is submitted, rather than perform the hypothetical exercise of deciding whether an application to strike out would have been made. That approach is supported, it is submitted, by the need for certainty and by difficulties of proof.
17. Mr Gatt relies on the judgment of Stuart-Smith LJ in Khan v R M Falvey [2002] PNLR 28. Stuart-Smith LJ stated, at paragraph 26 that "the loss of an action which is liable to be struck out at any moment is of no real value". At paragraph 29, Stuart-Smith LJ stated:

"But often, when an action has gone to sleep for years, the actual application to strike is not made until years after it might successfully have been done. In such cases it seems to me that the damage is caused when there has been such inexcusable and inordinate delay or non-compliance with rules such that the court would have struck out the action and pursuant to CPR, Part 3.4, because the chose in action has so diminished in value to be of no real value."

18. The question when a cause of action for negligence against a professional person arose was also considered in Hatton v Chafes (a firm) [2003] PNLR 24. Considering the question when damage was caused by an accountant's negligence, so that the cause of action accrued and time began to run, Clarke LJ stated, at paragraph 17, that the first possibility was when the claimant had no arguable basis for avoiding the claim being struck out. On the facts, Clarke LJ held that the case came into that category. There being no arguable defence to the application to strike out on the relevant date, the claim was time barred. The present issue does not appear to have been raised in those cases, the application to strike out being assumed. While, in many cases, it can readily be assumed that an application to strike out would have been made upon service of a notice of intention to proceed, it is in my judgment certainly arguable that there will be cases in which a factual inquiry is appropriate. Ordinary principles in the law relating to damages will apply. There is no difference in principle between a situation where the solicitor alleges that the original claim had no value because it would have been defeated by limitation and a situation where it had no value because it would have been defeated on the merits.
19. Whether a cause of action has value at the material time will depend, first, on whether it would have been struck out had an application been made. In this case, it is the value, if any, in November 1996 of the claim against KNM which has to be considered. However, even if the answer to that question is in the affirmative, as it is in this case, the claim will continue to have value if, on a consideration of the facts, application to strike out might not have been made. The court is concerned, as in other cases of solicitor's negligence, with the hypothetical action of a third party, in this case KNM (Allied Maples Group Ltd v Simmons & Simmons [1995] 1 WLR 1602 at p1611B). If there is a substantial chance that, upon a notice to proceed in November 1996, KNM would not have applied to strike out, the claim retained a value.
20. Supporting the finding of the judge, Mr Gatt submits that what matters is whether the cause of action had a value in November 1996 and not whether it might mistakenly have been thought to have a value. The fallacy in that argument, in my view, is that whether the claim had a value would depend on whether KNM would have made an application to strike out. If, on the evidence, they would not have applied, the claim could have proceeded to trial. It would have retained value, the value depending on its likely outcome. The hypothetical question as to whether they would have applied to strike out needs to be confronted.
21. In Mount v Barker Austin (a firm) [1998] PNLR 493, Simon Brown LJ considered the principles to be applied when considering what the party who is the victim of the solicitor's negligence has lost. Simon Brown LJ stated that, while the legal burden to prove that he had lost something of value was on the claimant, the evidential burden of showing that the litigation was of no value to the claimant client was on the defendant solicitor. I would accept that, in many cases, that burden is readily discharged but there will be cases where it is arguable that the burden has not been discharged.
22. Since this is an appeal against an order striking out the claim, it is not necessary or appropriate to make findings of fact at this stage. On the material before the court, it is, however, arguable that, if a factual analysis were to be undertaken, it may be established that KNM would not have applied to strike out had notice of intention to proceed been given in November 1996 and not, as the notice in fact was, given over a year later.
23. In support of the point of principle, it is submitted that there will be categories of cases, for example, where a test case is involved, or where an application to strike out might attract an unwanted application under Section 32 of the Limitation Act 1980 ("the 1980 Act"), where a limitation defence would not be raised at all. The present case does not come into these categories but, it is submitted, it would be extraordinary if the court were not permitted to enquire into the facts. Difficult though proof may be, difficulties in adducing the best evidence do not preclude a court, or excuse a court, from the need to make enquiry.
24. It may be unlikely that KNM (or anyone in their position) will waive privilege to disclose their documents, and their solicitors' documents, as to what action they would have taken upon a notice of intention to proceed served in November 1996 but there is material from which it could be inferred, and I say no more, that they would not then have applied to strike out. Indeed, in his written submissions, Mr Gatt conceded that if a factual inquiry is to be undertaken, the judge ought to have concluded that there was a triable issue which would need to be determined at trial:

a) in response to a notice from the Court Service dated 15 November 1995 that KNM's claim would be listed before the judge to show cause why it should not be struck out, KNM's solicitors wrote on 24 November referring to the lack of progress but stating: "We trust that this explains the position and look forward to hearing from you with confirmation that the matter will not be struck out". KNM wished to preserve their claim and there is at present nothing to suggest any change of attitude by KNM in the course of 1996.

b) KNM's retainer by the claimant ended on about 28 March 1991. In a letter to the Legal Aid Board in July 1997, their solicitors referred to time for the counterclaim having expired "at the very latest, by 28 March 1997." KNM may not have been advised to apply to strike out until at least after that date, by which time the action could have proceeded.

c) KNM adopted a cautious attitude throughout. When notice of intention to proceed was served in June 1997, they did not apply to strike out. Their solicitors corresponded with the legal aid board as to whether the claimant should have legal aid but it was only eight months later that the application to strike out was made.

d) While the law as to striking out, it is accepted, had not changed between early 1997 and early 1998, it may have been perceived, on behalf of KNM, to have been more tolerant at the earlier date. I do not myself see much force in this point.

e) While their conduct is not in issue on the present application, KN have seen fit to deny (amended defence paragraph 32(c)) that a reasonably competent solicitor "would have understood there to have been a need to advise as to the risk of the action being struck out as an abuse of the court's process".

25. On the material before the court, there are issues of fact which are fit for consideration at a trial. This is not a case in which an assumption can properly be made that application to strike out would necessarily have followed immediately upon a notice of intention to proceed in November 1996.

Section 32 of the 1980 Act

26. It is submitted that the judge ought to have given the claimant permission to amend her claim to allege deliberate withholding and concealing of information by KN such that would postpone the limitation period under Section 32 of the 1980 Act.
27. The allegation of deliberate concealment was not raised until December 2004. There is a potential issue as to the extent of KN's retainer. The claimant had, for example in a letter dated 22 January 1996, raised general questions and the submission is that if the retainer was limited as is now maintained, KN had a duty to inform the claimant of their position. Deliberately withholding from the claimant their contention that the retainer was limited amounted to deliberate concealment within the meaning of Section 32.
28. The judge referred to the decision of the House of Lords in Brocklesby v Armitage [2002] 1 WLR 558 and held that no reasons had been given for the suggestion that the alleged omission was deliberate rather than careless or inadvertent. The judge also relied on the very late stage at which the application was made. The documents disclosed have put the parties substantially on an equal footing insofar as information is concerned, he found, and did not support a case of deliberate concealment. The possibility of further disclosure supporting the claimant's case was at best speculative.
29. The judge's decision was, in my judgment, well within the discretion he had. Failure to inform a claimant of a perceived limit upon the retainer does not necessarily involve deliberate concealment rather than carelessness or inadvertence. Much documentary material has been disclosed and nothing to establish deliberate concealment has arisen. The judge was entitled to take into account the late stage of the application to amend, made only in response to a striking out application, and to the unlikelihood of information supporting a claim of deliberate concealment becoming available.
30. I would refuse the application for permission to appeal on this ground.

Result

31. Thus permission to appeal against the refusal to allow amendment of the Particulars of Claim is refused. Permission to appeal against paragraph 3 of Tugendhat J's order is granted, and the appeal allowed, to the extent indicated in this judgment. Counsel may make submissions on the form of the order.

Lord Justice Sedley:

32. I agree.

Lord Justice Scott Baker:

33. I also agree.