England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
BIRMINGHAM MERCANTILE COURT
(HIS JUDGE SIMON BROWN QC)

		Royal Courts of Justice Strand, London, WC2A 2LL
		29th April 2009

Lord Justice Rix:

1. This is an appeal from the judgment of HHJ Simon Brown QC given on 31 October 2008 at the Priory Courts in Birmingham. It concerns a claim by Marstons Plc, formerly trading as the Wolverhampton and Dudley Breweries Plc, against Mr Mark Charman and others, one of those others being a company of which he is, in effect, the principal, in respect of the tenancies of various licensed premises -- let us call them pubs for short -- which Mr Charman, either personally in his own name or through his company, had taken over as tenant to manage them and trade from them. For these purposes various tenancies had been entered into both in Mr Charman's own name and in the name of his company, and, so far as those tenancies which had been entered into by his company, Mr Charman had guaranteed those obligations.
2. Mr Charman had been the licensee of these pubs for a number of years, but in the end the pubs in question had, it seems, failed to trade profitably and Marstons resorted to litigation to make a claim of several hundred thousand pounds for the purpose of recovering amounts outstanding, which were in large part due to alleged dilapidations and otherwise matters of rent and so forth due under the relevant tenancies.
3. The chronology of the litigation went something like this, and I am indebted to Mr Zaman QC's chronology for assistance in this respect. Marstons' proceedings were commenced in January 2007. There was a defence and counterclaim from Mr Charman served by 20 March 2007; no complaint is made about that. There was then an amended defence and counterclaim from Mr Charman served on 8 June 2007. It is that amended defence and counterclaim which is the substantial pleading document on the part of the defendants. It raises, in essence, three substantial defences. One says that the claim for dilapidations is excessive; the second says that there was no proper recording in writing of the guarantees; and the third far-reaching defence was that all the tenancies in question had been entered into on the basis of misrepresentations from Marstons as to the trading possibilities of the pubs in question.
4. There is no need for me to go into the details of that defence but the essence of it was that it was Marstons, as the owners of the pubs in question, which assessed the trading possibilities of those pubs and which, on that basis, assessed the proper rental payments which the licensee had to make. In effect it was the pub owners saying what a licensee could earn from trading from the pubs and what portion therefore of those earnings could properly be reflected in terms of rent and other amounts payable to the owners of the pubs and, of course, the suppliers of the beer and so forth. So, Mr Marston's defence was that, in compiling the document upon the basis of which the rental assessment was made, Marstons had negligently failed to draw up a proper account on a proper basis and he was wrongly stuck with the consequences. The response to that on the part of Marstons was that they had done a proper job but that, in any event, there were exclusion terms in the final licenses which would have the effect of putting such a defence out of court. All that is a matter of dispute and a matter for trial. That, at any rate back in June 2007, was Mr Marstons' substantial defence on the pleadings.
5. There followed at the end of July 2007 Marstons' reply and defence to that amended defence and counterclaim, and the matter then appears in January 2008 to have gone off very sensibly for mediation, and at the same time there was a consent order settling proceedings between Marstons and another of the defendants to these proceedings, a Mr Batho. That resulted in a payment, I think of £47,500, which goes to reduce Marston's overall claim in these proceedings. In the same month there was an order transferring the case to the Mercantile Court in Birmingham.
6. The matter then came before HHJ Brown for directions on 19 March 2008. On that occasion he made detailed directions for the conduct of the case down to preparation for trial, including an order that the proceedings should be stayed during August 2008 for the parties to consider alternative dispute resolution; that was despite the fact that there had already been, as I understand it, a failed mediation at the beginning of 2008.
7. The directions were that by 18 April 2008 Marstons were to serve upon Mr Charman a Scott schedule in respect of dilapidations, and four weeks after the service of that Scott schedule, namely on 16 May 2008, Mr Charman was to serve a response to the Scott schedule. Further that, by the same date of 16 May, Mr Charman, if so advised, was to serve upon Marstons a reamended defence and counterclaim, such amendments being limited to responding to amendments which were in the course being made to the Particulars of Claim: those amendments were to increase the sums Marstons were demanding under the Particulars of Claim. Those amended Particulars of Claim were served on 26 March 2008, a week following that hearing and they had the effect of increasing the claim overall, including both the personal claims against Mr Marston and the claims against the company which he had guaranteed, from, broadly speaking, some £216,000 to £263,000, albeit those figures had not yet taken into account the £47,500 which had been paid by Mr Batho.
8. The next thing that happened was that Marstons served their Scott schedule in respect of dilapidations on 16 June 2008: that was two months later than the time contained in the judge's order for the service of that Scott schedule, but I believe that there had been an agreed extension of time in that respect. The Scott schedule served by Marstons' expert surveyor upon Mr Charman was in an email form. We have not seen it; but we have seen references in the papers to it being 300 pages long. We have also noted the judge's comment at page 130 of the bundle before us in the course of the proceedings out of which this appeal arises, that the form that the Scott schedule presented by Marstons then took was "ridiculous". At any rate, ridiculous or not, and 300 pages long or not, it had been responded to -- we are not able to say whether or not or how effectively because again the documents are not before us -- by Mr  Charman's expert surveyor on 14 August 2008. The directions had ordered that that response should be made four weeks after Marstons had served their Scott schedule. In fact the response took nearly two months rather than the four weeks provided by the judge. I am not sure whether that was covered by express agreement as to an extension of time; it seems to me at any rate that, whether it was or whether it was not, that was certainly not an unreasonable time in which to respond to a 300 page Scott schedule which had been presented in a form which the judge had described as ridiculous.
9. It was at about this stage that Mr Charman, who says that he had spent up until then £100,000 on the conduct of his defence, ran out of money and had to part company with the solicitors who up to that time had been acting for him, and so on 29 August 2008 he served a notice of acting in person; and since that time, with the assistance of his wife who is here today as his Mackenzie friend and from whom we have heard, Mr Charman has acted as a litigant in person.
10. A few days later, on 2 September 2008, there was a consent order of the judge, HHJ Brown, vacating the case management conference which had been listed for 5 September 2008 and giving amended directions for the further conduct of the proceedings. Those directions which, as I say, were made by consent were that Mr Charman should, by 5 September 2008, serve his reamended defence and counterclaim responding to the amendments to the Particulars of Claim and that, by the same date, he should also serve his response to Marstons' Scott schedule. I assume that that response looked forward to something supplementary to or perhaps more formal than the response of Mr Charman's expert surveyor which had already been given on 14 August 2008. There was also provision for mutual standard disclosure by 19 September 2008.
11. On 15 September Mr Charman sent a letter to the court, saying that he had explained to Marstons' solicitors that he was making every effort to obtain new legal representation on a conditional fee basis, but that was likely to take some time and he could not guarantee success, and for those reasons he asked for a four-week extension beyond 5 September 2008 for the purpose of serving his reamended defence and counterclaim and reply to the Scott schedule.
12. At the end of that period, namely on 14 October 2008, Marstons issued an application to strike out the existing defence -- that is to say the amended defence and counterclaim -- and for judgment on the full amount of their claim; and, in the alternative, for an unless order, to the effect that unless the reamended defence and counterclaim and the response to the Scott schedule had been served within a further seven days, then the defence and counterclaim be struck out and judgment be entered for the full amount of the claim.
13. In the witness statement of Marstons' solicitors, made in support of that application, it was made clear that the application was made pursuant to CPR Rule 3.4(2)(c) and for what was described as persistent failure to comply with court orders. It was not made on account of any alleged weakness in the defence or counterclaim itself; it was not an application for summary judgment or for striking out either defence or counterclaim on the basis of no reasonable prospect of success.
14. On 28 October 2008 Mr Charman served by email (I think) his reamended defence and counterclaim, albeit that was not a formal service. On 31 October 2008 Marstons' application came before the judge and it is the judge's judgment on that occasion which is the subject of this appeal.
15. We have before us both the transcript of the judge's judgment on that occasion and also a full transcript of the proceedings. The judge was concerned -- and I would assume rightly concerned -- about where these proceedings were going. They were by then approaching two years old; mediation had been attempted but unsuccessfully; the pleadings were not yet complete; the Scott schedule was in some disarray. I have already referred to the judge's comment about the form in which it came forward from Marstons. Mr Charman, as a litigant in person, was telling the judge that he had already expended all the money he had -- some £100,000 -- and had been driven into the position of a litigant in person. And yet the case was not much advanced, and the judge was clearly entitled to be concerned about those matters.
16. The difficulty, as it turns out, was that his concern led him -- apparently very largely of his motion, because, as I have already commented, there was no application to strike out on the merits before him -- to consider in these circumstances what the likely outcome of the proceedings might be. The judge appears for these purposes to have been satisfied that, to the extent that Marstons' claim depended upon a claim in respect of dilapidations, there was a proper defence. He made no adverse comment in respect of the defence in respect of dilapidations. However, he contrasted that, in his judgment at any rate, with what he described as being the "shadowy defence" to the extent that it went beyond the question of dilapidations. To the extent that the judge did so, in my respectful judgment, he was proceeding incautiously beyond the matters which had been raised before him, and, inasmuch as he was dealing with a litigant in person, that incautiousness might be said to have amounted to unfairness. The matter goes further than that really, because it was not until the judge reached his judgment that his feelings about the shadowiness of the defence, in the matters that went beyond the dilapidations, really emerged into the light. So Mr Charman was not really in a position to deal with the judge's concerns in this respect before he gave judgment; and even if he had been, as a litigant in person, without notice of those concerns, he would plainly have been at a considerable disadvantage. Speaking for myself, in that matter which was not debated below and has certainly not been debated on this appeal, I would say that the judge went further than he should have done in describing the defence as shadowy. There is the problem of the clauses in the licences, which are there to protect Marstons against any failure on their part to do their assessment of the trading possibilities and the rent of the premises in question properly; but, inasmuch as the amended defence and counterclaim sets out a defence of misrepresentation, I would not describe that pleading as a shadowy one; it is settled by counsel and it appears to me to be a pleading in good order.
17. I do not think it would be proper for me to go any further than that. The fact is that there was before the judge no issue as to the merits of Mr Marston's defence or counterclaim. The matter which had been put before the judge was one of the timely keeping to the judge's orders for directions. Now clearly there had been a slippage on both sides in that respect. Whether the judge was right to say that his directions had been "flagrantly breached", I respectfully doubt. Mr Charman was, as I have explained, struggling as a litigant in person. He had certainly put in his substantial defence and had done so ever since June 2007; and, so far as the reamended defence and counterclaim, this was, as was already clear to the judge, a more or less formal document, merely extending the existing defence and counterclaim to the greater sums now claimed in the amended Particulars of Claim. There was no difficulty to the conduct of this litigation if that reamended defence and counterclaim (which in any event was not a document which Mr Charman had been required to provide, it was a document which he could provide if he saw fit) was late. So far as the Scott schedule is concerned, this had run into trouble because of the form which Marstons had sought to serve it in, but, as I understand the matter, it had been substantially answered ever since August 2008. So there may have been some default or defect in that respect, but in essence, for my own part, I would think it to be going too far to call it a flagrant breach. Mr Marston had been, and was doing, the best he could.
18. Be that as it may, this appeal is not about whether the judge was entitled, in those circumstances, to make an unless order of seven further days in respect of the formal serving of the reamended defence and counterclaim and the formal response of the defendant to the Scott schedule. Those matters were completed within the seven days allowed and no complaint is made about that; that is not what this appeal is about. What the appeal is about is that the judge, having gone on to refuse the application to strike out on the basis of delay, and having made an unless order for seven days, then separately went on to impose a condition of payment into court of £93,000 by Mr Charman, which he said in his judgment had to be done within a week; but unless that was done, the defence and counterclaim would be struck out. That was the making of a condition of payment in of a substantial sum of money without any application to that effect on the part of Marstons; without any warning that that was what the judge was going to do; and undoubtedly that put Mr Charman in great difficulty. His immediate response to the judge was that he could not do that within the week. The judge asked him how long he wanted and Mr Charman suggested three weeks "to enable me to see what I can do". But there is no real controversy that that put Mr Marston unexpectedly into a very difficult position.
19. Although his grounds of appeal do not focus primarily and particularly upon the difficulty and unfairness of the judge's sudden imposition of that term of payment in, that is the substance to my mind of Mr Charman's appeal, and it is correct that Mr Charman does say in his fourth ground of appeal that the judge effectively gave summary judgment against him. The judge was not giving summary judgment against him, it was only a condition of payment in; but no doubt the effect of that, unless Mr Charman could raise the money which he says that he could not, was to deprive Mr Charman of both his defence and counterclaim.
20. Whether one looks at the judge's condition of payment in as something which could properly be done only on the basis of an application for summary judgment if the judge concluded that, although he could not go as far as to say summary judgment, the defence was shadowy; or whether one looks upon that condition of payment in as, effectively, a form of security for costs against a defendant, either way of looking at it illustrates to my mind that the judge was not acting fairly or appropriately within his case management powers. There had been no application for summary judgment; and security for costs can not be charmingly obtained against a defendant (and the counterclaim did not go beyond the defence).
21. Mr Zaman QC, who has said everything he could and has done so very nicely (if I may put it in that way) on behalf of Marstons, has cited to us the well known case of Biguzzi v Rank Leisure Plc [1999] 1 WLR 1926, almost the first and perhaps, in its way, to this day the leading case in this court from the judgment of Lord Woolf, the Master of the Rolls himself, on the case management powers of the then new Civil Procedure Rules. The essence of the decision in that case was that, while it had to be recognised that under the CPR delays in complying with court orders would not be tolerated in the leisurely way in which they had perhaps been tolerated under the Rules of the Supreme Court, nevertheless courts exercising their new case management powers were not to abuse those powers by going to the extreme of striking out a case for delay in compliance with court orders when a more proportionate use of the much more flexible powers granted under the CPR would be more attune to the problems in question in a particular case.
22. It seems to me that the wisdom of that decision, although cited by Mr Zaman in support of his own submission that the judge's exercise of his case management powers were not to be interfered with by this court, nevertheless remains good guidance as to this court's attitude to what has happened in this case and as indicating that the judge acted disproportionately.
23. In my judgment, although it is true that the judge did have within his case management powers, and even of his own motion, the power to impose the condition that he did, that is not in doubt; nevertheless, the use of those powers in this case was disproportionate and in the particular circumstances unfair and, it might be added, unnecessary and unhelpful to the timeous pursuit of the litigation in question. In truth, in the light of the chronology which I have sought to explain earlier in this judgment, there was no substantial complaint to be made against Mr Charman to the effect that he was delaying the litigation in question. Any outstanding difficulties that then existed were dealt with within the seven days allowed by the judge. There was no issue before the judge as to the merits of defence and counterclaim; the imposition of the condition for payment in came out of the blue against a litigant in person who was not well-armed to deal with the surprising turn in the litigation of which he had had no warning; and the condition for payment in was not well-adjusted to forward the timely despatch of this litigation but was in effect unfair pressure upon Mr Charman to bring his defence and counterclaim to a halt.
24. For those reasons, it seems to me that the judge erred, and plainly erred, by acting in excess of the case management powers which he should properly have brought to bear in relation to the application which was made to him, and did so in a way which cannot survive this appeal. I would therefore allow this appeal and suggest that we hear the parties as to the consequences of doing so.

Lord Justice Moore-Bick:

25. I agree that the appeal should be allowed. The judge had made an order for the payment into court of the full amount in dispute, less the amount claimed in respect of dilapidations which were in dispute and less the amount already paid by the second defendant. He did so of his own motion, without any warning to Mr Charman, who was representing himself and the third defendant, and despite the fact that no application had been made for summary judgment or for an order that the amount in dispute should be secured. Despite the valiant and, if I may say, charming of Mr Zaman QC to explain and support the judge's decision, I am still not clear why he was moved to take that course. Any concern that he had about the defendant's failure to comply with orders to serve pleadings or carry out other preparatory steps in the pre-trial timetable were sufficiently met by imposing unless orders in relation to the service of further pleadings. An order for the payment into court of a large sum of money was unlikely to ensure timeless compliance with the pre-trial timetable thereafter; indeed it might even have made it less likely.
26. It seems that the judge was concerned about the amount of costs that had already been incurred in the case and were likely to be incurred in the future. He thought that the general defence was, in his words, "shadowy", and was perhaps concerned that if money was not paid in to court the claimant might fail to obtain payment if it was successful in due course. However, as my Lord has pointed out, there was no application before the judge that would justify an order of that kind, and Mr Charman had no opportunity to address the question. In particular, he had no real opportunity to demonstrate to the judge that, contrary to his initial impression, his defence had real substance. I think it clear that the judge had power to make an order of this kind of his own motion, but in my view it was not appropriate for him to do so without giving the defendants, in particular Mr Charman, proper opportunity to deal with it. I rather doubt whether such an order would have been appropriate in this case, even if the defendants had been given an opportunity to oppose it, but it is unnecessary to express the finer view about that.
27. Having regard to the size and nature of the dispute as reflected in the Scotch schedule, I can well understand the judge's concern that the case might get out of hand; but, with all respect to the judge, I think he was over-enthusiastic in his desire to get a grip on the proceedings. Firm case management is of course to be encouraged, but the court must always ensure that its powers are exercised in a manner that is fair to those parties.
28. For these reasons, as well as those set out by my Lord, Rix LJ, I would allow the appeal.

Lord Justice Ward:

29. I agree and cannot usefully add anything and so the appeal will be allowed.

Order: Appeal allowed