England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice, Rolls Building Fetter Lane, London, EC4A 1NL
		22nd June 2017

Thursday, 22^nd June 2017

MR JUSTICE BARLING

1. The claimant, represented by Mr Marshall and Ms Chaffin-Laird, makes two applications: first to amend the re-re-amended particulars of claim and adduce two further witness statements, and second, for specific disclosure of documents. Both applications are opposed by the defendant, represented by Mr Sinclair and Mr Khoo.
2. The applications were moved during the opening submissions of the trial. The underlying proceedings relate to two interest derivatives or swaps entered into by the claimant in February 2008. One of the issues in the trial is whether the other party to the swaps was the defendant or NatWest Bank Plc, which is not a party to the proceedings.
3. Prior to the swaps, the claimant had entered into a £10 million or thereabouts loan facility with Lombard North Central Plc, to assist in the purchase by the claimant of five new Cessna Mustang jets for use in the claimant's private air charter business, and to refinance its existing borrowing. The Lombard facility was subject to floating bank base rates over the period of the loan, although repayments were based on an assumed rate of 5.75%.
4. The purpose of the swaps was to provide the claimant with some protection against the fluctuating base rate. The two products, in very general terms, were as follows, and I caution that this description does not necessarily articulate every nuance of the arrangements:

(1) an extendable value collar with an initial notional amount of £4 million for five years, increasing to £6 million for a further five years. The term of the value collar was ten years, although the bank had a one-time option to cancel or extend the trade after the first five years. Under this product, (a) if base rate was equal to or below 3.75%, the claimant paid the defendant the difference between base rate and 5.49% on the notional amount; (b) if the base rate was between 3.75% and 5.75%, no payment was made; (c) if base rate was above 5.75%, the bank paid the claimant the difference between base rate and 5.75% on the notional amount.

(2) a callable dual rate swap with an initial notional amount of £4 million for five years, increasing to £6 million for a further five years. The term of the dual rate swap was ten years, although the bank had the right to cancel the trade after five years and every quarter thereafter. Under this product, (a) the bank paid the claimant base rate on the notional amount; (b) if base rate was between 4% and 6.25%, the claimant paid 4.69% to the bank on the notional amount; (c) if the base rate was equal to or below 4%, or equal to or above 6.25%, the claimant paid 5.35% to the bank on the notional amount.

(3)

6. The value collar thus limited the claimant's exposure to base rate to no more than 5.75%, and the dual rate swap limited the claimant's exposure to base rate to no more than 5.35%.
7. The claimant claims that the swaps were mis-sold. The essential claim, which is advanced in both deceit and the tort of negligence, is that the defendant failed properly to advise the claimant and deceived it as to the risks associated with the swaps. The claimant claims rescission of the swaps, alternatively damages of something in the order of £4.6 million, being the total payments made under these products. The bank denies the mis-selling claim.
8. The trial came on before me last week with a time estimate of 12 days, including one reading day. By Tuesday afternoon of this week, the parties had completed their opening remarks and also their submissions on the two applications.
9. At the conclusion of Tuesday's hearing, counsel for both parties indicated to me that, for reasons which it is not necessary to rehearse and which do not involve blame to either party, their respective solicitors and clients had reluctantly agreed that, subject to my view, the trial should be suspended at that point and re-listed after the long vacation, ideally in October this year if possible, having regard to the availability of counsel and the court's own capacity and other cases. I indicated my approval of the suspension whilst pointing out that there could be no guarantee, and indeed it was unlikely, that I would be able to hear the resumed trial in October, due to other commitments. For the record, I should say that as there are verbatim transcripts of counsel's openings, and no evidence has yet been called, there is in any event no pressing reason for me to be the trial judge. The one day's reading originally allotted to me is now accepted to be inadequate, and two days are required.

The amendment application

10. The application to amend the re-re-amended particulars of claim and to file two further witness statements was issued on 6 June 2017, the week before the trial began. The proposed amendment seeks to add further particulars to an existing allegation. The essence of that existing allegation is that, having assumed an advisory role, the defendant's representative, Mr Dominic Brindley, gave a misleading and dishonest explanation of the risks attendant on the swaps. In particular, having advised what might happen if the defendant were to exercise its option to terminate the swaps at the five-year stage in the event that interest rates were to rise to the claimant's advantage, he did not explain what might happen in circumstances where interest rates fell to the defendant's advantage, and the defendant did not terminate the swaps, thus locking the claimant into loss-making products for ten years.
11. The proposed amendment alleges that, although at an important meeting with the clients on 8 February 2008 Mr Brindley represented that the claimant was exposed to a risk of a so-called "balloon payment" of up to £1.5 million when the Lombard facility came to an end, he did not inform them that he had obtained a credit line utilisation or "CLU" from RBS in the sum of £1.65 million. He therefore knew of a risk to the claimant in an amount which exceeded the balloon payment and he knew that, had the claimant been informed of this risk, it would have had a material bearing on their decision to purchase the swaps. In effect, they would not have done so. Thus, it is alleged in the proposed amendment that he knowingly and dishonestly misled the claimant as to the risk it was undertaking, by deliberately failing to give a balanced and accurate view of the risk to the claimant in buying the swaps.
12. I have paraphrased the proposed amendment which, as pleaded, is expressed in a somewhat more extended and convoluted form. Indeed, it is more clearly expressed by Mr Marshall and Ms Chaffin-Laird in paragraph 2 of their skeleton argument for the application.
13. I record that, in the course of the argument, Mr Marshall accepted that certain words in the amendment, representing an allegation that the balloon payment assessment of which the claimant was informed was "wrong", should be removed. That was a sensible concession since, as it stood, the allegation was embarrassing, not least because it was not clear whether the claimant was alleging that Mr Brindley knew that the balloon payment was wrong and was therefore dishonest in that respect.
14. The balloon payment represents either an additional sum to be paid to Lombard at the end of the facility to compensate for higher than assumed interest rates, or an extended period in which periodical payments are required to be made by the claimant for the same reason. During the hearing before me, no common view was reached about which of these applied. It is not necessary for me to decide the point.
15. The CLU is said by the claimant to represent an assessment by RBS of the "mark to market" value over the term of the products, for which provision should be made in the accounts of RBS in case the claimant should default. There was some debate during the hearing as to precisely what the CLU represented, but I do not consider it necessary to explore that further for present purposes.
16. In moving the application, Mr Marshall submitted that at the heart of the claimant's case is the complaint that RBS failed to identify risks to the claimant in entering into the swaps which it was bound to identify, having assumed an advisory role, and its failure in this respect was knowing or reckless. The proposed amendment was, he submitted, simply a further particular of such alleged failure.
17. In opposing the amendment, Mr Sinclair referred me to helpful guidance in the judgment of Mrs Justice Carr in Quah Su-Ling v Goldman Sachs International [2015] EWHC 759 (Comm), in which the learned judge helpfully summarised the relevant principles which she derived from the case law. At paragraph 36 of her judgment, she said this:

"An application to amend will be refused if it is clear that the proposed amendment has no real prospect of success. The test to be applied is the same as that for summary judgment under CPR Part 24."

18. At paragraph 38, she continued:

"Drawing these authorities together, the relevant principles can be stated simply as follows:

(a) whether to allow an amendment is a matter for the discretion of the court. In exercising that discretion, the overriding objective is of the greatest importance. Applications always involve the court striking a balance between injustice to the applicant if the amendment is refused, and injustice to the opposing party and other litigants in general, if the amendment is permitted;

(b) where a very late application to amend is made the correct approach is not that the amendments ought, in general, to be allowed so that the real dispute between the parties can be adjudicated upon. Rather, a heavy burden lies on a party seeking a very late amendment to show the strength of the new case and why justice to him, his opponent and other court users requires him to be able to pursue it. The risk to a trial date may mean that the lateness of the application to amend will of itself cause the balance to be loaded heavily against the grant of permission;

(c) a very late amendment is one made when the trial date has been fixed and where permitting the amendments would cause the trial date to be lost. Parties and the court have a legitimate expectation that trial fixtures will be kept;

(d) lateness is not an absolute, but a relative concept. It depends on a review of the nature of the proposed amendment, the quality of the explanation for its timing, and a fair appreciation of the consequences in terms of work wasted and consequential work to be done;

(e) gone are the days when it was sufficient for the amending party to argue that no prejudice had been suffered, save as to costs. In the modern era it is more readily recognised that the payment of costs may not be adequate compensation;

(f) it is incumbent on a party seeking the indulgence of the court to be allowed to raise a late claim to provide a good explanation for the delay;

(g) a much stricter view is taken nowadays of non-compliance with the Civil Procedure Rules and directions of the court. The achievement of justice means something different now. Parties can no longer expect indulgence if they fail to comply with their procedural obligations because those obligations not only serve the purpose of ensuring that they conduct the litigation proportionately in order to ensure their own costs are kept within proportionate bounds but also the wider public interest of ensuring that other litigants can obtain justice efficiently and proportionately, and that the courts enable them to do so."

19. Mrs Justice Carr defined a very late amendment as one which, if allowed, would cause a fixed trial date to be lost. However, as Mr Justice Stewart stated in another case to which my attention was drawn, Kimathi v the Foreign and Commonwealth Office [2017] EWHC 938, at paragraph 8, a very late amendment is a description that can apply to any amendment made during the trial. He went on to say:

"... particularly if it will/may well cause disruption to the trial timetable. Principle (d) [in Mrs Justice Carr's decision] is important in considering 'lateness'."

20. In addition to those authorities, Mr Sinclair drew my attention to a decision of Mr Justice Picken in Poulton Plaiz Limited v Barclays Bank [2015] EWHC 3667, where the learned judge considered three amendment applications made three months before trial. It was accepted by the parties that the effect of granting the third set of amendments would have been to see the trial date lost. However, the judge held that allowing the first set of amendments would not have had this effect. Nevertheless, in considering whether to allow the first set of amendments, he held:

"Even if the first proposed set of amendments does not threaten the trial in and of itself it is incumbent upon a party, here the claimant, in line with Mrs Justice Carr's principle (b) above, to show that a new case sought to be advanced has sufficient strength so as to justify its introduction as late as it is being sought to be introduced and to show 'why justice to him or to his opponent and other court users requires that the claimant be allowed to pursue it'."

21. Mr Sinclair objected to the amendment and the admission of the witness statements under four main heads. First, that the amendments do not have a real prospect of success; second, that the pleading is not properly formulated; third, that the claimant has failed to give any, and certainly not a good, explanation for the delay in the application; and fourth, that the amendment, if allowed, would disrupt and potentially derail the trial.

No real prospect of success

22. Much of Mr Sinclair's fire under this head of objection was directed to the allegation in the proposed amendment that Mr Brindley's statement about the balloon payment was "wrong". As I have said, those words are no longer sought to be included.
23. As to the failure to disclose the CLU to the claimant, Mr Sinclair made a number of points. First, he submitted that there was a problem with the chronology of the allegation of misleading the claimant, in that the balloon payment representation was made on 8 February 2008, whereas the CLU was obtained by Mr Brindley several days later, on 11 February.
24. However, the pleading states that the trades were made on 12 February, which of course is after the CLU was obtained. Further, Mr Marshall relies on a duty to disabuse a representee where an earlier statement becomes misleading as a result of something that happens later.
25. Although the pleading does not spell out these points in so many words, the burden of the allegation is, in my view, sufficiently clear.
26. Next, Mr Sinclair states that in earlier decisions the courts have rejected any obligation to disclose CLUs to clients and have treated them as purely internal to the banks. I consider that is a matter which is case and fact specific, and the pleaded allegation cannot be regarded as without a real prospect of success on this ground.
27. Finally, he submits that the claimant will have an uphill struggle in establishing that there would have been any reliance on the CLU, given that there is evidence in the documents that the claimant was aware that swap products similar to those which were purchased were capable of costing the claimant up to £1.7 million over ten years. However, as Mr Sinclair acknowledges, this is a matter of evidence, and again does not provide assistance to the defendant at this stage.

Not properly pleaded

28. Under this head, Mr Sinclair takes issue with the claimant's pleading in a number of respects. He again refers to the alleged wrongness of the balloon payment which, as I have said, is no longer part of the amendment for which permission is being sought. Next, he refers again to the chronology point with which I have dealt. Finally, he argues that for a number of reasons the passages sought to be inserted are a poor fit with the existing pleading. The points made are fair ones, but are organisational rather than objections of substance. The main objection could probably be cured by re-siting the existing paragraph beginning, "That is to say…", before rather than after the proposed amendment.
29. Of course, under this head, and generally, Mr Sinclair rightly emphasises that this is a fraud claim which needs to be clearly and properly particularised, so that the defendant knows the case it has to meet.

No explanation for the delay

30. Mr Marshall was candid about the delay. He accepts, as he must, that it is made just about as late in the day as it could be - at trial. Mr Sinclair understandably draws attention to the history. The claim was commenced on 10 February 2014, there was disclosure by list on 17 June 2016 and inspection nearly a year ago on 8 July 2016. The documents then available to the claimant and its advisers included many relevant to the proposed amendment, and in particular to the assessment by RBS of the balloon payment and of the CLU. The particulars of claim have been amended on five occasions, most recently in February 2017, when after disclosure some 90 pages of amendments were sought, to which the defendant consented. The present application was made on 7 June this year, on the day of the exchange of skeleton arguments for trial.
31. By way of explanation, Mr Marshall states that it was only when he and his clients saw the witness statement of Mr Brindley in mid-May 2017 that, in his words, "The penny dropped". This was because in the witness statement Mr Brindley identified that the modelling of the balloon payment risk was undertaken on the same basis and "... using a similar calculation as that used for the hedging credit line ..." This, submitted Mr Marshall, was very significant because it revealed for the first time that the risk, as RBS had expressed it to the claimant, of a £1.5 million balloon payment being due to Lombard, had been modelled on a similar basis to the calculation of a CLU of £1.65 million. This brought it home to the claimant and its advisers that the two sums were comparable, and that there could be no justification for RBS revealing one risk but not the other to the claimant.
32. Mr Sinclair unsurprisingly submits that this explanation is not nearly good enough, given the documents available to the claimant for nearly one year before the trial and application.

Disruption

33. Under this head of objection, Mr Sinclair points to the following consequences of allowing the amendment:

(a) it will be necessary for the defendant to plead to it, by amendment to the defence;

(b) Mr Brindley will be required to make a supplementary witness statement to deal with his allegedly fraudulent failure to disclose;

(c) it will be necessary to speak to Ms Ruddy, the RBS representative at the material time who assisted Mr Brindley by helping in the calculation and modelling of the balloon payment and the CLU; it will be necessary to take a witness statement from her, and probably from others, to deal with the modelling exercises carried out in 2008 to arrive at the two figures. Ms Ruddy, it appears, now works for an institution in South Africa, which adds to the complication and burden;

(d) counsel will need to prepare additional cross-examination on these points;

(e) permission will need to be sought to adduce expert evidence to deal with a question whether the balloon payment and the CLU amount are in fact comparable, or whether one would be comparing apples and pears. Other questions relating to the nature of the modelling in question might also need to be explored with an expert;

(f) further submissions will need to be made on the amended allegation.

34. In my view, all these effects of allowing the proposed amendment are correct. In particular, despite Mr Marshall's submission to the contrary, I consider that the defendant would be entitled to permission to adduce expert evidence on the issues identified by the defendant in the course of this application.
35. However, it is clear that a significant proportion of the sting of these points on disruption has been removed by the unfortunate suspension of the trial on Tuesday for unconnected reasons. As I have said, it will now be re-listed sometime after the long vacation with the somewhat more realistic timetable of about three weeks, including two reading days. I invited counsel to address me on this aspect, and Mr Sinclair very properly accepted that the force of the disruption objections was reduced, whilst maintaining his overall objection.
36. In my view, and Mr Sinclair has not argued to the contrary, the further steps that would be necessary if the amendment were to be allowed, can be achieved by the earliest time the trial could be re-listed, in October; that is more than three months in the future.

Conclusions

37. I cannot at this stage find that the proposed amendment would have no real prospect of success. Indeed, allowing for the fact that my view of the merits, having only heard openings and had an insufficient period of pre-reading, must be superficial and very fallible, the allegation in the proposed amendment appears to have at least as good a prospect of success as other existing aspects of the claim.
38. I bear in mind that in such a very late application the claimant has a heavy burden in relation to the strength of the case and to show that justice to all concerned should allow it to go ahead.
39. There is an explanation for the delay, that is, the penny did not drop until the witness statement of Mr Brindley was received. Taken on its own, that would probably not weigh much against any significant disruption which might otherwise have resulted, absent the situation which has now arisen. However, there will now, I find, be little, if any, disruption caused by allowing the amendment.
40. I must also, of course, bear in mind the overriding objective of dealing with cases justly and at proportionate cost.
41. In the light of these factors, I consider that in the circumstances justice to all parties requires that the amendment should be allowed. The strength of the amendment has been shown to be sufficient at this stage for that purpose. To require the case to be re-listed and heard without allowing the amended particular to be included would, in my view, be neither just nor proportionate in the circumstances, including the fact that no significant disruption or wasted costs will be occasioned by allowing inclusion of the point. For the same reasons, mutatis mutandis, I will also give permission for the two witness statements in question to be admitted.

The specific disclosure application

42. The claimant's second application is for specific disclosure of "RBS's sales policy with regard to the credit line utilisation [CLU] specifically their policy not to divulge it to any counterparty". That is a quotation from the application notice.
43. The application was issued on 12 June this year, the day before the case began. In its application notice, the claimant refers to the swaps purchased by the claimant and states that the claimant has repeatedly requested sight of any policy, training manual or guidance relevant to the sales process undertaken with the claimant in 2007 and 2008. It refers to letters written to the defendant's solicitors on 21 February and 8 May this year, and to the defendant's refusals, as the claimant describes them, and its indication that such policies had no relevance to the issues in question. No disclosure of any manual, guidance or policy concerning the sales of derivative products has been forthcoming.
44. The application notice also refers to the claimant's solicitors having recently obtained transcripts of the evidence in Property Alliance Group v Royal Bank of Scotland [2016] EWHC 3342, in which an employee of RBS, a Mr Bescoby, had been subjected to cross-examination on the manner in which certain products were sold and on the applicable policy of RBS. The claimant states that Mr Bescoby's evidence was to the effect that (a) CLU was the bank's assessment of downside potential mark to market liability of the bank's counterparty; (b) there was in place at RBS a specific sales policy not to disclose CLU information to RBS counterparties; (c) he could not provide any commercial justification for the policy; (d) the CLU and potential mark to market downside risks were analogues of one another; and, (e) knowledge of a break cost and potential scale of break costs would be a "ready way" for a counterparty to assess the scale of the downside risk. In those circumstances, the claimant submits that it is reasonable and appropriate for the disclosure sought to be given in the present case, in accordance with the overriding objective.
45. In opposing the application, Mr Sinclair referred to the timing again, namely disclosure was made in June 2016, there was a CMC in November 2016 which included a disclosure application but not in respect of the documents which are the subject of this application. That specific disclosure application was refused as misconceived and late, and costs were awarded against the claimant. He also refers to the correspondence, including a letter on 21 February 2017 from the claimant's solicitors to the defendant, asking whether there were any marketing policies or strategies relating to the sale of such products as these, and to the fact that on 28 February 2017 three applications were made but this request by the claimant was not pursued. The defendant's response to the request was on 6 March 2017; that stated, in effect, that the defendant had complied with their disclosure obligations under the CPR. Two months later, on 8 May, the claimant renewed the request for information about "what policies were in place within RBS" in connection with swap products, and on 10 May the defendant replied stating that they had dealt with the point in earlier correspondence; on 12 May there was a PTR which went by consent, this matter not being pursued further by the claimant.
46. Also Mr Sinclair points to the fact that the judgment in Property Alliance Group was actually available in December 2016, and that in the judgment there are at least two references to Mr Bescoby's evidence on the policy point.
47. In the light of all this, he submits that the application is made far too late. In addition, he submits that the scope of the request is too wide, and, for example, would involve the defendant having to search for any and all emails in which there might be a reference to such a policy. This, he submits, would be disproportionate and excessively onerous. He also asks rhetorically what the policy would add to the pleaded case, including, if it were allowed, to the amendment.
48. Finally, he submits that there is no hint in the transcript of the Property Alliance Group evidence relied on by Mr Marshall that any document relating to the policy was put to Mr Bescoby, although there had obviously been full scale disclosure. Thus, he submits, there is no evidence that any such document exists, and this application is simply a fishing expedition by the claimant.
49. Mr Marshall responds that there is a continuing duty of disclosure, and it does not therefore need a request to trigger it. Further, as made clear in his oral argument, what the claimant requires is limited to a very specific search, rather than a wide-ranging trawl for documents.

Conclusion

50. Notwithstanding the very able, compelling and succinct submissions of Mr Sinclair, I have come to the conclusion, having regard to all the circumstances, including the overriding objective, that I should make an order. I consider that a document extant in, say, 2006 to 2008, the purpose or a purpose of which was to record, formulate and/or promulgate within RBS a policy of the kind discussed by Mr Bescoby in his evidence in Property Alliance Group, would very likely fall within one or more heads of CPR 31.6(b). If it did not clearly do so before the amendments I have allowed, then it would do so in the light of those amendments, which give more prominence to the CLU. Mr Sinclair indicated in argument, very properly, that a policy document of this kind might be relevant on the question of dishonesty.
51. I also consider that it is better to deal with this matter now, rather than risk a question arising at trial in the light of any evidence that might then be given, which might cause disruption down the road.
52. However, it would not be proportionate or reasonable to require RBS to conduct a wide-ranging, open-ended trawl for any and all documents referring to such a policy. To that end, I would direct - although I have not at this stage formulated any specific wording – that a closely defined and limited search to be made for a document extant at the material time and of the kind I have mentioned, namely a document the purpose or one purpose of which was to record, formulate and/or promulgate within RBS such a policy. The formulation of the document should be such as to exclude an open-ended or wide-ranging trawl for any and all documents that might refer incidentally to such policy.
53. I would also direct that a short witness statement, describing the nature and outcome of the search carried out for a document as defined in the order, should be filed on behalf of RBS.
54. I invite the parties to agree an order reflecting my conclusions on both applications, and to submit it to me for my approval. Failing agreement, rival drafts should be submitted and I will then decide.