England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		6 February 2009

Mr Justice Eady :

1. This appeal arises out of an unusual set of circumstances. The challenge is to an order made by Master Foster on 25 July 2008, when he gave the Claimants permission to amend their particulars of claim. Although the Master refused, Sweeney J gave permission to appeal on 6 November 2008.
2. The Claimants are a well known firm of solicitors with branches in London and Guildford. For some years, they used the services of Mr Blayden (the Second Defendant) and, from 2003 onwards, those of his company New Look Interiors of Marlow Limited (the First Defendant) as general contractors. By these proceedings, begun on 25 February 2008, the Claimants sought to reopen all those transactions and to recover approximately £1.7m on the basis that they had been systematically overcharged. Reliance was placed on breach of contract and/or fraud. Over that period many invoices (I understand more than 1,800) were rendered and paid without demur, notwithstanding that they were not broken down or itemised according to labour and materials.
3. Following an internal audit in 2007, the Claimants suspected that the Defendants' charges were excessive and requested detailed information about 17 particular invoices. The Defendants produced a breakdown for three of them but declined to provide further information.
4. The particulars were served with the claim form but were not, at that stage, based upon any expert evidence and clearly represented something of a "stab in the dark". This approach may be accounted for, partly at least, by the fact that the claims in respect of the earliest invoices were soon to be statute barred. Be that as it may, following the service of the defence and counterclaim, the Claimants decided to amend and in March 2008 put forward fresh particulars of claim, seeking permission for the amendments at the first case management conference before the Master. He gave permission, having exercised his discretion. That obviously presents a high hurdle to an appellant, especially in view of the general principle that amendments should be allowed so far as possible, so as to enable the real issues between the parties to be determined.
5. The original "stab in the dark" was based on the pleader's assertion that there had been an agreed pricing structure from October 2001, which was to be updated annually to take account of inflation. This was said to have been reached by way of oral agreement, although no particulars were given. How this allegation came to be made has not been explained, but it was abandoned in the proposed amended particulars of claim. Reliance was now to be placed on implied terms.
6. The fraud case had been pleaded on a remarkably casual basis and no particulars were set out of the relevant dishonest state or states of mind. The redrafted claim now includes a much reduced element (amounting to only £23,000) in respect of fraudulent misrepresentation. This forms only a small proportion of the overall claim against the corporate First Defendant of £1.877m. As to the Second Defendant, the claim relating to the period before incorporation is confined to £266,000. The bulk of the claim is founded upon allegations of breach of the implied terms, negligent mis-statement and mistake. These formulations were all apparently thought up at the amendment stage. No explanation has been forthcoming and Mr de Verneuil Smith says that he is not obliged to give one. Inevitably, therefore, the suspicion is created that the formulation of the Claimants' case owes more to the pleader's ingenuity than to documentary or other evidence. Indeed, it is apparent that the Claimants are hoping that the substance of their case will emerge after trawling through the Defendants' records at the stage of disclosure.
7. In particular, they hope to be able to establish thereby the nature of the work carried out over the six year period, the charging rates in respect of labour, the costs of materials and equipment and the Defendants' mark-up. This is, as I have noted at the outset, an unusual set of circumstances.
8. No doubt it is anticipated that when faced with this daunting archaeological exercise the Defendants, on whom the main burden of the litigation would fall, will decide that for commercial reasons a substantial offer should be made rather than incur the cost of these tasks.
9. The burden lies, conventionally, upon claimants who seek to establish breach of contract, negligence, fraud and mistake. How do these Claimants propose to set about that task?
10. What they have done is to take a tiny sample of recent invoices, to allege that some of these (not all) are unreasonably priced and then to extrapolate backwards to 2002 on the theory that all the other invoices will have been systematically and correspondingly overpriced. The plan lacks nothing in boldness. What it lacks in particularity, it is hoped, will be plugged after the Defendants have given disclosure.
11. It has to be recognised that, in the case of an appeal from a case management decision, the hurdle to be surmounted is formidable. The court should ordinarily only interfere if the judge at first instance has not merely preferred an imperfect solution which is different from an alternative imperfect solution which the court might or would have adopted, but has actually exceeded the generous ambit within which reasonable disagreement is possible: see Tanfern Ltd v Cameron MacDonald [2000] 1 WLR 1311, at [32], per Brooke LJ.
12. Does the case sought to be pleaded have a realistic (as opposed to a fanciful) prospect of success, such as to justify giving permission to amend, and in giving permission did the Master exceed the generous ambit within which reasonable disagreement is possible? The Appellants confront these hurdles with equanimity. They submit that there is no reasonable prospect of the case advanced in the proposed amendments ever succeeding; that the Master failed to apply the appropriate criteria for implying a term in a contract when considering the proposed amendments; and that he failed to give effect to the principle that no claim based on mistake can be advanced where good consideration is given by the payee. It is also said that the exercise of discretion was wrong because the amendment is in its nature speculative, unsupported by evidence and insufficiently pleaded (i.e. lacking in particularity).
13. The Appellants argue specifically that the Master disregarded the principle that a party should not be permitted to raise by amendment an allegation which is unsupported by any evidence and is purely speculative. This is closely linked to the underlying purpose of the requirement for a statement of truth verifying an amendment. My attention was drawn to certain passages in the judgment of Patten J in Clarke v Marlborough Fine Art (London) Ltd [2002] EWHC 11 (Ch):

(from [20])

"It is therefore important at the outset to identify what Part 22 does and does not require. In relation to a pleading the claimant or other relevant party who puts the document forward as a statement of his case is required to certify that he believes the facts alleged are true. He is not required to vouch for the legal consequences which he seeks to attach to these facts. That is a matter for argument and ultimately for the decision of the court. The purpose of Part 22 is simply to exclude factual allegations which to the knowledge of the claimant or other party are untrue or which the party putting forward the pleading to the court is unable to say are true."

(from [21])

"In the most simple case the requirements of CPR Part 22.1 will, if observed, exclude untruthful or fanciful claims but the notes to Part 22 also indicate that the purpose of the new rule was to discourage the pleading of cases which when settled were unsupported by evidence and which were put forward in the hope that something might turn up on disclosure or at trial."

(from [30])

"It is really a matter of drafting but unless it can be said that one of the alternatives is unsupported by any evidence and is therefore pure speculation or invention on the Claimant's part he is entitled in my judgment to sign a statement of truth in these circumstances."

14. Here it cannot be said that anyone verifying the terms of the amended pleadings could know that there had been systematic overcharging (for the very reason that the Claimants are dependent on disclosure of documents to find out); or that there had been dishonest or negligent misrepresentation; or that the law will imply terms of the kind now pleaded. The claims are in their nature speculative. All they know is that the invoices have been rendered and paid over several years and that one "expert" thinks some of the charges are unusually high.
15. Secondly, it is said that the Master ignored the principle that any proposed amendment should be suitably particularised and clear, so that the opposing party knows the case he or she has to meet: see e.g. CPR 16.4(1).
16. Thirdly, it is said that he paid insufficient regard to the principle that any amendment must be formulated so as to enable the court to deal with the claim justly, in a way that is proportionate, and in accordance with the overriding objective.
17. Furthermore, it is submitted that the Master ignored certain specific principles touching upon the particular causes of action now relied upon.
18. In particular, with regard to the implication of contractual terms, it is necessary to remember that there are certain conditions which have to be fulfilled before the court will imply a term. Reference was made to Lewison's The Interpretation of Contracts, at para 6.03:

"(1) It must be reasonable and equitable;

(2) It must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it;

(3) It must be so obvious that it goes without saying;

(4) It must be capable of clear expression;

(5) It must not contradict any express terms of the contract."

There was something of a debate as to whether these conditions were cumulative or some (i.e. the second and third) might be alternatives, but nothing turns on that for present purposes.

19. As to mistake, it is necessary to have regard to the general principle that a restitutionary claim, relating to money paid under an alleged mistake, cannot be made in circumstances where the money was paid to discharge, and does in fact discharge, a debt owed to the payee by the payer. My attention was drawn to the words of Robert Goff J (as he then was) in Barclays Bank Ltd v W J Simms Son & Cooke [1980] QB 677, 695C-D. (It was recognised, however, at 695F-G that one qualification to this principle is that a transaction may be set aside if the payer's mistake was induced by the payee.)
20. Overall, it is said that if the Master had sufficiently taken into account these principles of law, the exercise of his discretion would have been against the application for permission to amend.
21. It is necessary now to consider how the Appellants put their case in respect of each category of amendments.
22. I turn first to the amended claim founded in contract (set out at paragraphs 9-10). It seems clear that it is based on two different kinds of contract; that is to say, (i) those where there has been acceptance of a quotation and (ii) those where the work was simply requested. Yet it would appear that the same implied terms are relied upon, in a blanket way, in relation to both forms of contract. It is necessary to set those terms out so that the submissions can be fully understood:

"(a) The hours of labour and the price of labour which would be charged by the First/Second Defendant would be reasonable.

(b) The amount of materials and the price of materials by the First/Second Defendant (sic) would be reasonable.

(c) Reasonable care and skill would be employed by the First/Second Defendant in performing the relevant works.

(d) The Claimants would pay a reasonable price for the work done by the First/Second Defendant.

(e) The invoices of the First/Second Defendant would be accurate and represent sums due and owing."

23. One wonders why, if such terms are to be implied in the present contractual arrangements, they should not equally be implied in a myriad of other commercial transactions. The Appellants submit that no basis is put forward to justify such an implication having regard to the stringent criteria which the court applies. They develop the points as follows.
24. First, if the contract flows from the acceptance of a quotation, there is nothing which is pleaded on which to base the implied terms (a), (b), (d) and (e). A fixed price would be agreed and, accordingly, it could hardly be said that the implication of any such term was necessary to give business efficacy, or that it was so obviously required that it "goes without saying", or that it was not inconsistent with express terms (i.e. the fixed price).
25. Secondly, as to other contracts, where the work was required without a quotation being submitted or accepted, the conditions for implication would not be fulfilled in relation to the implied terms (a), (b) and (e). Nor are there any facts pleaded in support of the alleged implication.
26. Thirdly, the term pleaded at (c) as to "reasonable care and skill" does not marry up with what is pleaded at paragraph 20(e); namely, that there was a failure to take reasonable care and skill, since any reasonably competent shopfitter/decorator would have obtained and/or charged labour at market rates and also have obtained materials at discounted rates. It is pointed out that any obligation to source the labour and materials at a reasonable price would only cause a loss if the Claimant was under an obligation to pay for whatever had been obtained. This is clearly inconsistent with the Claimants' case, which is to the effect that the obligation was to pay only for the reasonable cost.
27. Fourthly, the obvious point is taken that the implied term (d) imposes an obligation only on the Claimants (so that the Defendants could not be in breach of it).
28. The amendments relating to contract are also criticised for lack of particularity as to the formation of the contract or contracts. Moreover, it is said that it is unclear whether the Claimants' proposed case is that there was no written contract or, on the other hand, a contract which came into existence following the provision of a written quotation.
29. Mr de Verneuil Smith argues that it is not possible to determine summarily issues as to the implication of contractual terms, because it would be necessary to find the facts (at trial) first. The validity of this argument turns on the circumstances of the particular case. Here, no sufficient facts have been pleaded for the court to be able to conclude that a trial is needed.
30. Next it is necessary to consider the submission of the Appellants in relation to the allegations of overcharging (which are set out at paragraphs 13-28, 40-48 and 49-51). Save in relation to the nine specific invoices, it is said that the pleading demonstrates the speculative nature of the proposed claim. Criticism is also made of the reliance upon the expert quantity surveyor, Mr Brown. He only looked at twelve of the relevant invoices and took issue with the sums claimed only in nine of those twelve. They related simply to the period of October 2005 to September 2006. The extrapolation based on those limited samples is said, again, to illustrate the speculative and indeed fanciful nature of the claim put forward. Moreover, no particulars are supplied of the supposed "system" underlying the "systematic overcharging" pleaded at various points in the proposed amendment.
31. Attention was then focused on the pleading of fraudulent/negligent mis-statement at paragraphs 29-34. No duty of care in tort is pleaded. Also, the representation relied upon appears to relate to the expression of opinion rather than the assertion of fact.
32. The additional point is made that no claim in mis-statement could be made in relation to invoices in respect of which no payment has been made - for the obvious reason that there would have been no reliance on the alleged representation. Nor could the representation case be made out in relation to a contract where there had been an acceptance of a quotation. It would not make sense.
33. There is again reliance placed on the lack of particularity as to who is supposed to have relied upon the alleged misrepresentations and who, on the other side, is said to have known of the Claimants' supposed reliance.
34. Finally, there is the criticism directed towards the pleading on mistake (at paragraphs 35-39). It is said that the claim founded in mistake must fail because it is not the Claimants' pleaded case that nothing was due – but simply that there was overcharging. Where payment was made, it went to discharge a debt owed to the relevant Defendant.
35. On the other hand, Mr de Verneuil Smith points out that the doctrine does not apply to a case where a payee has induced a payer's mistaken belief, e.g. in this instance that the prices charged were reasonable, and quoted a passage from Barclays Bank v Simms & Cooke, cited above, at 695G. He says that this exception could apply even in a situation where a quotation has been accepted. I am not persuaded that the qualification or exception contemplated by Robert Goff J would extend to transactions where the alleged mistake is simply as to the supposed reasonableness of the price.
36. Once again, it is said (as I believe the Claimants accept) that the claim in mistake cannot be maintained in relation to invoices which had not yet been paid.
37. These cogent arguments advanced on the Defendants' behalf demonstrate quite clearly in my judgment that the Master erred in the exercise of his discretion. The essential point is that the claim is speculative and seeks, effectively, to reverse the burden of proof. It is a scatter-gun approach. The burden imposed on the Defendants would be intolerable and should not be countenanced by the court. I would accordingly allow the appeal.
38. Mr de Verneuil Smith, in the event that the appeal is allowed, invites the court to exercise its discretion afresh and, in that context, submits that relative prejudice to the parties should be weighed and tested on the hypothesis that permission for the current draft is refused. It is said that the Defendants would be enabled to resist the extensive disclosure sought (critical to the Claimants' case) for lack of particularity in the pleaded case; this would prevent the Claimants from being able fairly to present their case on overcharging. Of course, the real problem is that without disclosure the Claimants would not be able to identify the case, let alone present it. To conclude that they would suffer prejudice requires me to assume, in their favour, that their proposed claim is meritorious: if it is not, no prejudice will be suffered on that side. By contrast, if I were to permit the claim to go forward, and effectively to reverse the burden of proof, the Defendants would certainly incur huge expense, uncertainty and inconvenience.
39. I would, in any event, decline to exercise the discretion in the Claimants' favour for the primary reasons already discussed.
40. That is not to say, of course, that the Claimants should not have a further opportunity, if thought appropriate, to plead the case in a more focused and particularised manner. Ms Smith on the Defendants' behalf recognises that such an opportunity should be given. On the other hand, Mr de Verneuil Smith in the course of his submissions appeared to acknowledge that he had already given it "his best shot" and that a further opportunity would yield very little of substance. That will be a matter for him to consider in due course, but for the moment the pleading as proposed should not in my judgment be allowed to stand.