Cluley v Cluley

J U D G M E N T

1. LORD JUSTICE SIMON BROWN: I shall ask Lord Justice Jonathan Parker to give the first judgment.

2. LORD JUSTICE JONATHAN PARKER: This is an appeal by Mr and Mrs Cluley, the claimants in the action, against an order made by Her Honour Judge Kirkham sitting as a judge of the Queen's Bench Division in the Birmingham District Registry on 27 June 2003, granting permission to the defendants in the action, RL Dix Heating ("Dix"), to amend their Defence. Dix has a Part 20 claim against Nu-Heat UK Ltd ("Nu-Heat"). Nu-Heat has served a Respondent's Notice seeking to uphold the judge's order on additional grounds.

3. Permission to appeal was granted by Aldous LJ on 22 August 2003.

4. In order to set the judge's order in context, it is necessary to refer briefly to the factual and procedural background.

5. Dix has for many years carried on business as a plumbing and heating contractor. The partners in Dix are Mr Robert Dix and his wife (although the business is managed apparently by Mr Dix and his brother).

6. In November 1995 Dix was invited by a Mr Corfield, an architect retained by the appellants, to tender for certain plumbing and heating works (including the supply and installation of a central heating system) in a house to be built for the appellants as Acrey Lane, Laverton in Worcestershire. Dix duly tendered, and its tender was accepted. The central heating for which Dix provided in its tender was a conventional system, using radiators.

7. On 6 January 1996 the appellants entered into a written contract with Churchill Builders Ltd ("Churchill"), as main contractor, for the building of the house. I will refer to this contract hereafter as "the main contract". The plumbing and heating works to be carried out by Dix were included in the main contract, as either prime cost items or by way of a provisional sum.

8. In about February 1996 a meeting took place between the appellants, Mr Corfield, and Mr Dix, at which it was agreed that the central heating system in the new house should be an underfloor heating system supplied by Nu-Heat. Dix was asked to produce a design and a quotation for the installation of a Nu-Heat system (Dix being an approved installer of such systems).

9. At the end of March 1996 Dix submitted to Mr Corfield a revised tender for the whole of the plumbing and heating works at the new house, including the installation of a Nu-Heat system. On 5 June 1996, following further revisions, a further tender was submitted by Dix to Mr Corfield, which was accepted.

10. By the end of October 1996 the plumbing and heating works had been completed. In January 1997 Mr Corfield issued a certificate of practical completion of the building of the new house pursuant to the main contract.

11. Subsequently, problems arose in connection with certain aspects of the plumbing works, including the Nu-Heat central heating system.

12. On 15 April 2002 the appellants commenced the present action against Dix, claiming damages for breach of contract, further or alternatively for breach of warranty, in the carrying out of the works (including the installation of the Nu-Heat system).

13. Paragraphs 4 to 7 inclusive of the appellants' Particulars of Claim are in the following terms:

"4. In about March 1996 the Defendant through its partner Robert L Dix recommended to the Claimants as suitable and fit for the purpose of installation in, and the heating of, their said dwelling an under-floor zonal heating system (known as Kee radiant floor heating, distributed by a company known as Nu-Heat (UK) Limited, which involved the use of santoprene and copper water pipes), to be suppled and fitted by him (and provided them with literature therefor which indicated that such system would be guaranteed by the manufacturer to be free from defects for 25 years).

5. The said Dux on behalf of the Defendant thereby warranted that the under-floor heating system the Defendant would provide for the Claimant's dwelling (if ordered) would be of satisfactory quality and fit for its said purpose (and that it would have a 25 year manufacturers guarantee).

6. The said Dix further indicated, and warranted, that the Defendant could (and if ordered would) satisfactorily provide all other water and gas systems required within the premises.

7. In about June 1996, relying on the Defendant's expertise and promises, and in consideration for the warranties given, agreed that the Defendant should provide an under-floor heating system as aforementioned (to be obtained from Nu-Heat (UK) Limited) and all other water and gas systems within the Claimants' said dwelling for reward."

14. The Particulars of Claim go on to allege (in paragraph 10) that Dix was at all material times aware that some of the floors in the new house were to be covered by traditional flooring slabs, and (by paragraph 12(1)) that the Nu-Heat system was not of satisfactory quality and was not reasonably fit for installation in the new house.

15. By their Defence as originally served (the Defence is dated 21 May 2002), Dix admitted that it had contracted with the appellants to carry out the works in question, and that it had given the alleged warranties; but it denied that it was in breach of contract or in breach of warranty. Paragraphs 7 to 9 of the Defence read as follows (so far as material):

"7. Paragraph 5 of the Particulars of Claim is admitted, save that it is denied that the Defendant offered or represented any guarantee save as stated in the Defendant's quotation dated 5th June 1996.

8. Paragraph 6 of the Particulars of Claim is admitted.

9. Paragraph 7 of the Particulars of Claim is admitted and averred."

16. By paragraph 12 of the Defence Dix pleaded to paragraph 10 of the Particulars of Claim as follows:

"12. Paragraph 10 of the Particulars of Claim is denied. There was nothing in the drawings supplied to the Defendant, or in the Claimants' instructions, to indicate the type of flooring to be applied at the dwelling. The Nuheat system is suitable for a wide range of flooring including stone. If it is not this is ultimately a matter for Nuheat."

17. On or about 28 May 2002 Dix commenced its Part 20 Claim against Nu-Heat, claiming an indemnity against any liability of Dix to the appellants in respect of the Nu-Heat system, alternatively a contribution towards any such liability, should the appellants succeed in establishing (contrary to Dix's Defence in the action) that the Nu-Heat system was unsatisfactory and/or not reasonably fit for installation in the new house. By paragraph 4 of the Particulars of Part 20 Claim, Dix pleads that Nu-Heat supplied Dix with an underfloor heating system for the appellants' new house. Dix goes on to allege that if and to the extent that the Nu-Heat system is found to be unsatisfactory or not reasonably fit for installation in the appellants' new house, Nu-Heat is in breach of its contract with Dix.

18. By its Part 20 Defence, Nu-Heat makes no admissions as to paragraph 4 of the Particulars of Part 20 Claim, and denies breach of its contract with Dix. Paragraph 13 contains a general traverse of the allegations made in the Particulars of Part 20 Claim, save as otherwise admitted.

19. On or about 22 October 2002, Churchill was (on its own application) struck off the Register of Companies pursuant to section 652A of the Companies Act 1985.

20. On 20 December 2002 a case management conference took place before the judge. As at that date, neither Dix nor Nu-Heat had sought to put in issue whether there was (as the appellants alleged) a contractual relationship between the appellants and Dix. Indeed, as I have already pointed out, the existence of such a relationship had been expressly admitted by Dix in its Defence.

21. At the hearing on 20 December 2002, Dix and Nu-Heat were represented by the same counsel, Mr Capon. When asked about this by the judge, Mr Capon responded (according to the transcript):

"I am representing both R L Dix and Nu Heat Ltd, simply for the purposes of the case management conference. They are represented by separate firms of solicitors, and no doubt at trial they will be represented by separate barristers. It is simply a cost-saving exercise. They did not feel that there was really any issue between them in terms of the directions that we sought today, so that is why I have been instructed on behalf of both of them."

22. The judge then referred to paragraph 12 of Dix's defence (which I quoted earlier). She continued:

"it is presumably the defendant's case that it contracted with the claimants.

MR CAPON: Yes.

JUDGE KIRKHAM: It is not resiling from that.

MR CAPON: No."

A little later, Mr Capon said this:

"It is certainly not my understanding that the defendants are seeking to resile from the fact that they were contracted to undertake this work, and I think that is the subject of admissions at the beginning of the defence."

The judge then asked Mr Capon whether Dix was proposing to amend its Defence, to which Mr Capon replied: "Not as far as I am aware, my Lady, no."

23. Plainly what the judge was puzzled about, and understandably so if I may say so, was the relevance of the allegation in the last sentence of paragraph 12 of the Defence, that if the Nu-Heat system was not suitable for stone floors, that was "ultimately a matter for Nu-Heat", given that Dix had admitted that it owed contractual obligations to the appellants. For his part Mr Capon, who had obviously not settled the Defence, was disposed to agree that it was an irrelevant allegation. As he put it in response to the judge:

"I accept on the basis that they [i.e Dix] accept that they contracted that that does [and a 'not' has to be implied to make sense of the transcript] necessarily assist them."

24. At all events, the result of the case management conference was an order giving directions for (among other things) standard disclosure by lists by 4.00pm on 24 January 2003.

25. On that day the appellants and Dix duly exchanged lists of documents. The appellants did not include the main contract in their list of documents. By its Respondent's Notice, Nu-Heat contends that they should have done. I will return to this in due course.

26. In or about mid-February 2003 the appellants and Dix exchanged witness statements. By paragraph 29 of his witness statement (which was dated 13 May 2002, and which accordingly preceded the delivery of the Defence) Mr Robert Dix expressly agreed with the allegations in paragraphs 5 to 7 of the Particulars of Claim: that is to say, he admitted the allegations of a contractual relationship between him and the appellants (an admission which was, of course, subsequently repeated in the Defence).

27. Nu-Heat, for its part, declined to exchange witness statements until it had seen a copy of the main contract. On 7 March 2003 Nu-Heat's solicitors, Over Taylor Biggs, wrote to Mr Corfield asking for a copy of the main contract, and indicating, for the first time (so far as the material before us indicates), why they wanted it. They wanted it because they wished to inquire (and I quote from the letter):

"Whether the plumbing sub-contractor [i.e. Dix] was engaged under a formal sub-contract or whether it was simply by virtue of the main contractor [i.e. Churchill] accepting his quote."

28. Over Taylor Biggs sent a copy of that letter to the appellants' solicitors, Atter Mackenzie. On 18th March 2003 Atter Mackenzie wrote to Over Taylor Biggs saying that they considered the letter to Mr Corfield to be completely misleading, since the appellants had not sued Dix in its capacity as a subcontractor but as being directly contractually liable to the appellants. They pointed out that Dix had not pleaded any subcontract nor had it attempted to deny liability on the basis that there was no contract between Dix and the appellants. They went on to point out that at the case management conference on 20 December 2002 counsel for Dix had told the judge that no contractual points were to be taken.

29. In the event, however, it appears that Mr Corfield supplied Dix's solicitors, Ford Simey, with a copy of the main contract, and that on 18 March 2003, Ford Simey forwarded a copy of it to Over Taylor Biggs. They wrote back saying that they were reviewing the matter with counsel as a matter of urgency.

30. On 20 March 2003 Over Taylor Biggs responded to the letter from Atter Mackenzie. In the course of their letter they said this:

"Our clients' approach to this litigation has been consistent throughout; to challenge your clients on their claim which our clients believe to be misguided and to challenge your clients on the contractual position in view of your clients' failure to properly plead their claim. Our clients will continue to do so and at all times our clients' rights are reserved."

They went on to complain that the appellants had not given full disclosure, presumably because they had not included a copy of the main contract in their list of documents.

31. On 24 March 2003 Over Taylor Biggs wrote to Ford Simey (Dix's solicitors) saying this:

"We have now had a chance to fully consider the documents that you have disclosed with our clients and with Counsel.

Those documents confirm our view that the claim as issued by Mr and Mr Cluley does not disclose a cause of action against your client. It is now obvious to our clients that there is no direct contractual nexus between Mr and Mrs Cluley and Mr Dix and that your client was in fact contracted by the main contractor, Churchill Builders ('Churchills'), to carry out the general plumbing works and to supply and install the underfloor heating system.

The Agreement between the Claimants and Churchills does not even provide for the nomination of a sub-contractor and it seems clear that Mr Dix was contracted by Churchills and not by the Cluleys direct. This, therefore, gives your client an absolute defence to the claim by Mr and Mrs Cluley."

They went on to invite Dix to discontinue its Part 20 claim. They also sent a copy of that letter to Atter Mackenzie.

32. A further case management conference took place before the judge on 15 April 2003. On this occasion Dix and Nu-Heat were separately represented by counsel. Dix was represented by Mr Craig (who had only recently been instructed, and who also appears for Dix in this court). Nu-Heat was represented by Mr Pickering. The appellants were represented by Mr Gasztowicz, who also appears for them in this court.

33. At the hearing on 15 April 2003 Mr Craig sought an 'unless' order compelling Nu-Heat to exchange witness statements in accordance with the judge's earlier direction. In case that application did not succeed, or an 'unless' order was made with which Nu-Heat complied, Mr Craig put before the court a draft amended Defence, putting in issue the existence of a direct contractual relationship between the appellants and Dix. The judge inquired of Mr Gasztowicz whether it was the appellants' case that they contracted with Dix, pointing out that the appellants' evidence did not address that aspect. Mr Gasztowicz reminded the judge that that was never in issue, since a contractual relationship was admitted, both in the Defence and in Mr Dix's witness statement. Mr Gasztowicz went on to submit that to allow the amendments would cause prejudice to the appellants because (and I quote from the transcript of the hearing):

"... if this had been raised at the outset in the defence, the claimants would have joined Churchill out of an excess of caution, or at least they would have considered doing so."

34. In the result, the judge directed that Nu-Heat should have the opportunity to make an application for permission to amend its Part 20 Defence to raise the issue; and in the event that permission was given, Dix should then have an opportunity to make a similar application in respect of its own Defence. Accordingly Mr Craig did not make a formal application for permission to amend the Defence at that stage: he merely sought to reserve his position in that respect.

35. Following that hearing, Nu-Heat duly applied for permission to amend its Part 20 Defence to raise what I will describe as the contract issue; and Dix made a like application in respect of its Defence to the appellants' claim.

36. Those applications came before the judge on 27 June 2003, when she granted the permission sought, respectively, by Nu-Heat and by Dix.

37. After reviewing the procedural history, and after pointing out that the proposed amendments to the Defence involved the withdrawal of admissions, the judge turned to the submissions made by Mr Gasztowicz as to the prejudice which the appellants would suffer were the amendments to be allowed. The judge says this in paragraphs 7 to 11 of her judgment:

"7. In relation to the collateral warranty point and the pleading of the main contract between the claimants and Churchill, Mr Gasztowicz submits that the claimants will be prejudiced if the amendment is allowed, and that comes about in this was. Churchill as I have said is now dissolved. I am told that the practical completion under the main contract was in about January 1997. If that is so, and if the limitation period runs from that date, then the limitation period against the main contractor, Churchill, would have expired in about January of this year. The claimant say that because the defendant has admitted until this point the collateral warranty point, there was no need for them to have joined Churchill as a party, and they are now unable to do so, first because the limitation period has expired as against Churchill, and secondly because of the difficulties with Churchill having been dissolved in any event.

8. The claimants suggest that they may have had some prospects of success against Churchill. It is suggested that Churchill may have had insurance. I am somewhat sceptical about that suggestion, as insurance against defects in workmanship an materials is an unusual creature, and it is not suggested that there was any such insurance in place in this case. It is suggested that the claimants are prejudiced because they are now out of time for suing the architect, Mr Corfield, for his failure to have spotted what the claimants say were obvious defects, for example, laying pipes under concrete screed.

9. These points are made against a background where when the case first came in for a case management conference in December 2002, the court raised with the parties the question of the contractual relationships and as to whether the position was clear. The case came in again in April of this year and again the court raised with the parties the question of contractual relationships, as it was clear to the court at least as early as the first case management conference that this was an issue which needed to be tackled.

10. I have considered these points carefully. It seems to me that the defendant should be permitted to make the amendments set out in the draft amended defence. So far as the question of the main contract is concerned, it is plainly a relevant point within these proceedings. I am not persuaded that if there is any prejudice to the claimants then this is prejudice which has been created by the defendant in not tackling this amendment until this late stage. It was always open to the claimants to identify the targets for their claim. It was open to the claimants from the very beginning, with the knowledge that they had, no doubt, about the parties with whom they had dealt, their architect, Churchill and others, and in conjunction with their legal advisers, to have decided against whom appropriately claims should have been made. Even if those matters had not been considered in detail before December 2002, certainly the alert that was given by the court at that point, one would think, might have given the claimants cause to give some thought to how they wished to proceed, and harsh though it may seem, it seems to me that it is not open to the claimants to complain now if prejudice has been caused.

11. So far as the collateral warranty point is concerned, I have dealt with the question of prejudice. As to the prospects of success, it would it seems to me be entirely wrong on the basis of the very limited information available to me (at the moment, the draft amended pleading and the statement which Mr Dix made) and without consideration of all relevant information to reach a conclusion as to the prospects of success of the collateral warranty claim or the defence to it."

38. The judge accordingly granted permission to Dix to amend its Defence. She went on to direct preliminary issues as to whether there was any contract or any collateral warranty between the appellants and Dix, and if so what were the terms thereof.

39. There is no dispute before us as to the relevant provisions of the Civil Procedure Rules, or as to the principles bearing upon their application.

40. So far as the Civil Procedure Rules are concerned, CPR 17.1(2) provides that where (as here) a statement of case has been served, a party may amend it only with the written consent of all the other parties or with the permission of the court; and CPR 14.1(5) provides that the court may allow a party to withdraw an admission.

41. As to the authorities, Mr Craig in his written skeleton argument, and indeed in his oral submissions this morning, has directed our attention to the following passage in the judgment of Peter Gibson LJ in Cobbold v London Borough of Greenwich (unreported, 9 August 1999 CA) where he said this:

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

42. To the same effect is the observation of Brooke LJ in Hannigan v Hannigan[2000] FCR 650, where he said this (in paragraph 36):

"... the judge was quite correct when he said that the Civil Procedure Rules were drawn to ensure that civil litigation was brought up to a higher degree of efficiency. But one must not lose sight of the fact that the overriding objective of the new procedural code is to enable the court to deal with cases justly, and this means the achievement of justice as between the litigants whose dispute it is the court's duty to resolve."

43. Mr Craig has also referred us to the judgment of Staughton LJ in Hancock Shipping Co Ltd v Kawasaki Heavy Industries Ltd (the "Casper Trader") [1992] 1 WLR 1025. In that case, which was decided under the old rules, leave was sought by the plaintiffs to amend their points of claim in circumstances where it was common ground that the amendments would introduce new causes of action which, if brought in new proceedings, would have been statute-barred. Rule 20 of the former Rules of the Supreme Court provided that leave to make the amendments could be made if (a) the new causes of action arose out of substantially the same facts, and (b) the court thought it just to grant leave. In the course of his judgment, Staughton LJ set out the history of the relevant rule. In so doing, he referred to what he described as the liberal attitude which the courts had adopted to applications for leave to amend pleadings, quoting the well-known dictum that:

"... the amendment should be allowed if it can be made without injustice to the other side. There is no injustice if the other side can be compensated in costs."

Staughton LJ observed, however, that that dictum must now be read in the light of the important observations of Lord Griffiths in Ketteman & Ors v Hansel Properties Ltd & Ors[1987] AC 189.

44. In Ketteman Lord Griffiths said this (at page 220F-H):

"Another factor that a judge must weigh in the balance is the pressure on the courts caused by the great increase in litigation and the consequent necessity that, in the interests of the whole community, legal business should be conducted efficiently. We can no longer afford to show the same indulgence towards the negligent conduct of litigation as was perhaps possible in a more leisured age. There will be cases in which justice will be better served by allowing the consequences of the negligence of the lawyers to fall upon their own heads rather than by allowing an amendment at a very late stage in the proceedings."

45. Returning to the Hancock case, in the context of the second of the two conditions for the granting of leave, Staughton LJ had to consider whether it was only prejudice which had arisen after the limitation period had expired which was relevant, or whether (as in the event he concluded):

"... the expiry of the cause of action is thus the condition or trigger which enables the defendant to rely on earlier prejudice."

I do not, for my part, derive very much assistance from that case in addressing the issue which arises on this appeal.

46. I turn, then, to the arguments.

47. For the appellants, Mr Gasztowicz submits (as he submitted to the judge) that to allow the amendments to the Defence for which permission is sought by Dix would cause prejudice to the appellants which could not be compensated in costs. He submits that had the existence of a contractual relationship between the appellants and Dix been put in issue at any time before 22 October 2002 (when Churchill ceased to exist) the appellants would have had an opportunity, which is now denied to them and which they would as a matter of prudence have taken, of joining Churchill as an additional defendant in the action. Even after 22 October 2002, he submits, the appellants could, as long as the limitation period was still running, have applied to restore Churchill to the register of companies. For that matter, it could (at any time prior to January 2003) have joined Mr Corfield, the architect under the main contract, and alleged breach of his duty under that contact. As matters stood before the judge, however, none of this was possible because the relevant limitation periods had by then expired.

48. In these circumstances, submits Mr Gasztowicz, the judge ought to have found that substantial prejudice would be caused to the appellants by the proposed amendments, being prejudice which could not be compensated in costs; and that factor ought to have led her to refuse permission to make the amendments. As it is, the judge did not expressly decide whether prejudice would result to the appellants. She merely said (in paragraph 10 of her judgment, which I quoted earlier) that she was not satisfied that "if" there was any prejudice to the appellants it had been created by Dix. Mr Gasztowicz submits that her failure to recognise the clear existence of prejudice -- being prejudice plainly caused by Dix -- vitiates the exercise of her discretion.

49. Further, he describes as untenable the judge's view (also in paragraph 10 of the judgment) that it was always open to the appellants to identify the targets of their claim and that therefore it was not open to them to complain of prejudice. He submits that the appellants did identify their target at the outset: namely Dix. And that Dix admitted it was the right target, in terms of a contractual relationship. He asks rhetorically why, in those circumstances, should the appellants seek to join any other possible target.

50. As to "the alert given by the court" to which the judge refers in paragraph 10 of her judgment, Mr Gasztowicz submits that there was no such alert. Indeed, at the hearing on 20 December 2002 counsel then appearing for Dix confirmed to the judge that no application for permission to amend was contemplated at that stage. There was, he submits, nothing to put the appellants on notice that such an application might at some later stage be made. As to the judge's reference (in paragraph 9 of her judgment) to the matter being raised again at the April 2003 hearing, by then the damage was done in the sense that the limitation period had expired.

51. He submits that whether or not Nu-Heat was justified in complaining that Dix ought to have raised the contractual issue earlier is nothing to the point so far as the appellants are concerned. Dix had its opportunity to plead its case (he submits), it admitted the existence of a contractual relationship, and it would be wholly unfair, and contrary to the overriding objective, now to allow it to resile from that position.

52. Mr Craig submits that no prejudice will be caused by the proposed amendments; the prejudice results, he submits, from the expiry of the limitation period. He submits that the judge was right to observe that it was always open to the appellants to join Churchill, or for that matter Mr Corfield, as additional defendants, but they chose not to do so.

53. If there is any prejudice, he submits, it is prejudice as between the appellants and third parties, namely Churchill and/or Mr Corfield, in connection with a claim which has not as yet been made. Nor, he submits, is there any present prejudice to the appellants, since they may succeed on the preliminary issue which the judge directed. Prejudice will only occur, he submits, if and when the preliminary issue is decided against the appellants. He also suggests that the opportunity for the appellants to join Churchill as an additional defendant was in fact illusory, since Churchill would not have been worth suing. But the case has never been run on that basis. There has been no factual investigation into that aspect, nor was there any Respondent's Notice before the court raising that issue.

54. Mr Craig submits that in any event any prejudice to the appellants is outweighed by the prejudice which would be caused to Dix if permission is refused, in that it will then be unable to rely on a defence which would (if made out) be a complete answer to the claim.

55. As to what Mr Capon said at the hearing on 20 December 2002, Mr Craig submits that all Mr Capon was doing was confirming the meaning and effect of the Defence as it stood, and that there was no present intention to apply for permission to amend. In any event, he submits, there is no evidence that the appellants relied on what Mr Capon said, or, for that matter, that the appellants would or might have joined Churchill and/or Mr Corfield had the contractual issue been raised earlier.

56. Miss Williamson (who appears for Nu-Heat before us) submits primarily that the judge's decision was made in the exercise of her case management powers, and that unless it is thought to be plainly wrong (as she submits it is not), the Court of Appeal should not interfere with it. She submits, for essentially the same reasons as Mr Craig, that there would be no prejudice to the appellants if the permission was granted. She points out that the claim as pleaded relies not only on a contract but also on oral contractual warranties. Accordingly, there would still be, as she put it, one string to the appellants' bow in relation to their claim against Dix.

57. She submits that the judge expressly addressed the question of prejudice and correctly concluded that it was for the appellants to identify the proper targets of their claim. She submits that if for their own reasons the appellants chose not to join Churchill, they must be taken to have accepted the risk that the issue of contractual nexus would or might at some stage be raised against them. After all, she submits, it is a fundamental issue going to the heart of the appellants' claim.

58. In her written skeleton argument (although she did not develop this aspect in her oral submissions), Miss Williamson submits that it is significant that when issuing their claim the appellants did not follow the pre-action protocol for construction claims, one of the objectives of which is to encourage the early and full exchange of information about the prospective claim. She submits that had the appellants followed that protocol, the present situation would not have arisen. She also submits that it is a significant factor that the appellants did not commence the action until more than five years after the cause of action (if there is one) arose. Whilst accepting, as she must, that a claimant may commence proceedings as late as he likes within the limitation period, she submits that a claimant who elects to commence his action shortly before the expiry of the limitation period is bound to take particular care to take all steps necessary to protect his position.

59. She submits that the reality of the situation facing the appellants is that they took the risk of not joining Churchill and the risk has not paid off.

60. She, like Mr Craig, submits that the appellants are not entitled to rely on what Mr Capon said at the hearing on 20 December 2002. She points out that his assurance that there was no intention to amend the Defence was qualified, and that in any event no assurance was given on behalf of Nu-Heat. In any event, disclosure had as yet not been directed, and (she submits) the appellants must be taken to know that the parties' positions might well change after disclose.

61. In this connection she submits (as foreshadowed by Nu-Heat's Respondent's Notice) that the appellants ought to have disclosed the main contract in their list of documents, whereas in fact they did nothing to assist in the process of obtaining the relevant documentation.

62. She submits that if the appellants are right in basing their claim on a contractual relationship between them and Dix, then they have nothing to fear from the amendments in question. They have elected to plead their case in that manner, and (she submits) there is no unfairness in holding them to it.

63. I can now state my own conclusions.

64. I must start by acknowledging the width of the judge's discretion under the Civil Procedure Rules in deciding whether to grant permission for the proposed amendments to Dix's Defence. However, it is trite law that if the judge's approach to that question was contrary to principle, or if the decision itself was (in the view of the appellate court) plainly wrong, then it is the duty of the appellate court to interfere to put things right.

65. With all respect to the judge, her decision in the instant case is in my judgment plainly wrong.

66. In deciding whether to grant permission to make the proposed amendments the extent to which the appellants would be prejudiced were permission to be granted must, on any footing, be a highly significant factor. The judge addresses the question of prejudice in paragraph 10 of her judgment. She makes no direct finding that the appellants would be prejudiced; rather, she proceeds on the assumption that they would be. Thus, in paragraph 10 she says: "I am not persuaded that if there is any prejudice to the claimants ..."; and later she says, at the end of the paragraph, "if prejudice has been caused".

67. The judge's assumption that the appellants would be prejudiced by the amendments is, in my judgment, plainly justified on the facts. The prejudice, of course, lies in the fact that the appellants cannot now protect themselves against Dix succeeding on the contract issue by joining Churchill and possibly also Mr Corfield as additional defendants in the action, whereas had Dix denied the existence of a contractual relationship between it and the appellants in its original Defence, or had it sought to raise that issue at any time prior to 22 October 2002 (in the case of Churchill) or January 2003 (in the case of Mr Corfield), they would have had that opportunity.

68. Starting, therefore, from the plainly correct premise that the appellants would be prejudiced in that way were the amendments to be allowed, the judge (in paragraph 10 of her judgment) expressed herself as not being persuaded that the prejudice in question had (and I quote) "been created by the defendant in not tackling this amendment until this late stage." The judge continued:

"It was always open to the claimants to identify the targets for their claim. It was open to the claimants from the very beginning, with the knowledge that they had, no doubt, about the parties with whom they had dealt, their architect, Churchill and others, and in conjunction with their legal advisers, to have decided against whom appropriate claims should have been made."

69. It was indeed for the appellants, with the assistance of their legal advisers, to decide who to sue, and they did so. They decided to sue Dix alone, on the footing that there was a contract between them and Dix; and Dix in due course admitted in its Defence that that was the case. That admission having been made, there was, so far as I can see, no reason whatever for the appellants to take the precautionary measure of joining other defendants in order to cover the possibility that at some later stage in the action that admission might be withdrawn: indeed, to join additional defendants in the face of that admission would in my judgment have been an abuse of process, carrying costs consequences for the appellants. Dix's admission amounted, in my judgment, to a complete vindication of the appellants' decision to sue Dix alone. Hence the fact that it was open to the appellants to join additional defendants is not in my judgment a fact which can possibly be said to weigh against the appellants.

70. The judge then continued:

"Even if those matters had not been considered in detail before December 2002, certainly the alert that was given by the court at that point, one would think, might have given the claimants cause to give some thought to how they wished to proceed ..."

71. Those observations by the judge seem to me, if I may say so, to reveal a complete misunderstanding of the significance of what occurred at the hearing on 20 December 2002. At that hearing the judge queried with counsel representing Dix (Mr Capon) whether Dix wished to amend its Defence to withdraw the admission that it had contracted directly with the appellants. As I indicated earlier, that was in my judgment a perfectly natural query, given the terms of the last sentence of paragraph 12 of the Defence (quoted earlier) which appears to suggest that the appellants might have a cause of action against Nu-Heat. In the event, no application for permission to amend was made at that stage, so the position on the pleadings remained the same: the admission stood.

72. Far from any "alert" being given to the appellants by the court (presumably the judge is suggesting that the "alert" was to the possibility that the admission might be withdrawn), the very opposite seems me to have been the case: Dix had specifically confirmed that the admission stood. Nor in my judgment was there any question of the appellants "relying" on that confirmation. So far as they were concerned, nothing had changed. It remained the case that their decision to sue Dix alone was completely justified by the admission which Dix had made in its Defence. If anything, the "alert" was to Dix to consider whether to amend its Defence by withdrawing that admission: an alert which was not heeded by Dix at that stage. At all events, I agree with Mr Gasztowicz that the fact that Mr Capon confirmed in open court that the admission stood cannot be prayed in aid in suggesting that the appellants were somehow the authors of their own misfortune in not joining Churchill and/or Mr Corfield as additional defendants at some earlier stage in the action.

73. I therefore find myself in the unfortunate position of being unable to discern any tenable basis for the judge's conclusion that the obvious prejudice to the appellants had not been caused by Dix in not seeking to amend earlier. Plainly it had.

74. Nor can I accept Miss Williamson's submission that, in effect, the appellants have only themselves to blame since had they included the main contract in their list of documents, as she submits they should have done, the present situation would not have arisen. In the first place, by 24 January 2003 (when lists were exchanged) the damage had in effect already been done. Churchill had been dissolved and the limitation period in respect of any claim against either Churchill or Mr Corfield either had expired or was imminently about to do so. But in any event, no issue was raised on the pleadings as to the main contract at that stage. In the circumstances it is hardly surprising that Dix did not take the point.

75. The judge concluded paragraph 10 of her judgment by saying:

"... harsh though it may seem, it seems to me that it is not open to the claimants to complain now if prejudice has been caused."

76. With respect to the judge, I think her decision is a harsh decision and it is one which, for the reasons I have given, I consider to be plainly wrong.

77. I would allow this appeal.

78. SIR MARTIN NOURSE: I agree.

79. LORD JUSTICE SIMON BROWN: I also agree. The respondent's submissions to this court included two of the more surprising arguments I have ever heard advanced. I read from Mr Craig's skeleton argument (1):

"Any prejudice is not between the Claimant and the Defendants in this action but between the Claimant and some third party, viz. Churchill builders and/or the Architect in an action that is not even in existence ..."

(2):

"There is no actual prejudice at the present time. The prejudice will not arise unless and until the question of whether there was a contract or any actionable warranties given by the Defendant has been decided against the Claimants."

80. As to the first, Mr Craig went so far as to submit that even assuming that the claimants would be prejudiced by being unable now to bring a sustainable alternative claim against some other person, that prejudice, as a matter of law, is immaterial in deciding whether it is just to allow the amendment in the present action. There is, he submits, no authority to the contrary. Assuming that to be so, it is to my mind unsurprising. The submission is quite simply offensive to common sense.

81. As to the second of Mr Craig's arguments, that is no less absurd. To suggest that the claimants may never be prejudiced here because they may after all establish their contractual relationship with the defendants, even if the defendants are permitted to amend to deny it, is hardly a sound basis for permitting the amendment in the first place.

82. What the point comes to is this: either the amendment is not worth making because the defence will in any event fail, or it is worth making and the claimants will then be shown to have suffered prejudice. It really should not need this court to point that out.

83. Plainly the appeal must be allowed and the judge's order be set aside.

ORDER: Appeal allowed and the judge's order set aside; paragraphs 2, 6, 7, 8, 9 and 10 of the judge's order struck out; as to the costs below, the appellants to get 80% of their costs below and all of their costs of the statements served pursuant to paragraph 7 of the order below to be paid by the defendants; the appellants to have their costs of the appeal jointly and severally against the defendants and the Part 20 defendants in the summarily assessed sum of £10,000, including VAT.

(Order not part of approved judgment)

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