Aldi Stores Ltd v Holmes Buildings Plc

LORD JUSTICE AULD: Lord Justice Dyson will give the first judgment.

LORD JUSTICE DYSON: This appeal raises a point as to the circumstances in which party A should be permitted to amend its claim against party B to introduce a claim which has already been made by A against B in other pending proceedings, where, because of the relation-back principle, it is said that the amendment will or may deprive B of a limitation defence available to it in the pending proceedings.

I shall refer to the appellant as "Holmes" and the respondent as "WSP". Holmes is a design and build contractor and WSP a structural engineer. In 1994, Laporte Industries Ltd ("Laporte") owned a site at Dallow Road, Luton on which it proposed to build two retail stores. Laporte has since assigned its interest in the site to Grantchester Properties (Luton) Ltd ("Grantchester"). Holmes was interested in submitting a tender for the design and construction of the development, and in April 1994 it retained WSP to act as its engineer to advise it in relation to the proposed tender.

In reliance on the advice of WSP, Holmes entered into a design and build contract ("the building contract") with Laporte on 25th August 1994 for the construction of the two stores. Laporte had already entered into agreements for leases in respect of the two stores with B&Q Plc ("B&Q") and Aldi Stores Plc ("Aldi"). Under these agreements, Laporte agreed to construct and then let the stores on 25-year leases.

By clause 2.8.1 of the building contract, Holmes agreed to execute a deed of warranty in favour of such third parties as Laporte might specify, warranting proper performance by Holmes of its obligations under the building contract. Entirely predictably Laporte specified that Holmes should execute such deeds in favour of Aldi and B&Q, and this Holmes duly did. By these warranties, Holmes warranted that it would perform all its obligations under the building contract in accordance with its terms; that it would satisfy the performance specification included in the building contract; and that it would exercise all reasonable skill and care as would be expected of a competent professional engineer.

Holmes completed the works in 1995 and Aldi and B&Q executed 25-year leases with Laporte. Cracking occurred in both buildings. It is common ground that this was caused by differential settlement, resulting from the fact that the stores had been constructed on four infilled lagoons which contained chemical sludge separated by bunds. It was the presence of the bunds which made differential settlement inevitable.

On 22nd June 2001, Aldi issued proceedings against Holmes ("the Aldi action") alleging that it was in breach of the building contract, and therefore in breach of its warranty. On 28th September 2001, Holmes issued a Part 20 claim against WSP alleging negligence and breach of contract and claiming damages equal to an indemnity against its liability to Aldi. It is not necessary to set out the details of the allegations made against WSP. Suffice it to say that Holmes alleged that WSP had given negligent advice in relation to the ground improvement work that was required, and that Holmes had relied on that advice in designing the scheme which was incorporated into the building contract. By its original defence WSP denied liability, but did not plead a limitation defence.

On 7th May 2002, B&Q issued proceedings against Holmes ("the B&Q action"). The allegations of breach of contract are substantially the same as those made by Aldi. In turn, Holmes issued a Part 20 claim against WSP on 10th July 2002. The allegations made were substantially the same as those that it had made in its Part 20 claim in the Aldi action. Holmes claimed damages equal to an indemnity against its liability to B&Q.

In its defence to the Part 20 claim in the B&Q action, WSP pleaded a limitation defence. It also obtained permission to amend its defence in the Aldi action. At paragraph 23B of its amended defence in the Aldi action, WSP pleaded as follows:

The plea at paragraph 23C was in response to paragraph 33 of Holmes' reply, which was in these terms:

The corresponding pleas in the B&Q action are at paragraphs 22 and 23 of the WSP defence and paragraphs 23-25 of the WSP reply in the Part 20 proceedings.

Accordingly, in relation to the date of knowledge for the purposes of identifying the start of the three-year limitation period specified in section 14A of the 1980 Act, Holmes' case is that the date was 22nd June 2001 or a reasonable time after 30th November 1998, and WSP's case is that the date was 22nd September 1998. It will be seen therefore that if Holmes is right, the claim was not statute-barred when it issued its Part 20 proceedings in either action. If WSP is right, then the Part 20 proceedings were issued only six days out of time in the Aldi action, but about nine and a half months out of time in the B&Q action. This difference of approximately nine and a half months might prove to be critical. That is why the application for permission to amend might prove to be determinative of the issues between Holmes and WSP in relation to the B&Q claim.

On 3rd February 2003, Grantchester issued its claim against Holmes. It claimed damages for breach of a collateral warranty given by Holmes to Allied Dunbar Assurance Plc that it had performed all its obligations under the building contract. Grantchester sued as assignee of the benefit of that warranty. It claimed the loss allegedly suffered by it as a result of the differential settlement and the damage caused to the two buildings. No Part 20 proceedings have yet been issued in the Grantchester action.

On 15th March 2002, judgment for liability was entered by Aldi against Holmes. On 12th July 2002, judgment in respect of liability was entered by B&Q against Holmes. On 2nd June 2003, judgment was entered by Aldi in the sum of £3,311,922. Damages will be assessed in the B&Q action at a trial due to start in January 2004. The sum claimed, we are told, is in the region of £34 million. The following issues, amongst others, will be determined at that hearing: Holmes' Part 20 claim against WSP in the Aldi action; the assessment of damages suffered by B&Q and all issues in Holmes' Part 20 claim against WSP in the B&Q action; and all issues in the Grantchester action.

By a letter dated 23rd June 2003, Holmes' solicitors wrote to WSP's solicitors. Their letter covered a number of points including the question of limitation. At paragraph 4 of their letter they said:

Section 14A provides a special time limit for negligence actions to which the section applies where facts relevant to the cause of action are not known at the date of the accrual of the cause of action. The claim by Holmes against WSP is an action for damages to which the section applies. Section 14A(3) provides that in respect of such an action the limitation period is whichever is the later of six years from the date of accrual of the cause of action or three years from the date of knowledge as provided by subsections (5)-(10).

The letter of 23rd June went on to invite WSP to treat the relevant date for the purposes of section 14A in the B&Q action as being three years prior to the date when the Part 20 claim in the Aldi action was issued (i.e. three years prior to 28th September 2001). Failing agreement to that course, Holmes would seek permission to amend its Part 20 claim in the Aldi action to add its claims against WSP in relation to the B&Q action and the Grantchester claim as additional heads of loss in the Aldi action. By their letter dated 11th July, WSP refused to agree to this course. As a result, on 15th July Holmes applied for permission to amend its Part 20 claim in the Aldi action to include in that claim as further heads of loss Holmes' liability in damages to B&Q and Grantchester.

The judge dealt with this matter in a surprisingly short judgment. He said:

With respect to the judge, I do not find his judgment at all easy to follow. It is, I think, clear that he decided that the amendment raised new causes of action and therefore new claims within the meaning of section 35 of the Act. I find it impossible to see whether he decided that the new claims did or did not arise out of the same facts or substantially the same facts as the existing claim against WSP. But whether he did or did not so decide, he exercised his discretion not to allow the amendments because the application could have been made earlier, and, although he was reluctant to say that the application for permission to amend was an abuse of process, nevertheless "it is a matter to be taken into account in the exercise of my discretion." Since the reasoning is so sparse, I consider that this is one of those cases where it is right that the appeal court should revisit the whole issue without according deference to the judgment below.

Mr Soole faintly argued that account should be taken of the fact that the judge exercised a discretion in favour of his clients, but he argued that only very faintly. In my judgment he was right to do so.

The meaning of a "new claim" within the definition of section 35(2) of the Act has been considered by this court on a number of occasions. Perhaps it is sufficient to refer only to what was said by Lord Justice Auld in Lloyds Bank Plc v Rogers and another [1999] 38 EG 83. At page 85F he said:

Mr Soole QC submits that the proposed amendments do involve the introduction of new causes of action. He relies on the fact that in order to succeed against WSP in relation to the Aldi claim, Holmes must prove that it relied on the advice of WSP to enter into the deed of warranty with Aldi; whereas in order to succeed in relation to the B&Q claim, Holmes must prove that it relied on the advice of WSP to enter into the deed of warranty with B&Q. And similarly in relation to the Grantchester claim that it relied on the advice of WSP to enter into the warranty with Allied Dunbar (Grantchester's assignor). These additional facts are necessary in order in each case to establish the chain of causation which results in a potential liability to B&Q and Grantchester: they are irrelevant to the success of the claim in the Aldi action.

Mr Soole referred the court to a number of authorities. One of these was Gordon v JB Wheatley & Co (A Firm) [2000] Lloyd's Rep PN 605. That was a case where the claimant operated a private mortgage scheme. The first defendant was a firm of solicitors who had been retained to attend to the legal formalities of the mortgage scheme and to advise generally in relation to it. The allegation of negligence was that the solicitors had failed to advise the claimant in relation to his obligations and liabilities under the Financial Services Act 1986. In reliance upon the general advice given by the solicitor, the claimant said that he effected a substantial number of transactions from time to time. The question arose as to whether the loss alleged to have been caused by the solicitor's breach of duty was caused when the solicitor gave the advice, or whether there were separate losses giving rise to separate causes of action each time a transaction was effected, whenever that occurred.

The principal judgment was given by Kennedy LJ. At page 612, having referred to a "wealth of authority", he said that he did not find the question which he had sought to address an easy one, but he concluded that the claimant sustained actual loss sufficient to complete his cause of action when each investment was made.

By analogy, Mr Soole submits that in the present case Holmes suffered loss as a result of the alleged negligence on the part of WSP each time it entered into a deed of warranty. He submits that the entering into the deed of warranty is an essential ingredient of the cause of action in negligence. The entering into each deed of warranty was necessary to complete the cause of action. Accordingly, it follows that new claims and new causes of action arose each time Holmes entered into a deed of warranty.

I cannot accept this submission. In my judgment, the proposed amendments do not introduce new causes of action and therefore do not add new claims against WSP. As I see it, the amendments do no more than add new heads of loss to those already pleaded. No new duty and no new breach of duty is alleged by the proposed amendments. As Mr Tomlinson QC points out, all that Holmes is proposing by its amendments is to say that as a result of WSP's negligence, it has suffered damage not only in the form of its liability to pay damages to Aldi, but also in the form of its liability to pay damages to B&Q and Grantchester.

It is true that in order to prove its loss in respect of its liability to B&Q, Holmes must not only prove breach of duty, but also causation; i.e. that it relied on the advice of WSP to enter into the warranty that it gave to B&Q. But I do not consider that this is enough to show that this is a new cause of action. First, the essential reliance that is pleaded in this case is the reliance on the advice to enter into the building contract. It was because it was a term of the building contract (by clause 2.8.1) and for no other reason that Holmes would grant warranties in favour of such third parties as Laporte might specify that Holmes granted the warranties. Reliance on the advice of WSP to enter into the building contract is already pleaded in the Part 20 claim in the Aldi action. It seems to me that Mr Tomlinson is right in distinguishing the present case from cases such as Gordon. In cases such as Gordon, the essential complaint is that the defendant has given allegedly negligent general advice in reliance upon which the claimant has voluntarily entered into a series of transactions. That is very different from the present case, where the entering into the deeds of warranty flowed, as a matter of causation, from the entering into the building contract. Once the building contract was made, then it was foreseeable that, unless Holmes was to act in breach of its contract with Laporte, then it would execute deeds of warranty in favour of those parties specified by Laporte.

The second reason why it seems to me that the submission of Mr Soole must be rejected is that even if it is right to say that, in order to succeed against WSP in relation to the B&Q and Grantchester claims, Holmes must prove a causal link between the advice and the entering into the deeds of warranty, that is not sufficient to show that these are new claims. Take the simple case of a person claiming damages in negligence for personal injury. He pleads various heads of loss. He does not claim loss of earnings. Later, he loses his employment, and he wishes to claim damages for loss of earnings on the footing that he lost his job as result of his injury. I would suggest that nobody would say that the addition of a claim for loss of earnings involved the introduction of a new cause of action. And yet the claimant would have to prove that the loss of earnings was caused by the defendant's negligence. The case of Stock v London Underground Ltd (30th July 1999, unreported, Court of Appeal) also illustrates the point well. The claimant claimed £79,000 damages for cosmetic cracking to a building and £25 million for damage to the studio which, it seems, was a part of that building: it was said that the damage had rendered the studio unusable. This court held that there was only one cause of action, even though the nature of the damage in each case was entirely different, the mechanism by which the damage was caused differed and the bulk of the studio claim was a claim for loss of profit. The fact that each item of damage (including its causation) had to be proved separately did not preclude the conclusion that these were claims for separate heads of loss in respect of the same cause of action. So too in the present case, although Holmes would have to prove that its liability to B&Q and Grantchester was caused by WSP's negligence, on the facts of this case it seems to me that it does not follow that these are new causes of action.

Even if I am wrong in concluding that the amendments do not raise new claims, I have no doubt that they arise out of the same or substantially the same facts as the claim already made by Holmes against WSP in the Aldi action. The question whether a new claim arises out of the same or substantially the same facts as an existing claim has been considered by the courts on a number of occasions. It has been said to be largely a matter of impression: see Welsh Development Agency v Redpath Dorman Long Ltd [1994] 1 WLR 1409, 1418D. In Paragon Finance Plc v DB Thakerar & Co [1999] 1 All ER 400 at 418, Millett LJ suggested that it might be appropriate to describe it as essentially a matter of impression in borderline cases, but in others it must be a question of analysis. In the Welsh Development Agency case, Glidewell LJ, delivering the judgment of the court, expressed doubt as to the relevance of the nature of the damages claimed in the new cause of action sought to be added when addressing an argument that the new cause of action did not arise out of the same, or substantially the same, facts.

The only additional facts that are sought to be introduced by the proposed amendments in the present case are the reliance on the advice of WSP to enter into the warranties with B&Q and Grantchester and the claim for damages. But as I have said, the critical reliance pleaded is that Holmes entered into the building contract pursuant to which it was contractually bound to execute the warranties. As Mr Tomlinson points out, the retainer was the same in all three claims, the alleged breach by WSP was the same, and the building contract was the same. In my judgment, if it were necessary to decide the second issue, I would hold that there is a sufficient overlap between the existing Part 20 claims in the Aldi action and the proposed amendments to satisfy the section 35(5) and CPR 17.4(2) test.

Mr Soole submits that the appeal should be dismissed since the amendments are not necessary for the purpose of ensuring that the true matters of controversy between the parties are before the court; and secondly, because WSP's accrued rights would be prejudiced by the amendments.

Mr Soole refers to the passage in the judgment of Millett LJ in Gale v Superdrug Stores Plc [1996] 1 WLR 1089, 1098H:

Mr Soole points out that Holmes' claim for damages against WSP in respect of its potential liability to B&Q is currently set out in its Part 20 claim in the B&Q action. The purpose of the proposed amendment in relation to the B&Q liability therefore is not to ensure that the real issues in controversy are before the court, since these are already before the court in the B&Q action which due to be heard at the same time as the Aldi action.

Mr Soole cannot rely on the so-called purpose test in answer to the application for permission to amend in relation to the Grantchester liability, since there is as yet no Part 20 claim against WSP in the Grantchester action.

The claims to be indemnified in respect of Holmes' potential liability in respect to B&Q and Grantchester are matters in controversy between Holmes and WSP. They are matters which need to be pleaded if Holmes wishes to pursue its claim against WSP. It seems to me that the passages relied on by Mr Soole are not directed to the issue that arises in the present case. They are concerned with a wholly different situation, where there is only one action and a party wishes to amend its pleading to raise an issue which it has not pleaded, and which it wishes to plead. In that context, if the amendment is necessary in order to enable the court can decide a matter in controversy between the parties, then a party is entitled to amend its pleading, if this can be done without injustice. I do not think that Bowen LJ had in mind the very different situation that arises where A wishes to amend its claim against B to add a claim which has already been made by it against B in other pending proceedings. In my view, the answer to the question whether A should be permitted to amend in such circumstances does not depend on whether the amendment is necessary for the sake of deciding matters in controversy. Rather, it depends on whether the amendment should be disallowed, on the grounds that it would be an abuse of process or would in some other way cause injustice to B.

In the alternative, Mr Soole submits that the amendment should be disallowed on the grounds that it would be an abuse of process to permit such an amendment. I now turn to consider that submission.

There is no neat, all-embracing definition of what constitutes an abuse of process. In Hunter v Chief Constable of West Midlands Police [1982] AC 529, 536, Lord Diplock said in relation to the power to strike out a statement of case as an abuse of the court's process, that this is a power:

There are many examples of the application of this broad principle. Thus, litigation which harasses the opposing party more than is inherent in properly conducted litigation will often amount to an abuse of process. This is the rationale for the rule that a party is required to bring forward his whole case and is generally not permitted to bring late proceedings raising matters which could have been resolved in earlier proceedings. It is also the reason why the court will not generally allow the same claim to be advanced in separate proceedings before different courts. An example of this is Royal Bank of Scotland v Citrusdale Investments Ltd [1971] 1 WLR 1469.

But this is not a case where WSP has been harassed or oppressed by the manner in which Holmes has conducted the litigation. There has been no impropriety on the part of Holmes. It would have been open to Holmes to include the claim for an indemnity in relation to the B&Q claim in its Part 20 claim in the Aldi action. B&Q had not yet started proceedings at that time, nor written a letter before action. But it was very likely, to say the least, that B&Q would start proceedings against Holmes. Nevertheless, it is understandable in the circumstances that Holmes confined its Part 20 claim to an indemnity in respect of its liability to Aldi.

It would also have been open to Holmes, when the B&Q claim form was served on it, to seek to amend its Part 20 claim in the Aldi action to add a claim for an indemnity in respect of its liability to B&Q. It seems that the implications (in relation to a potential limitation defence) of not taking this course were not appreciated by those advising Holmes at the time. This may be because no limitation defence had yet been pleaded by WSP in its defence to the Part 20 claim in the Aldi action. The full implications of not having taken that course only became clear when the limitation point was taken by WSP.

In my judgment, Holmes' attempt to make good what can now be seen to have been a procedural error on its part in not amending its Part 20 claim in the Aldi action at an earlier stage does not amount to an abuse of process. Nor (subject to one point) is it said by Mr Soole that the amendments would cause WSP to suffer any prejudice on the grounds of the lateness of the application or in any other respect. His only point on prejudice is that the effect of the amendment would be to deprive WSP of an accrued right, namely the benefit of nine and a half months' time in relation to the date of knowledge point.

In my judgment, given the conclusions that I have reached on the first issue, namely that the amendments do not introduce a new claim, there is no substance in this point. Indeed, this is the very point that was made by Lord Justice Auld in his judgment in the Lloyds Bank case at page 85M, where he said:

For all these reasons, I am not persuaded that there are any grounds for not exercising the discretion to allow these amendments. For all these reasons, I would allow this appeal.

LADY JUSTICE HALE: I agree.

LORD JUSTICE AULD: I also agree with that the appeal should be allowed for the reasons given by my Lord.

It is plain in the context of this Part 20 claim by Holmes against WSP that its proposed amendment to the claim for damages and/or for an indemnity or contribution in respect of any liability that it may have to B&Q and/or Grantchester under the deeds of guarantee does not amount to a new claim within the meaning of section 35(5) of the Limitation Act 1980 and/or under the Civil Procedure Rules Part 17.4.

The cause of action of which the proposed amendment simply particularises further damages and/or other relief was, in my view, complete when Holmes entered into the contract with Laporte, obliging it in clause 2.81 to execute a deed of warranty in favour of such third parties as Laporte might specify, warranting proper performance by Holmes to them of its obligations under the contract. In so binding itself Holmes exposed itself, according to its Part 20 claim as originally pleaded, to the risk of considerable financial loss if it was called upon, for whatever reason, to honour any such warranty to whomever Laporte might nominate for the purpose. The exposure flowed from entering into the contract and was potentially very wide and onerous, depending on Laporte's exercise of the power of nomination. B&Q and Grantchester, like Aldi, were so nominated, and Holmes' exposure to them flowed from what it maintained was the ill-advised contract, one that WSP should have advised it not to make (on its case). The nomination in each case flowing from that alleged breach of duty does not, in my view, add some new essential and discrete fact to generate a separate, or, in this context, a new, cause of action against WSP -- nomination by nomination on the part of Laporte.

It follows that, like Lord Justice Dyson, I do not consider it necessary to base my view on the outcome of the appeal on the discretionary power given to the court under the Civil Procedure Rules Part 17.4 to allow an amendment to permit a new claim arising out of the same or substantially the same facts. But if I had had to consider the matter on that alternative basis, I would have had no hesitation in concluding that it did arise out of substantially the same facts and that, for the reasons given by my Lord, this would be an appropriate case for the exercise of the court's discretion to permit the amendment.

As Mr Soole's somewhat hesitant responses to the court on the issue of discretion indicated, there is no question of abuse of process here or of prejudice to WSP flowing from the proposed amendment, other than the potential loss of a limitation defence; a potential prejudice for which section 35 of the 1980 Act and Civil Procedure Rules Part 17.4 exist to overcome in appropriate cases. This, in my view, would be such a case and would accord with the policy of those provisions as indicated by Hobhouse LJ in Lloyds Bank Plc v Rogers, a decision of this court, unreported, on 19th December 1996, namely that the policy of the provisions is that:

Accordingly, the appeal is allowed.