Del Grosso v Payne & Payne (A Firm)

This is an appeal against a judgment of HHJ Roger KayeQC sitting as a High Court Judge at Leeds on 16 August 2006. The appellants, Messrs Payne & Payne, are a firm of solicitors in practice in Hull and Willoughby. Mr Del-Grosso, the respondent, retained them to act on his behalf in a proposed property transaction.

The judge made a series of rulings; the most controversial of which, one involving jurisdiction, was the grant of permission to amend the Particulars of Claim. The judge held that the proposed amendments arose out of the same or substantially the same facts within the meaning of section 35(5) of the Limitation Act 1980, it being common ground that the limitation period had expired. The judge went on in his discretion to permit the amendments and further granted the respondent relief under CPR 3.9 from sanctions by reason of his failure to comply with court orders. All three rulings of the judge are challenged.

The respondent was interested in acquiring business premises in Little Queen Street Kingston-upon-Hull, then being traded under the name Sergeant Peppers. They were held on an Under-Lease which expired on 24 March 2007. In the event, the respondent purchased the premises by way of assignment of the Under-Lease on 22 October 1998 at a cost of £4,000 including fixtures and fittings.

The respondent took possession of the premises, changed their name and spent money altering and extending them. On 10 May 2000 he was served a notice under Clause 6(10) of the Under-Lease which entitled the landlord to determine the tenancy at any time on not less than six months’ notice. The tenancy was finally determined in March 2001.

By letter of 18 September 2000, the respondent’s solicitors wrote to the appellants alleging that at no time prior to completion of the assignment was he advised of the existence of the landlord’s option to determine the tenancy on six months’ notice. It stated:

“Given our client’s intentions to develop business [in] these premises we are instructed that he would not have proceeded with the acquisition had he been aware of [Clause 6(10)]. He would not of course have incurred the considerable expenses in improving the business in that event.”

Particulars of Claim were served in November 2004. It was alleged that:

“On or around October 1998 the Claimant retained the Defendant to act on his behalf for the purpose of acquiring an assignment of premises known as Sergeant Peppers.”

The above facts having been set out, it was alleged that the appellants were negligent and/or in breach of contract in that they failed to identify the existence of Clause 6(10); failed to inform the respondent of its existence; failed adequately to consider the effect of the clause; and failed to inform the respondent of the effect of the clause. It was alleged:

“The Claimant would not have entered into the Lease had he been advised of the existence and/or effect of Clause 6(10) of the Under-Lease and/or incurred the expenses set out at paragraph 11 below.”

In paragraph 11 losses are said to be in the region of £750,000, including refurbishment costs, wasted expenditure and loss of profit. Requests were made for further information and clarification of the Particulars of Claim. The scope of the retainer was said to include the appellants:

“going through the Lease with the Claimant, explaining to the Claimant the existence and effect of Clause 6(10) of the Under-Lease and the other clauses. The Claimant relied totally on the Defendant in this regard”.

The pleading accurately and sufficiently set out the case then made by the respondent.

In the defence dated 14 June 2005 the appellants denied negligence and breach of contract. A general retainer was denied. It was claimed that Mr Craft, a partner in the appellant firm, went through with the respondent the provisions of the Under-Lease, including Clause 6(10). Comment was made, reflected in a contemporaneous note, to the effect that the price of the assignment reflected the problems involved. It was alleged that it was Mr Craft who raised Clause 6(10) expressly with the respondent. He informed the respondent of its effect.

Paragraph 11 of the defence provides:

“The Claimant was advised of the existence and effect of Clause 6(10) and still entered into the Under-Lease. Further, the Claimant (who wished to use the Premises to try out his business ideas) was driven by commercial considerations: he was willing to complete the assignment even having been told that there were outstanding matters such as rent reviews and the fact that consent had not been obtained to keep the Premises closed during daytime in the week.”

The proposed amendments to the Particulars of Claim, which were in issue before the judge, take the retainer back to June 1998 and claim that the retainer, in addition to advising about Clause 6(10), involved advising the respondent about the potential impact of the clause upon the respondent’s plans to utilise the premises as a bar cum nightclub (paragraph 9.4). The appellants were aware of that plan, it is alleged, and were told of the respondent’s interest in the eventual purchase of the Under-Lease and Head-Lease, both of which would have been available at a commercial price, it is submitted. The appellant should have advised the respondent of the potential impact of Clause 6(10) upon those plans. The retainer was to advise the respondent about any legal impediment to those plans over the currency of the Under-Lease. Amended particulars:

“15.8

Failed to alert the Claimant to and advise the Claimant of the practical effect of Clauses 2 [which is common ground, adds nothing] and 6(10) on the Claimant’s interest in and desire to purchase the Under-Lease and Head-Lease, namely that in order for that interest to be successfully realised and those plans to be successfully implemented it was important that the Claimant began the process of purchasing the Under-Lease and Head-Lease within a short time (if not immediately).

15.9

Alternatively, failed to advise the Claimant that, in the light of the plans as known to the Defendant, the Claimant ought to seek commercial advice about realising those plans within a short time, if not immediately, because the effect of Clauses 2 and 6(10) of the Under-Lease was that the Claimant might not otherwise be able to develop his interest or implement his plan for purchase.”

The proposed amendment goes on to state that the respondent in the event began trading from other premises in March 2001.

It is alleged that the appellants failed to give that advice. But for the breaches of contract, the respondent would have:

“Sought to acquire, and acquired, or have the chance of acquiring, the Head-Lease of the premises prior to the end of December 1998.” (paragraph 17.2)

Had he done so, the respondent would have been able to continue to trade from the premises and make profits. In addition to loss of profits, the respondent seeks to claim wasted capital expenditure and refurbishment costs on converting the Jameson Street premises, to which he removed, from bank chambers and offices into licensed premises.

Section 35 of the Limitation Act 1980 (“the 1980 Act”) specifies the circumstances in which, for present purposes, the expiry of the period of limitation (section 35(3)) need not prevent a new claim, that is (section 35(2)), “the addition or substitution of a new course of action”:

“(4)

Rules of court may provide for allowing a new claim to which subsection (3) above applies to be made as there mentioned, but only if the conditions specified in subsection (5) below are satisfied, and subject to any further restriction the rules may impose.

(5)

The conditions referred to in subsection (4) above are the following –

(a)

in the case of a claim involving a new cause of action, if the new cause of action arises out of the same facts or substantially the same facts as are already in issue on any claim previously made in the original action; and

(b)

…”

The judge held that the proposed amendments amounted to a new claim within the meaning of section 35(2) and no challenge is made by the respondent to that finding. The judge held, at paragraph 84, that the material facts had in important respects changed or been expanded -- that there had been a volte face. The causative mechanism proposed was entirely different. The scope of the retainer was also wider than that previously alleged and included advice as to commercial plans. The case on damages was factually expanded. The judge concluded:

“The whole case has now changed in colour and context to a wider one than [that] previously alleged.”

The judge went on to find, however, that the new cause of action arose:

“Out of the same facts or substantially the same facts as are already in issue on any claim previously made.”

The factual issues, the judge found, had to some extent been foreshadowed in correspondence. He referred to paragraph 11 of the defence, which I have already cited, with its reference to the respondent being “driven by commercial considerations”.

Having found that he had jurisdiction to allow the amendments the judge held that in his discretion he would allow the amendments sought, any injustice to the appellants resulting from the respondent’s delay and failure to co-operate being met by orders for costs. The judge also granted the respondent’s applications under CPR 3.9 in relation to sanctions which had been imposed.

Thus section 35 of the 1980 Act allows the court to permit a claim outside the limitation period involving a new cause of action, if the new cause of action arises out of the same facts or substantially the same facts as already issued under the claim previously made in the individual action. In Welsh Development Agency v Redpath Dorman Long Ltd [1994] 1 WLR 1409 Glidewell LJ, giving the judgment of this court, stated at page 1418D that:

“Whether or not the new cause of action arises out of substantially the same facts as that already pleaded is substantially a matter of impression.”

I have referred to section 35(4), with its reference to rules of court. It has been held that CPR 17.4(2), which gives effect to that provision, should be read in accordance with section 33(5); Goode v Martyn [2002] 1 WLR 1828.

For the respondent, Mr Myerson QC accepts that there has been some expansion and change in the way the case is to be put. The judge was, however, entitled to form the impression he did and this court should not interfere. The judge applied the correct test and came to the conclusion that the new cause of action satisfied that test. The judge was entitled to have regard to the positive case pleaded by the defendant (paragraph 11) that the respondent wished to use the premises to try out his business ideas and was driven by commercial considerations. That positive case followed correspondence between the parties.

The issue to be considered by the judge at the trial remained the same, it is submitted: whether Clause 6(10) adversely affected the respondent’s plans, of which the appellants were aware. The respondent’s commercial plans had been raised in the pleadings and a broader investigation of them did not require a finding that the action arose other than out of substantially the same facts as those already in issue. This is a case, submits Mr Myerson, where the respondent’s recollection has altered or he has changed his mind as to what he would have done in 1998. A clash of principle arises between the appellants’ interest in a defence of limitation and the interest of the respondent in not being deprived of his opportunity to make a claim, an opportunity of which he ought not readily to be deprived.

It is submitted that if the respondent was not advised about the effect of Clause 6(10) he should be given the opportunity to tell the court what he would have done if he had been advised. The factual issues in the amended claim remain the same: what was said at the meeting on 28 August 1998 and what would have happened subsequently? The appellants have exaggerated the difficulties, it is submitted, involved in investigating the different claims now made.

Having analysed the proposed pleading, Mr Evans-Tovey, for the appellants, submits that it involves extensive new investigations of fact. It would be necessary to investigate what the respondent told the appellants throughout the dealings between them; what the appellants’ plans were; and how serious his intentions were. There would be need for investigation into the context of the retainer and into the advisability and feasibility of purchasing the Head-Lease. The alleged breaches of contract involved the retainer as proposed to be broadened. Above all, the nature and causation of damage as proposed to be alleged involves a new and far-reaching factual investigation, including as to whether the Head-Lease was available for purchase; what was the likely purchase price; and whether and how the purchase price could have been raised by the respondent. The lapse of time makes such extensive enquiries extremely difficult, it is submitted.

Technical defects in a pleading should not prevent a court from exercising its powers under section 35(5); Sterman v EW and JW Moore Limited [1971] QB 596 per Lord Denning, MR. However, in Paragon Finance v DB Thakerar & Co [1999] 1 AER 400 it was held in this court that the introduction of claims based on fraud and dishonesty did not involve substantially the same facts as a claim based on negligence. Millett LJ, at page 418, while accepting that in borderline cases involving the test in section 35(5), a matter of impression may arise, in other cases it must be a question of analysis.

I consider the relevance of the correspondence to which the judge attached significance. The judge stated at paragraph 91:

“The question falls to be determined, of course, by reference to the pleadings not the correspondence, but the correspondence helps to show some illumination on those matters so far as raised in the pleadings.

The allegation in paragraph 11 of the defence, that the respondent was driven by commercial considerations, does not in my judgment save the day for the respondent. It was put forward to explain why the respondent entered into a sub-lease even though, as alleged, the respondent had been advised as to the effect of Clause 6(10). The allegation in the defence is consistent with a letter written on behalf of the appellants on 19 February 2001 in response to the letter cited in paragraph 5 of this judgment from the respondent’s solicitors:

“On 28 August 1998 our Mr Craft held a further meeting with Mr Del-Grosso. It is clear from the hand written file note that the Lease of 10 August 1992 was discussed in detail. We are satisfied that the Landlords’ [option] to determine was also discussed. Mr Del-Grosso had a long association with Sgt Peppers and desperately wanted the contract completed. He was well aware of all the pitfalls and he [concedes] that the price of £4,000.00 reflected the problems.”

The allegation in paragraph 11 of the defence is entirely consistent with the contents of that letter. The allegation was directed to why the respondent was prepared to proceed with the Under-Lease notwithstanding the presence of Clause 6(10). It cannot be taken as an admission that advice on the respondent’s overall commercial plans were a part of the retainer. The case turns upon an analysis of the Amended Particulars of Claim as compared with the original particulars in the context of the test stated in section 35(5). The scope of the alleged retainer has changed significantly. The newly alleged breaches of duty are significantly different from those already made and they relate to the expanded retainer alleged. The basis on which loss is alleged to have been suffered has changed fundamentally. Damages are calculated on an entirely different basis. All aspects of the claim involve considerable enquiry into new factual issues which are material to the cause of action.

On analysis, in my judgment it is impossible to hold that the respondent has met the test set out in section 35(5). For those reasons I would allow the appeal. The two further rulings of the judge do not arise for consideration. The exercise of discretion in the respondent’s favour does not arise upon that finding. The issue of relief from sanctions by consent does not arise, it being accepted that the documents on which reliance was proposed to be placed cannot now be relevant in view of the findings on the first point.

Accordingly on all three grounds I would allow the appeal.

I agree. Despite the attractive way in which Mr Myerson put the case for the respondent, I think there is no escape from the conclusion that the new cause of action advanced in the proposed amendment to the Particulars of Claim did not arise out of the same or substantially the same facts as were originally in issue. The scope of the retainer alleged and the way in which it is alleged to have been breached were materially different. The loss alleged to have been caused by the breach was entirely different.

I also agree. The submission made by Mr Myerson on behalf of the respondent would require us to see the “facts already in issue” at a very high level of abstraction. It was put on the basis that the essential facts all occurred in the course of a meeting between the respondent and his solicitor on 28 August and that what passed at that meeting has always constituted “the facts in issue”. In my judgment the “facts already in issue” require more rigorous analysis than that and fall to be determined primarily on the content of the existing pleadings in comparison with the proposed amended pleading.

The claimant cannot move from one account of what was said at a meeting to another very different account and thereafter simply assert this is still a dispute about what was said at the meeting. In one rather loose sense it may be, but it is a different dispute from the earlier one and for the reasons given by Pill LJ it cannot be said that the new cause of action “arises out of the same facts or substantially the same facts as are already in issue”.

I, too, would allow the appeal.