LIDL UK GmbH & Anor v Davies & Ors

This is a most unfortunate piece of litigation which the costs already exceed by far the likely amount at stake.

The claimants are the trustees of a pension scheme for the employees of Cawdor Cars (Newcastle Emlyn) Limited. Until 3 August 2000, the claimants were the owners of some land in Haverfordwest. The land had been used as a garage in the business of Cawdor Cars.

On 20 October 1999 a contract was concluded between the claimants and Mr Jones (the first defendant) for the sale to Mr Jones of the land for the sum of £660,000. The contract contained terms to the following effect:

The agreement was conditional on the obtaining of planning permission for use of the site as a supermarket. From at least July 2000 the claimants knew that Mr Jones was working with Lidl GmBH (the second defendant) which is a supermarket chain.

On 13 July 2000, Mr Jones’ solicitors sent to the claimants’ solicitors a form of transfer of the land with Lidl named as transferee. On 19 July 2000 the claimants’ solicitors confirmed that they had no objection to that course.

On 2 August 2000, Lidl’s solicitors said that they would forward the completion monies due that day to the claimants’ solicitors, to which the claimants’ solicitors agreed. In fact, there was an overpayment of £30,000 because the full purchase price of £660,000 was paid without deduction for a £30,000 deposit. The retention monies were not actually deducted, but the full £130,000 was paid shortly afterwards to the bank of Lidl’s solicitors.

Thereafter, Lidl engaged a contractor to undertake the outstanding works referred to in the contract, but on completion of the works Lidl refused to release any part of the £100,000 to the claimants on the basis that the proper costs of the works had in fact exceeded £200,000.

It was only in the course of the proceedings that the claimants learned that Mr Jones had pre-sold the land for about £900,000, thus making an immediate profit of more than £200,000.

By claim form issued on 18 October 2005 the claimants claimed against Mr Jones and Lidl for the sum of £100,000, or such other sum as might be found due to them, or alternatively damages for breach of the contract of sale. The Particulars of Claim pleaded that 1) Mr Jones had entered into the contract as agent for Lidl; 2) following completion of the works, Lidl had refused to release any part of the retention monies; 3) Lidl had failed to carry out the outstanding works with reasonable care and skill, and the maximum sum necessary to complete the works should have been £30,000 had the work been completed properly; 4) alternatively, Lidl and Mr Jones were in breach of the agreement by wrongfully withholding the balance.

The defence of Lidl was to this effect: first, it was denied that Mr Jones had been the agent for Lidl in entering into the sale agreement; secondly, the entry by Mr Jones and Lidl into a separate agreement for the sale of the land by Mr Jones to Lidl -- the terms of which were confidential -- evidenced that there was no relationship of principle and agent between them; thirdly, Lidl was not a party to the agreement between the claimants and Mr Jones, and therefore not liable under the sale agreement; fourthly, in partial completion of the agreement between Mr Jones and Lidl for the sale of the land, Mr Jones had assigned on 3 August 2000 (which was the date of completion under the sale agreement) to Lidl the benefit of the sale agreement, but not any of the obligations under it; fifth, Lidl never entered into an agreement with the claimants under which it was required to carry out the works referred to in the sale and purchase agreement; sixth, Lidl was not a party to the agreement between the claimants and Mr Jones, and neither paid any money to the claimants under that agreement nor retained any money under that agreement; finally, accordingly Lidl was not liable to account to the claimants.

Following the disclosure of the true position with regard to the contractual position, the claimants sought to amend the Particulars of Claim. They were resisted by Mr Jones and Lidl and, after several hearings, the matter finally came before Wynn Williams J on 1 October 2007. So far as material, in summary the proposed amendments did the following things: 1) deleted the allegation that Mr Jones had acted as agent for Lidl; 2) pleaded the correspondence between the parties, showing how it came to be that Lidl had purchased the land as opposed to Mr Jones, and how the retention monies came to be paid to Lidl; 3) recited much of Lidl’s defence; 4) added a claim that Lidl had unlawfully interfered with the contractual relations between the claimants and Mr Jones by wrongfully withholding the retention monies; 5) added claims for breach of trust, knowing assistance and knowing receipt; 6) in paragraph 9 claimed that:

“By the terms of the agreement between the Claimant and [Mr Jones] the retention monies are held on trust for the Claimant and are payable in accordance with the provisions of clause 18 of the agreement [and I add the clause 18 was the provision for the retention of the monies pending the works being done].”

and paragraph 11 pleaded that Lidl was aware of the contract; 7) Paragraph 12, pleaded that Lidl had received the monies and held them unlawfully as constructive trustee.

A six-year period of limitation applies to the breaches of trust alleged in the amended Particulars of Claim under section 21 of the Limitation Act 1980.

The judge accepted that the cause of action accrued when the outstanding works were completed and the money used to pay for the work. The evidence was that the outstanding works were completed by 18 June 2001, and certainly 30 June 2001, and there was a real possibility that the limitation period expired at or about the end of June 2007.

The starting point for both the judge and for this court is that the combined effect of section 35 of the Limitation Act 1980 and CPR 17.4(2) is that a new course of action may not be added by amendment if the limitation period has expired unless:

“…the new claim arises out of the same facts or substantially the same facts as a claim in respect of which the party applying for permission has already claimed a remedy in the proceedings.”

In Goode v Martin [2001] EWCA Civ 1899 [2002] 1 AER 620, this court held that the effect of section 35 and CPR 17.4 was that the same or substantially similar facts on which a new claim might be based should be facts “as are already in issue”, in a claim in respect of which the party applying for permission has already claimed a remedy in the proceedings; and a claimant may be permitted to amend his statement of case to add a new claim arising not only out of facts that the claimant has pleaded, but also out of facts put in issue by the defendant. It was therefore common ground before the judge that the court should consider both the original Particulars of Claim and the defence, to see whether the claim arose out of the same facts, or substantially the same facts, as the claim in the original Particulars of Claim.

The amendments raised four new causes of action. The tort of wrongful interference with contract; breach of trust; knowing assistance in a breach of trust by another; and knowing receipt of money obtained and/or held by breach of trust by another. The judge decided that there was no basis for permitting an amendment to allege the tort of wrongful interference with contractual rights. He considered that it did not arise out of the same facts, or substantially the same facts, as the claim which was originally pleaded in the Particulars of Claim, nor could it be said to arise from matters pleaded in the defences of either defendant, and in addition it was very unlikely to succeed.

The judge acceded to an application by Mr Jones for summary judgment on the ground that the claimants had dropped their claim that he was an agent for Lidl, and said that there was therefore no basis for a claim against Lidl for knowing assistance or knowing receipt. An application to this court for permission to appeal against the order for summary judgment in favour of Mr Jones was refused by Sir John Chadwick on paper and refused on renewal by Arden LJ.

So far as the trust claims were concerned, the judge held that the new claim against Lidl for breach of trust depended substantially on the averments in Lidl’s defence. Those were essentially six: firstly, the denial that Mr Jones had been the agent for Lidl when he entered into the agreement in October 1989; secondly, the entry into a separate agreement between Mr Jones and Lidl for the sale of the land by Mr Jones to Lidl; thirdly, the fact that Lidl was not a party to the agreement between the claimants and Mr Jones; fourth, the fact that in a separate agreement between Mr Jones and Lidl for the sale of the land, Mr Jones had assigned to Lidl the benefit of the sale agreement but not the obligations under it; fifthly, the fact that Lidl did not conclude any agreement with the claimants; and sixthly, the fact that Lidl was not a party to the agreement between the claimants and Mr Jones, and neither defendant paid any money to the claimants under the agreement nor retained any money under the agreement.

Sir John Chadwick gave Lidl permission to appeal on the ground that there was force in the contention that the foundation of the trust claim against Lidl was the payment of £130,000 by the claimants to Lidl on or about 9 August 2000, and had failed to recognise that there was no mention of or reliance on that payment in the Particulars of Claim as originally served.

In his attractive argument for Lidl, Mr Child argued that if each of the statements in defence was taken, they could not singly or together be used to found a breach of trust claim: first, the denial that Mr Jones was the agent for Lidl did not relate to the relationship between the claimants and Lidl at all; secondly, the entry into a separate agreement between Mr Jones and Lidl did not relate to that relationship either; thirdly, the fact that Lidl was not a party to the agreement between the claimants and Mr Jones could not be said to support in any way, or indeed bear any relationship whatsoever, to a claim that Lidl held monies as trustee to the claimants; fourth, the separate agreements between Mr Jones and Lidl did not relate to the claimants at all -- it could not be said to suggest the existence of a trust or trustee beneficiary relationship; fifth, the fact that Lidl did not conclude an agreement with the claimants, under which it was required to carry out the outstanding works, did not suggest the existence of a trust or a trustee beneficiary relationship -- indeed, if anything it indicated that there was no legal relationship at all between Lidl and the claimants; sixth, the fact that Lidl was not a party to the agreement between the claimants and Mr Jones, and the fact that neither defendant paid any money to the claimants nor retained any money, only suggested that there was no contractual relationship between them.

Mr Child also pointed out the fact that the judge had said at paragraph 41 of his judgment that the “claim based upon breaches of trust, at least in part, arise out of the averments in Lidl’s defence”, and that the facts pleaded in the defence (according to counsel for the claimants) formed part of the basis of the claim of breach of trust; and he went on to argue that the correct test was not whether the new course of action arose “in part” out of facts in issue but whether the new course of action -- that is, all of it -- arose out of facts already in issue, or out of facts which were substantially similar to such facts. He also argued that the judgment failed to give any “reasoned assessment of the relative factors” in coming to the conclusion that the breach of trust claim was based on the same, or substantially the same, facts as appeared in the defence.

I come to my conclusions on this aspect of the appeals today. In Welsh Development Agency v Redpath Dorman Long Ltd [1994] 1 WLR 1409, Miller LJ said 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.”

And in Convergence Group Plc v Chantrey Vellacott [2005] EWCA Civ 290 -- a case on the current rules -- Jonathan Parker LJ said at paragraph 115 that the Court of Appeal:

“…will be slow to interfere with a decision of a judge on an issue of this kind.”

And went on:

“Although ... the issue whether the new claim arises out of substantially the same facts as that already pleaded is substantially a matter of impression, the impression must nevertheless be derived from a reasoned assessment of the relevant factors.”

The judge’s conclusion was that the new claim of breach of trust depended substantially on the averments in the defence. He referred to, but did not apply, counsel for the claimant’s submission that the claim arose “at least in part” from the averments in the defence, and therefore I do not accept Mr Child’s criticism that the judge applied the wrong test.

My only criticism of the judge’s approach is that he referred only to the defence, when in fact it was the Particulars of Claim and the defence taken together which formed the factual basis for the relevant amendment. The crucial amendments are in paragraph 9, 11 and 12. Taken together, they amount to an allegation that, by the terms of the agreement between the claimants and Mr Jones (of which Lidl was aware), monies would be held by Mr Jones on trust for the claimants; that Lidl received the monies; wrongfully retained them and consequently holds them as constructive trustee and in breach of the terms of the trust.

Taken together with paragraph 9 of the original Particulars, it seems to me that the trust claim arises out of substantially the same facts pleaded in the original Particulars of Claim. In giving permission to appeal on the ground that the judge had failed to appreciate that there was no mention of or reliance on the payment to Lidl in the Particulars of Claim as originally served, he must have overlooked paragraph 9, which stated that Lidl had refused to release the retention monies. Since in that document the claimants were saying that Lidl was the principal, they must be taken to be saying that the claimants paid the money to Lidl.

I would therefore dismiss Lidl’s appeal.

I turn to the appeal against the costs order against the claimants in favour of Lidl. The judge ordered the claimants to pay the costs of Lidl in the action to date. The judge’s reasoning was as follows: first, the starting point was that the normal order would be that the applicant seeking amendments would have to pay the costs; second, the claimants had failed on many of the proposed amendments; third, the defendants acted reasonably in opposing the amendments; fourth, there might be some cases where the usual rule would not apply in a situation where the parties seeking to amend relies upon an opponent’s pleading.

Sir John Chadwick gave permission to appeal on the basis that the judge failed to recognise that the need for amendment of the claim was prompted by Lidl’s decision not to reveal the existence of its own contract with Mr Jones until service of its defence and that the application was successful in part.

In his skeleton argument, counsel for the claimant, Mr Blackmore, claimed that the judge had erred in principle for these reasons: first, permission to amend was given on the grounds of the facts pleaded in Lidl’s defence; second, the claimants not only had no knowledge of those facts, but could not have reasonably obtained knowledge of them save by disclosure by Lidl; and third, the claimants therefore could not have pleaded the case as set out in the amended Particulars of Claim. He went on to argue it was therefore inconsistent in principle to award the whole of Lidl’s costs to date against the claimants on the grounds that Lidl had to respond to a completely new case when, first, permission to amend was granted; second, the judge gave permission based on facts raised in the defence of Lidl; third, the case now being put by the claimants had been caused by the defence based on facts not within the claimant’s knowledge, some of which were claimed to be confidential.

But at the hearing of this appeal counsel conceded that the judge had taken relevant matters into account, and also that counsel had conceded that there was no substantial difference between an order limited to the costs of the application and an order encompassing all costs to date. It seems to me to be plain that on conventional grounds there is no basis for interfering with the exercise of the judge’s discretion on costs in view of these concessions.

I would therefore dismiss the claimant’s appeal against the costs order as well as Lidl’s appeal.

I agree that both appeals should be dismissed for the reasons given by Collins LJ.

I also agree.