Bethell Construction Ltd & Anor v Deloitte and Touche

At all material times down to March 2001 the second claimant was the holding company of, amongst others, the first claimant and Bethell Fleet Services Ltd (“BFS”). The first claimant is the assignee of any causes of action BFS may have had against the defendant (“Deloittes”). Deloittes provided auditing, accountancy, tax and corporate services to all the companies in the Bethell group from July 2000 to late 2002 or early 2003. Deloittes signed off the financial statements of BFS for the years ended 30^th September 2000 and 2001 on 23^rd February 2001 and 29^th January 2002, in each case without qualification. On 17^th May 2005 the solicitors then acting for BFS, Halliwells LLP, wrote to Deloittes claiming that the advice of the latter and its audit of the group’s accounts for both the years 2000 and 2001 had been negligent. Substantial correspondence and discussion then ensued but did not satisfy the claimants (“Bethells”). On 9^th March 2007 Halliwells, on behalf of Bethells, wrote what they considered to be a professional negligence pre-action protocol letter of claim with which they enclosed a copy of a claim form issued on 22^nd February 2007 seeking damages for negligence in and about the advice to and audit of the financial statements of BFS for the years 2000 and 2001. The letter included the following statement:

Thereafter, commencing in March, there were a number of agreements for extensions of time. The final one, with which this appeal is concerned, was concluded in an exchange of emails between the parties’ solicitors on 18^th June 2007. The solicitors for Deloittes had sought a further extension of time of a month for their letter of response. In the first of the two emails of 18^th June 2007 the solicitors for Bethells complained that no reason had been advanced for so long an extension. The email continued:

On 16^th July 2010 the solicitors for Deloittes, Reynolds Porter Chamberlain LLP, wrote a without prejudice letter to the solicitors for Bethells. After the privileged parts, which have been redacted, they continued:

There followed in October 2010 the two letters on which this appeal largely turns. The first dated 14^th October is from the solicitors for Bethells to the solicitors for Deloittes. It reads:

There was no other contact between them until, on 16^th November 2010, the solicitors for Deloittes wrote to those for Bethells:

The solicitors for Bethells replied in indignant terms on 16^th November. On 17^th November they sought to serve a resealed version of the original claim form and on 19^th November 2010 issued and served a further claim form in the like terms. The solicitors for Deloittes objected to the service of the former and conditionally acknowledged service of the latter. The applications giving rise to these appeals were issued by Bethells on 17^th November and by Deloittes on 6^th December 2010. By their application Bethells sought orders that:

These applications came before HH Judge Hodge QC, sitting as a deputy judge of the Chancery Division on 16^th December 2010. For the reasons given in his judgment he dismissed Bethells’ application, declared that the court had no jurisdiction to hear the claim and refused permission to appeal. In addition to ordering Bethells to pay the costs of both applications he also ordered them to pay Deloittes’ other costs of the claim incurred after 19^th September 2007. By their appellants’ notice issued on 8^th February 2011 Bethells sought permission to appeal on 6 grounds. They may be summarised as follows:

Counsel for Bethells submits that there is implicit in or there must be implied into the letter from their solicitors dated 14^th October 2010 some statement to the effect that the copy of the claim form sent to the solicitors for Deloittes on 9^th March 2007 “not by way of service” should now be treated as served. This submission is based on the fact that particulars of claim cannot be validly served unless and until the claim form has been served, see CPR Rule 7.4. Further, time for a defence does not begin to run until the particulars of claim have been validly served, see CPR Rule 15.4. In their letter of 14^th October 2010 Bethells appeared to have assumed that the claim form had been duly served. Otherwise they could not have validly served the particulars of claim or required service of the defence within any particular time or at all. Accordingly, so counsel submits, service should be implied.

The judge rejected this submission and so would I. CPR Part 6 deals with service of the claim form. Leaving aside the terms of Rules 6.15 and 6.16, to which I shall come under grounds 4 and 5, service of the claim form must be effected in the manner for which the rules provide. Compliance with those provisions may be waived and a defendant may be estopped from relying on a failure to comply but that depends on the actions of the defendant. Those issues arise under ground 3. Ground 1 involves the proposition that a claimant may unilaterally determine on a method of service of the claim form not authorised by the rules. The short answer is that he is not so entitled. The rules are there to be complied with. They are capable of amendment in accordance with the Civil Procedure Act 1997 but not by the unilateral act of the claimant.

This submission is based on the difference between a stay and an extension of time. In that respect we were referred to the Glossary applicable to the CPR. The glossary refers to a ‘stay’ as something which prevents litigation being advanced unless and until lifted. Counsel submits that an extension of time cannot be lifted only determined. He claims that in those circumstances the letter of 22^nd October 2010 did not comply with the test for clarity recognised in Mannai v Eagle Star[1997] AC 749, 767. In that event, so counsel submits, the letter was ineffective to terminate the extension of time agreed on 18^th June 2007 and service in the week commencing 16^th November 2010 was not too late.

The judge rejected this submission also and so would I. Whilst there may be a technical difference between a stay and an extension of time the issue here is what, on an objective view, was Deloittes referring to in its letter dated 22^nd October 2010. It is plain beyond doubt that “the stay agreement previously concluded between our clients” referred to the extension of time first agreed in March 2007 and finally repeated in the emails of 18^th June 2007. The evidence does not disclose any other agreement which could have been described as a ‘stay’. In addition that is the specific agreement described in the letter of 16^th July to which the letter of 22^nd October refers. In the former letter also it is referred to as a stay. The fact that the solicitors for Bethells did not so understand it and did not react to it by serving the claim form within the succeeding 14 days does not make the notice any less clear. I can see no sufficient reason to deny to the letter from Deloittes dated 22^nd October 2010 the legal effect it was clearly intended to have.

The evidence before the judge included a witness statement of Jane Howard, a member of Reynolds Porter Chamberlain LLP, the solicitors for Deloittes. She was not cross-examined. In paragraphs 25 and 26, having referred to the letter dated 14^th October she says:

The letter flew in the face of the proposals we had made on 16 July and did not even refer to the material part of that letter.

The letter did not refer to the extension agreement.

No claim form was attached (or otherwise served, nor even referred to).

The attached Particulars of Claim were at odds with the old unserved Claim Form and contained no allegation of negligence in relation to BFS’ audit for the year ended 30 September 2000 (indeed, they asserted that the Financial Statements for that year were correct), which had been the primary case that my clients had been defending for more than 5 years.

In relation to that letter the judge commented [32]:

Unfortunately, Mr Austin, the individual dealing with the claim on behalf of Bethells who had transferred from Halliwells to Heatons, did not appreciate it. In paragraph 8.4 of his witness statement made on 19th November 2010 he said:

Before the judge the emphasis of the argument of counsel for Bethells was on estoppel by convention. This argument was rejected by the judge [36] for these reasons:

Before us greater emphasis was put on the question of waiver and an authority not put before the judge. Counsel for Bethells submitted that a recipient of the letter from Bethells’ solicitors dated 14^th October 2010 with knowledge of all that had passed between the parties since February 2007 would realise that the writer had assumed that the claim form had been duly served (or was to be treated as duly served) such as to impose on the recipient the obligation to correct what must have been a mistake. He relied on the judgment of Clarke J, as he then was, in The Stolt Loyalty [1993] 2 Ll.L.R. 281. The judge had not been referred to it.

In The Stolt Loyalty [1993] 2 Ll.L.R. 281 the issue was whether the claimants had been granted an extension of time by both the owners and the demise charterers. That depended on the effect of an exchange of telexes between the solicitors for the claimants and the insurers of the defendants. As the judge explained at page 284 it depended on the context whether a reference to ‘owners’ included demise charterers. On 3rd and 21st March 1988 the solicitors for the claimants asked the insurers acting for the defendants for an extension of time for the claims up to and including 26th September 1988. The judge concluded that the references to ‘owners’ (p.287) and Shipowners (p.288) did include demise charterers. The response sent on 21st March gave the requisite extension on behalf of ‘the Shipowners’. Clarke J concluded (p.288) that that did include demise charterers. Though not necessary to his decision, he then considered the alternative claim to the effect that the defendants were precluded by estoppel from contending otherwise. Clarke J accepted (p.290) that there is no general duty owed by one party to litigation to correct the mistakes of the other but each case depended on its facts. He concluded that the defendants were under a duty to inform the claimants of the true position if they were going to reply to the telex seeking an extension of time. He said:

Counsel for Bethells relies strongly on this case. He contends that the terms of the letter of 14th October show that Bethells’ solicitors considered that the claim form had been duly served otherwise they could not send the particulars of claim alone “by way of service”. He relies on the passage from the witness statement of Jane Howard I have quoted to show that she appreciated that there was some mistake in a number of areas including the fact that the claim form had not been served. The witness statement of Mr Austin indicates that he assumed from the response of 22nd October that Deloittes accepted that the claim form had been duly served. It is clear that had that defect been pointed out to him he would have served the claim form in the time.

The response of counsel for Deloittes is to point out that the letter of 22nd October cannot be read as an acceptance by Deloittes that the claim form had been duly served because it went on to give fourteen day’s notice to determine the agreed extension of time. What, he asked rhetorically, was the fourteen days for if it was not for service of the claim form? He submitted that this case fell within the normal proposition stated by Clarke J in The Stolt Loyalty to the effect that one party to litigation is not bound to correct mistakes made by the other. He supported the decision of the judge to the effect that there was nothing in the letter from Deloittes’ solicitors dated 22nd October to indicate that they accepted that the claim form had been duly served.

It is well established that whether or not a party is bound by an estoppel of any description depends on his own acts. Generally silence will not ground an estoppel. But if there is a duty to act or speak then a failure to do so may give rise to an estoppel. A duty to speak may arise from the circumstance that a failure to do so may render false an express statement which may be literally true, see Chitty on Contracts 30th Ed. Para 6-017. The judge was not addressed on these lines. We have been.

The letter from Mr Austin dated 14th October enclosed the particulars of claim by way of service. It was apparent from that statement that the writer must have assumed that the claim form had been served. Ms Howard appreciated that the writer must have been labouring under some such mistake. She did not have to reply at all; but if she did then it had to be a full reply. Merely to thank Mr Austin for his letter and then to continue by way of a trap, as the judge found, could have given rise to the inference that she accepted that the claim form had been duly served or was waiving proper service.

But she did not leave it at that; she added the subsequent passages. It is clear from them that she was giving the fourteen days notice to terminate the extension of time agreement made on 18th June which it required. It is equally clear from that agreement that the notice she gave would trigger time for service of the claim form and particulars of claim because it could not apply to anything else. Accordingly, read as a whole, the letter of 22nd October does not constitute a positive representation that Deloittes accepted that the claim form had been duly served or waived their entitlement to require it’s proper service. It was, in my view, a sufficiently full reply to an experienced solicitor to satisfy the test exemplified in The Stolt Loyalty. Accordingly, I reach the same conclusion as the judge on this ground too.

This rule, which was added with effect from 1st October 2008, provides:

This was rejected by the judge. He held (paragraphs 40 and 41):

I accept that that is the correct approach to the rule in that they are cumulative conditions. I also accept, as counsel submitted, that ‘the good reason’ needed is something less than the exceptional circumstances required by CPR Rule 6.16. For my part I do not accept that either condition was satisfied. In the events which happened and in the light of my conclusions so far Deloittes is entitled to rely on the Limitation Act as a bar to all further proceedings. Given that, as I would hold, they have not waived the requirement for service of the claim form and are not estopped from requiring it I cannot see any reason, whether good or not, why the court should exercise any discretion it might have so as to deny Deloittes their accrued right.

The judge relied on the sanctity of the extension of time agreement. In addition I can see nothing in the correspondence of 2010 to justify penalising Deloittes. Even accepting, as the judge found, that they had set a trap, the cause of Bethells’ problem was that Mr Austin fell into it. I do not understand why or how the mistake of one party can justify denying so substantial a lawful consequence to the other. I would reject this ground too.

This rule also introduced with effect from 1^st October 2008 provides:

Counsel for Bethells submitted that the judge was wrong. I can only say that I reject that submission. If the facts of this case do not reveal a ‘good reason’ to make the order regarding service of the claim form sought under CPR Rule 6.15 they cannot possibly disclose ‘exceptional circumstances’ sufficient to justify dispensing with service altogether. Nor could they provide any sufficient reason to make the order sought. And, for good measure, Bethells have entirely failed to show any ground on which this court could interfere with the discretion of the judge.

It is accepted that the judge was entitled to order Bethells to pay Deloittes their costs of the two applications; but they dispute his jurisdiction to order Bethells to pay Deloittes any additional costs of the action. In paragraph 44 of his judgment the judge concluded that he had such jurisdiction and for the reasons given in paragraphs 45 to 47 should exercise it in favour of Deloittes. Counsel for Bethells seeks to revisit those conclusions.

With regard to jurisdiction, the claim form had been issued. Therefore there were “proceedings” in the form of an action or claim. Under s.51 Senior Courts Act 1981 the court possessed jurisdiction to order whether and if so by whom the costs should be paid. That jurisdiction and the wide discretion it confers is regulated by CPR Parts 43 and 44. There is nothing in any of those provisions to exclude the costs of proceedings in cases where the claim form has not been served. Accordingly the submission in relation to jurisdiction is without merit. The decision on who should pay them was a matter for the exercise of the judge’s discretion. He exercised it in favour of Deloittes. No ground has been shown for interfering with his exercise of that discretion. Nor could there be. Deloittes were entitled to have the claim dismissed because it was statute-barred. It would require a strong case to deprive a successful defendant of his costs of the action, absent a payment into court, a Calderbank letter or some reprehensible conduct. There were none. I would dismiss this ground too.

For all these reasons I would dismiss this appeal. To my mind there was only ever one point, namely ground 3. It is unfortunate that this case should have been so overlaid with other points together with largely unnecessary but copious citation of authority. In the result it has generated lengthy hearings in both this court and the court below together, no doubt, with consequentially large bills of costs.