Scottish & Newcastle Plc v Raguz

This is an application by Mr Zeljko Stephen Raguz (“the defendant”) that the claimants claim be struck out, or alternatively that certain unless orders, principally in relation to disclosure, be made against the claimant. The application also seeks dismissal of an application by the claimant dated 29^th March 2004. That application was dealt with in part by His Honour Judge Norris QC on 7^th June 2004 when he made an order that the defendant serve a draft re-amended Defence on the claimant prior to the hearing of its application, which was complied with by the defendant serving such a document on 5^th July 2004. In the event I heard the defendant’s application on the 9^th July 2004.

The nature of the claim in this case and some of its history has been set out by Mr Jonathan Gaunt QC in the judgment he gave on 10^th October 2003. Paragraphs 2 to 17 of that judgment, which contain a summary which for convenience I adopt, are in the following terms:

“ The background to the case is as follows. Scottish & Newcastle, who are the claimant, were the original tenant, under an underlease of 17th March 1967, of the Abbey Motor Hotel in Leicester. By another underlease of 7th March, Scottish & Newcastle took an underlease of premises adjacent to the hotel.

In September 1982, Scottish & Newcastle assigned its interest under the two underleases to the defendant for £30,000. There is to be implied into the assignments the covenant contained in section 24 of the Land Registration Act 1925, concerning the effect of which there has been some dispute in the case.

In 1983, Mr Raguz assigned the two underleases to a third party, so he only held them for a short period of time. Thereafter there were further assignments which resulted in the underleases becoming vested in Hotel St James Limited. That tenant failed to pay the rent and went into administrative receivership in October 1999. At that stage, there was a rent review outstanding under the underleases due in 1995.

In November 1999, the claimant received the first of a series of notices under section 17 of the Landlord and Tenants Covenants Act 1995 from the landlord, National Car Parking Limited ("NCP"). Those notices demanded sums which eventually exceeded £461,000. That total sum included the rents said to arise from the implementation of the 1995 rent reviews. Scottish & Newcastle paid NCP, pursuant to those notices, a sum which I understand was in the region of £346,000 and in these proceedings seeks to recover that amount of money from Mr Raguz, the defendant.

These proceedings were commenced in September 2001. The defence was subsequently substantially amended, following which Scottish & Newcastle applied for summary judgment. That matter came before His Honour Judge Norris, who gave summary judgment for a sum which was ultimately quantified at approximately one tenth of the full claim, being the sums which had fallen due prior to 3rd August 2000 when an agreement was made between Scottish & Newcastle and the receivers of the ultimate tenant company, Hotel St James.

By that agreement, Scottish & Newcastle agreed to support the trading losses of the hotel. The thinking behind it appears to have been that they remained liable as original lessees under the lease. It was very much in their interests that the hotel should remain a trading entity with a view to it being marketed more readily and assigned to an assignee who would take over the obligation to pay the rent.

The point taken by the defendant before His Honour Judge Norris was that the conduct of Scottish & Newcastle in supporting trading being continued, at a time when the tenant was effectively insolvent, had the effect of discharging Mr Raguz from his liability under the implied covenant of indemnity. It was argued before the judge that the implied covenants were in the nature of guarantees rather than covenants of indemnity.

The judge, however, held that the implied covenants were covenants of indemnity and not of guarantee, and so the rules about interfering with contractual obligations without the permission of a guarantor did not apply. He nevertheless concluded that it was arguable that Scottish & Newcastle's conduct, as alleged by Mr Raguz, might have had the effect of discharging the applicant's obligations under the covenants of indemnity. So he did not grant summary judgment in respect of any part of the sum which related to rent accruing after 3rd August 2000.

There was an application for permission to appeal, permission having been refused on paper. That came before the Court of Appeal on 27th March 2003. Jonathan Parker LJ, who had initially refused permission on paper, was persuaded at an oral hearing to change his mind.

One of the factors which weighed with him particularly was a witness statement from Mr Dominic Plessier of Mr Raguz's solicitors, in which Mr Plessier explained that disclosure was not complete; that, at the time when the judge heard the application for summary judgment, some 2,500 pages of documents, which had subsequently been disclosed, had not been disclosed, and that it was in those circumstances unsatisfactory to give summary judgment, even for one tenth of the claim.

Jonathan Parker LJ reached the preliminary view that in those circumstances it would be right to grant permission to appeal. After hearing argument, he remained of that view and said that it was at least arguable that summary judgment ought not to be given on any part of the claim in circumstances where disclosure was still incomplete.

The case was then heard by the full court, the Vice- Chancellor, May and Sedley LJJ on 24th July. As far as I can see, the question of disclosure played very little part in their consideration of the issues.

The learned judge had held, firstly, that the covenant implied by section 24 of the 1925 Act was a contract of indemnity and not liable to be discharged by misconduct on the part of the creditor or lessor.

Secondly, that although it was arguable that the obligation undertaken pursuant to that covenant did not extend to liabilities resulting from the creditor's own actions (in particular in relation to the support agreement), nevertheless such a contention could not apply to the rent demanded on or before 3rd August 2000.

There was a further point about VAT. The judge had held that VAT on rent was also recoverable. He had also held that payment of the rent by the assignor to the lessor (that is, by Scottish & Newcastle PLC to the lessor) had been established.

The Court of Appeal did not see fit to overrule the judge in any of those respects. They did not, as I say, base their decision on the inadequacy of disclosure as at the date that the learned judge had heard the application for summary judgment.”

A petition by the defendant to the House of Lords seeking permission to appeal the decision of the Court of Appeal was dismissed earlier this year.

The defendant has throughout these proceedings complained that it has been hampered in its ability to plead a defence by its lack of information as to exactly what steps the claimant did take in and about the agreement made between the claimant and the receivers of Hotel St James Limited. In the early stages of the proceedings, when the claimant was maintaining its stance that it was entitled to summary judgment against the defendant, disclosure was refused by the claimant. On 23^rd August 2002, the defendant issued an application for disclosure and inspection of “documents or copy documents which are or at any time been under its control containing or evidencing or in any way relating to any agreement or arrangement or understanding between the claimant on the one hand and Hotel St James Limited and/or its administrative receivers on the other hand pursuant to which the claimant was to provide and/or has provided financial or other support or accommodation for the Hotel St James Limited”. By a letter dated 17^th September 2002, Eversheds, on behalf of the claimant, agreed to give that disclosure. Pursuant thereto the claimant produced a draft list containing some 130 pages of documents. The defendant protested that such disclosure was inadequate, but the claimant’s response was simply to formalise that initial disclosure by the provision of a signed disclosure statement dated 19^th December 2002.

By an order dated 13^th January 2003, which amalgamated the directions given by judgments handed down in writing dated 9^th December 2002 and 13^th January 2003, HHJ Norris QC, having given the limited summary judgment referred to above, gave directions with a view to a trial on 18^th to 21^st March 2003. That trial date had, however, to be vacated having regard to the fact that further substantial disclosure had become available, and also having regard to the fact that the outcome of the defendant’s application for permission to appeal the summary judgment was still not resolved. The further disclosure which had become available was disclosure of documents held by Eversheds on behalf of the administrative receivers. The latter had on 28^th February 2003 achieved a sale of the underleases and were now content to consent to their files held by Eversheds being disclosed. Disclosure of these files was given between 5^th and 10^th March 2003. The claimant and the defendant then agreed an order dated 11^th March 2003 vacating the trial date and providing that on or before 24^th March 2003 “the claimants do provide all further documents by way of voluntary disclosure, such disclosure to be by copy documents”, with a provision that the defendant should thereafter provide the claimant with a full particularised draft re-amended Defence on or before the 11^th April 2003, with a revised timetable of directions for trial (including provision for the defendant if necessary to apply for permission to re-amend its Defence).

A further list of some 303 pages of documents had been supplied by the claimant to the defendant on 4^th February 2003, but the defendants had made it clear (by a letter dated 17^th March 2003) that there were several respects in which they regarded the disclosure as deficient. A further list containing some 2,241 pages of documents was proffered in four stages in March 2003. This documentation was asserted by the claimants to consist of the receiver’s files from October 2000 which were in the possession of Eversheds. The list however appears to have included in addition a good deal of documentation which was privileged to the claimant, and in respect of which privilege was waived by the disclosure. The claimant’s motive in giving this disclosure is said to have been an attempt to persuade the defendant that even if, which the claimant of course denied, there was any legal basis for the claims which the defendant wished to assert, there was no factual basis for them. Further disclosure given on 26^th March 2003 pursuant to the “voluntary disclosure” order was regarded as irrelevant by the defendant, who continued to press for full disclosure.

Further disclosure was given in June 2003, but the defendant continued to be dissatisfied with its product. The defendant accordingly applied for further disclosure in September 2003. That was the application which came before Mr Jonathan Gaunt QC sitting as a Deputy High Court Judge, on 6^th October 2003. That resulted in an order by Mr Gaunt dated 13^th October 2003 which, so far as it related to disclosure, was in the following terms:

“ The Claimant do disclose by list to be served by 5^th December 2003 documents or copy documents which are or at any time have been in its control containing or evidencing or in any way relating to:

1.

The rent review of the Hotel St James Ltd. Premises;

2.

The disposal of the said premises;

3.

The agreement of the Administrative Receivers of Hotel St James Ltd. and Scottish and Newcastle Pubs and Restaurants Ltd. (“Pubs”) by which financial support was to be provided to Hotel St James Ltd. (“the maintenance agreement”).

4.

The agreement between the claimant and Pubs by reason of which Pubs entered into the said maintenance agreement, insofar as such documentation has not already been disclosed but not limited to:

a)

all internal communications within the claimant’s group of companies concerning the same;

b)

communications by the claimant or any other of the claimant’s group of companies concerning the same with the claimant’s agents, including but not limited to, Messrs Eversheds and Humberts Leisure, and with third parties, including but not limited to Messrs BDO Stoy Hayward, Fleurets, Hamlins, Nelson Bakewell, NCP, Nabarro Nathanson, Christies, Conrad Ritblat Erdman, whether by the claimant communicating direct with such third parties or through its agents

and covering the period from October 1999 to end of February 2003 ”

Pursuant to that order a list was provided containing a large amount of largely fresh documentation (some 1,884 pages of documentation). A covering letter dated 4^th December 2003 asserted that the list comprised “the entirety of the relevant documents in the claimant’s files and those of its agents Humberts Leisure”.

The difficulty which now emerged was essentially this. The defendant’s solicitors regarded the list as inadequate in a number of respects. They set them out in a letter dated 7^th January 2004. They therefore adopted the stance that they were not in a position to submit draft re-amendments to the Defence (as had been contemplated by Mr Gaunt’s order) until there had been full compliance by the claimant with its obligation to give disclosure under that order. The claimant’s position was that it had complied with Mr Gaunt’s order but was not in a position to offer further disclosure in relation to the administrative receiver’s files, those not being in the possession, custody or control of the claimant. The claimant expressed itself as apprehensive that a trial of the issues might be delayed and/or aborted by a late application by the defendant for third party disclosure by the administrative receivers, and sought to forestall such an event by its application dated 29^th March 2004. That application prompted the defendant’s application which came before me on 9^th July.

The defendant’s application to strike out the claimant’s claim in its entirety is based on four broad allegations which, it is said, demonstrate such persistent failure by the claimant to comply with the CPR, the Court’s orders and the overriding objective as to make it appropriate for the Court to impose its most severe sanction and strike out the claimant’s case. Those allegations are (1) that in relation to disclosure the claimant has been in persistent breach of its obligations; (2) that the claimant has put forward formal documents in the proceedings which materially fail to comply with the CPR; (3) that the claimant has kept from the Court and from the defendant relevant information at all stages of the litigation and (4) that the claimant has failed to observe its obligations to the defendant and the Court.

In relation to disclosure obligations, the claimant has conceded that prior to the hearing before Mr Gaunt QC there had been serious defects in its approach to disclosure. Mr Anderson of Eversheds has sought to explain these defects as attributable to a misunderstanding by him as to the steps which had been taken by Miss Martin, an associate solicitor with Eversheds until about the end of September 2002, in relation to disclosure. Mr Anderson’s evidence was that he had only become responsible for the file from late 2002 and had assumed that the first draft list which had been furnished on behalf of the claimant had been compiled after application of the appropriate in-house protocol for disclosure. It appears from his evidence that it was only during the course of the hearing before Mr Gaunt that it dawned upon him that this was not in fact the case and that proper steps had not been taken until then to give adequate disclosure. The product of the further disclosure process consequent upon Mr Gaunt’s order demonstrates that to have been the case.

It was the defendant’s case before me that Mr Anderson’s explanation was false. Miss Lonsdale on behalf of the defendant took me to a number of documents which, she submitted, demonstrated that Mr Anderson had been acting on behalf of the claimant prior to October 2002, and in particular to a letter dated 12^th August 2002 written by him to the administrative receivers demonstrating (it was alleged) a desire to limit information available to the defendant, and to a letter dated 15^th October 2002 which was doubtfully consistent with a belief on Mr Anderson’s part that disclosure had already been fully given. These ad hominem attacks on Mr Anderson were made almost entirely in the reply evidence served in connection with the defendant’s application very shortly before the hearing. It is fair to say that it was only on receipt by the defendant’s solicitors of Mr Anderson’s third witness statement on 29^th June 2004, that a full explanation had been given of the deficiencies in the disclosure which formed the background to the application which came before Mr Gaunt QC. While the matters to which Miss Lonsdale drew my attention undoubtedly furnish cross-examination material, it does not seem to me to be appropriate to make a finding on the material which is before me as to whether or not Mr Anderson’s assertion as to the cause of the defective disclosure is truthful. One can well see that in the initial stages of this litigation there may have been both tactical and strategic reasons for seeking to limit the amount of disclosure given. Equally, it is very difficult in the face of the extensive disclosure which was given in February and March 2003 (which included much privileged material which exposed the claimant to further lines of enquiry by the defendant) to maintain the hypothesis that by that stage at any rate some deliberate policy of giving inadequate disclosure was being pursued. I accordingly approach the matter on the footing that it is just as likely as not that Mr Anderson’s account of how he came to appreciate that the disclosure was inadequate, and his consequent embarrassment, is an accurate one.

On that footing the real question on this part of the case is whether the disclosure given by the list dated 4^th December 2003 complied with the disclosure ordered by Mr Gaunt QC. On Mr Anderson’s account the process leading up to the compilation of that list was a painstaking one. I have no reason to disbelieve that account. I do, however, have more difficulty in accepting that the objections which the defendant’s solicitors have taken to that list have been genuinely taken with a view to ensuring that they are fully armed with sufficient information to formulate any re-amendment which it is desired to make to the Defence as opposed to simply erecting obstacles to the orderly progress of this action to trial. In particular, I find it hard to see how many of the objections taken in the letter dated 7^th January 2004 can be said to have been made in the former as opposed to the latter spirit. In the final analysis, Miss Lonsdale was only able to identify for me two categories of document which she said ought to have been disclosed but had not been. The first related to the meaning of the payment codes attributed in the claimant’s documents to various of the payments which had been made pursuant to the maintenance agreement or in connection with the payment of rent to the landlord. Her thesis here was that disclosure of such payment codes might assist the defendant to mount a case that the relevant payments had not been made by the claimant but rather by Scottish & Newcastle Pubs and Restaurants Limited (“Pubs”) which was the company which in fact entered into the maintenance agreement. Being able to prove that such payments had been made by Pubs might, she submitted, assist her client in one of two possible ways. First, it might enable her to assert that the claimant’s right to be indemnified by the defendant had been equitably assigned by the claimant to Pubs. Alternatively, if the defendant could show that Pubs, and not the claimant, had paid the rent, then the claimant would have no loss against which to be indemnified by the defendant.

I am unable to see how either point featured in any way in the defendant’s assertions that the December 2003 list was inadequate. Indeed, it appears neither from Mr Gaunt QC’s judgment nor from the terms of his order that either point was a live one in October 2003. As he pointed out at paragraph 28 of his judgment, the only issue in relation to an assignment at that time appeared to be whether there had or had not been an executed assignment of the claimant’s rights against the defendant, observing that that was “an issue of fact that will have to be investigated”. The argument based on some form of equitable assignment (which I am bound to say I do not myself follow as at present advised) appears not to have been thought of until the draft re-amended Defence was produced consequent upon HHJ Norris QC’s order of 7^th June 2004. Similarly, as Mr Gaunt pointed out at paragraph 24 of his judgment, the question of whether the money which had been paid to the landlord had been paid by Pubs rather than the claimant was treated by Mr Gaunt as a dead point. It was plainly therefore not an issue in respect of which he was expecting that the claimant would be giving further disclosure.

The second point related to documents (and one in particular) which were in the hands of Humberts. Here it had emerged, late in the day, that an identifiable document which had not been disclosed was in fact available from Humberts. The circumstances surrounding this non-disclosure were not (given the stage at which it emerged) fully dealt with in the evidence before me, but nothing in the process of disclosure as recounted in Mr Anderson’s witness statements, or in the nature of the document itself, suggests that the non-disclosure was in any sense deliberate or would support a finding that it was the result of prima facie culpable want of care on the part of Eversheds.

The broad thrust of the defendant’s application under this head is that there has been a significant failure to comply with Mr Gaunt’s order, which when viewed against the earlier shortcomings, demonstrates a sufficient degree of disobedience to the court’s orders and failure to co-operate with the defendant as to justify the extreme sanction of striking out. I do not consider that there has been non-compliance with Mr Gaunt’s order. As Tuckey LJ pointed out in Reakredit Danmark A/S and Others –v- Your Montague Ltd and Others, unreported, 26^th November 1998, applying by analogy the judgment in Reiss v. Woolf [1952] 2 QB 557 at 559-560, the test is whether the disclosure given pursuant to the order has been given in good faith and is not illusory. The disclosure given easily passes that test.

Next, it is objected that no disclosure statement accompanied the list. This is acknowledged. The explanation given by Mr Anderson is that, unless and until the pleadings were closed, he thought it inappropriate to commit himself or his client to such a statement.

In my judgment that was a tenable ground for not having provided a disclosure statement. Indeed it seems to me that much of the trouble in this case has been caused by an attempt to secure full disclosure in advance of the definition of the issues in the case. The claimant’s obligation to give standard disclosure is an obligation to disclose only “(a) the documents on which he relies; and (b) the documents which – (i) adversely affect his own case; (ii) adversely affect another party’s case; or (iii) support another party’s case; and (c) the documents which he is required to disclose by a relevant practice direction”: see CPR 31.6. As the notes in the White Book at 31.6.3 point out, those do not include what are there described as the wider categories of “relevant documents” or “train of inquiry documents”. Before the nature of the defendant’s case has been fully spelled out, it is impossible for the claimant to be able to make a sensible final judgment about what does or does not adversely affect or support the defendant’s case. To impose on the claimant a duty to imagine for the defendant some ingenious line of argument (such as, for example, is requested by the argument as to the equitable assignment to Pubs of the claimant’s cause of action) is to impose an impossible burden on the claimant.

The second broad ground of attack is based on the claimant’s failures in relation to formal documents. The first complaint relates to the Reply served on behalf of the claimant. That contained an express non-admission in relation to the arrangements between the claimant and the administrative receivers. The submission is that while CPR 16.7 would have allowed silence on the point, and thereby required the defendant to prove his allegation, the express plea of non-admission is a breach of rules which requires a claimant to plead a contrary version of events. The only rule which so requires is, however, that applicable to a defence: see CPR 16.5(2)(b). I do not myself see how it can be said that the way in which the Reply has been pleaded is a breach of the CPR.

There is more substance in the second complaint which relates to three statements in a witness statement made by Ms. Martin on 27^th September 2002. As Mr Anderson concedes in his (3rd) witness statement dated 28^th June 2004, the statements in question are not defensible as between the claimant and the defendant, however it was that Ms. Martin came to make them. The question, therefore, for me is what should now be done about them. As to that, no attempt was made to persuade me that the statements had in fact had any adverse consequences for the defendant. They do not, in my judgment, constitute any reason for holding that the issues or potential issues between the parties cannot be fairly tried, or why, such a trial being possible, the claimant’s claim should be struck out.

The third and fourth heads of attack both relate to a pattern of conduct whereby the claimant is alleged to have kept from the court and the defendant relevant information. The matters relied on are set out in detail in paragraphs 14 and 15 of Mr Plessier’s 6th witness statement dated 25^th May 2004 and sought to be answered by Mr Anderson in paragraphs 104 to 111 of his 3rd witness statement. In my judgment, insofar as the maters complained of do not simply repeat the complaints about defective disclosure (which has been admitted and now cured), what the complaints mainly concern is the tactic adopted by the claimant to pursue what it bona fide believed (and may yet prove to be) a straightforward claim to which there was no defence. That tactic appears to have been to seek to limit from the outset the amount of information available to the defendant in pursuit of a summary remedy. The wisdom of that tactic may with hindsight be doubted. Doubts may also be entertained as to its propriety (cf. the remarks of Sedley LJ in the Court of Appeal). I do not, however, myself think that it is desirable, or even possible, to reach a considered judgment on that question without a trial of the underlying issues.

For those reasons I have concluded that the defendant’s application to strike out the claimant’s claim should be dismissed. His alternative claim is that there should be “unless orders” (1) requiring full compliance with Mr Gaunt’s order in relation to disclosure, and (2) following a putative re-amendment of the defence, requiring the claimant to serve a reply which either admits the defence or advances a contrary version of events.

For the reasons given I regard it as wholly inappropriate to make an unless order that the claimant “fully comply” with Mr Gaunt’s order. That order has been complied with. That does not absolve the claimant from its continuing obligation to give disclosure under CPR 31.11 or prevent the defendant from seeking specific disclosure under CPR 31.12. I also regard it as manifestly inappropriate to make a proleptic order as to the manner in which the claimant should plead to whatever may be allowed to be pleaded by way of re-amendment in the defence, still less to attach the sanction of an “unless” provision to such an order.

The urgent requirement is for the defendant now to re-amend his defence. Given the course which the argument before me took, it may be that those advising the defendant would wish a further opportunity to consider the draft re-amendments proposed in their current draft. I will hear submissions on the appropriate directions to be given on the occasion when this judgment is formally handed down.