National Westminster Bank Plc v Rabobank Nederland

There is before the Court a Submission put forward by NWB in most unusual circumstances. In form it is not a submission to the Court that there is no case to answer in respect of part of Rabobank’s counterclaim to which I refer as “the Relevant Part”, but rather an invitation to the Court to exercise its discretion to strike out the Relevant Part of its own volition. The suggestion originated in an invitation by Mr Stadlen QC on behalf of NWB that the court should, in the course of the trial, express a provisional view, not in form by way of early neutral evaluation, as to Rabobank’s prospects of success in pursuing the Relevant Part. However, in the course of discussions between counsel and the court it was explained that this court’s usual practice was not to volunteer provisional issue assessments in the course of a long trial unless with the consent of all parties and that, as Rabobank did not consent to this course it would not be appropriate for any such provisional assessment to be provided. Accordingly, it was submitted that this was an appropriate case for striking out the Relevant Part in that the court should do so of its own volition.

It is first necessary briefly to outline the extraordinary background to this submission.

The Relevant Part of the counterclaim by Rabobank is an allegation that NWB induced Price Waterhouse (“PW”) (not a party to these proceedings) to act in breach of contract between PW and Yorkshire Food Group (“YFG”) and/or to act in breach of its professional duty or to commit the tort of professional negligence towards YFG in failing to investigate in the course of its investigative work in respect of the financial condition of YFG and its subsidiaries, pursuant to the terms of its engagement letter, certain loans made by NWB to Mr Michael Firth personally or to a trust controlled by him. Mr Firth was the founder, majority shareholder, Chairman and eventually CEO of YFG. A substantial part of the money advanced was to enable Mr Firth and other directors of YFG to fund the purchase and development by corporate entities under their control of almond orchards in California. YFG’s subsidiaries in California conducted the business of purchasers of almonds from almond growers in California and the processing of such almonds.

As originally pleaded, Rabobank’s counterclaim included an allegation that NWB had deceitfully caused Rabobank (jointly with NWB) to continue advancing loans to YFG and ultimately in September/October 1997 to enter into an agreement to take out NWB as lender to YFG by taking over all the indebtedness to YFG at a discount and that NWB’s relevant deceitful conduct included failing to disclose to Rabobank the holding of a secret meeting with PW on 29 August 1996 at which NWB’s Mr Hamilton informed Mr Barrett, a partner, and Mr Hargrave, an employee of PW, that Mr Firth had some personal borrowings with NWB, that these were secured against his YFG shares and that these borrowings were not in connection with PW’s investigation and further that Mr Hamilton had requested that PW should not tell Rabobank of this borrowing. It is to be observed that it was an essential component of this case not only that Mr Hamilton had said these things to PW but that PW had consequently failed to investigate what otherwise they would have investigated and thereby failed to discover matters material to the content of their report on YFG namely the purchase of almond farms by companies controlled by YFG directors for which they borrowed funds from NWB against the security of shares in YFG. However, at this stage there was no allegation of professional negligence against PW founded on their omission to conduct such an investigation in spite of NWB’s request not to do so or on their failure to report to Rabobank the content of the Cannon Street pavement conversation.

In the course of the Vacation, a few weeks before the trial was due to commence (2 October 2006), Rabobank indicated that it would apply to amend its counterclaim to add the Relevant Part. The substance of their allegation was that NWB had by Hamilton’s words at the secret meeting caused PW to desist from investigating the personal borrowings of Mr Firth in circumstances in which their professional duty was to enquire further, particularly into the purpose of these borrowings and not to disclose the content of the Cannon Street conversation to Rabobank when it was their professional duty to do so.

On Day 8 of the trial (16 October 2006) following agreement by both parties that, before deciding whether to allow the amendment to introduce the Relevant Part, I should hear the opening submissions, I decided, on case management grounds, that my discretion should be exercised against allowing the amendment.

Rabobank then appealed to the Court of Appeal which, on 24 October 2006 for reasons not yet given on 16 November (Day 27 of the trial), allowed the appeal and gave permission for the amendments.

In order to avoid more serious disruption of the trial timetable in consequence of the Court of Appeal’s decision, on Day 14 of the trial I directed that Mr Hargrave and Mr Barrett of PW, both witnesses due to be called by Rabobank, should give evidence on the dates, that same week, identified at the Pre-Trial Review in July, but that their evidence should be strictly confined to the case on the secret meeting originally advanced by Rabobank, which was the basis for the witness statements of those two witnesses and of Mr Hamilton of NWB, and that all further evidence to be adduced from those witnesses should be adduced upon their being recalled later in the trial, if necessary, on the basis of supplementary witness statements. This, as I recognised, was a highly unsatisfactory expedient made unavoidably necessary by the decision of the Court of Appeal.

Accordingly, both Mr Hargrave and Mr Barrett were called by Rabobank and cross-examined by counsel on behalf of NWB.

On matters material to this Ruling there was no significant difference in their evidence. On 29 August 1996 at the conclusion of a meeting at Rabobank’s offices in Cannon Street between representatives of Rabobank, Mr Hamilton on behalf of NWB and Mr Barrett and Mr Hargrave of PW, the latter three stood talking on the pavement outside the office for a minute or two during which Mr Hamilton told Messrs Barrett and Hargrave that NWB had made personal loans to Mr Firth secured against shares in YFG, that these loans were for private purposes not in connection with PW’s review, that Rabobank did not know of these loans and that Mr Hamilton would rather they did not.

When cross-examined on behalf of NWB both Mr Hargrave and Mr Barrett gave evidence the gist of which was that, with the regard to the scope of PW’s remit in the letter of engagement they would in any event not have considered it to be any part of their function to investigate private loans for personal purposes. Consequently, even of Mr Hamilton had not asked them not to disclose to Rabobank the existence of such private borrowings, they would not have done so because such borrowings did not form part of their remit.

On the basis of that evidence, it is submitted by Mr Stadlen QC on behalf of NWB that an ingredient vital to Rabobank’s case as expressed in the Relevant Part is missing, namely evidence that Hamilton’s request in the course of the Cannon Street conversation that the existence of the personal loans to Mr Firth was not a matter in connection with their review and should not be disclosed to Rabobank had caused PW to refrain from investigating such loans and from disclosing them to Rabobank. It is submitted that this evidence prevents Rabobank from establishing that NWB induced PW to act in breach of their contract with YFG or in breach of their professional duty to YFG or that NWB’s conduct was such as to make them joint tortfeasors with respect to PW’s negligent omission to investigate the directors’ personal loans. This would be so even if, contrary to NWB’s case, it is accepted that Hamilton did tell Hargrave and Barrett what they say he did and even if PW were in breach of their professional duty in not investigating such loans. In either case there would be missing the vital causal link between NWB’s conduct and PW’s inaction. Mr Stadlen relies on the well-known judgments in the Court of Appeal in DC Thomson v. Deakin [1952] Ch 646, notably that of Jenkins LJ. at p696:

“Nevertheless, I think that in principle an actionable interference with contractual relations may be committed by a third party who, with knowledge of a contract between two other persons and with the intention of causing its breach, or of preventing its performance, persuades, induces or procures the servants of one of those parties, on whose services he relies for the performance of his contract, to break their contracts of employment with him, either by leaving him without notice or by refusing to do what is necessary for the performance of his contract, provided that the breach of the contract between the two other persons intended to be brought about by the third party does in fact ensue as a necessary consequence of the third party's wrongful interference with the contracts of employment.”

and of Lord Evershed MR at P677:

“In such cases where the intervener … does so directly act upon the mind of a party to the contract so as to cause him to break it, the result is, for practical purposes, as though in substance he, the intervener, is breaking the contract, although he is not a party to it”

He further relies in relation to Rabobank’s allegation that NWB was a joint tortfeasor on the necessity of its being established that but for the conduct of the intervening party (NWB) the primary tortfeasor (PW) would not have committed the tort: see Clerk & Lindsell para 2-07:

“The first step in establishing causation is to eliminate irrelevant causes, and this is the purpose of the ‘but for’ test. The courts are concerned, not to identify all of the possible causes of a particular incident, but with the effective cause of the resulting damage in order to assign responsibility for that damage. The ‘but for’ test asks: would the damage of which the claimant complains have occurred ‘but for’ the negligence (or other wrongdoing) of the defendant? Or to put it more accurately, can the claimant adduce evidence to show that it is more likely that not, more than 50 per cent probable, that ‘but for’ the defendant’s wrongdoing the relevant damage would not have occurred. In other words, if the damage would have occurred in any event the defendant’s conduct is not a ‘but for’ cause.”

As to the allegation that NWB induced PW to act in breach of contract or duty or negligently in failing to inform Rabobank that NWB had asked it not to investigate the directors’ personal loans or to inform Rabobank of the request by NWB, it is submitted that this is an untenable allegation on the evidence. If, according to the evidence of Mr Hargrave and Mr Barrett, neither of them regarded it to be their duty under the letter of engagement to investigate personal loans to Mr Firth as a matter of logic they could not have been caused to refrain from reporting the conversation to Rabobank. If regardless of the request by NWB they would not have conducted such an investigation they would not in any event have informed Rabobank of their intention to refrain from doing so and would not in any event have told Rabobank that NWB had so requested them or that NWB had asked them not so to inform Rabobank, for such a request would have been entirely consistent with their duty as investigating accountants as defined in the letter of engagement.

In these circumstances NWB submits that neither party has any more evidence to adduce in the course of this trial which could disturb the evidence of Mr Hargrave and Mr Barrett as to their not being induced by Hamilton’s words to act in any different way from that in which they would otherwise have acted. Further there could not be any question of the omission of either party to call further witnesses giving rise to any adverse to the evidence already given, this court should strike out the Relevant Part of its own volition under CPR 3.3 and 3PD 1.2. Thus in Bentley v. Jones Harris & Co [2001] EWCA Civ 1724 Latham LJ. observed:

“If a judge concludes at the end of a claimant’s evidence, whether on the application of the defendant or of his own motion, that the claimant has no real prospect of success or, in other words, is bound to fail, on his assessment of the evidence before him at that stage, he is in my view entitled to give judgment for the defendant, in the same way as if there had been an application at an earlier stage in the proceedings for summary judgment under CPR part 24.2. In that way, he will be giving effect, in the circumstances of the trial, to the overriding objective and in particular to the need to contain within limits the expenditure of time and costs on the particular case before him”

Further, in The Royal Brompton Hospital National Health Service Trust v. Hammond [2001] Lloyd’s Rep PN 526 Clarke LJ. observed:

“As I see it, in the vast majority of cases of a substantial nature the question whether an issue or claim should be disposed of summarily should be determined long in advance of the trial so that the preliminary costs of a trial are avoided and so that all parties know what issues are to be decided at the trial. I would expect cases in which it is appropriate to consider striking out a claim or giving summary judgment at the trial to be very rare, although every case depends upon its own circumstances and such cases might occur.”

In the same tenor Latham LJ. also stated in Bentley v. Jones Harris, supra, that:

“it will only be in a rare case that the judge should be asked to determine the issues before him before all the evidence has been completed.”

I have been referred to a substantial body of authority relating to the use of the power to strike out a claim upon a submission of no case to answer and in particular upon the circumstances in which it is open to a court to strike out a claim without first formally putting a defendant who makes the submission to his election as to whether to call further evidence. I refer in particular to Boyce v. Wyatt Engineering [2001] EWCA Civ 692 in which Mance LJ. observed with regard to the striking out of a claim without the applicant having been put to his election to call no further evidence:

“… there is another consideration which is independent and general. If no election is extracted, then there is a risk, as here, that if the claim is dismissed, there may be a successful appeal against the judge’s view of the merits, and the matter may then have to be remitted, quite likely to a different judge for a complete retrial. That may waste far more money than might have been saved by hearing the defendant’s evidence at the first trial.”

In the much earlier decision of the Court of Appeal in Alexander v. Rayson [1936] 1 KB 169 it was said:

“…We cannot think that it right the judge of fact should be asked to express any opinion upon the evidence until the evidence is completed. Certainly no one would ever dream of asking a jury at the end of a plaintiff’s case to say what verdict they would be prepared to give if the defendant called no evidence, and we fail to see why a judge should be asked such a question in cases where he and not a jury is the judge that has to determine the facts.”

This approach was explained by Mance LJ. in Miller v. Cawley [2002] EWCA Civ 1100 at para 13:

In Benham Ltd v. Kythira Investments Ltd [2003] EWCA Civ 1794 Simon Brown LJ. made it clear that a trial judge should not normally strike out a claim without putting a defendant to his election not to call further evidence:

“Rarely, if ever, should a judge trying a civil action without a jury entertain a submission of no case to answer. That clearly was this court’s conclusion in Alexander v Rayson and I see no reason to take a different view today, the CPR notwithstanding. Almost without exception the dangers and difficulties involved will outweigh the advantages.”

However, Simon Brown LJ. acknowledged that there might be rare cases where that course might be permissible, referring to the following passage from the judgment of Mance LJ. in Miller v. Cawley, supra:

“but it is clear that in some circumstances a submission of no case to answer at the close of a claimant’s case can be appropriate and may, in the exercise of the judge’s discretion, be entertained without the defendant being put to his election … some flaw of fact or law may, for example, have emerged for the first time, of such a nature as to make it entirely obvious that the claimant’s claim must fail, and it may save significant costs if a determination is made at that stage.”

It is to be observed that in Boyce v. Wyatt Engineering, Potter LJ. stated at para 36:

“If such breaches of statutory duty might procedurally have been established against either or both of the second and third defendants, it was wrong for the judge to come to any conclusion as to whether both or either were liable without hearing the defendants’ evidence (if they proposed to call any), unless the evidence of the claimant himself disclosed that he was bound to fail, in particular by failing to establish that the defendant’s breaches of duty were causative of the accident”.

Further, Simon Brown LJ. in Benham at para 29 stated, with regard to the possibility of the non-calling of the defendant’s evidence affecting a conclusion as to the strength of the claim because adverse inferences might be drawn from evidence not being called:

“Obviously, the possibility of drawing adverse inferences only arises where the defendants have material evidence to give on the issue in question”.

It is submitted on behalf of NWB that, if the approach to striking out in these authorities ought to apply by analogy where the court considers whether to exercise its jurisdiction to strike out a claim or part of a claim in the course of a trial, the position in the present case is that

In my judgment, there can be no doubt that the court does have jurisdiction to strike out a claim or any severable part of a claim of its own volition whether immediately before or during the course of a trial. This is clear from the combined effect of CPR 1.4, 3.3 and 3.4, as well as 3PD 1.2, and by reason of its inherent jurisdiction.

However, the occasion to exercise this jurisdiction after the start of the trial is likely to be very rare. The normal course will be for all applications to strike out a claim or part of a claim on the merits to be made under CPR 3.4 or 24.2 and determined well in advance of the trial.

Where an application is made in the course of a trial for permission to amend the claim by adding a new cause of action, as occurred in this case, any objection to that amendment on the grounds that it has no realistic prospect of success, is likely to be resolved at one and the same occasion as determination of such case management objections to the amendment as may be raised in addition to an attack on the merits. Accordingly, the determination of the issue whether a mid-trial amendment, already allowed with regard to case management considerations alone, ought to be struck out on the merits is likely to be extremely unusual.

Even more exceptional is likely to be a mid-trial application to strike out an amendment already allowed mid-trial on case management grounds alone where evidence directly material to the issue raised by the amendment has already been heard.

That has happened in the present case because Rabobank’s application to amend to plead new causes of action could not be heard until after the trial had begun and then it was very properly thought by both parties to be more desirable that it should be heard after completion of the openings. However, in order to avoid greater disruption to the pre-designated trial timetable than was absolutely necessary I ordered that the challenge to the amendment application should be confined to case management considerations and should not venture into the intrinsic merits. The proposed amendment having been disallowed by me, there was then an appeal and the Court of Appeal, for reasons which have not yet been given, allowed the appeal. As the decision of the Court of Appeal only emerged two days before the witnesses Messrs Hargrave and Barrett were scheduled to give evidence in accordance with the trial timetable, I ruled that they should give their evidence on the scheduled dates but that their evidence should be confined to that relevant to the issues pleaded before the introduction of the Relevant Part by way of amendment, it being open to either party to invite the recall of either witness after the new causes of action and NWB’s defence to them had been fully pleaded and disclosure of documents and expert evidence exchanged. Following the evidence of Messrs Hargrave and Barrett, NWB made its application to strike out the Relevant Part, not because, as pleaded, it had no realistic prospect of success, but on the grounds that the evidence of those two witnesses made it impossible for Rabobank to succeed on these new claims as pleaded.

At the present point in the trial, which has already run for 27 days and is likely to last for at least that time longer even if the Relevant Part is struck out, Rabobank is still calling its factual witnesses and NWB has yet to call any evidence. Consequently, if this court were to strike out the Relevant Part that would not bring the trial to an end: it would simply involve excising those causes of action comprising the Relevant Part. Rabobank would call precisely the same remaining factual evidence as it has always been scheduled to call and similarly NWB would call its own factual witnesses. Both parties would also call their numerous expert witnesses.

It follows that the suggested exercise of this court’s jurisdiction to strike out in this case would have consequences quite unlike the consequences that would flow from a court acceding to a submission of no case to answer. Such a submission would normally be made at the close of the claimant’s case and, if acceded to, would terminate the trial there and then without further evidence being adduced by either party. By acceding to such application I refer to the court’s decision not to put the defendant applicant to his election whether to call evidence. Such a determination would involve application of a no realistic prospect of success test. If on the application of that test, the court determined that there was insufficient substance in the claimant’s case, judgment would be given for the defendant.

The intervention of the court mid-trial to strike out a claim or part claim of its own volition necessarily involves application of the no realistic prospect of success test, for the jurisdiction must in principle be analogous in this respect to that which could be exercised pre-trial under CPR 3.4 and 24.2.

Further, the jurisdiction to strike out must also in principle be regarded as having something in common with the jurisdiction to strike out exercised when a submission of no case to answer is acceded to without putting the defendant to his election. Not only does it arise mid-trial but it may arise at any time in the trial, whether before or after close of the claimant’s case and, in this court, because of its unique order of speeches, before the claimant’s Counsel has made the claimant’s main speech in the trial, which is given after the conclusion of the entire factual and expert evidence of all parties. If therefore, as in the present case, the court proceeds to consider a strike-out before the defendant has called any evidence, it ought to have regard, amongst other matters, to those considerations which if called inform a decision to accede to a submission of no case to answer. Thus it will be necessary to have regard not only to the weakness of the claimant’s case taken in isolation on the basis of the evidence so far called, but to the availability of so far uncalled evidence from either party which if called might increase the strength of the claimant’s case sufficiently to clear the bundle of the no realistic prospect of success test and to the possible availability of inferences adverse to the defendant and therefore capable of sustaining the claimant’s case which might be drawn from the defendant’s encouragement of the court’s termination of the trial by striking out the whole or part of the claim.

Further, it would be necessary to have regard to the inherent undesirability, identified by Mance LJ. in the Court of Appeal in Miller v. Cawley, supra, of the trial judge placing himself “in a position where he finds himself having to express first an initial view on the basis of the claimant’s evidence alone and then (if he allows the claim to proceed) a further final view after taking into account further evidence, even though he does so by reference to different tests”.

Additionally, there would be the potential problem that, if the judge decided to strike out the whole or part of a claim, his judgment could be appealed and reversed by the Court of Appeal later on in the course of the trial or even after final speeches. In such a case the risk is not merely that the orderly conduct of the trial would be interrupted by a decision to strike out until the Court of Appeal’s decision was known but that, if the judge’s decision to strike out were reversed, the parties’ trial preparation and witness management might be so seriously disrupted as to amount to an intrinsically unjust procedure. In some cases a new trial might have to be ordered on appeal.

Accordingly, whereas it has been repeatedly emphasised by the Court of Appeal that for a trial judge to accede to a submission of no case to answer without putting the defendant to his election is a course that should “rarely if ever” be adopted for “almost without exception the dangers and difficulties involved will outweigh any supposed advantages” (per Simon Browne LJ. in Benham Ltd v. Kythira Investments Ltd, supra, at paragraph 32), in my judgment, for a trial judge to venture into the exercise of his jurisdiction to strike out of his own volition part of a claim mid-trial generally involves risks at least as great as, if not greater than, those identified above. At least there would have to be complete certainty that, whatever else happened in the course of the trial, nothing would strengthen the claimant’s case to the point where it had a realistic prospect of success. Further, the savings in time and costs if the claim or part of it were struck out would have to be very substantial in comparison with the total costs of the trial if there were no strike out. Thirdly, the disruptive effect of the strike-out being reversed in the Court of Appeal would have to be practically and justly containable within the boundaries of the existing trial.

What then is the position in the present case?

The evidential basis for NWB’s assault on the Relevant Part is in essence the evidence of Messrs Hargrave and Barrett that, having regard to the terms of the letter of engagement and to what they were told by Mr Hamilton, PW would not have investigated Mr Firth’s private borrowings even if nothing had been said by him requesting them not to do so, and that accordingly, even if it was their professional duty to conduct such an investigation and omission to do so was a breach of contract or capable of constituting the tort of negligence, such breach of professional duty was not procured by anything said or done by Mr Hamilton or NWB.

I have no doubt whatsoever that the evidence of Messrs Hargrave and Barrett, as it now stands alongside all the other evidence so far called by Rabobank’ and relied on by NWB, makes it extremely difficult for Rabobank to succeed in establishing the causal linkage necessary to make good the case advanced in the Relevant Part. But is it now possible to say that Rabobank’s prospect of success would not be improved if the issue were left open during the rest of the trial rather than given an immediate quietus?

An important consideration here is that the other party to the Cannon Street Pavement conversation, Mr Hamilton, to be called by NWB, has not yet given evidence. As already stated his witness statement indicates no recollection of the conversation. But what if his evidence in court is at variance with what he has so far stated? What if something triggers his memory? What if against all the odds he gives oral evidence which directly or by inference forms an arguable basis for concluding that the content of the conversation was such that Messrs Hargrave and Barrett might, by reason of the express words used have been not only requested not to go into the personal loans but additionally given untrue information about them which caused the PW team to believe that such borrowing fell outside their remit? If that were to happen, unlikely though that prospect might now seem, that evidence would have to be taken into account alongside that of Mr Hargrave and Mr Barrett in resolving the issue whether NWB procured PW’s breach of duty and it would further be relevant to establish the scope of the duty and whether there was a breach.

It is argued by NWB that Rabobank is as a matter of law precluded from challenging the accuracy of the evidence of its own witnesses (Messrs Hargrave and Barrett) and cannot cross-examine Hamilton on the basis that this recollection is wrong. Reliance is placed on the decision of the Court of Appeal in that remarkably difficult case, The Filiatra Legacy [1991] 2 Lloyd’s Rep 337. However, the reasoning in that case, although recognising that unless leave is given to treat a witness as hostile, the party calling him cannot cross-examine him or any other witness to challenge that witness’s evidence on the basis that it is knowingly false, does not preclude a party from asserting that his own witness has innocently mis-recollected matters by relying on other evidence, “provided that care is taken to avoid surprise and hence injustice” (per Mustill LJ. at p361). A fortiori it cannot preclude cross-examination of an adverse witness by means of questions designed to elicit evidence at variance with the evidence said to have been mis-recollected, provided always that at least normally a positive case on the factual issue is not put to the adverse witness in cross-examination.

Against this background it cannot be said that there exists no material risk that Mr Hamilton’s evidence will leave the evidence of Mr Hargrave and Mr Barrett unchallengeable on the key issue of causation.

In these circumstances, I do not consider that it would be appropriate to strike out the Relevant Part at this stage. Small though the risk of inconsistent evidence may appear, I am not prepared to expose this trial to the dangers of yet further disruption which would be caused if, having struck out that Relevant Part, the risk eventuated.

I must further take into account the extent of the time and cost savings which a strike out could be expected to achieve. Since quite remarkably the Court of Appeal allowed Rabobank to introduce by mid-trial amendment the new causes of action to which the Relevant Part relates after this court had disallowed the application on case management grounds alone but has not provided any reasons for its decision, it can only be inferred that it considered that the risk of trial disruption anticipated by this court had been exaggerated and was of a negligible order of magnitude. If that is so, the time and cost benefit of a strike out would not, as a matter of logic, be capable of amounting to a matter of any significant weight in the exercise of this court’s discretion at this point in the trial.

Accordingly, I decline to exercise my jurisdiction to strike out the Relevant Part on the merits.