Charles Terence Estates Ltd v The Cornwall Council

By an application dated 13^th June 2011, the defendant, Cornwall Council (“the Council”), seeks permission to rely on expert valuation evidence at the forthcoming trial on liability, due to start on 11^th July 2011. The valuation report, which deals with the open market rent for 24 individual properties and runs to 190 pages, was provided to the claimant yesterday, 27^th June. The claimant objects to the application on the basis that it is late, unjustified and goes to an issue of (at most) peripheral relevance. Both parties are plain that they wish the trial date, which is less than two weeks away, to be maintained.

The claimant is claiming unpaid rent pursuant to a series of agreements between them and two district councils for whom the Council is now legally responsible. It is the claimant’s case that:

In their defence, the Council put forward three separate reasons why the agreements into which they entered are not enforceable. Although that pleading is the subject of a separate application to amend, which is not completely agreed, these three elements also remain at the forefront of the Council’s case in the new version.

The first reason is the suggestion that the agreements were entered into for an improper purpose. This takes up paragraphs 5-18 of the defence. The improper purpose is said to be “in order to implement a proposal made by [the claimant] which was contrived to take advantage of the housing benefit scheme”. After setting out the detail of this alleged contrived scheme at paragraphs 6-14, the pleading then contains these important paragraphs:

“15 The effect of such proposal was to contrive a scheme whereby the liability of the person liable to make payments in respect of the property was not entered into on a commercial basis and/or was created to take advantage of the housing benefit scheme.

16 Though [the claimant] indicated that it would use some of the profits generated by such scheme in purchasing further properties, at no time did it ever enter into any agreement which obliged it to do so.

17 A summary of the purported leases granted by [the claimant] are set out in schedule 1 to the defence and counterclaim.”

At paragraph 18 of the defence, after the allegations of improper purpose, there is this paragraph:

“In respect of the majority of the leases, no bona fide attempt was made to negotiate a commercial rent for the properties, rather the rent was calculated by multiplying the weekly sum of £120 by the number of proposed occupants, which rent greatly exceeded the true rental value of the properties. This was to the advantage of [the claimant] by improperly taking advantage of the Housing Benefit Scheme.” (My emphasis)

The second reason why the Council say that the agreements were invalid or unenforceable is the suggestion that Penwith District Council had no authority to enter into the leases. That argument is set out at paragraphs 9-21 of the defence. There is nothing in that part of the defence which raises any question of rent or the true rental value of the properties.

The third and final reason why the agreements are said to be unenforceable is on the basis of mistake. That argument is set out at paragraphs 22-24 of the defence. It is alleged that there were at least two mistakes, one of fact and one of law. Again, neither of these allegations of mistake raises anything in connection with the rent or the true rental value of the properties.

The claimants deny all three grounds of the defence. The point that they have repeatedly made, both in their pleaded reply and in their submissions today, is that the negotiations for these agreements took place against the background that the claimant was the only organisation prepared to negotiate with the Council about providing accommodation for these particular tenants. There was therefore no open market; indeed they say that, beyond that which they themselves were prepared to negotiate and agree, there was no market at all.

The late application to adduce expert evidence falls to be considered by reference to CPR Part 35 and the overriding objective. Rule 35.1 provides that “expert evidence shall be restricted to that which is reasonably required to resolve the proceedings”.

As to the interplay between the overriding objective and interlocutory applications made late and close to an imminent trial, there has recently been important guidance from the Court of Appeal in Claire Swain-Mason and Others v Mills and Reeve (a firm) [2011] EWCA Civ 14. In that case, Lloyd LJ noted two different strands of authority on this topic. One, epitomised by the decision of the Court of Appeal in Cobbold v Greenwich LBC (August 1999, unreported, but regularly referred to in the commentary in the White Book), took a relatively relaxed view of such late applications, in that case a late application to amend. It was said by Peter Gibson LJ that:

“Amendments in general ought to be allowed so that the real disputes between the parties can be adjudicated upon, provided any prejudice to the other party caused by the amendment can be compensated for in costs and the public interest in the administration of justice is not significantly harmed.”

The other line of authority, which might be said to have begun in the case of Worldwide Corporation v GPT Limited [1998] EWCA Civ 1894, took a more rigorous line. In that case Waller LJ observed:

“In the modern era it is more readily recognised that, in truth, the payment of the costs of an adjournment may well not adequately compensate someone who is desirous of being rid of a piece of litigation which has been hanging over his head for some time and may not adequately compensate him for being totally (and we are afraid there are no better words for it) ‘mucked about’ at the last moment. Furthermore, the courts are now much more conscious that in assessing the justice of a particular case, the disruption caused to other litigants by last minute adjournments and last minute applications have also to be brought into the scales.”

This latter approach is, so it seems to me, in accordance with both the CPR generally and the overriding objective in particular. It is also the approach adopted by Lloyd LJ in Swain-Mason when, having set out other parts of Waller LJ’s judgment in Worldwide Corporation, he said at paragraph 72:

“As the court said, it is always a question of striking a balance. I would not accept that the court in that case sought to lay down an inflexible rule that a very late amendment to plead a new case, not resulting from some late disclosure or new evidence, can only be justified on the basis that the existing case cannot succeed and the new case is the only arguable way of putting forward the claim. That would be too dogmatic an approach to a question which is always one of balancing the relevant factors. However, I do accept that the court is, and should be, less ready to allow a very late amendment than it used to be in former times, and that a heavy onus lies on a party seeking to make a very late amendment to justify it, as regards his own position, that of the other parties to the litigation, and that of other litigants in other cases before the court.”

It seems to me that there is no reason in principle why these authorities, and that passage in particular, although expressly dealing with late amendments, are not equally applicable to any applications made late, such as this one to serve and rely on expert evidence less than two weeks before trial.

In my view, having regard to the cases, the following matters are of particular relevance to any application, whether to amend or rely on late evidence, made close to the trial date:

In my judgment, Mr Rodger is right to submit that any expert evidence relating to the open market rent (which is the thrust of the report prepared by Mr Humphries of King Sturge, now trading as Jones Lang LaSalle) is, at best, peripheral to the issues in this case. As I have demonstrated in paragraphs 6 and 7 above, issues of rent are wholly irrelevant to two of the three ways in which the Council puts its case as to the non-enforceability of the agreements. And although rent is raised, albeit faintly, in relation to the improper purpose allegation, it comes right at the end of the relevant section of the defence, and after the allegation of a contrived scheme in paragraph 15. Accordingly, even in respect of improper purpose, it seems to me that the open market rent is not a critical component of the defendant’s defence on liability.

The amount of the allegedly ‘true’ rental value is raised, albeit in rather throwaway style, in the last few words of the penultimate sentence of paragraph 18 of the defence (the words that I have highlighted in paragraph 5 above). No positive case is pleaded by the Council as to what the true rental value of the properties might be, although it is true that some figures are set out in a subsequent schedule to the defence, under the heading of ‘Estimated open market rent’. Mr Adams confirmed that these figures were produced by the Council in-house. Their relevance is unclear. Furthermore, despite the existence now of a lengthy expert’s report, he told me that no amendments would be made to paragraph 18 to plead particular figures by way of rental value. Again, that suggests to me that the figures identified by Mr Humphries are of peripheral relevance.

Mr Rodger submitted that what is crucial, even in relation to paragraph 18, are the matters of fact raised by the improper purpose defence: how the Council found the claimant; whether there were attempts to negotiate; the difficult position that the Council found itself in at the relevant time; the absence (on the claimant’s case) of any semblance of an open market, and so on. In short, he said that any notion of an open market was irrelevant on the facts, because it was only the claimant who was prepared to negotiate with the Council at all. I accept the broad thrust of those submissions although, of course, whether or not they prove to be right will be a matter for the trial on liability. They again serve to confirm my view that the amount of the rental values themselves are of peripheral relevance.

For these reasons, I find, by reference to CPR 35.1, that expert evidence as to open market rental values is not reasonably required to resolve these proceedings.

The question of whether or not expert evidence might be necessary in this case was raised at a hearing before Master Leslie on 2nd February 2011. It seems that Mr Rodger made then the same points that he makes today. Master Leslie said that the parties ought to give the issue further thought, it being unclear whether expert evidence was required. Accordingly, he ordered that, if a party wished to adduce expert evidence, they had to make an application by 29th April 2011 and, if that application was contested, there would be a hearing on 6th May. As I understand it, a hearing slot was set aside for that purpose on 6^th May. In the event, neither party triggered those directions. Again, that was a sign, so it seems to me, of the relevant insignificance of this issue.

The present application was not made until 13^th June 2011. It is not explained why the Council did not act earlier, particularly because it is apparent from other evidence that, on a date in March, they instructed King Sturge to provide advice on unspecified valuation matters in connection with this case. There is evidence that Mr Humphries inspected the properties, or at least some of them, as long ago as 21^st March 2011.

In fact, the Council did nothing until 25^th May, when their solicitor, Mr Brett, emailed the claimant’s solicitor to say that they intended to obtain expert evidence as to the level of rents payable under the purported leases, compared to open market values. He sought urgent confirmation that the claimant’s solicitor would agree to the joint instruction of an expert. The claimant’s solicitor replied the same day, pointing out that under Master Leslie’s order, the time for making such an application had passed, and asking for an explanation of the delay.

It was, so it seems to me, slightly disingenuous of Mr Brett to refer to the possibility of a joint expert being instructed, in circumstances where (although no mention was made of it in the email) King Sturge had already been instructed by the Council to advise on such matters. It seems likely that, in reality, he wanted the claimant to agree to the appointment of King Sturge as a single joint expert, notwithstanding the pre-existing relationship between them and the Council. That can be seen in his next email, which was not sent until 6^th June 2011, where he sets out a whole series of matters on which he claimed expert evidence was necessary. He then went on to say:

“King Sturge Surveyors have indicated that they can report on these issues within 14 days. The likely fees will total £7,500 plus VAT. We doubt whether any other surveyors could report in the timescale available, given that King Sturge have already inspected the properties.

We intend to instruct King Struge to report as a matter of urgency and to make an application to the court for permission to rely on their expert evidence. In the circumstances, we invited you to agree to the joint instruction of the Expert and be party to the instructions.” (My emphasis)

Mr Brett failed to appreciate that it was wholly inappropriate to suggest that an expert (who was already engaged by one party) could in some way become the joint expert of both parties, without there being clear and frank disclosure of that pre-existing relationship. There was nothing to that effect in the email. At all events, the invitation was declined and this application was issued on 13^th June. By then, on 9^th June, the Council had instructed King Sturge to carry out the work that is now the subject of the lengthy report. Somewhat oddly, neither those instructions, nor the subsequent report itself, make any reference to the work done by King Sturge prior to the instructions on 9^th June.

As I pointed out to Mr Adams, in the statement prepared by Mr Brett, there is nothing which begins to explain or justify the delay in making the application. During the course of the argument, there was a faint suggestion that this delay may have been caused by the fact that the parties were involved in negotiations, but that cannot possibly explain the delay: in any civil case, the court expects the parties to be attempting to resolve their differences, and it cannot ever justify a failure to comply with court orders to say that the parties were negotiating. The other reason for delay put forward during the course of argument was the drain on the Council’s resources caused by the expedited trial and the amount of documentary material involved. But that of course is true for both parties; indeed, it might be said on their behalf that the claimants are in a worse position because they lack the resources of a local authority.

Accordingly, for those reasons, it seems to me plain that there is, and can be, no justifiable reason for the failure to comply with Master Leslie’s order, or the delay in making this application.

If this application is allowed, the Council would be able to deploy 190 pages of expert evidence which, on the face of it, has taken as much as three months to prepare. There is no way that the claimants could instruct an expert to meet the points raised in that lengthy report in the time available. Indeed, they could not have done so from late May, a view espoused by Mr Brett himself when, in his email of 6th June, he expressly said that it was doubtful “whether any other surveyors could report in the timescale given that King Sturge have already inspected the properties” (the highlighted word in paragraph 22 above).

During the course of his submissions, Mr Adams maintained that the claimant could be ready to deal with this report at trial, by way of their own expert evidence. I cannot accept that submission. Not only is it contrary to Mr Brett’s letter, and not only does it ignore the time that it took the Council to obtain their own expert evidence, but it is contrary to common sense to suggest that a party in major litigation, preparing for an important trial, can find, instruct and obtain a full report from experts in the period of less than a fortnight which remains before the trial. The suggestion also takes no account of all the other pressing matters with which the claimant must deal in the run-up to trial.

The claimant would therefore be faced with what seems to me to be a wholly unpalatable choice, which is due not to its own default, but to that of the Council. The claimant would either have to fight the trial at a disadvantage, having no evidence to counter that of King Sturge, or would be obliged to seek an adjournment. In those circumstances, any adjournment would be readily granted, and at the defendant’s cost. But an adjournment would mean that the claimant would be kept out of its money for even longer. Neither, on the Council’s case, would they be entitled to a further interim payment during the period of delay, because Mr Adams submitted that the proper construction of Master Leslie’s earlier order meant that no further interim payment could be sought, save in limited circumstances which have not arisen.

Accordingly, if the late application in respect of expert evidence was granted, and if an adjournment were sought (however reluctantly) by the claimant, then the position would be precisely that which in Swain-Mason the Court of Appeal specifically deprecated. The innocent party would have been ‘mucked about’ solely by reason of the default of the other side, but would be left with the disadvantageous consequences. If, on the other hand, there was no adjournment, then the claimant would have to continue with a trial at an evidential disadvantage. And, although that evidence goes to a matter that is currently peripheral, it is not possible at this stage to foresee precisely what advantages the Council may seek to obtain at trial from adducing unchallenged valuation expert evidence.

If the application is refused, the trial date of 11^th July would be held, which both parties want. It would mean that the claimants would be spared having to make a difficult choice, which would not have been of their making. It would mean that the Council would not be able to call expert evidence on a matter which, at least currently, is peripheral, so that any prejudice to them is likely to be small, or even non-existent. Moreover, any such prejudice would have come about solely as a result of their failure to comply with Master Leslie’s order, which has not been justified and is, in my view, unjustifiable.

Accordingly, for all those reasons, having carried out the necessary balancing exercise, it seems to me plain beyond any doubt that the Council’s application to rely on expert evidence at the trial should be refused. All of the necessary factors in the balancing exercise point in favour of refusing the application, and I therefore refuse it.