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Amending a statement of case after limitation period has ended

In Chandra & ors v Brooke North [2013] EWCA Civ 1559 the Court of Appeal gives practitioners and courts useful guidance about the correct approach to applications to amend introducing new claims outside limitation periods. The history of the case is a demonstration of the procedural knots and costly consequences for the parties that can be created when the lower courts go further than they should.

The Background

At the end of the 1990s having sold a chain of nursing homes, Mr and Mrs Chandra had a sum of £5.3 million to invest. They decided to invest in a hotel business.They arranged for BPC Hotels Limited to carry out the project. The Chandras and BPC instructed Brooke North to act for them.

The funding for the project was provided by RBS and Costain was the main contractor. BPC granted RBS a debenture to secure the finance agreement between them. There was also a deed of warranty entered into in July 2001 between Costain, BPC and RBS which contained “step in provisions” enabling RBS to take over from BPC as employer under the building contract with Costain if Costain sought to terminate the building contract. 

After a year in October 2001 a further finance agreement was entered into by RBS and BPC. That lending was supported by personal guarantees given by the Chandras. The project ran into difficulties and in May 2003 BPC sought further funds from RBS. The Chandras increased their personal guarantees to £1.15 million and supported them with a charge over their home.

The difficulties continued. RBS lost confidence in the Chandras and appointed administrative receivers. BPC owed RBS £12.3 million. Costain gave notice of the intention to terminate. RBS exercised the step in provisions. The project was completed and the shortfall owing was£4.2 million.

RBS issued proceedings, in the Chancery Division, against the Chandras pursuant to the personal guarantees. The Chandras defended those claims unsuccessfully. Judgment was given in January 2010.

The Claim and the New Claims inserted by amendment

At or around the same time, in 2009, the Chandras issued a claim form against Brooke North in the Queen’s Bench Division. That claim form related to negligence in failing to advice the Chandras not to increase their guarantees in May 2003. The Chandras served Particulars of Claim. Those proceedings were then stayed pending the outcome of RBS’s claim.

In November 2011 the Chandras applied to amend their claim form and particulars of claim to include two further claims. First, they wished to advance a claim that Brooke North negligently advised them to enter into the deed of warranty without obtaining a second deed that would have ensured that any step taken by RBS would not be at BPC’s expense. Second, they alleged Brooke North negligently failed to negotiate their exit from the project in May 2003. The amendments were dealt with on paper without a hearing. In accordance with the Master’s order, Brooke North applied to set aside the permission to amend. There was then confusion as to whether the Master had revoked his order.

After the amendments were challenged the Chandras sought to rely on ss14A and 32 of the Limitation Act 1980. The Judge considered the matter on the basis that the new claims did not arise out of the same or similar facts as the claim originally pleaded. The Judge then made a finding that the Chandras only had the knowledge necessary for s14A when judgment was given against them in the RBS proceedings and accordingly were entitled to pursue the amended claims having applied to amend within 3 years of gaining that knowledge. In the course of that finding the Judge treated the Chancery Division judgment as expert advice from which facts were ascertainable by Chandras pursuant to s14A(1)(b) of the Limitation Act.

The Proper Approach

The Court of Appeal concluded the Master had revoked his somewhat surprising grant of permission to amend.

The approach of the Judge on the substances of the amendment was criticised on the basis that by the end of his judgment he was dealing with the challenge to the amendment as if it were a trial of a preliminary issue rather than simply the setting aside of permission to amend.

The Court of Appeal reiterated that where a claim seeks to raise a new claim by way of amendment and a limitation defence is raised the Court must make a clear decision how it will deal with the matter. The court may and usually should deal with the matter as an ordinary application for permission to amend.

Alternatively it may proceed, but usually will not, by way of a trial of a preliminary issue. A decision to proceed by way of a preliminary issue should only be made following careful consideration of the implications of that course.

If dealing with the matter as an ordinary application to amend, the Court should not descend into facts that are seriously in dispute. Rather it should confine itself to considering if the defendant has a reasonably arguable case on limitation and if so refuse the application. The claimant then has the opportunity of bringing fresh proceedings which will be defended on the basis of the limitation defence.
If the court considers the defendant does not have a reasonably arguable case on limitation and only then the Court has discretion to allow the amendment.

The option of dealing with the application to amend at the time of a preliminary trial of the limitation point will rarely be appropriate. Before deciding on that course the implications for the rest of the case should be explored and taken into account. Consideration should be given to the scope of the evidence to be called and how it relates to or overlaps with the evidence that may be given at the trial. The consequences of an appeal against the judgment on the preliminary issue should also be considered. Preliminary trials rarely proceed as expect, are usually far most costly than anticipated and frequently result in an evidential tangle at the final hearing.

The Chancery Judge as an Expert

The Court of Appeal politely but firmly dispatched the suggestion that the Chancery Judge had unwittingly put himself in the position of an “expert” for the purpose of the action in the Queen’s Bench division.

The Court had regard to the fact the Chandras knew the terms of their contracts and the advice they have been given by Brooke North. It then highlighted that it was arguable they had the necessary knowledge when they received counsel’s advice as to the effects of those contracts in the context of the Chancery proceedings. On that basis it found Brookes North had an arguable limitation defence even taking account of s14A. Accordingly permission to appeal should be refused.

Conclusion

The wisest course of action for a claimant wishing to add a new claim when a limitation defence may be raised is to issue a new claim as a protective measure at the same time as applying to amend. In that way time stops running even if the amendment is not permitted because there is an arguable limitation defence. It is of course important in those circumstances to progress the application to amend promptly.

Amendments subject to limitation changes should usually proceed as an ordinary application to amend but fail if the limitation defence is arguable. The alternative course of determining the limitation defence as a preliminary issue will rarely be appropriate. The temptation to allow or encourage a court to go so far as to determinate the limitation points should be resisted. The court and the parties should consider the consequences for the proceedings, including in terms of evidence, costs and timing, before proceeding in that way.