Court of Appeal: strength of a case not a relevant factor for late amendments to statements of case
The Court of Appeal has clarified that once a court has determined that amendments to a statement of case have a real prospect of success, the perceived strength of the case should not be a consideration when determining an application for permission to amend (CNM Estates (Tolworth Tower) Limited v Carvill-Biggs and another). (1)
This appeal arose from a decision of the Commercial Court to refuse CNM (the claimant) permission to amend its particulars of claim. CNM sought to plead allegations of wilful misconduct and gross negligence against CNM's receivers (the defendants) in relation to how they had marketed a property development owned by CNM. CNM acquired the property in 2015, funding the purchase mostly through loans. CNM defaulted on these loans and the receivers were appointed, following which they engaged estate agents to market the site for sale.
One unit on the site, a café, had a sub-lease, which, unless a deal was done with a purchaser, would prevent that purchaser from obtaining vacant possession of the development. Vacant possession was relevant to the site's value. Before marketing began, Mr Samady (the ultimate beneficial owner of CNM) and his business partner entered into an agreement which Mr Samady indicated to the receivers would make vacant possession possible. No other details of any terms were shared with the receivers.
A sale was agreed in December 2017 for an amount totalling the outstanding balance of the loans. CNM thought this was below the site's true market value and brought a claim against the receivers for breach of their equitable duty to exercise proper skill and care to achieve the best price reasonably obtainable. Specific allegations included failing to market the site adequately and failing to inform potential purchasers that the sub-lease was up for negotiation. The receivers denied the allegations and pleaded that the claims were precluded by various security documents. In a hearing on a preliminary issue, Mr Justice Foxton held that the receivers would only be liable for breach of an equitable duty of care where that liability was directly caused by the receivers' gross negligence or wilful misconduct. No such case had been brought by CNM at that stage, so, unless the claim was amended, it would fail.
In November 2021, CNM agreed to an "unless order" requiring it to serve draft amended particulars, failing which the claim would be struck out. CNM served draft amended particulars by the required date adding a plea of wilful misconduct but not gross negligence. The receivers said that CNM would need to make a formal application for permission to amend to be heard at an upcoming hearing. Before that hearing, CNM served further amended draft particulars, this time also including a plea of gross negligence.
On the gross negligence plea, the judge held that CNM had breached the unless order – by serving an amendment in one form and then seeking to raise a different claim – and would need relief from sanctions to advance that case. The judge refused relief from sanctions (and therefore permission to advance the plea) holding that the unless order was designed to be the "last chance" to advance a claim not precluded by Mr Justice Foxton's judgment.
On the wilful misconduct plea, the judge refused permission to amend. Having considered the claim's procedural history and concluding the claim to be "decidedly weak", the judge said it would not be right to allow it to continue occupying court time for several years. CNM appealed.
Court of Appeal
Shortly before the Court of Appeal (Vos MR, Newey LJ and Males LJ) was due to hand down its decision, the parties settled. The Court handed down its judgment in any event.
On relief from sanctions, the court held unanimously that relief was not needed. CNM had filed amended pleadings in accordance with the unless order and nothing in that order prevented CNM later pursuing a further claim not included in that amended pleading. The application to plead gross negligence should therefore be considered on its merits.
On the wilful misconduct amendments, Vos MR and Newey LJ (handing down the majority judgment), held that these should have been allowed. The court distinguished between "late" and "very late" amendments, the latter of which would cause a trial date to be lost. The amendments in this case were not very late (the trial date was still far away, and disclosure had not yet taken place).
For "late" amendments, the court held that the approach was similar to summary judgment applications. Namely, the court had to consider if the amendments had a "real prospect of success" (i.e. more than merely arguable). The court endorsed the finding in Elite Property Holdings Ltd v Barclays Bank Plc 2 that the court can reject an implausible and self-contradictory version of the facts and can therefore consider the proposed pleading's coherence. The court determined that a balance must be struck between the interests of the applicant and those of other parties.
The majority held that they did not think the perceived strength of the case is normally a factor to be taken into account when performing this balancing exercise – at least when not considering "very late" amendments – and just because evidence was needed at trial to evaluate allegations, this did not make them incoherent. It was not appropriate to conduct a mini-trial when considering amendments.
The majority held that the judge at first instance had been wrong to attach weight to whether the amendments were "weak", concluding that the claims had a real prospect of success. The court also considered that the pursuit of "weak claims" is not something prevented under procedural rules. The majority therefore held that it would have allowed the appeal.
In his dissenting judgment, Males LJ held that permission to amend should have been refused. Males LJ agreed with the majority that it was not appropriate to consider the strength or weakness of the claim as a relevant factor when exercising the court's discretion but considered that some (but not all) of the allegations were "fanciful", "contradictory" and "largely incoherent" and therefore had no real prospect of success. As the amendments were to be considered as a whole, Males LJ concluded that the application to amend should have been refused.
This decision clarifies the approach a court should take when considering late amendments to statements of case. Whilst the need for a claim to have a real prospect of success is well-established, the court expressly confirmed that, when exercising its discretion, it is not usually permissible (except in the case of "very late" amendments) for the court to consider the perceived strength or weakness of the case beyond this test. This is to avoid conducting mini-trials and seeking to resolve disputed matters of evidence ahead of disclosure and outside of trial. As a position confirmed in both the majority and dissenting judgments, the principle appears to have received a strong endorsement.
Further, the judgment confirms that a party either complies or fails to comply with an unless order – there is no "halfway house" where a party can comply only with parts of the order.
The dissenting judgment shows the ever-present difficulty faced by courts in deciding whether a case does have a "real prospect of success", which remains heavily fact-specific.
1 CNM Estates (Tolworth Tower) Limited v Carvill-Biggs and another  EWCA Civ 480
2  EWCA Civ 204