A CASE YOU MUST READ IF YOU THINK PLEADINGS ARE NOT IMPORTANT

The opening paragraphs of the Court of Appeal decision today in The Prudential Assurance Company Limited -v- Commissioners for Her Majesty’s Revenue and Customs [2016] EWCA Civ 376 should be compulsory reading for anyone who considers that pleadings can be approached in a casual manner.

“it soon became clear that the lack of pleadings meant that the parties disagreed about what was the scope of the trial; what were the issues that the judge had to decide; whether points had or had not been raised; whether or not they could be raised on appeal; and even what the judge had decided. This is no way to conduct litigation involving millions of pounds. We were told that this unacceptably cavalier approach to pleadings was a common feature of this kind of litigation. It must stop.”

KEY POINTS

  • Earlier obiter observations did not justify litigants involved in a GLO pleading their case is a vague and unspecified manner.
  • The failure to identify the issues in accurate pleadings had a major detrimental effect upon the conduct of the litigation, and litigation generally.
  • A “cavalier” approach to pleadings in this type of litigation must stop.

THE CASE

This was a case which involved the issue of taxation of dividends of foreign holdings.

THE HISTORY OF THE CASE AND THE PLEADINGS
  1. There is one important feature of the litigation (apart from the inordinate length which it has taken) which is contrary to the usual practice. Although Prudential pleaded a claim in its Particulars of Claim (subsequently amended to introduce a claim relating to advance corporation tax (“ACT”)) it did so only in very general terms without any of the factual allegations that one would expect in more conventional litigation. Equally, although HMRC pleaded a defence, it too did so in very general terms. In both cases important matters of contention were simply not identified in the pleadings, so that anyone reading them would have had very little idea about what was actually in issue. Very surprisingly, although HMRC pleaded that the claims were statute-barred by the Limitation Act 1980, Prudential did not serve a Reply raising any countervailing argument, despite the fact that it apparently wished to assert that the limitation period had been extended under section 32 (1)(c) of the Act as a result of its mistake. One might have gathered inferentially from HMRC’s defence that section 32(1)(c) was potentially in play, but the reader would have had no idea when Prudential discovered the mistake on which it relied; and there was certainly no indication that HMRC might wish to argue that Prudential could with reasonable diligence have discovered the mistake earlier than it in fact did. This would simply have been unacceptable in ordinary litigation; and we cannot see why it should have been any different in the present case. Although the parties did agree a list of issues, these too were framed in very general terms. To take one example, under the heading “Remedies” one of the issues was:
“Is there a restitutionary defence available – e.g. defence of change of position, passing on, “fiscal chaos” and, if so, are the requirements of any such defence fulfilled and to what extent.”
  1. The framing of this issue leaves these questions at large, with no asserted factual foundation on which these defences might rest, and no indication of what either side would argue on the question posed. Moreover the “e.g.” raises the possibility that other defences might be raised.
  2. The justification for this approach was, we were told, the observations of Lord Woolf in Boake Allen Ltd v HMRC [2007] UKHL 25, [2007] 1 WLR 1386. This was another case, conducted under a GLO, which explored the ramifications of the decision of the ECJ in the Hoechst case ((Joined Cases C-397 and 410/98) Metallgesellschaft Ltd v IRC, Hoechst AG v IRC [2001] Ch 620). Park J had decided the substantive legal point against the claimants, but had also decided a point relating to the amendment of pleadings in their favour. The claimants appealed on the substantive point to the Court of Appeal ([2006] EWCA Civ 25, [2006] STC 606); and HMRC cross-appealed on the pleading point. The claimants’ appeal failed but HMRC’s cross-appeal succeeded. In dealing with the cross-appeal Mummery LJ said at [131]:
“While it is good sense not to be pernickety about pleadings, the basic requirement that material facts should be pleaded is there for a good reason—so that the other side can respond to the pleaded case by way of admission or denial of facts, thereby defining the issues for decision for the benefit of the parties and the court. Proper pleading of the material facts is essential for the orderly progress of the case and for its sound determination. The definition of the issues has an impact on such important matters as disclosure of relevant documents and the relevant oral evidence to be adduced at trial. In my view, the fact that the nature of the grievance may be obvious to the respondent or that the respondent can ask for further information to be supplied by the claimant are not normally valid excuses for a claimant’s failure to formulate and serve a properly pleaded case setting out the material facts in support of the cause of action. If the pleading has to be amended, it is reasonable that the party, who has not complied with well-known pleading requirements, should suffer the consequences with regard to such matters as limitation.”
  1. The claimants appealed again to the House of Lords. The cross-appeal was not before the House; with the consequence that Lord Woolf’s observations on procedure were obiter. Moreover none of their Lordships expressly associated themselves with what he said. Lord Woolf’s concern was to minimise the costs for individual claimants litigating under a GLO. At [31] he said:
“All litigants are entitled to be protected from incurring unnecessary costs. This is the objective of the GLO regime. Primarily, it seeks to achieve its objective, so far as this is possible, by reducing the number of steps litigants, who have a common interest, have to take individually to establish their rights and instead enables them to be taken collectively as part of a GLO Group. This means that irrespective of the number of individuals in the group each procedural step in the actions need only be taken once. This is of benefit not only to members of the group, but also those against whom proceedings are brought.”
  1. This does not suggest that basic steps in litigation may be ignored or not taken at all. All that Lord Woolf was saying was that the steps in question need only be taken once, collectively, on behalf of all members of the group, rather than being taken by each litigant individually. It was in that context that he said at [33] that:
“In the context of a GLO, a claim form need be no more than the simplest of documents.”
  1. Moreover, Lord Woolf was speaking of a claim form; not of Particulars of Claim or, indeed, of the Defence. In the previous paragraph of his speech he had drawn attention to the case management powers available to the court. These now include in PD 19B para 14 powers relating to Particulars of Claim. Paragraph 14.1 reads:
“The management court may direct that the GLO claimants serve ‘Group Particulars of Claim’ which set out the various claims of all the claimants on the Group Register at the time the particulars are filed. Such particulars of claim will usually contain –
(1) general allegations relating to all claims; and
(2) a schedule containing entries relating to each individual claim specifying which of the general allegations are relied on and any specific facts relevant to the claimant.”
  1. This paragraph plainly envisages that Particulars of Claim will be served. Particulars of Claim must comply with CPR Part 16. If the claim is made under Part 8 rather than under Part 7, then the rules require relevant evidence to be served when the claimant makes his claim. Either way, relevant facts must in our view be pleaded. If they are facts generally applicable to all claimants, they may be pleaded in Group Particulars of Claim; if they are specific to a particular claimant they may be set out in a schedule. If the claim is made under Part 8, they must be contained in a witness statement. By the same token any relevant defence must also be pleaded. Indeed CPR Part 19 and the accompanying Practice Direction contain no special provisions relating to the defence; so the usual rules apply.
  2. Finally, on this point, while Lord Woolf’s observations were obiter, the decision of the Court of Appeal (which was not appealed to the House of Lords) is binding on us as regards the subject matter of the cross-appeal. Henderson J was right so to hold in Europcar UK Ltd v HMRC [2008] EWHC 1363 (Ch), [2008] STC 2751.
  3. Although the underlying claims depend on EU law, procedural questions are (at least in general) governed by national law. Our procedural system is and remains an adversarial one. It is for the parties (subject to the control of the court) to define the issues on which the court is invited to adjudicate. This function is the purpose of statements of case. The setting out of a party’s case in a statement of case enables the other party to know what points are in issue, what documents to disclose, what evidence to call and how to prepare for trial. It is inimical to a fair hearing that a party should be exposed to issues and arguments of which he has had no fair warning. If a party wishes to raise a new point, he should do so by amending a statement of case. We were told that by the time that skeleton arguments for trial were served each party would know what points were in issue. We do not regard that as sufficient. In this case, for example, HMRC’s skeleton argument was served about 10 days before the trial started. If (as in fact happened in this case) HMRC wished to argue that the evidence proposed to be called by Prudential was directed at the wrong issue (being an issue that had not been raised before) 10 days’ prior notice was manifestly inadequate.
  4. Although in days gone by the court would routinely allow late amendments to statements of case, in more recent time attitudes have changed. It is now the case that the court requires strong justification for a late amendment. This is not only in the interest of the opposing party but also consonant with the interests of other litigants in other cases before the court and the court’s duty to allocate a proportionate share of the court’s resources to any particular case. Where a new issue arises which is not foreshadowed in a statement of case, a party needs the court’s permission to advance it. The court is then faced with a discretionary case management decision, to be exercised in accordance with the overriding objective.
  5. As Mr Ewart QC for HMRC opened the appeal to us it soon became clear that the lack of pleadings meant that the parties disagreed about what was the scope of the trial; what were the issues that the judge had to decide; whether points had or had not been raised; whether or not they could be raised on appeal; and even what the judge had decided. This is no way to conduct litigation involving millions of pounds. We were told that this unacceptably cavalier approach to pleadings was a common feature of this kind of litigation. It must stop.
  6. In our procedural law a trial is intended to be the final resolution of all matters in dispute between the parties. Although a party who is dissatisfied with the outcome of a trial may appeal to this court (usually with permission) the appellate process is, in general, limited to a review of the first instance decision. It is thus the starting point that parties are expected to put before the trial judge all questions both of fact and of law upon which they wish to have an adjudication.
  7. There are a number of reasons for this. First, parties to litigation are entitled to know where they stand and to tailor their expenditure and efforts in dealing with (and only with) what is known to be in dispute: Jones v MBNA International Bank [2000] EWCA Civ 514. Second, it is a disproportionate allocation of court resources for the Court of Appeal (which usually sits in panels of three judges) to consider for the first time a point which could have been considered, and correctly answered, by a single judge at first instance. Moreover if the Court of Appeal deals with a point for the first time, it is neither a review nor a rehearing; which are the two processes contemplated by the CPR. Third, if resolution of a new point entails the re-opening of the trial it not only entails inevitable further delay, which is itself a reproach to the administration of justice, but is also wasteful of both the parties’ and the court’s resources and unfair to a party who conducted a trial on what has turned out to be a false basis. Fourth, there is a general public interest in the finality of litigation. It is for similar reasons that the Court of Appeal applies stringent criteria for the reception of fresh evidence on appeal.
  8. If the point is a pure point of law, and especially where the point of law goes to the jurisdiction of the court, an appeal court may permit it to be taken for the first time on appeal. But where the point, if successful, would require further findings of fact to be made it is a very rare case indeed in which an appeal court would permit the point to be taken. In addition before an appeal court permits a new point to be taken, it will require a cogent explanation of the omission to take the point below.
  9. These points are discussed more fully in Crane v Sky-in-Home Ltd [2008] EWCA Civ 978.
  10. Until very recently in deciding whether or not to grant permission to appeal the Court of Appeal heard only from the would-be appellant. Partly for that reason the mere fact that permission to appeal has been granted on a particular point does not prevent the respondent from objecting that the point on which permission has been granted is a new point which the appellant ought not to be able to advance for the first time on appeal:Mullarkey v Broad [2009] EWCA Civ 2 at [29].
  11. In consequence of the lack of any formal statements of case which adequately defined the issues for trial we had to spend the first day and a half of this appeal deciding what points were open to HMRC to argue. At the conclusion of that part of the argument we excluded from the scope of the appeal a number of issues which in our judgment fell into one or more of the following groups:
i) They were wholly new issues;
ii) They were issues which HMRC tried to ventilate before the judge, but he refused on the ground that they were raised too late;
iii) They were issues which would have required further facts to be found;
iv) They were unpleaded issues which ought to have been pleaded.
  1. We will refer to some of them in due course.

RELATED POSTS: THE IMPORTANCE OF PLEADINGS

LATE AMENDMENT

 

One comment

  1. […] [The Court of Appeal case was The Prudential Assurance Company Limited -v- Commissioners for Her Majesty’s Revenue and Customs. Gordon Exall has written about it here]. […]

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