Stoke On Trent City Council v Walley [2006] EWCA Civ 1137

Case No B3/2006/0300

[2006] EWCA Civ 1137

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM STOKE ON TRENT COUNTY COURT

His Honour Judge Rubery

4SQ04565

Venue Royal Courts of Justice, Strand, London, WC2A 2LL

Date Monday 31 st July 2006

Before

LORD JUSTICE BROOKE

(Vice-President, Court of Appeal, Civil Division)

LADY JUSTICE SMITH

LORD JUSTICE WALL

Between

Stoke on Trent City CouncilAppellant

John WalleyRespondent

(Transcript of the Handed Down Judgment of

Smith Bernal WordWave Limited

190 Fleet Street, London EC4A 2AG

Tel No: 020 7421 4040 Fax No: 020 7831 8838

Official Shorthand Writers to the Court)

Mr Neil Block QC and David Eccles (instructed by Messrs Grindleys) for Appellant

Mr Andrew Hogarth QC and Anthony Johnston (instructed by Messrs Beswicks) for Respondent

Judgment

Introduction

[1]This appeal raised the following question: does the court have jurisdiction to enter judgment for a claimant in reliance on an admission made by a defendant before the commencement of the action, which the defendant has subsequently withdrawn. The same point was considered by another division of the Court of Appeal (Sir Anthony Clarke MR, Brooke and May LJJ) in Sowerby v Charlton

[2006] 1 WLR 568

. In Sowerby, the court held that CPR rule 14.1(5), which provides that a court may give permission for a party to withdraw an admission, applied only to admissions made in the course of proceedings and not to pre-action admissions. The Court of Appeal said that the status of a pre-action admission was that it could be used only as evidence either in interlocutory proceedings or at trial but could not, of itself, found an application for summary judgment. The decision in Sowerby is binding upon us.

[2]Following the publication of the report of that decision, this court received three applications for permission to appeal decisions of circuit judges who, before Sowerby, had each assumed (with counsel’s encouragement) that CPR rule 14.1(5) enabled the court to refuse to allow a defendant to withdraw a pre-action admission and to enter judgment for the claimant.

[3]In each case, permission to appeal was granted. It was apparent from the notices of appeal that counsel considered some further guidance from this court would be welcomed in cases where pre-action admissions were later withdrawn. All three appeals were listed to be heard together. However, two of the appeals settled. Only the appeal in Walley came before the court.

The Facts

[4]Mr Walley was employed as a refuse collector by Stoke-on-Trent City Council (the Council). On 28th August 2001, he injured his knee while descending from the passenger seat of a refuse wagon. He consulted solicitors who wrote to the Council alleging that the presence of plastic refuse bags within the foot well of the vehicle had caused him to miss the step and fall to the ground.

[5]The Council referred the case to their loss adjusters, who initially denied liability. However, on 13th June 2003, after considering a statement by the driver of the wagon, Mr Yates, an employee of the loss adjusters, wrote to say that ‘liability would not be in issue in this case’. Mr Yates had authority to make that admission. However, during the ensuing months, the loss adjusters realised that Mr Yates’s work was unsatisfactory and he was dismissed. Thereafter, Mr Walley’s file (among others) was reviewed and, on 12th May 2004, solicitors instructed for the Council wrote to rescind the admission of liability.

The Proceedings

[6]Mr Walley’s solicitors issued proceedings. The Council filed a defence in which they denied liability. They alleged that Mr Walley had injured himself by jumping from the vehicle rather than climbing down. The plastic bags were stored behind the passenger seat rather than in the foot well and, in any event, there were not many of them. The Council alleged contributory negligence. Shortly after the defence was filed, the case was allocated to the multi-track. Soon after that, Mr Walley applied under CPR rule 3.4(2) to strike out the defence on the ground that it was an abuse of the process of the court or was otherwise likely to obstruct the just disposal of the proceedings. The Council cross-applied for permission to resile from their earlier admission of liability.

The Deputy District Judge’s Decision

[7]The application came before Deputy District Judge Evans on 24th February 2005. It appears from the transcript of his judgment that the deputy district judge was referred not to CPR rule 3.4(2) but to CPR 14, which deals with admissions and, in particular to rule 14.1(5) which provides that the court may allow a party to amend or withdraw an admission. The judge was referred to and followed a line of authority including Gale v Superdrug

[1996] 1 WLR 1089

and Flaviis v Pauley

[2002] EWHC 2886

QB.

[8]In Gale, the defendant had admitted liability before action but, when proceedings were begun shortly before the limitation period expired, it filed a defence denying liability. The district judge granted the plaintiff’s application to strike out the defence. The judge dismissed the defendant’s appeal, holding that the defendant’s withdrawal of its admission had caused the plaintiff prejudice by reason of delay and disappointment. The Court of Appeal allowed the defendant’s further appeal, saying that, when determining whether to strike out a defence, following the withdrawal of a pre-action admission, the court had to balance the prejudice which the defendant would suffer if deprived of his ‘prima facie right’ to resile, against the prejudice the plaintiff would suffer if the admission were withdrawn. The court had a general discretion and should take all the circumstances of the case into account. It was for the plaintiff to prove any prejudice she claimed to have suffered. There was no evidence of any prejudice to the plaintiff other than disappointment and, accordingly, the defence should not be struck out.

[9]The existence of the broad discretionary power to hold a defendant to a pre-action admission or to allow him to resile from it had been assumed in High Court proceedings for many years before Gale. The power was supposedly based (somewhat doubtfully in my view) upon the effect of three 19th century cases, cited in many successive editions of the Supreme Court Practice. Although those cases were doubtful authority for the proposition in support of which they were cited, the principle was accepted by the Court of Appeal (Roch and Swinton Thomas LJJ) in Standerwick v Royal Ordnance PLC [unreported] 6th March 1995; transcript number 95/1888. In that case the court had to consider the scope of RSC Order 27 which governed ‘Admissions’ and in particular rule 3 which provided:

“Where admissions of fact or of part of a case are made by a party to a cause or matter either by his pleadings or otherwise, any other party to the cause or matter may apply to the court for such judgment or order as upon those admissions he may be entitled to, without waiting for the determination of any other question between the parties and the court may give such judgment, or make such order on the application as it thinks just.”

[10]Roch LJ, with whom Swinton Thomas LJ agreed, held that RSC Order 27 r.3 could be applied to a pre-action admission provided that, by the time the power came to be exercised, proceedings had begun and the person who had made the admission was a party. The exercise of discretion should take all the circumstances of the case into account.

[11]In Gale, counsel on both sides agreed that, although the County Court Rules did not contain a provision equivalent to RSC Order 27 r.3, the court could and should apply the same principles as would have been applied had the case been brought in the High Court. As I have already said, the court exercised its discretion to permit the defendant to resile from its admission.

[12]Following the introduction of the CPR, Part 14 replaced RSC Order 27. It was in different terms. The provision which appeared to be analogous to RSC Order 27 r.3 was CPR 14.1(5), which, as I have said, provides simply that the court may allow a party to amend or withdraw an admission. It is apparent from those words that rule 1(5) permits the court to exercise a broad discretion, but, of course, only in cases which fall within the scope of the rule.

[13]The deputy district judge was referred to a post-CPR case, Flaviis v Pawley, in which Nelson J, purporting to act under the power in CPR rule 14.1(5) had exercised a general discretion and had allowed the defendant to resile from a pre-action admission of liability. However, it is apparent from the transcript that counsel had agreed that he should approach the case in that way and no one had suggested to him that rule 14.1(5) applied only to admissions made in the course of the proceedings.

[14]Unsurprisingly, therefore, in the present case, the deputy district judge was satisfied that this was the right approach. Everyone seems to have lost sight of the fact that the claimant’s application had been made under CPR rule 3.4.

[15]The deputy district judge directed himself that he must ask first whether the Council’s withdrawal of their admission had been made in good faith and whether it would be appropriate to permit the withdrawal. If it was or might be appropriate, he had to consider two further questions. These were whether the Council had a good prospect of defending the claim and finally what prejudice would be caused to the parties if he allowed the withdrawal of the admission; he had to carry out a balancing exercise.

[16]The district judge then considered whether the admission was binding on the Council. He referred to CPR rule 14.1(5). He reminded himself that there was no admission on the pleadings and he was dealing with a pre-action admission. He then referred to the pre-action protocol for personal injury actions, which, after setting out the requirements for the claimant’s letter of claim and the defendant’s response to it, provides at paragraph 3.9:

“Where liability is admitted, the presumption is that the defendant will be bound by this admission for all claims with a total of up to £15,000.”

[17]The deputy district judge noted that, in fast track cases, where the objective was to keep costs down and deal with cases quickly and efficiently, it was appropriate for the court to be stricter with a party who had made an admission. He considered that greater flexibility might be allowed in a multi-track case.

[18]The deputy district judge then considered Mr Yates’s position when he made the admission. He had had the opportunity to investigate the case adequately and he had authority to make the admission. The judge regarded the admission as one which was not so far out of the ordinary that no reasonable person would have made it. He considered that the Council ought to be bound by it. Strictly speaking therefore, he said, he did not need to make any findings on the other issues. However, he expressed the view that the Council would have a reasonable prospect of success if allowed to defend. Also, he did not consider that the claimant would suffer any evidential prejudice if the admission were withdrawn. There would be some disappointment but that was all. However, because he had held that the Council should be held to its admission, the deputy district judge granted Mr Walley’s application to strike out the main part of the defence. He entered judgment with damages to be assessed.

The Decision of the Circuit Judge

[19]The Council appealed and the appeal came before His Honour Judge Rubery on 9th August 2005. Both parties were represented by counsel. The same line of authority was cited to the judge as had been cited to the deputy district judge. Once again, everyone seems to have lost sight of the fact that the original application had been made under CPR rule 3.4. The thrust of the submission on behalf of the Council was that the district judge had not correctly applied the test in Flaviis. The judge was plainly referred to CPR rule 14.1(5), as that was to form the starting point for the reasoning in his judgment. The judge considered that CPR rule 14.1(5) allowed him a broad discretion to hold the Council to their admission or to allow withdrawal. He then considered the facts very briefly, noted that Mr Yates had had time and opportunity to investigate the case and had made a considered decision to admit liability, which decision was within his authority. He held that, in those circumstances, the Council should be bound by their admission. He agreed with the district judge that, if permission to resile were to be granted, the Council would have a reasonable prospect of success. He disagreed with the district judge in assessing the importance of the disappointment Mr Walley would feel if the admission were withdrawn and he were then to face a trial on liability. He considered that that disappointment was a matter of some significance. However, he maintained his view that the Council should be bound by their admission and dismissed the appeal.

Sowerby v Charlton

[20]The Council did not immediately apply for permission to appeal Judge Rubery’s decision. One can readily see why. It did not appear that any point of principle was at stake. However, in December 2005, the decision of this Court in Sowerby v Charlton was promulgated. It was reported in March 2006. It put a new complexion on the case of Mr Walley.

[21]In Sowerby, the claimant fell over the edge of a flight of stone steps leading from the pavement to the front door of a residential property. One side of the steps was unguarded. The claimant fell eight feet and suffered severe injury. Following a letter of claim, the defendant admitted primary liability, leaving contributory negligence in issue. After proceedings had begun, the defendant sought to put primary liability in issue. On application by the claimant, the master struck out part of the defence and entered judgment, directing that contributory negligence should be tried as a preliminary issue. On appeal, the judge dismissed the appeal. He held that CPR Part 14.1 applied to pre-action admissions and exercised his discretion as the master had done.

[22]On appeal to the Court of Appeal, it was held that CPR Part 14 applied only to admissions made in the course of proceedings. A defendant who wished to withdraw a pre-action admission did not need the permission of the court to do so. It might have been expected that that would have resulted in the appeal being allowed. However, the Court of Appeal took the view that, on the particular facts of the case, it was inconceivable that a judge would not find the defendant at least partly responsible for the accident. In those circumstances, summary judgment should be entered on the issue of primary liability. In the event, the appeal was dismissed.

[23]The Court added that, the status of a pre-action admission was evidential only; it might be used as such in either interlocutory proceedings or at trial. The Court also approved the guidance given by Sumner J in Braybrook v Basildon & Thurrock University NHS Trust

[2004] EWHC 3436 (QB)

[24]In the light of the decision in Sowerby, the Council decided to seek permission to appeal the decision of Judge Rubery. I granted permission to appeal on a paper application and also extended time. I had some hesitation in so doing as the application was five months late. However, the Council had acted promptly after the judgment in Sowerby had been reported. The respondent did not seek to set aside the extension of time.

[25]We have now been told that the Judgment in Sowerby caused some consternation among personal injury practitioners. It appeared to some that defendants were now free to withdraw pre-action admissions and there would be nothing that a claimant could do about it. The right to enter summary judgment would only apply if the facts were sufficiently clear; that was not necessarily so in every case in which a defendant made a pre-action admission. It was felt by claimants’ solicitors that the evidential use to which an admission might be put was very limited. Such was the consternation about these matters that the Civil Procedure Rule Committee was asked to consider whether any amendment of the CPR might be appropriate.

The Appeal to the this Court

[26]At the hearing of the appeal, it was common ground that, in the light of Sowerby, Judge Rubery’s decision could not be upheld. It had been based upon the erroneous assumption that CPR rule 14.1(5) provided a discretionary power which permitted judges either to hold a defendant to a pre-action admission or to allow him to withdraw it.

[27]Mr Neil Block QC who appeared before this court for the appellant/defendant (but did not appear below) contended that the position was now that a defendant was entitled as of right to withdraw a pre-action admission. Its status was evidential only. This was not a case such as Sowerby where the facts were such that summary judgment should be entered. He submitted that the appeal should be allowed and the claimant’s action should be remitted to the county court for a hearing on the issues of liability.

[28]In the course of argument, the court was referred to the pre-action protocol, which stated, as I have said, that there was a presumption in a fast-track case that a defendant would be held to a pre-action admission. Apparently that would not be so in a multi-track case. There was some discussion as to how the court was to become seized of the question of what was the status and effect of such an admission. Brooke LJ suggested that the right approach would be for the claimant to apply to strike out the defence or part of it under CPR rule 3.4. This possibility had not apparently been discussed in Sowerby.

[29]Mr Andrew Hogarth QC for the respondent/claimant (who appeared before us but not below) sought to uphold the judge’s decision on other grounds. First, he submitted that the court had inherent jurisdiction to hear an application to strike out a defence which entailed the withdrawal of a pre-action admission. The earlier admission, he submitted created an estoppel. Mr Block’s riposte to that was that there was no room for the inherent jurisdiction in the field of civil procedure, which was governed by a comprehensive set of rules.

[30]Alternatively, Mr Hogarth submitted that the admission of liability gave rise to a binding agreement. The case of Burden v Harrods

[2005] EWCA Civ 606

was authority for the proposition that a pre-action agreement between the parties that liability should be apportioned 75% to 25% was a binding compromise. It was submitted that there was no reason why an admission of 100% liability should not also be binding. Mr Block said that there was every reason why it should not. If liability were compromised, both sides had given consideration but if liability were admitted the claimant had given no consideration.

[31]In his skeleton argument, Mr Hogarth had mentioned the court’s power under CPR 3.4 (2) to strike out the defence or part of it as an abuse of process or as being otherwise likely to obstruct the just disposal of the case. This was certainly not his main submission as he must have recognised that that rule presented a much higher threshold for the claimant to cross than would be the case if the court were exercising a broad discretion under CPR 14.1(5). However, after some discussion between the Bench and Bar, it was accepted on all sides that an application under that rule was the correct way of bringing the matter before the court. It was agreed that the Court should determine the appeal by the application of that rule. At that stage, neither counsel was aware that Mr Walley’s original application had in fact been made under that rule. That was only discovered at a very late stage in the hearing. However, in the absence of that information it was agreed that no technical objection would be raised.

[32]Mr Block submitted that the respondent could not come anywhere near crossing the high threshold. In order to rely on abuse of process, it would usually be necessary for the claimant to show that the defendant had acted in bad faith. Bad faith was not suggested in this case. In order to show that withdrawal of the admission would be likely to obstruct the just disposal of the proceedings, the claimant would have to show that he would suffer real prejudice if the admission were withdrawn. Here, both the district judge and the circuit judge had identified disappointment as the only prejudice the claimant would suffer if the admission were withdrawn. There was no evidential prejudice. Mr Block submitted that disappointment could never obstruct the just disposal of the proceedings.

[33]Mr Hogarth submitted that the prejudice here was such that the just disposal of the case would be obstructed if the admission were withdrawn. He drew attention to various matters which had been canvassed before the deputy district judge. Almost a year had passed between the admission of liability and the letter purporting to withdraw it. During that time, the claimant’s solicitor had assumed that liability was not in issue and had taken no steps to prepare for a hearing on liability. Further time had elapsed since then and yet more would pass before the action could be brought to trial. However, he had to accept that it could not be said that any witness evidence had been lost during this period. Nor had any documents been destroyed. The only prejudice he could demonstrate was disappointment. However, he submitted that this was of significance, as Judge Rubery had held. Also, it was submitted that Mr Walley’s position in respect of funding had been affected. The evidence of what funding arrangements had been made was not clear. However, it appeared to us that the cost of obtaining after the event insurance might amount to a form a prejudice. With the benefit of a pre-action admission of liability, it might well be reasonable for a claimant not to take out costs insurance. If the admission were withdrawn, insurance would be necessary and the premium might be substantial. Mr Hogarth invited the court to say that disappointment, the uncertainty of his position and potential funding difficulties amounted to sufficient prejudice to drive us to the conclusion that a withdrawal of liability would obstruct the just disposal of the case.

[34]On this issue, I accept the submissions of Mr Block. I agree that, for a claimant to show that the withdrawal of an admission would amount to an abuse of the process of the court, it will usually be necessary to show that the defendant has acted in bad faith. That could not be said here. There was before the court a statement from the solicitor for the Council providing a full explanation of why it had been decided to withdraw the admission made earlier by Mr Yates. The loss adjusters who employed Mr Yates had concluded that he was incompetent and had made a thoroughly bad decision. The history suggested that the loss adjusters did not manage their staff as well as they should, but it could not be said that they had acted in bad faith.

[35]I also accept that, in order to show that the withdrawal of a pre-action admission is likely to obstruct the just disposal of the case, it will usually be necessary for the claimant to show that he will suffer some prejudice which will affect the fairness of the trial. Examples of this kind of prejudice were discussed during the hearing. In the light of an admission, the claimant might agree to the destruction of an item of real evidence; he might agree that an expert’s inspection is not necessary and it might no longer be possible for one to take place. Witnesses might have died or lost contact. The possibilities are legion. Funding difficulties might also give rise to real prejudice, if the evidence were to show that the claimant had changed his position in reliance on the pre-action admission. However, in this case, there was no evidence that that was the case. Such evidence should have been put in at the outset, as it would have been relevant whether the judges below were exercising a general discretion under Part 14 or were applying the more restricted test under CPR rule 3.4. Speaking for myself, I would be prepared to take judicial notice of the fact that after the event insurance is more expensive when entered into after a pleaded denial of liability than if taken out at an early stage. However, after the event insurance is available to claimants without the need to pay the premium in advance. Accordingly, I do not think that any effect on the funding of the withdrawal of the admission would be likely to obstruct the fair disposal of the case. There remains Mr Walley’s disappointment. I do not underestimate the severity of this; the loss of an admission of full liability must create a sense of uncertainty, turmoil, even despair. However, I do not think that those feelings could ever be said to obstruct the just disposal of the case.

[36]In my judgment therefore, the respondent/claimant cannot demonstrate that the defendants’ withdrawal of their pre-trial admission is either an abuse of the process of the court or is otherwise likely to obstruct the just disposal of the case. That being so, I would allow the appeal and direct that the case be remitted to the county court for case management with a view to arranging a hearing as soon as practicable.

[37]Since writing this judgment, I have read in draft the judgment of Brooke LJ. I agree with his observations about the desirability of giving the status of a pre-action admission more powerful effect than it presently enjoys.

[38]I agree.

[39]I also agree.

[40]It appears to me that the issues highlighted both in this judgment and in the earlier judgment of this court in Sowerby v Charlton warrant the early attention of the Civil Justice Council.

[41]We are concerned in these cases with the effect of an admission of liability made by or on behalf of one of the parties before legal proceedings are issued. Such an admission would always have had evidential value for the party to whom it was made. In the former procedural regime it might well have led to the entry of summary judgment under RSC Order 14 or leave to defend being granted under stringent conditions.

[42]In neither of these two cases, however, have we been shown any judgment of any court (prior to the unreported judgment of this court in Standerwick v Royal Ordnance plc) where it was held that such an admission could be the precursor, without more, to judgment on liability under RSC Order 27 rule 3.

[43]The meaning of this rule and its predecessor was discussed from time to time in the context of Chancery cases where a plaintiff was inviting the court to freeze money on an interlocutory basis pending the trial of an action or matter. In those cases the defendant was held to have made a relevant admission of fact “either by his pleadings or otherwise”, and it did not matter whether the admission (for instance that he had received money out of a testator’s estate) had been made before or after the action was brought: either way, it was just that the money should be frozen pending a proper trial on the merits.

[44]The editors of the White Book appear to have been unsuccessful in explaining the limited effect of these decisions in their note 27/3/2 (for instance in the 1976 White Book, a copy of which we were shown), and it is this that may have led to the judgment in Standerwick, which would, of course, have remained binding on this court under the old procedural regime.

[45]Now that we have made the position clear as it stands under the CPR regime, there would, in my judgment, be great force in giving the status of an admission of liability in response to a pre-action protocol letter before action in a multi-track claim more powerful effect than it at present enjoys. Now that such a valuable pre-action procedure has been introduced in advance of the formalities of litigation procedure, anything that lends uncertainty to the value of a pre-action admission of liability (given in these circumstances) appears to me to run against the grain of the overriding objective, and be likely to lead to avoidable delay, expense and worry.