Blue Tropic Ltd & Anor v Chkhartishvili [2016] EWCA Civ 1259

[2016] EWCA Civ 1259

Case No A3/2016/0642

IN THE COURT OF APPEAL (CIVIL DIVISION)

Case No HC-2013-000296

ON APPEAL FROM THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

MR JUSTICE PETER SMITH

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

Date 09/12/2016

Before

LADY JUSTICE ARDEN

LORD JUSTICE HENDERSON

Between

(1) BLUE TROPIC LIMITEDClaimants/

(2) COPPELLA VENTURES LIMITEDRespondents

IVANE CHKHARTISHVILIDefendant/

David Lord QC and Paul Burton (instructed by Blake Morgan LLP) for Appellant

Joe Smouha QC and Watson Pringle (instructed by Signature Litigation LLP) for Respondents

Hearing Hearing date: 10 November 2016

Judgment Approved–

Lord Justice Henderson:

Introduction

[1]The principal issue on this appeal is whether the trial judge (Peter Smith J) was wrong to grant permission for a late amendment to the claim, pursuant to an application made shortly before the start of the trial. Following the trial, the claim succeeded on the amended basis, but in the light of the judge’s findings of fact and of foreign law would have failed on the basis of the claim as it was pleaded before the amendment.

[2]It is common ground, again in the light of the findings made by the judge at trial, that the amendment was made after the expiry of the relevant foreign limitation period. Accordingly, by the combined effect of section 35 of the Limitation Act 1980 (“the 1980 Act”) and CPR rule 17.4(1) and (2), the court had no jurisdiction to allow the amendment if it added a new claim which introduced a new cause of action, unless the new cause of action arose out of the same facts, or substantially the same facts, as were already in issue on any claim previously made in the action.

[3]The judge dealt with this question in the judgment which he handed down on 18 December 2015, after a three week trial in May 2015. He held that the amendment did not introduce a new claim, and (even if it did) that it arose out of substantially the same facts as the original claim. On the footing that he therefore had a discretion to exercise, the judge then held that the amendment ought to be permitted, in particular because “no prejudice … whatsoever” to the defendant had been shown.

[4]The defendant now appeals to this court on the amendment issue, with permission granted by Gross LJ on 18 May 2016. Gross LJ refused permission to appeal on the numerous factual issues, and issues of foreign law, which the defendant wished to challenge, and his refusal was upheld on a renewed oral application which was heard by David Richards LJ on 14 July 2016 (“the Renewal Application”).

[5]In addition, Gross LJ granted the defendant permission to appeal from two of the declarations (1 and 5) made by the judge in his order made on 20 January 2016 (“the Order”) after a hearing to deal with consequential matters. The parties have since been able to reach agreement on the disputed wording of declaration 1, but the appeal on declaration 5 remains in issue.

Background

[6]The claimants, Blue Tropic Limited and Coppella Ventures Limited, are non-trading holding companies incorporated in the British Virgin Islands. The shares in these companies were at all material times registered in the name of the trustees of the Nile Trust. The class of beneficiaries under the Nile Trust had at all material times only one member, Arkadi Patarkatsishvili (“Mr Patarkatsishvili”, also known as “Badri”), a wealthy Georgian businessman and politician who died in February 2008.

[7]The defendant, Ivane Chkhartishvili (also known as “Vano”), is another Georgian businessman and politician, who was a business associate of Mr Patarkatsishvili. At all material times the claimants were controlled by the defendant, Vano, and were used to hold a number of assets (“the Assets”), comprising shares in Georgian companies and Georgian real estate, in which Mr Patarkatsishvili had allegedly invested and which, on the claimants’ case, he and Vano had agreed should be managed and developed by Vano and then sold, with any profits on sale being split between them. As the judge held, Vano had (and reasonably believed himself to have) full power to control or dispose of the Assets, including the power to transfer them to new holding companies: see the judgment,

[2015] EWHC 3640 (Ch)

, at [194], [195] and [224].

[8]Apart from one asset that was sold during Mr Patarkatsishvili’s lifetime, at various times from 2006 to 2008 the defendant caused the Assets to be transferred from the claimants to different holding companies that were ultimately beneficially owned by him. It is not in dispute that these transfers were made, and that the defendant is the ultimate beneficial owner of the recipients. In relation to most of the Assets, the defendant’s instructions and the consequent transfers took place a few weeks after Mr Patarkatsishvili’s death.

[9]In 2013, the claimants commenced the present proceedings against Vano, who was then living in London. It is common ground that the claim is governed by Georgian law, or would be so governed if any claim against the defendant could be established. Article 992 of the Civil Code of Georgia, in English translation, states that:

“A person who causes harm to another person by unlawful, intentional or negligent action shall be bound to compensate the latter for his harm.”

Article 992 is headed “Concept”, and is the first of a number of general provisions in the part of the Georgian Civil Code which deals with delict, or in English terminology tort. Article 1008, headed “Limitation period on claim for damages”, provides that:

“The limitation period on a claim for damages resulting from a tort is three years from the moment at which the victim became aware of the harm or [the identity of] the person liable for compensation of the harm.”

The English translations which I have quoted are taken from the version supplied in our bundle of authorities. There is no official English translation, and the text of those articles used at trial differed in various respects, no doubt reflecting the preferences of the two expert witnesses on Georgian law. For present purposes, nothing turns on the precise wording of either article.

[10]It is convenient at this point to introduce the two expert witnesses. The claimants’ expert, Professor Dr Rolf Knieper, is a retired German law professor, who in 1993 was appointed by the Georgian government as a member of the official working group charged with drafting a new Georgian Civil Code. The reason for his appointment was that Georgia had decided that its new Civil Code should be based on Western European, and predominantly German, laws. He prepared the first draft of the Georgian Civil Code in German, and he says that it was inspired by the German Civil Code.

[11]The defendant’s expert, Professor W E Butler, is an equally distinguished American professor of law, who for nearly half a century has advised on, and given formal legal opinions with respect to, all aspects of the law of Georgia and other Soviet and post-Soviet republics.

[12]A further protagonist whom I need to mention is Giorgi Kavtaradze, a Georgian lawyer, who had been given wide-ranging powers of attorney by the claimants and was also regularly instructed by the defendant.

The claim as originally pleaded

[13]Before the application to amend with which we are concerned, the claimants’ basic claim against the defendant was pleaded as follows in the particulars of claim:

“6. Georgian law governs the subject matter of this claim. In respect of the transactions carried out without authority, and breaches of duty by Mr Kavtaradze set out below, which were unlawful, [Vano] caused Mr Kavtaradze to take such actions. 7. By reason of having caused the same unlawfully, intentionally or negligently, [Vano] is liable under the provisions for delictual obligations (torts) in Article 992 and/or 998 of Chapter 1 of Section 3 of the Civil Code of Georgia, and is accordingly liable (including by reason of Article 408(1)) to compensate the Claimants for the harm thereby caused and pay damages accordingly.”

[14]It can be seen, therefore, that the claim was put on the basis that Vano caused Mr Kavtaradze to effect the transfers of the Assets without authority from the claimants, and in breach of the duties which Mr Kavtaradze owed to the claimants as their attorney. It was alleged that, by causing Mr Kavtaradze to act in this way, Vano “unlawfully, intentionally or negligently” caused harm to the claimants, for which he was liable to compensate them under article 992. The gist of the unlawful conduct alleged against the defendant was his procurement of Mr Kavtaradze to breach his own duties to the claimants, by implementing transfers of the Assets on the instructions of the defendant and without the claimants’ authority.

[15]The reason why the claim was originally pleaded in this way, it may be surmised, is that on one view of Georgian law article 992 could not alone ground liability in delict, and the impugned action of the defendant had to be unlawful under some other provision of Georgian law. This was, in fact, the position consistently maintained by Professor Butler. For example, in paragraph 54 of his first report, dated 27 February 2015, Professor Butler said:

“In order to show that there was unlawful action, the Claimant companies would have to show that Vano did something that was unlawful by reference to some provision of the Civil Code (which would obviously not include Article 992 itself). As I understand it, the Claimants contend that the unlawful action was a violation by Mr Kavtaradze of his contract of commission in violation of Article 712 or 713 of the Civil Code.”

[16]Vano’s primary defence to this claim was that he had at all material times been the beneficial owner of the claimant companies. In paragraphs 4 and 5 of his defence, he pleaded the circumstances which had allegedly led to this result. In paragraph 6, he pleaded in the alternative that the Assets were held by the claimants on trust for him. He then denied (in paragraph 8) paragraph 7 of the particulars of claim, saying that if (which he denied) Mr Kavtaradze had acted in any respect unlawfully or in breach of duty under Georgian law, he (Vano) had not caused any harm to the claimants as alleged, and any such alleged breach was in any event incapable as a matter of law and/or fact of giving rise to a cause of action under article 992. In paragraph 9, Vano said that any claim for damages would anyway be time barred by virtue of article 1008.

[17]In relation to the alleged transfers of the Assets, Vano essentially admitted that they had taken place, but denied that Mr Kavtaradze had acted in breach of duty, on the footing that he acted in accordance with instructions received from Vano, and was entitled to regard those instructions as the instructions of the claimants and/or the beneficial owner of the Assets. Vano relied on his alleged beneficial ownership of the Assets, and said that he was entitled to give instructions to Mr Kavtaradze on the claimants’ behalf.

[18]Consistently with his defence, Vano counterclaimed for a declaration that he had at all material times been the beneficial owner of the claimants, and for associated relief.

[19]Professor Butler’s view of the effect of article 992 as a matter of Georgian law was not shared by the claimants’ expert, Professor Knieper. In his first report dated 24 February 2015, Professor Knieper addressed the question whether the claimants had an actionable claim against the defendant. After setting out the wording of article 992, he said:

“84. I give my answer to this issue based on the facts alleged by the Claimants. A person who instructs an agent of another person, i.e. not his own agent, to execute transactions, which deprive the principal of its property and lead to a loss of value, causes harm to that latter person. 85. A person that instigates an attorney to misuse his power by acting against the interests of his principal and thereby against his legal obligations acts unlawfully.”

[20]As Professor Knieper subsequently made clear, in the experts’ joint memorandum dated 13 March 2015, he disagreed with Professor Butler’s view that an actionable breach of article 992 had to be founded on a breach of duty by Mr Kavtaradze. In his second report, dated 30 March 2015, Professor Knieper expressly stated his view that the claim was based on Vano’s own conduct, and not on the “contribution by Mr Kavtaradze”. He then said:

“39. The Claimants allege that the Defendant intentionally instigated Mr Kavtaradze to abuse his power of attorney and execute transactions which inflicted damage to their property. It is not to the legal experts to determine whether these facts are evidenced. If they are and if the Claimants’ assumptions were correct, the Defendant’s conduct would have caused harm which was neither authorised nor covered by any legal norm. The requirements of Article 992 would be met and the Defendant’s conduct would give rise to a claim in tort irrespective of Mr Kavtaradze’s type of involvement.”

[21]For his part, Professor Butler adhered firmly to his original view, saying in paragraph 16 of his second report, dated 27 March 2015:

“If Mr Kavtaradze did not commit an unlawful act and was not instructed to do so, Article 992 was not engaged.”

The amended claim

[22]It was against this background that, on Friday 24 April 2015, the claimants applied to the judge for permission to re-amend the particulars of claim so as to introduce the amendments which are now in issue. The proposed amended text of paragraphs 6 and 7 (ignoring the deletions) reads as follows:

“6. Georgian law governs the subject matter of this claim. 7. By procuring that assets of which he was not the owner (whether directly or indirectly), and of which he had no other entitlement to possession, were transferred to companies beneficially owned or controlled by him, as set out below, alternatively by reason of having caused Mr Kavtaradze to act without authority or in breach of duty in executing such transactions, [Vano] unlawfully, intentionally or negligently caused harm to the Claimants and is therefore liable under the provisions for delictual obligations (torts) in Article 992 of Chapter 1 of Section 3 of the Civil Code of Georgia. He is accordingly liable (including by reason of Article 408(1)) to compensate the Claimants for the harm thereby caused and pay damages accordingly.”

[23]The proposed re-amended claim was therefore put in two alternative ways:(1) first, by procuring that assets of which he was not the owner and of which he had no other entitlement to possession were transferred to companies beneficially owned or controlled by him, Vano unlawfully, intentionally or negligently caused harm to the claimants (“the direct claim”); or

(2) secondly, by reason of having caused Mr Kavtaradze to act without authority or in breach of duty in executing such transactions, Vano unlawfully, intentionally or negligently caused harm to the claimants.

[24]The second of these formulations was in substance the same as the original claim. The direct claim, however, was new. Its purpose, as Mr Smouha QC (appearing, then as now, with Mr Watson Pringle for the claimants) explained to the judge, was to ensure that the claimants’ pleading conformed with the evidence of their expert on Georgian law. In response to a comment from the judge that this had “all come rather late”, Mr Smouha submitted that the amendments did not add a cause of action which would result in the need for further expert evidence, but made it clear that the claimants would not object to Professor Butler being given an opportunity to say something more on the subject if he wished to.

[25]In opposing the application, Mr Jonathan Crow QC (who then appeared with Mr Midwinter and Mr Leith for the defendant) submitted that the claimants were clearly seeking to introduce a new claim based on a new assertion of Georgian law. He submitted that the particulars of claim, as they stood, were entirely predicated on a breach by Mr Kavtaradze, whereas the direct claim would introduce a freestanding claim against Vano without any breach by Mr Kavtaradze. He further submitted that the direct claim was itself deficient as a pleading, because it did not explain why and in what respect Vano would be acting unlawfully. He also argued that the claim had been founded, since its inception, on Georgian law, and that this alternative way of putting the case should have been pleaded from the outset.

[26]After some further debate, the judge said that he would grant permission to amend, but without prejudice to any argument that might be raised at trial that the amendment should be disallowed because it was time-barred. Both parties were content for the judge to proceed in this way, and neither counsel requested the judge to give a formal ruling when he offered them the opportunity to do so. In my judgment this was clearly a sensible way to proceed, because the question whether or not the claim was time-barred could not be determined until the evidence had been heard at trial, and neither side was suggesting that the trial would have to be adjourned if permission to amend were granted on that provisional basis.

[27]Further supplemental reports were then put in by the experts. It is unnecessary for me to refer to them in any detail, as they each maintained their previous positions. Consequential further amendments were also made to Vano’s defence. The only one that I need to mention is that, by way of response to the direct claim, Vano denied that he was not the indirect owner of the Assets and/or that he was not entitled to possession of them. He also denied that his alleged actions were capable in law or fact of giving rise to a cause of action under article 992: see paragraph 8(b) of the re-re-amended defence and counterclaim.

The trial and the judgment

[28]The trial was a trial on liability only, pursuant to directions given by Newey J on 7 July 2014. It took place between 6 and 22 May 2015. The judge handed down his judgment, as I have already said, on 18 December 2015. Vano gave evidence over four days, and was extensively cross-examined by Mr Smouha QC. The judge was highly critical of his evidence, and rejected his defence that he was the beneficial owner of the claimants or the Assets.

[29]The judge gave a helpful summary of the facts, as he found them, at [178] to [184] of his judgment. The judge said he rejected Vano’s case as to all of his arrangements. The judge determined that the Assets were held by the claimants, and that the shares in the claimants ultimately belonged to Mr Patarkatsishvili via the Nile Trust. Vano had the power to deal with the Assets, but only on behalf of Mr Patarkatsishvili pursuant to the arrangements made between them. When Mr Kavtaradze and Mr Baker (an English solicitor and professional trustee who effectively controlled the Nile Trust) received instructions from Vano regarding disposal of the Assets, they thought they were doing nothing more than implementing those arrangements. They were unaware, when Vano was giving instructions, that “it was part of his design to expropriate the assets for himself”. Nor was there anything to put them on enquiry.

The judge then said:

“182. It follows therefore that I determine that Vano has wrongfully taken the assets for himself. In English law that would be an act of conversion. There is however no proprietary claim in this action. Nor is there an English cause of action. It must be shown that (1) Vano’s action is wrongful and (2) any claim in respect of such alleged wrongful acts is not barred under the limitation procedures in Georgia. Third as I shall set out below it must be shown that under CPR 17 the amendments which I granted in April 2015 can be relied upon by the Claimants. 183. In addition to the above I determine that neither Mr Baker nor [Mr Kavtaradze] acted in breach of any of the duties that they owed to the Claimants. 184. The result of those findings in my view is that the Claimants can only win this action if they can demonstrate that Vano acted in breach of some duty and that that claim is open to them in Georgian law and (importantly) on their pleaded case.”

[31]The judge went on, at [185] to [195], to reject the claimants’ claim as it had originally been formulated, i.e. the alternative claim under the amended paragraph 7 of the particulars of claim. This followed from the judge’s finding that there was no breach by Mr Kavtaradze of any duties which he owed to the claimants. As the judge put it, in [193]:

“What happened here is that Vano was the manager. As such he had the power to direct and [Mr Kavtaradze] and Mr Baker had the obligation to implement what he directed them to do. However, Vano’s wrong is not in telling them to do things which he had authority to do but is in misappropriating the assets for his own benefit once those directions are implemented. The consent of the Claimants to my mind is irrelevant.”

The judge added, at [194]:

“Equally I reject the submission … that Vano was or reasonably believed himself to be the beneficial owner of the Claimants. He reasonably believed himself at times to have the power of control or disposition of assets. That is not however the point; he was not entitled by exercising that power to arrogate for his own benefit the assets over which he had the managerial control.”

[33]Accordingly, as the judge expressly recognised at the end of [195], the claimants’ only surviving claim was that set out in the direct claim, namely a direct tortious claim against Vano.

[34]The judge then reviewed the expert evidence. On the question of unlawfulness in article 992, the judge preferred the evidence of Professor Knieper to that of Professor Butler, whose views the judge thought were coloured by the law of the previous Soviet era which made him unable to accept that the Code “intended to create a freestanding cause of action” in article 992: see [212]. The judge identified the unlawfulness of Vano’s conduct as lying in the use of his power over the Assets to appropriate them for his own use and benefit: [208]. Vano cannot have misunderstood what the true position was, and there was therefore “no room for any alleged honest belief that he was the owner”: [209].

[35]Having accepted Professor Knieper’s view that the kind of unlawfulness required by article 992 is that the person in question is doing something which he is not entitled to do (see [214]),

the judge expressed his ultimate conclusion as follows, at [218]:

“218. I therefore conclude that the Claimants have established that they have a claim against Vano for the misappropriation of assets that belonged to them contrary to Article 992. In fact for the reasons I have set out earlier in this judgment that cause of action is a freestanding one and does not require breaches of duty by [Mr Kavtaradze] for example. Thus the claim that is successful is the one that was produced by amendment in April this year.”

[36]The judge also rejected Vano’s limitation defence based on article 1008, because there had been nothing to put Mr Kavtaradze or Mr Baker on enquiry in 2007 and 2008, and they neither knew nor ought to have known that there was anything wrong in Vano’s instructions which led to the transfer of the Assets. The mere fact that the transfers were for no consideration did not in the judge’s view suffice to put them on enquiry, because the purpose of the transactions might have been to protect the Assets from political or government interference.

[37]The judge dealt with the amendment issue at [242] to [248]. He began his analysis as follows:

“242. The surviving claim in this action is the direct claim against Vano under Article 992. That arose by an amendment in April 2015. Applying the Georgian limitation law the claim would be time-barred if the requirements of Article 1008 were satisfied more then 3 years before April 2015 i.e. April 2012. The Claimants accept that they had knowledge of Vano having harmed them in February 2010. It follows therefore that if it is a new claim the cause of action is time-barred in April 2015 and the amendment should not be allowed because the amendment ordinarily relates back to the commencement of the action and it would not be time-barred at that time. That is why in April it was agreed that I would allow the amendment without prejudice to the ability of the Defendant to challenge this point. 243. It seems to me that I apply the practice of this Court in dealing with limitation issues but I apply the Georgian law of limitation. 244. The Defendant contends that it is a new claim and would be so regarded under English law. The amendment makes, the Defendant contends, a new previously un-pleaded allegation that Vano acted unlawfully by taking the property he did not own.”

[38]The judge then said he did not accept that the direct claim was a new claim. In his view the original claim brought by the claimants was for a breach of article 992, and “that is the same now”. All that had happened was that the claimants had introduced “further particulars of the breach of Article 992”, and this was accordingly no more than “the addition of another way in which the Claimants seek to establish a breach of Article 992”: see [245].

[39]If he was wrong about that, and there was a new claim, the judge went on to consider whether it arose out of the same facts or substantially the same facts as the original claim. The judge held that this test was satisfied, saying at [246]:

“I cannot see there are any facts that are different. All that has happened is that the Claimants have removed in the alternative plea the necessity to establish a breach of duty by [Mr Kavtaradze]. The actions of Vano are precisely the same namely that he had no entitlement to the assets. That is still the same issue to be gone into and turns entirely on whether or not Vano establishes his entitlement. It arises out of substantially the same facts in my view. There is no prejudice to the Defendant (beyond the loss of a limitation claim) and the refusal would deprive the Claimants of a successful claim.”

[40]The judge then proceeded to consider the exercise of his discretion, but I will defer consideration of that issue until I have ruled on the question whether he was right to conclude as he did in [245] and [246]. If he was not correct, he had no jurisdiction to allow the amendment and the question of discretion does not arise.

The law

[41]Section 35 of the 1980 Act provides: “(1) For the purposes of this Act, any new claim made in the course of any action shall be deemed to be a separate action and to have been commenced –(a) …

(b) in the case of any other new claim, on the same date as the original action. (2) In this section a new claim means any claim by way of set-off or counterclaim, and any claim involving either – (a) the addition or substitution of a new cause of action; or (b) the addition or substitution of a new party; … (3) Except as provided by section 33 of this Act or by rules of court, neither the High Court nor any County Court shall allow a new claim within subsection (1)(b) above, other than an original set-off or counterclaim, to be made in the course of any action after the expiry of any time limit under this Act which would affect a new action to enforce that claim. … (4) Rules of court may provide for allowing a new claim to which subsection (3) above applies to be made as there mentioned, but only if the conditions specified in subsection (5) below are satisfied, and subject to any further restrictions the rules may impose. (5) The conditions referred to in subsection (4) above are the following – (a) in the case of a claim involving a new cause of action, if the new cause of action arises out of the same facts or substantially the same facts as are already in issue on any claim previously made in the original action; and (b) …” (b) in the case of any other new claim, on the same date as the original action. … … (a) in the case of a claim involving a new cause of action, if the new cause of action arises out of the same facts or substantially the same facts as are already in issue on any claim previously made in the original action; and

[42]CPR rules 17.4(1) and (2) provide: “(1) This rule applies where –(a) a party applies to amend his statement of case in one of the ways mentioned in this rule; and

(b) a period of limitation has expired under – (i) the Limitation Act 1980; or (ii) the Foreign Limitation Periods Act 1984; or (iii) … (2) The court may allow an amendment whose effect will be to add or substitute a new claim, but only if the new claim arises out of the same facts or substantially the same facts as a claim in respect of which the party applying for permission has already claimed a remedy in the proceedings.” (a) a party applies to amend his statement of case in one of the ways mentioned in this rule; and

[43]It follows from the combined effect of the above provisions that the court may not allow an amendment to add a new claim after the expiry of any relevant limitation period which introduces a new cause of action, unless the new cause of action arises out of the same facts or substantially the same facts as are already in issue on any claim previously made in the original action.

[44]Accordingly, the first two issues that arise are:(1) did the direct claim introduce a new cause of action? and

(2) if so, did the new cause of action arise out of the same facts or substantially the same facts as were already in issue on the claim as pleaded before the proposed re-amendment?

Issue (1): did the direct claim introduce a new cause of action?

[45]There was no disagreement between the parties about the basic definition of a cause of action. In Cooke v Gill (1873) 8 CP 107, Brett J said at 116:

““Cause of action” has been held from the earliest time to mean every fact which is material to be proved to entitle the plaintiff to succeed - every fact which the defendant would have a right to traverse.”

In Paragon Finance Plc v D B Thakerar & Co

[1999] 1 All ER 400

(CA), Millett LJ (with whom Pill and May LJJ agreed) quoted this “classic definition” at 405, emphasising the words “which is material to be proved”. Millett LJ also quoted the more recent definition offered by Diplock LJ in Letang v Cooper

[1965] 1 QB 232

at 242-243:

“A cause of action is simply a factual situation the existence of which entitles one person to obtain from the court a remedy against another person.”

[46]Millett LJ continued, at 405f:

“I do not think that Diplock LJ was intending a different definition from that of Brett J. However it is formulated, only those facts which are material to be proved are to be taken into account. The pleading of unnecessary allegations or the addition of further instances or better particulars do not amount to a distinct cause of action. The selection of the material facts to define the cause of action must be made at the highest level of abstraction.”

[47]In Savings and Investment Bank Ltd v Fincken

[2001] EWCA Civ 1639

, apparently unreported, Peter Gibson LJ (with whom Robert Walker and Keene LJJ agreed) said of the exercise which is required by section 35 of the 1980 Act, at [30]:

“As I see it, the exercise which is required is the comparison of the pleading in its state before the proposed amendment and the pleading in its amended state … What must be examined is the pleading of the essential facts which need to be proved. To define the cause of action the non-essential facts must be left out of account as mere instances or particulars of essential facts. That is what I understand Millett LJ to have meant by stating that the selection of material facts must be made at the highest level of abstraction. Thus, to take the example provided by the facts in Letang v Cooper … the facts material to be proved to constitute the cause of action for trespass to the person did not include whether the trespass was intentional or unintentional.”

[48]Although not cited to us by either side, I also find it helpful to have in mind some observations made by Robert Walker LJ, albeit obiter, in Smith v Henniker-Major & Co

[2002] EWCA Civ 762

[2003] Ch 182

, at [94] to [96]. After referring to the definitions of “cause of action” in Cooke v Gill and Letang v Cooper, Robert Walker LJ continued:

“95. I have to say that in the context of section 35 of the Limitation Act 1980 I am uneasy about the process of lifting either of these classic definitions out of the legal lexicon, as it were, and reading them into the language of section 35(5)(a). The notion of “a factual situation” which “arises out of the same facts or substantially the same facts” as another set of facts is not an easy one to grasp. Probably the answer lies in Millett LJ’s observation, in Paragon Finance Plc v D B Thakerar & Co [1999] 1 All ER 400, 405: “The selection of the material facts to define the cause of action must be made at the highest level of abstraction”. 96. So in identifying a new cause of action the bare minimum of essential facts abstracted from the original pleading is to be compared with the minimum as it would be constituted under the amended pleading. But in applying section 35(5)(a) the court is concerned on a much less abstract level with all the evidence likely to be adduced at trial: see Goode v Martin [2002] 1 WLR 1828, 1838, approving Hobhouse LJ’s observation in Lloyds Bank Plc v Rogers The Times, 24 March 1997; Court of Appeal (Civil Division) Transcript No. 1904 of 1996: “The policy of the section is that, if factual issues are in any event going to be litigated between the parties, the parties should be able to rely upon any cause of action which substantially arises from those facts.””

[49]What, then, are the essential facts which needed to be proved by the claimants under the claim as it stood before amendment? Since the claim was brought exclusively under Georgian law, it is in my judgment necessary to answer this question by reference to the requirements of Georgian law as they were found to be by the judge, rather than as they might have been apprehended to be by the claimants when the claim was first formulated. Conceptually, this must in my judgment be the right way to proceed; nor does it involve any unfairness to Vano, because he has been refused permission to appeal on all issues of Georgian law, first on paper and then at the Renewal Hearing.

[50]According to Professor Knieper, in paragraph 7 of his final report dated 29 April 2015, a claim under article 992 has five cumulative requirements:(a) a person,

(b) causes,

(d) unlawfully,

(e) intentionally or negligently. In relation to element (b), causation, Professor Knieper identified the causing act as Vano’s instruction of Mr Kavtaradze to execute the relevant transactions. It is not necessary that Mr Kavtaradze’s conduct should itself have been unlawful. In relation to element (d), Professor Knieper said that “[d]amage will be caused unlawfully when a person takes property from the owner without being entitled or authorised to do so”. In relation to element (e), Professor Knieper said that if Vano knew that he was not the beneficial owner of the Assets, his conduct “would qualify as causing harm intentionally”.

[51]Paragraph 7 of Professor Knieper’s final report, which I have just summarised, was quoted in full by

the judge in [201], and in [202] he said:

“It seems to me that those five requirements are all made out.”

As I have explained, the judge also agreed with Professor Knieper that article 992 created a freestanding cause of action and did not depend on establishing unlawful conduct by Mr Kavtaradze or anyone else apart from Vano himself.

[52]I have set out at [13] above how the claim against Vano was pleaded before amendment. It was unambiguously intended to be a claim under article 992. Of the five requirements for such a claim identified above, no difficulty is presented by elements (a), (b), (c) or (e). At a minimum, the claimants clearly had to prove that Vano, by procuring Mr Kavtaradze to effect the transfers, caused damage to the claimants by taking their property in circumstances where he had no right to do so, and that he did this intentionally. As to element (d), unlawfulness, the pleading clearly recognised that this too had to be established. The way in which the claimants hoped to do so was by proving that Mr Kavtaradze’s acts were themselves unlawful, and that by procuring those unlawful acts Vano had himself acted unlawfully.

[53]As a matter of Georgian law, the attempt to establish unlawfulness in this way was doomed to failure, because as the judge found at [189] “there is no tort in Georgia of inducing a person to breach his duty”. Furthermore, there was no need to establish wrongdoing on the part of Mr Kavtaradze, because (as the judge again found) article 992 creates a freestanding cause of action. This does not mean, however, that the claimants failed to plead a cause of action at all. They merely made a mistake about one of the legal requirements of the cause of action. Moreover, the mistake was on any view an excusable one, because it had the support of Vano’s own expert, Professor Butler. The claimants had plainly undertaken to prove that Vano acted unlawfully. The mistake which they made was merely about how this could be established.

[54]I now turn to the amended pleading, which I have already set out in [22]. In short, it introduced the direct claim as an alternative to the claim as originally pleaded. The essential difference between the two ways of putting the claim lay in the removal of any allegation that Mr Kavtaradze had himself acted without authority or in breach of duty when executing the transactions. Apart from that, the five constituent elements of the claim remained the same. There was, however, one crucial respect in which the amended pleading remained deficient. It did not explain on what factual basis Vano was alleged to have acted unlawfully in procuring the transfers of the Assets, given the extensive powers of disposal over the Assets which he enjoyed under his arrangements with Mr Patarkatsishvili. The significance of this point only fully emerged during the course of the trial, and the judge ultimately resolved it by finding that the requirement of unlawfulness was satisfied by Vano’s intention to take the Assets for his own benefit. The judge was satisfied that this dishonest intention sufficed to make Vano’s conduct unlawful within the meaning of article 992. To the extent that this was a finding of Georgian law, Vano must now accept it having been refused permission to appeal on all questions of Georgian law.

[55]In my view this lack of clarity in the amended pleading is important, because it tends to conceal the true significance of the amendment. Although the requirement of unlawfulness remained unchanged, the way in which the claimants had to establish it changed radically. Under the unamended pleading, the primary focus was on the lawfulness or otherwise of Mr Kavtaradze’s actions in implementing the transfers, and the relevance of Vano’s own actions lay merely in the fact that he procured Mr Kavtaradze to act as he did. By contrast, under the direct claim introduced by amendment, Mr Kavtaradze’s actions receded into the background as the actions of an authorised agent, and the primary focus was instead on the intention with which Vano procured Mr Kavtaradze to act as he did. In order to render Vano’s conduct unlawful, that intention had to be no less than an intention by Vano to deprive the claimants of their beneficial ownership of the Assets, and to take them for himself. As such, the requisite intention was essentially dishonest. As the judge said at [208], it was “deliberate misappropriation of the Claimants’ property for his own benefit”. The judge added, at [209], that there was “no room for any alleged honest belief that he was the owner”.

[56]The argument for Vano then proceeds as follows. The requirement of unlawfulness under the direct claim could only be satisfied by proving a dishonest intention on the part of Vano. Such an intention formed no part of the claim under article 992 as originally pleaded. As Lord Millett said in the Paragon case, at 406c:

“In my judgment, it is incontrovertible that an amendment to make a new allegation of intentional wrongdoing by pleading fraud, conspiracy to defraud, fraudulent breach of trust or intentional breach of fiduciary duty where previously no intentional wrongdoing has been alleged constitutes the introduction of a new cause of action.”

Once the implications of the direct claim are unpacked, it becomes clear that personal dishonesty on the part of Vano was an essential ingredient of the claim. The same was not true of the original claim. It follows that the direct claim introduced a new cause of action.

[57]The claimants advance two main arguments in opposition to this analysis. The first argument is that the introduction of the direct claim merely clarified, and simplified, their existing case. The need to plead and establish unlawfulness was recognised from the beginning. All that changed was the way in which they sought to establish the unlawfulness of Vano’s acts. Under the claim before it was amended, the alleged unlawfulness lay in the instructions which he gave to Mr Kavtaradze to breach the duties which Mr Kavtaradze owed to the claimants, by effecting the transfer of the Assets for no consideration to companies beneficially owned and controlled by Vano. Moreover, say the claimants, Vano clearly understood that this was the basis of the unlawfulness alleged against him, because his primary defence was that he was the beneficial owner of the Assets and the shares in the claimants. This defence raised the main factual issues in the case, and the great majority of the evidence, and the time taken up at trial, was directed to their resolution.

[58]Against this background, the claimants submit, the direct claim did no more than reduce the pleaded elements of the delict. Under the direct claim, it was no longer necessary to consider whether Mr Kavtaradze had breached his own duties to the claimants, and the court only had to consider the conduct of Vano himself, asking whether there was any lawful basis for the transfers which he procured. The claim was thus simplified, buts its essential nature remained unchanged.

[59]This argument raises the question of the level of generality at which it is appropriate to compare the claims before and after amendment. According to the claimants, it is enough that the essential ingredient of unlawfulness was present throughout, and all that changed was the way in which it was formulated. Some support for this approach may be found in the principle, cited above, that the selection of the material facts to define the cause of action must be made at the highest level of abstraction, eliminating any facts which are not essential to the cause of action. In my judgment, however, the claimants’ analysis stops one stage too soon, because it fails to recognise the essential difference between the unlawfulness which was pleaded before amendment, and the unlawfulness which had to be established (even though not expressly pleaded) under the direct claim. As I have explained, the direct claim could only succeed if a dishonest intention on the part of Vano himself to misappropriate the Assets was established. Such an intention formed no part of the claim as originally pleaded. This difference was in my judgment fundamental, and even at the highest level of abstraction it cannot be ignored.

[60]As a matter of English law, an amendment which introduces a new allegation of intentional wrongdoing constitutes the introduction of a new cause of action: see the passage from the judgment of Millett LJ in the Paragon case cited at [56] above. It cannot make any difference to the application of this principle, in my view, that the necessary ingredients of this intention were not expressly pleaded in the direct claim, as they should have been. This might have been an additional reason for refusing the claimants permission to rely on the direct claim, once the need for them to rely on Vano’s own dishonest intention had emerged in the course of the trial. But since the judge was not asked to strike out the direct claim on that basis, the court has to analyse the direct claim by reference to the minimum essential facts which were ultimately found by the judge to support it.

[61]For these reasons, I would reject the claimants’ first main argument.

[62]The claimants’ second main argument is that Vano’s dishonest intention to misappropriate the Assets arose not as part of the direct claim against him, but rather as part of a potential defence which the judge considered in his judgment, even though it had not been run by Vano. As set out in the skeleton argument of Mr Smouha QC and Mr Pringle, the argument runs as follows. The claimants knew, because it was documented, that the Assets were held in a trust established and controlled by Mr Patarkatsishvili; that Mr Patarkatsishvili had paid for them; and that, after his death, they had been transferred to companies owned by Vano, without Vano providing any consideration for the transfers. The claimants also knew that Vano had carried out the transfers without telling Mr Patarkatsishvili’s heirs. On the basis of that knowledge, it was the claimants’ case that the transfers were unlawful, and that by carrying them out Vano had intentionally caused them harm.

[63]The next step in the argument is that, as the judge found, “unlawful” in the context of article 992 means “without lawful excuse”. I interpose that, although the judge did not (I think) use those actual words, I would accept that his finding was to that general effect: see, in particular, the judgment at [214], where

the judge said:

“It seems to me that Professor Knieper is actually indicating that there must be some kind of unlawfulness in the sense that the person is doing something which he is not entitled to do.”

Accordingly, say the claimants, they were not obliged, in order to plead the negative proposition that there was no lawful basis for the transfers, to set out and analyse all the possible justifications that might be advanced by Vano, and to explain why they did not render his actions lawful. Rather, it was for Vano to justify his conduct, not least because he was the only living party to any agreement between himself and Mr Patarkatsishvili, and therefore the only person who knew its terms. The sole justification which Vano chose to provide was his beneficial ownership defence. He had no alternative position.

[64]The difficulty with this argument, in my judgment, is that it seeks to elide the unlawfulness which the claimants had to establish with the main defence which Vano chose to run to the claim both before and after its amendment. The argument also seems to me to elide the question of unlawfulness with the separate requirement that the damage to the claimants had to be caused intentionally, that is to say element (e) in Professor Knieper’s analysis referred to at [50] above. In view of the judge’s findings of fact, the critical requirement of unlawfulness could only be satisfied by establishing Vano’s dishonest intention to misappropriate the Assets. The fact that he arranged for the Assets to be transferred to companies under his control for no consideration was not, by itself, enough, because such actions (without more) fell within the scope of his arrangements with Mr Patarkatsishvili. Indeed, it was precisely for this reason that Mr Kavtaradze and Mr Baker were not (as the judge found) put on enquiry, and the limitation defence under Georgian law therefore failed.

[65]Vano chose to run a defence which, had he made it good at trial, would have provided a complete answer to the claim against him. In particular, it would have negated the separate requirements of unlawfulness and intention which are essential to a claim under article 992. In fact, the defence failed, and in the light of the judge’s findings Vano must have advanced it dishonestly. None of this, however, detracts from the fact that the claimants still had to establish unlawfulness as an essential ingredient of their article 992 claim. This could only be done, as I have sought to explain, by establishing a dishonest intention by Vano to misappropriate the Assets. Such an intention formed no part of the claim as originally formulated, which relied on Vano’s procurement of allegedly unlawful conduct by Mr Kavtaradze. Such an intention was, however, essential to the eventual success of the direct claim.

[66]For these reasons, I would also reject the claimants’ second main argument.

[67]My rejection of these arguments also means that I am respectfully unable to agree with the judge’s view, at [245], that the direct claim was not a new claim because it merely introduced another way in which the claimants sought to establish a breach of article 992. In my judgment, there is no escape from the conclusion that, as a matter of English law, the direct claim introduced a new cause of action. Issue (2): did the direct claim arise out of the same facts or substantially the same facts as were already in issue?

[68]I can deal with this issue briefly, because if my answer to issue (1) is correct, it must follow that the direct claim did not arise out of the same facts or substantially the same facts as were already in issue. Vano’s dishonest intention to misappropriate the Assets had not been in issue before the amendment, whereas it formed an essential part of the direct claim, and without it the direct claim would have failed. In principle, the necessary ingredients of the alleged dishonesty should have been pleaded, with full particulars of all facts and matters relied upon in support of the allegation. Had this been done, the radical difference between the case as originally pleaded and the direct claim would have been more readily apparent than it is from the minimalist amendments actually made.

[69]It is apposite in this context to quote from the judgment of Pill LJ in the Paragon case, at 420d-h:

“Where it is sought to add allegations of wrongdoing which is intentional, the position is in my judgment different. The change cannot be categorised as a technicality. I accept the submission made on behalf of the plaintiffs that the critical question is the extent to which the facts on which the new cause of action is based depart from those already pleaded (and not the seriousness of the new allegation). However, to allege that an injury is caused intentionally is to add a new allegation of fact which gives the allegations of fact as a whole a substantially different character … The addition of allegations of intentional wrongdoing take these cases beyond the power conferred by s 35(4) because the claims do not arise “out of the same facts or substantially the same facts”

. Upon the section as enacted, the reasoning is in a sense self-justifying because it is the allegation of intentional wrongdoing which makes the cause of action new for the purposes of s 35(5)(a) and it is the allegation of intentional wrongdoing which also prevents the claim arising out of the same or substantially the same facts for the purposes of the section. Upon analysis, however, reinforced by the common sense referred to by Chadwick J, the power in s 35(4) cannot be exercised in the plaintiffs’ favour in theses cases.”

[70]The reference to “common sense” is to an observation made by Chadwick J in the Thakerar case, which was one of the two separate cases considered by the Court of Appeal in Paragon. As Millett LJ said in Paragon at 418G:

“In the Thakerar case Chadwick J observed that it would be “contrary to common sense” to hold that a claim based on allegations of negligence and incompetence on the part of a solicitor involved substantially the same facts as a claim based on allegations of fraud and dishonesty. I respectfully agree. In all our jurisprudence there is no sharper dividing line that that which separates fraud and dishonesty from cases of negligence and incompetence.”

[71]The judge in the present case considered that the direct claim did not involve any different facts: see the judgment at [246], quoted at [39] above. This followed from his view that the direct claim did not introduce a new cause of action. Once it is recognised, however, that the direct claim did introduce a new cause of action, I am satisfied that the judge’s conclusion on this second question cannot stand, for the reasons given by Millett and Pill LJJ in Paragon.

Conclusion

[72]Since I have determined issues(1) and

(2) in Vano’s favour, it follows (if Arden LJ agrees) that the judge had no jurisdiction to allow the amendment introducing the direct claim, and the question of discretion does not arise. Since the question does not arise, I prefer to say nothing about it. Similarly, it is unnecessary for me to rule on the minor dispute between the parties about the wording of declaration 5. The claim succeeded on the basis of the direct claim alone. Since the judge should have refused the claimants permission to rely on the direct claim, it follows that the action must now be dismissed. Lady Justice Arden:

[73]I agree with the judgment of Henderson LJ, and in particular with his analysis at paragraphs 45 to 71 of his judgment.

[74]Mr Joe Smouha QC, for the respondents, in his skilful submissions explained that the motivation behind the application at trial to re-amend the amended particulars of claim was as follows. The original claim had alleged that Vano had committed a delict for the purposes of Article 992 of Chapter 1 of Section 3 of the Civil Code of Georgia by causing the transfers of the claimants’ assets away to Vano’s companies. However, their expert on Georgian law, Professor Knieper, opined that in his view it was not necessary to show a separate breach of duty by Mr Kavtaradze (“GK”) to establish a delict. It would be enough to show that he had transferred assets which did not belong to him. So the claimants sought to make this the basis of their primary claim so that the amendment was one “to remove the need to allege and prove a breach of duty by [GK]”.

[75]He characterised the change brought about by the amendment as a simple one, namely that before the amendment, the claimants’ case was that Vano had committed a delict by taking their assets and that he had done so through the means of causing GK to breach his duty. By contrast, after the amendment, the claimants were saying that Vano had taken their assets through the agency of GK, whether or not GK had acted in breach of duty. That meant that the new claim was the same as the old claim (which became the alternative claim), subtracting only the allegation about GK’s want of authority and breaches of duty.

[76]But, when the pleading is examined, in my judgment it is clear that the claim as it existed before the re-amendment was a claim that Vano had committed a delict simply because he had caused GK to act in breach of authority and duty. As Mr Smouha explains in his supplemental submissions, the primary case then was that Vano had acted intentionally in causing GK so to act, knowing that the transactions were unlawful and would cause the claimants damage. There was no mention of his having an intention to misappropriate Badri’s assets for his own benefit. On the judge’s reasoning, that intention was an essential element of the claim on which the claimants were successful.

[77]In my judgment, the new claim was not the old claim simply with the subtraction of one element. If it had been, then the greater would be likely to have included the lesser. The new claim was the old claim with that subtraction and also one material addition, namely the addition of the intention by Vano to misappropriate the assets transferred. As Mr Smouha’s supplemental submissions put it, this involved intention at an earlier stage in the analysis.

[78]Mr Smouha accepted in his submissions that the amendment could potentially have raised new issues if Vano had run a different defence. He described this as “the shortest answer to the appeal”. He submitted that the position was different because Vano had, unsuccessfully, sought to defend that action on the basis that he owned the assets. I do not accept this submission.

[79]As Henderson LJ explains, it was not enough that Vano had in his defence contended that he was lawfully entitled to the assets. The claimants had positively to prove as part of their own cause of action that he misappropriated the assets for his own benefit. Under the new claim that was the unlawful and intentional act which satisfied the requirement under Article 992 for such an act (or a negligent act). Accordingly it was an essential ingredient of their cause of action even if they did not explicitly allege it in their pleading.

[80]When Walker LJ in Smith v Henniker-Major & Co, in the passage cited by Henderson LJ at paragraph 48 above, refers to the process of comparing the essential facts as pleaded in the original pleading with those as it would be constituted under the amendment, he must in my judgment be read as including any such essential facts constituting the cause of action which were not pleaded but which ought to be pleaded.

[81]I therefore agree with the judgment of Henderson LJ and with the order that he proposes.